Assembly Standing Committee on Utilities and Energy

Good afternoon and welcome. I would like to convene today's hearing of the Assembly Committee on Utilities and Energy. Before we move to the agenda, I have a few housekeeping announcements to make. Today we have one measure on regular order of business, AB 1999.

Following that bill's hearing, we will briefly adjourn for five minutes, and then we will move on to our oversight hearing on the petroleum industry. Assembly Member Marc Berman will be substituting for Assembly Member Rebecca Bauer-Lahan in today's hearing. Thank you, Mister Berman, for joining us when you arrive.

I will maintain decorum during the hearing as is customary. In order to hear as much from the public within the limits of our time, we will not permit conduct that disrupts or otherwise impedes the orderly conduct of legislative proceedings. Any individual who is disruptive may be removed from the room.

As is customary, testimony will be limited to two witnesses in support, two witnesses in opposition. Each witness will receive two minutes to make your comments. For any additional witnesses on a measure, please only state your name, position, and affiliation, if any. All right, we do not have a quorum present, so we will go ahead and commence as a Subcommittee.

Assembly Member Irwin Good afternoon. We have one item on today's agenda, Assembly Bill 1999. Assembly Member Irwin, as you are ready. Just one second. We're having some technical difficulties. All right. Success. Thank you.

All right. Two years ago, tucked away in a budget trailer bill, AB 205 made a significant change to our state's utility policy, an income-graduated fixed charge fee.

Since 2015, the PUC has had the authority to establish a fixed charge fee, but they declined to do it until it was mandated in AB 205 without a single policy committee hearing or debate how this controversial policy passed. Meanwhile, we've watched the PUC allow our utility rates to skyrocket.

In 10 years, PG&E rates have gone up 127%, rates in Edison's territory, 91%, and 72% in SDG&E's. In February 2024, PG&E announced that its profits, its 2023 profits, had soared 24.6% higher than its 2022 profits, allowing its shareholders to pocket $2.24 billion.

That's money from hardworking Californians being sent to Wall Street. It's time to exercise our legislative authority over the PUC. Instead of granting them a blank check, we need to ask for accountability and look for other ways to achieve savings. That is the only way to actually help low-income residents and to move the bar forward on electrification. Just last week, the PUC rushed to pass the fixed charge fee of 20415 which is 2.2 times the national average.

And if you read the proposed decision, it is clear that this is just the beginning, an incremental step to a higher fee without instituting guardrails and checks and balances, the PUC will remain rubber stamp for the IOUS. 1999 will do three things. First, it will limit future increases to the fixed charge fee to the rate of inflation.

Second, it will require the PUC to report on a number of metrics, including whether or not it adversely impacts care program ratepayers, if the fee increases electrification rates, how it impacts energy conservation programs, and other possible outcomes of the PUC decision.

Finally, 1999 will enable the Legislature to extend authorization for the fixed charge fee and make adjustments if necessary based on the data provided to the PUC. And now I have are you going. To be speaking first? Yes, I will. Thank you.

Thank you for allowing me to speak here today. My name is Josh Plaisted. I'm founder and principal at Flagstaff Research. I have 25 years experience in building energy modeling and evaluating technologies for a range of clients, including national home builders, multifamily property developers, and commercial property owners.

I've been deeply involved in building decarbonization since 2006, when I was a principal investigator for the US Department of Energy on Zero Energy Homes. As someone trained in building energy modeling and utility rate structures, I can tell you that a revenue neutral fixed charge inherently creates a pivot point on the average household consumption, where the fixed charge is perfectly offset by the variable rate discount, meaning there's no net Bill impact.

However, as homes use less energy, the fixed charge dominates and bills increase. As home consumption goes above that average, the fixed charge is not dominant and the discounted rate schedule takes over to create additional Bill savings.

Our modeling using CEC data from the CEC ras shows that the dollar 24 a month fixed charge will cost 3.9 million households, an additional $65 to $225 per year as they use less than the average. Additionally, these are typically smaller apartments and more efficient homes.

In contrast, households there are 1.4 million households at higher usage that will save between 328 and dollar 474 per year. There's a balance of about 2.2 million households closer to that pivot point that see more marginal impacts.

This is not as much a difference between coastal and inland climates as it is between small, efficient households and larger, less conserving ones. An analysis by Ava Energy, which covers Oakland, Livermore, and Tracy, shows that 77% of their customers will pay more under the dollar 24 a month fixed charge.

This does not improve for hot inland climates like Stockton, where their analysis showed negative impacts on the fixed charge that are even more pronounced regarding care households in the Aver territory, they found that just over half their care customers would end up paying more, not less, under the fixed charge.

Not surprisingly, lower-income households tend to live in smaller homes and conserve more. Is that time okay, last point. In summary, by giving the CPUC uncapped authority on fixed charges, you are effectively asking low energy users to subsidize high-energy users without any guarantees that those same users will invest those savings in decarbonization. Thank you.

Hi, I'm Bill Allayaud with the Environmental Working Group. Good afternoon Chair and Members. We've been involved with consumer and environmental protection for 30 years.

We understand the need to electrify the grid in order to meet the goals of climate change, and it's that very context that we speak to in strong support of AB 1999 as California electrifies it even more important than ever that we do so efficiently and cost effectively.

The cheapest electron is the electron not used, and the next cheapest electron that required no infrastructure delivered to the end user. Energy efficiency conservation distributed energy resources are a critical part of how we are going to solve climate change, keep the lights on, and reduce costs for everyone.

A high fixed charge that is uncapped and unlimited runs counter to those goals. But prior to the prior per the prior witnesses testimony, the calculus regarding the impact a monthly fixed charge will have on some ratepayers is not clear. As clear as some would like to assert, we're worried about some Low income, middle income and apartment users.

Rates will actually not be helped and could even be higher. Meanwhile, turning to the proposed Bill, first is to not set or reset a fixed charge. That issue was decided last week by the Puccini, but it's currently composed. There's no cap on that fixed charge.

The utilities could come back in a few short years and ask for $5, $10 15% and pretty soon we're at 60, 70. Remember, they allegedly asked for 90 to 125 per month as a fixed charge. Importantly, the Bill adds very important side rails to the new scheme that the PUC has decided to implement.

There are some of the most. These are some of the most important. I won't hit them all. One is that modifications to the fixed charge must be done in a standalone proceeding, thus ensuring transparency to any changes in what will be a new world for both ratepayers and regulators.

Secondly, modifications must not unreasonably impair incentives for conservation, energy efficiency and beneficial electrification in greenhouse gas emissions reduction, an important principle to help us keep track with climate change efforts. 4th third, the modifications the amount of. You can wrap up. Okay.

Two sentences pursuant this vision will not exceed the change of inflation during the intervening period as measured by the CPI. Last but not least, it has a near term sunset. It makes sense for the PUC to reevaluate the sit and your Legislature to re evaluate the situation after a few, implement years of implementation to see what adjustments, if any, are needed. Thank you.

All right, thank you. And before we continue, we're going to pause so that we can establish quorum. Madam Secretary, can you please call the roll?

[Roll Call]

All right, we'll go ahead and move to additional support testimony. If you would like to testify in support of AB 1999, you can please approach the microphone as a reminder. Name, affiliation and position. Thank you.

Thank you. Chair and Members, my name is Allison Hilliard with Reimagine Power here today on behalf of Santa Cruz County Democratic Central Committee, 350 Bay Area Action, Solar Technologies, the Energy Coalition, Amy's Roofing and Solar, San Francisco League of Conservation Voters, Hamed Climate Solution Foundations, Willard Neighborhood associations, Climate Action of Santa Cruz, Bay Area Clean Energy, Clean Air Coalition, Consumer Watchdog, Napa Climate Now, Hayward City Council Member.

Daniel Goldstein, Albany Climate Action Coalition, Santa Cruz Climate Action Network, Recall Energy, Glendale Environmental Coalition, Solarworks Climate Hawks Vote, Sunflower Alliance, Long Beach Grey Panthers and Alameda County Democratic Party, all in support as well as six other individuals. Thank you.

Thank you.

Hi there. McKinley Thompson, Morley. On behalf of the Solar Energy Industries Association, in support.

Good afternoon. Kim Stone. Stone Advocacy. On behalf of the California Solar and Storage Association, in enthusiastic support.

Priscilla Kudos. Here. On behalf of Advanced Energy United in support.

Good afternoon. Cassandra Marr. On behalf of the California Efficiency Demand Management Council in strong support. Thank you.

Meg Snyder, Axiom Advisors. On behalf of SunPower and Prolex, in support.

Hi. Stephen King. On behalf of Environment California, in support.

Jeff Neill, representing Contra Costa County, which wasn't able to get a letter in on time, but in support.

Charlene Woodcock from Alameda County, Berkeley, speaking for myself, retired person.

Hi, my name is Lee Miller. I'm not sure if this is the time to make a public comment or not, but I reside here in Sacramento and I strongly urge you to vote in favor of AB 1999. Thank you. Thank you. Thank you so much.

Hello. Yvette DiCarlo, public advocate in support of AB 1999. Thank you.

Okay, moving on to. Oh, sorry.

Hi, my name is Doctor Cherry Robinson. I'm with the Climate Reality Project in San Diego. We feel very strongly about passing AB 1999. We're in this for equity. We're in this for justice.

Thank you. And at this point, we can only accept name, affiliation and position. Thank you.

I neglected to say I'm for.

Thank you. All right, moving on to witnesses in opposition. Approach the dais, the podium.

Good morning. My name is Mike Campbell. I'm the assistant Deputy Director for Energy at the Public Advocates Office. I appreciate the opportunity to offer my testimony in respectful opposition of AB 1999 this afternoon. Our organization has a unique role in California energy policy and specifically on matters related to rate design.

Statute requires us to take particular focus on representing the interests of residential and small business customers of the investor owned utilities. We constantly are working to find lower cost alternative to utility requests and we. Despite that, we do note that bills have significantly increased due to unprecedented investments over the last decade.

We welcome efforts of this body to address the affordability crisis on the need to lower bills. However, AB 1999 is not a step in the right direction. It does not change utility profits and it does not change the amount of revenue the utility will collect. The Bill will limit the state's ability to further reduce electric rates.

In line with recommendations for ratepayer advocates, we support income-based fixed charge as an important tool to make residential bills more fair, to make rates less punishing for households, particularly low-income households, and to make electric cars and appliances more economic compared to gasoline and other fossil alternatives.

We were gratified to see the CPUC approve a reasonable fixed charge last week. That decision was similar to proposals that we made, as well as those of other organizations like Tern or NRDC. That rate structure was modeled after a program currently in place here in Sacramento from the Sacramento Municipal Utility District.

Notably, the decision, and we appreciate it, was significantly lower than what the utilities proposed. We opposed the utility proposal because it would create Bill shocks for lower usage customers. The CPUC's decision took a more balanced approach and also did not entirely adopt our proposal.

But the result will lower rates and help remove inequities in the current rate design. This is a step in the right direction. Although the program was just adopted last week, we are concerned that, and that it won't be incorporated into rates until around 2026. AB 1999 would effectively repeal it.

Thank you. That is two minutes, if you can.

I'm sorry, I'll just note that the other issue is limiting the role to just non general rate. Case proceedings will make it more challenging for my rate design team to effectively make rates appropriate.

Okay, thank you.

Good afternoon, Chair Petrie-Norris and Members of the Committee. My name is Merrian Borgeson. I'm with NRDC here in opposition to AB 1999. I think we can all agree that rates in California are not working. Roughly a quarter of Californians report being unable to pay their energy bills.

We have loaded so many costs into rates that the price of consuming electricity in this state are some of the highest in the nation. We need to do a lot of things to fix this problem. We need to better scrutinize utility expenses. We need to pay for more costs through the state budget instead of regressively on energy bills. We need to consider new ways to fund the infrastructure investments we need.

But none of these can actually as rapidly reduce the price of consuming electricity and relieve the burden of low income customers as an income graduated fixed charge. We're happy to share our analysis with you on this topic. I have heard people claim that because it will lower rates, a fixed charge will discourage conservation.

I have worked on energy efficiency for about 20 years. I can tell you that that is not a salient argument. In a state with sky high prices. Who do you know that's currently wasting energy given our prices? That statement implies that our prices are not high enough, that people are just willy nilly wasting energy.

If you look at who the big residential users are in California, they are people in hot climates and people with many people in their household. Those people are not just wasting energy. We currently force Californians who need to use air conditioning in the summer to pay a disproportionate share of things like wildfire expenses, nuclear decommissioning costs, and public purpose programs. That makes absolutely no sense. And it's directly harmful to our progress on climate to have electric rates that are three to four times the cost of providing clean power to new uses such as electric vehicles and heat pumps.

We have to ensure that electrification is cheaper than fossil fuels. An income based fixed charge is a vital tool to better manage how we pay for shared costs. This bill hampers that progress and then reverses it in 2028. While this bill clearly aspires to contribute to solutions, and we appreciate that, it would in fact harm low income customers, create rate instability, and work against the imperative to electrify. We urge your no vote on this bill. Thank you.

Thank you. With that, we'll go ahead and move to additional testimony in the room. If you would like to testify in opposition to AB 1999, please approach the microphone and name, affiliation, and position.

Hi, I'm actually speaking in support, but I was stuck in the line outside. So I just wanted to be here to say I came from San Diego with the nonprofit Activist San Diego. Can I give the the minute?

No, at this point we're just doing name, position, and affiliation.

Okay. Activist San Diego, and I support.

Thank you.

Thank you.

Good afternoon. Michele Canales, Union of Concerned Scientists, in respectful opposition.

Good afternoon. Nico Molina on behalf of the Greenlining Institute, Carbon Zero Buildings, and the Central Valley Air Quality Coalition, all in respectful opposition. Thank you.

Kent Kauss on behalf of SDG&E in opposition.

Good afternoon. Sara Fitzsimon for the Independent Energy Producers Association, respectfully in opposition. Thank you.

Valerie Turella Vlahos, Pacific Gas and Electric Company, in opposition.

Laura Parra with Southern California Edison in opposition.

Elizabeth Martinez with Meruelo Enterprises, Herman Weissker, Doty Brothers, Tidwell, Select Electric, and Neal Electric. Thank you. In opposition. Thank you.

Afternoon, Chair and Members of the Committee. My name is Ralph Caban, representing Meruelo Group and Meruelo Media, Power 106, 93.5 KDAY, Cali 93.9, 95.5 KLOS, TV Channel 22, and FujiSan Sushi, all California based companies. We urge you to vote no. Thank you.

Cynthia Shallit, and I'm sorry. I'm here in support. I was standing out line in the really hot sun. I'm in support of this bill. I'm with California StateStrong and our 60 chapters statewide. Thank you.

My apologies. Forgot to mention earlier. Steven King on behalf of CALPIRG, also in support.

Madam Chair and Members, Scott Wetch, on behalf of the California Coalition of Utility Employees and the California State Association of Electrical Workers, in strong opposition. Thank you.

Julee Malinowski on behalf of the California Electric Transportation Coalition. We don't have an official position yet. We're still assessing and concerned about the negative implications on electric vehicle deployment in California. Thank you.

Thank you. All right. We'll bring it back to the committee for questions or comments. Assembly Member Friedman.

Thank you. Thanks to everybody for coming in. And I do have a question. First, it does seem that there is a shared value on the dais in terms of recognizing that we have unreasonably high electric rates and the need to reduce them both for the sake of our public, who's struggling to pay their utility bills, but also about the goals of electrification and the need to transition away from fossil fuels and to electrify more within people's homes, particularly, and to make room for the EV charging.

So I am glad to see that there is that shared value. I, you know, take a small... I do think that while people aren't necessarily trying to waste energy, we do have people who are very inefficient in their energy use. We do have people who still build McMansions that are very expensive to heat and to cool.

And so we sometimes do see people making decisions that are wasteful in terms of just energy use in general. We have people who are extremely thrifty in terms of their energy use, and we have to make sure that we encourage the latter and discourage the former.

But I also, you know, think it's really important to always keep in mind that, because we want people to switch to induction stoves, to switch to EVs, that the biggest imperative has got to be making sure that the rates are encouraging that electrification and that electric switch.

My question is actually from Mr. Plaisted, which is that I'm a little confused about a little bit of this because we have a lot of us on the dais who have the same goal, and yet we're coming to a different place as to what the policy is. It gets to be confusing for policymakers.

So we all want to make sure that we do something that's equitable and that we help low income people. And at the same time we have the opponents of the bill who are, you know, concerned that that, with this bill, there's going to be higher rates instead of lower for that, that's more sensitive, price sensitive population. So how would you explain, since you've been done a lot of research in this area, how can you help us understand that confusion?

Yeah, I think the original proposal was good in the effect that it said $24 fixed charge for the general rate case and $6. Gave a steep discount. And we're on the record, our materials say that there should be a disparity between the $24 and the CARE and FERA cost. So that's going in the right direction.

We would definitely agree with that. The issue in regards to electrification. So I think everybody agrees to support the CARE and FERA customers, that we need to support that rate base. In regards to electrification, we need more significant rate reform to get there. So the 5 to 7 cents you're hearing aren't enough.

We need multiples of that to cost effectively decarbonize the built environment. So our position would be, yes, electrification, yes, decarbonization, but the fixed charge is not an accurate or surgical tool to do. It's not the most effective tool to enable electrification and decarbonization.

Thank you. And I'll just say that I think it's really important that we do provide, that we focus our policies, too, on incentives to make people make that switch to those electrified appliances, to heat pumps, to induction stoves, to EVs.

So I just want to throw that out to my colleagues, that to me, bringing the rates down is important on its own to protect people, but also to bring them down to where people don't find them a barrier to decarbonize. And so, you know, that's, that's the lens that I'm looking at a lot of this through. Thank you.

Thank you. Assembly Member Zbur.

So I have, and I've spoken to the author a number of times. I've had concerns about this bill, and it's because, as I see it, it shifts costs from higher income single family homeowners that consume a lot of electricity to lower income households.

And I think a fixed charge that is income based is one of the ways in which you reduce the volumetric charge, which is in a important part of making sure that we, you know, that we actually have the right incentives to move to the electrification that we need for our transportation systems, for our vehicles and for our households.

So if I sort of take a step back, you know, the thing that guides me is, you know, is what we're doing making it harder or easier for the PUC to establish a rate structure that is, one, equitable for our more vulnerable communities, for our lower income households, for our middle income households.

And it's also equitable when we think about the fact that you've got folks in sort of hotter climates, in rural climates that are being punished by higher volumetric rates. And so I think that what the PUC did recently was actually a pretty good outcome. I know that there was a lot of fear, and I know you were very nervous about where that would come out, but I think it came out in a pretty good place.

And what it will do, I think, is for most people and for most people that are on the lower income level, it will result in lower fees. And what I've, you know, what I've had, you know, what has made this a difficult issue is we have many folks that are supporting the bill that are rightly concerned about overall rates. I think, and I know that's what's motivating the bill.

I know that that is a genuine and authentic concern that the author has and the bill supporters have. But when I look at the letters that come in, the focus is only on the fixed rate and not really on the combination. When we're talking about the electric bill, it's a combination of the fixed rate and the volumetric rate and what does that total look like? And so I have a lot of concerns about the bill hamstringing the PUC to make the right decisions in the long run.

As this moves forward, I want the PUC to have the ability to basically make equitable decisions between folks that are in cooler climates that don't need as much electricity and hotter climates, to make decisions to protect lower income and middle income rate payers.

And so, and, you know, I'm very nervous about the fact that this undoes what I think was a good decision in a very short amount of time and then at the same time places limitations on what can happen going forward that I think limit the ability to have equitable outcomes.

When I look at, I have great respect for a lot of the people that are supporting this. I mean, I've gotten literally hundreds of calls from people supporting this. And I understand what is behind that and its authentic concerns about electric rates.

And what I would say is that I also look at all the folks that are on the opposition side and the folks that are on the opposition side, including the union of Concerned Scientists, NRDC, the Greenlining Institute, the Public Advocate, TURN. They're the folks that actually have that have really significant expertise in this area. And I give a lot of weight to that, to those folks. Not that I don't have a lot of, you know, I've worked with all of you on the support side as well.

But I think that, you know, I think when we look at all of these things, when I sort of take a step back, I just have great, great nervousness about both the undoing of the rates automatically happening and then the ability, the lack of ability to have flexibility in what we're doing for the fixed rate.

I don't, you know, I don't criticize the Governor for coming forward with a fixed charge proposal. I think, I don't think that there was anything underhanded or devious about that. I think he was listening to experts that were trying to advocate for sort of equitable outcomes on this.

And frankly, a fixed charge that is at the right level, that is also income based is the way that we actually achieve our climate goals and create equity in our rates. And I think the last thing I'll say is I have a really a lot of concern about... We need to make sure that the incentives are in the right place to assure that rooftop solar continues to move forward in the right way and that we don't squelch it.

But on the other hand, we have to think about the equities of basically wealthier homeowners who have the credit ratings to finance this stuff, and leaving a lot of people out where they basically have very low bills, where they're not paying their fair share for the things that we all should be sharing, everyone.

And so that's the other reason why I think a fixed charge done in the right way is a good thing. And we need low electric rates. It's not only about conserving. It is about conserving in terms of turning off the lights. It's about choosing the most energy efficient electric appliances, all of those things.

But we also, our climate strategy is also about increasing electrification, and that means that our variable or volumetric rates have to be below the cost of natural gas. And so I hear that we may not be there close enough yet, but I don't want us to move in the wrong direction.

We need to figure out how to get those volumetric rates down, not moving them up. So I'm wondering if the author is willing to consider taking out the undoing of this in 2026 and moving this to a pure study bill, because that's what was represented, that that's where we were. And then when I read it carefully, realized that that's not really what the bill was doing.

All right, well you got a lot to say there, Mr. Zbur. So I want to be really clear that we are not fighting, we are not fighting the PUC decision. This is capping the PUC decision to CPI. And that is because right now it is uncapped and the IOUs can keep coming back and increasing the rate of the fixed charge. So what we are talking about is legislative accountability.

I understand that you are fine with what the Governor did, but it was, we talked about that as legislative direction when we had no discussion in the Legislature about a decision that is affecting 80% of the population. So whether this is the right fixed fee or not, we don't know. But the Legislature has the responsibility of oversight. And so I think it's really important that we don't give that up.

And we have heard, you know, there are many people that do not trust the PUC and would like to see some additional legislative oversight. To talk about this as something that allows the flat rate for a couple of years and then sunsets it right away is completely wrong.

You get the data, how it's affecting low income households, how it's affecting electrification, how the utilities are lowering costs in other ways, and then the Legislature decides through a sunset process whether or not they want to continue with that bill.

And I will tell you, if it turns out that the groups in support are correct, nothing is going to happen. It will be shown to have worked. It will be the right fee. But I will say this fee, even though we're not talking about the fee, is again to two times higher than the national average.

So it is, I think it is imperative that we look at how this affects low income people and whether we are meeting our climate goals. And that's exactly what would happen in 2028. And I'd say it's very similar to any other sunset hearing. We have sunset hearings for all sorts of boards and bureaus.

We don't cancel those boards and bureaus, but it's a time where they come back to the Legislature and prove, it's a time where we can make adjustments. In the Rev. And Tax realm, most of the bills that come through that committee have sunsets and people have to come back, for instance, with the film tax credit and show that it's working.

So this is to have a report at the end of it and not have any ability to have legislative action, I think is... It doesn't have the type of interest and attention from all sides. And I do, you know, we absolutely agree with Public Advocates and NRDC. I mean, it is crazy what we are shoving into rates and that is affecting everybody across the board. And the final thing I'll say is the CARE people in, and I just want to restate that.

We asked Ava, one of the CCAs, to look at Stockton, and I'm reemphasizing this, with the $24 fee, and half of the CARE folks had higher bills. Half. This was not, this is, this is not a, this is not a definitely, it helps lower income folks. Two thirds of the ratepayers overall had higher rates.

And the people that had the biggest discount, which is the 10% discount, are the very high energy utilizers. And so this is just us with our legislative authority making sure that this is the right decision. And if it is shown to be the right decision, we are taking the PUC and all their experts, were taking their rate that they came up with.

And we are making sure that it was the right decision to combat climate change and make sure that we protect our most vulnerable Californians and to make sure that we still encourage conservation and look at what's going overall with the rates. But for middle income working class people, this is all completely unsustainable. So this is just one of the moving the chairs around on the deck of the Titanic. We have to look at other cost saving measures.

I guess one of the things is that when you undo the rate structure automatically, what it does do is it creates instability in terms of the rate structure and people making the investments to electrify now because they don't know what the volumetric rate is going to look like.

And you don't have the regulatory body which actually has the... I mean, as much as people don't trust the PUC at times, and obviously I've been critical of the PUC many times, the reality is that we have a regulatory process there that is one that takes into account the best evidence.

We actually have advocates that appear before them. And so I would rather see something that results in a study. We have the ability for the three years coming up to look at what happens, and we can take action at that time if it looks like a change is being made in a way that we don't like.

The other part of the proposal, which is the CPI proposal, it would prevent, for example, the PUC from changing a fixed charge at upper income levels because it's fixed to that level, when in fact, that's something we may need to keep the volumetric rates down and the rates down for lower income people. With the Chair's permission, I'd just like to ask the Public Advocate or NRDC to respond to the issue of whether or not this in fact helps or hurts lower income people.

Because the data that I've seen is that the folks under the most people under the Fair Act and under FERA would, if you actually had a higher fixed rate, if this was undone right at the end of that time, that most of those folks at the lower income levels, their overall rate would go up. And is that a wrong view based on what I've seen?

Yeah. Some of the analysis, unfortunately, that has been presented here today, doesn't look at actual customer data, whereas what the Commission looked at and what advocates like ourselves use was actual customer data to predict what the outcomes would be.

So, you know, statistic of saying half the low income customers will see an increase, that's far outweighed by the small size of that potential increase versus the upside benefit on the other side of the decrease for those low income customers who may be high usage.

I just want to make clear for the Members that income and usage are not correlated. There are a lot of reasons why you can be a high usage, high income customer, as well as a very high usage, low income customers. I'm sure we can all think of what those scenarios might be. You know, we see that as being problematic. I don't know if you have more you want to add.

Yeah, I mean, we know... I mean, at the very highest level, on average, low income customers will save six to $8 a month. Higher income customers will lose two to $3 a month. That's the sort of level of impact. That would be reversed if it suddenly changed.

And I just also like to address this question of the CPI. It sounds like a great thing, right, limited to inflation. But what you do then is you're capping the fixed charge and all, any increases that are approved for the PUC then go into the volumetric rate.

The other thing that that does, which I think is probably the most important issue, is then the PUC... The PUC basically chose the income categories they had available to them. CARE, FERA, everyone else. We had a proposal that had a middle income category.

So essentially our proposal was to have a middle income category that was basically net neutral, like no impact, and then a higher income category that was a bit higher than the $24. You need that flexibility if you want to be able to have some of those adjustments that are going to increase the equity and who pays based on their ability to pay.

This last thing. And I don't want to take more time, but if this was just a report that focused and added that into it, a middle income category, and what would happen, it would make that much easier for me. So anyway, I won't take any more time. And I also want to say, I respect the author, I respect the sponsors, I know that you all are motivated by the same things all of us are motivated for. And so I want to thank you for the attention you're paying.

Paying to making sure that ratepayers are treated fairly and are treated in an equitable way. I just have real concerns that this bill, you know, isn't doing what you're intending it to do. So thank you.

Thank you. Assemblymember Holden.

Thank you, Madam Chair. I, first of all, I thank you, Assemblymember, for bringing the bill forward, because I think that, as always, you're along with the rest of us, very concerned about rates and how to get a better handle on them.

I know you and I had an opportunity to chat about this bill, and I think, as it was described by our colleague, that the report part makes a lot of sense.

The predetermining an outcome in the report doesn't make as much sense, especially when I hear the testimony from your witnesses that say that this is an opportunity to reevaluate, to see if any adjustments are necessary.

Well, that makes sense because then we as a legislative body would be able to come together and through your Bill as a report, look at the information that is presented and make a determination on whether or not times have changed. What direction, is there necessary for rollback? What does that look like?

If so, do we hold at what the PUC had established? And describing it as a sunset hearing would further suggest that you gather the information and then you come together and you make a determination on what next looks like given the changes over that period of time. It can also include the PUC.

It doesn't have to be absent. This Committee does hearings, joint hearings, and also provides opportunities for the PUC to be a part of that.

So it can still be handled in a way that if we see that there's a need to do something different than what the PUC has currently ruled on and how we move forward in evaluating that, we can consider, I say we, I won't be here, but the Legislature can determine whether or not some form of a rollback makes sense.

But to have it established as a trigger in the bill, it goes into effect at the same time you're gathering the information. The conclusion has already been drawn, seems to be the cart before the horse. I want to support the concept that you're trying to get at. I can't support it with the rollback provision.

And there is real concern, and it stated in the analysis that volumetric uses is more regressive than fixed charge applied to all customers. And fairness and equity across the customer spectrum is our concern. And certainly something I think we need to make sure that we don't undermine.

We've taken a position now that would suggest that rolling back and putting pressure on other ratepayers is a good idea, which I don't think that it is. But I do support what you're trying to get at.

Like to try to figure out, as my colleague, what can be amended out of this Bill so that it's not so heavy weighted and predetermining outcomes. And then I would be more open to that.

Flat fees are considered more if flat freeze care program is obviously those rates are much lower, but for lower middle all the way up, a flat rate is considered regressive. But I appreciate your comments.

Assemblymember Schiavo.

So this is a complicated one. And, you know, it's hard because I have people that I respect and trust all have the best interests of consumers in mind on both sides of this issue today. And we have in our office gotten more calls on this Bill than any other Bill this year.

And it's because people in our communities are fed up. They are stretched and stressed, and they are paying so much for their utility bills and really struggling. And I know, and I appreciate that you are really trying to do something about that and trying to make sure.

What I appreciate about this Bill is that you're trying to make sure that what has been put forward by the CPUC, we have an opportunity to review and make sure it's actually working. It has the intended consequences. We talk about doing things here that have unintended consequences a lot.

And so we all have had some frustrations with the CPUC and having some legislative trigger I think is really important for us to have an opportunity to see. I am completely open to the idea that the fixed charge is going to be better, and I hope that that is true, I do. 100% hope that it is true.

Anything that is bringing down the cost of energy for people in our community, I want to see that happening. So if this is the thing that does that, great.

I think that it's important for us to be able to see that that is true or not and have an opportunity to make adjustments if they're needed or change direction or give legislative direction to the CPUC that we didn't have an opportunity to do last time, unfortunately.

And so, you know, I do have concerns around people who are stuck in the middle, and I appreciate that you all proposed something for folks who are in the middle, because I think there's a lot of people who are right up against, you know, the FERA income rates.

But they don't qualify, and they are really stretched when it comes to utility costs and so figuring out something where they're not ending up paying more. And hopefully that doesn't happen with this. But we don't know. We just don't know.

I hear lots of my staff love their SMUD bills and you don't hear that very often about utility bills, and that is a fixed rate. And so I'm hoping that this love can be transferred to other areas, but we truly do not know. It is brand new. It was last week that the CPUC did this right

It's brand new. So that's really why I'm inclined to support it today. And I do, but I do hear concerns from my colleagues. I do hear valid concerns from colleagues.

And I feel like there is still, you know, there's no such thing as a perfect bill, but there may be some movement that can bring more unity around the bill and the issue.

And I would like to see that conversation continue because I hope that there can be some, you know, finding a sweet spot in the bill where people are a lot more comfortable with.

And I think it gets to the goals that we all want to get to, which is lower rates for people and accountability to make sure that what is being implemented is working and working in the intended way and that we're preventing unintended consequences. And I think that's what we could all probably agree on.

So I want to thank you for that. And I just, I'm curious if you are kind of open to continuing a conversation and making some tweaks as needed to hear from folks.

This is, I know, a very late bill hearing, but it is the first hearing and certainly we have a long way to go, and we're happy to work with everybody until they feel comfortable with this bill.

We definitely want accountability because we didn't have it the first time and we did not have the type of discussion that, that we're having right now the first time. So it has a long way to go, and I would certainly, like I said, continue to work with everybody.

Thank you.

Thank you, Assemblymember Hart.

I just want to appreciate the author, too, for taking on this issue. There's a lot of concern. I've gotten more correspondence from constituents about this bill than any other bill this session, and it does speak directly to concern that consumers have about utility rates. And the proposal that initially went in front of the CPUC was excessive.

And I think that it's where we have landed with the $24 fixed rate fee is an appropriate place. And I think that this is extremely complicated. We have folks here at the dais telling us diametrically opposed things about the impact of that fixed rate charge.

It's very difficult for us to parse through that, to know ultimately what the impact is going to be. But I think that my view is that the Public Advocates Office is the place to look for unbiased information.

They're here explicitly saying that they think this is going to work and that it needs time to work and it needs the flexibility to be adaptable over time. And I recognize what you're trying to do with the CPI constraints, but I think we do need to give it that time.

We need to let this have an opportunity to see the impact. A study bill that would look at that and pull that information apart, present that to the Legislature with the full understanding that we have the opportunity to make changes in the future would be, in my view, a better course than this bill as it's currently constructed.

Thank you. Assemblymember Santiago.

Thank you, Madam Chair. And I want to thank the author because she's taking the time to go back and forth. I'm really appreciative, and I go back and forth on this because I'm genuinely discerning what it actually might do. And I took a look at the bill over and over.

I've gone back and take a look at what the CPUC has done, and I'm not sure what the right answer necessarily is because if I was the PUC, I'd probably do something a little bit different. Maybe not what everybody would agree here on, but, you know, the idea of somebody who makes $100,000 paying $24 a fee, it's tough for me to reconcile with somebody making $5 million and paying the same $24.

I mean, that's what we're really talking about, the PUC. On the other hand, the thought of the increased cost of electricity does burden folks who are on the lower income scale. There's no other way to slice that. And in some cases, I guess I say all cases.

I would say people aspire to have a better energy efficient home, but if you can't afford it, you can't afford it. People aspire to have electrification, but you can't afford, you can't afford it. And so I recognize that the increase in then kilowatt cost is going to burden low income folks.

Now, I've got a number of calls, too, and I've talked to a number of advocates on all sides, and for those who don't think that, very few, that the increased amount per kilowatt isn't going to burden low income folks. Yes, it will, 100%. And the CPUC proposal is not perfect. I started with saying that.

And I've gone back and forth over and over, and I think this is a little bit of comment, but also some questions in there because, and I struggle with it genuinely, because if we're saying, you know, buy an increased cost of CPI, if there is a cost shift, I do agree, and maybe I don't share the agreement with the advocates for the Bill that there shouldn't be an increased cost to those who can afford it, because I think reasonable people would agree that Mark Zuckerberg can pay more than $24, but that's what he would pay under the CPUC proposal.

But the Bill said that in a few years, we sunset this and revert back to $5 and $10. At least that's the way I read it. When we take a look at the analysis on item two, it says, revokes electric IOU, residential income, graduated fixed charge on July 1, 2028 and repeals the authorizing statute.

Well, the authorized statute says the CPUC can take into account income when it bases its fees, which is what it's doing. Not perfect. And I agree, you know, I think reasonable people would agree that a person who's making $1.0 billion should be able to pay a lot more.

But if it reverts back to $5 and $10, then that person making $1 billion, that person making $1 million, is paying the same as that person making $100,000, which is $10.

But likewise, that person who is struggling to pay for their bills at $30,000 for a family of four or 50, whatever you want to peg it at, is paying $10, sorry, $5, only half that amount. So I get challenged with the equity piece of that.

While I share the goals, I mean, I completely share the goals to have solar paneling, to make sure that we move towards a cleaner environment, to make sure that we use less electricity when necessary. And if it does that, then I just got to wonder whether the cost of kilowatts goes up at that point in time.

Because the current proposal today, it's the CPUC. Even though I've been a critic of this CPUC, for those who have seen me chair a past committee or worked on different legislation, in fact, I've asked the CPUC to stop doing certain things the same way.

But if the kilowatts cost is driven down today based on their proposal, then we have to make an assumption that those folks on the lower economic scale who are using more electricity are decreasing cost.

Conversely, you can see the reverse if we go to 10 and $5 and it has to be a revenue adjustment to pay for maintenance grid and other things that we looked towards in reliability, that if the kilowatt goes up, then you are going to burden low income folks.

And that's where I struggle tremendously in making a decision on this because the easy thing to do is just say, hey, let's go forward and not ask these tough questions or take a look at these tough things.

But it's clear in the analysis of number three that it would remove the statutory authorization to make the fixed charge income graduated. And so I struggle with that. If this Bill said, okay, for income graduated decisions, or income would be used to set the fees in 2029, that would make me change my opinion very quickly.

But also, and I know it can't, it can't be done, what I'm about to say potentially, but if the kilowatts would cost more for those who could afford it versus those who can't afford it, that would be another income graduated.

So I guess I'm just really struggling with what the impact will be for those who are earning less. And that's where I really, really struggle. I know I've heard the argument before. Yeah, it's regressive to charge $25 to somebody, but that $25 ranges from somebody who may make 100,000 to somebody who makes 5 million.

So I think there is a big difference there on that dollar 25 charge. And I would agree with you, some people shouldn't pay it. Maybe the scale should be a lot different.

But I would aim and almost hope that this Bill would say something to the effect of the income based decisions on fees and the charge of electricity should be very important. Meeting all the environmental goals that we all have in mind.

It's just a very difficult issue because I understand we're trying to get to, and I want to get there too, reduce the cost of electricity, reduce what every consumer does, move towards electrification.

And I just want to maybe hear from one of the advocates in the back, like, how do you reconcile what I said, what the analysis looks at the caution, I would say, I don't want to put words in the person who wrote the analysis, the Chair, but how do you reconcile that with the fact that it actually might go up? And the Bill is not just a steady Bill.

Because it actually is very determinant on setting a timeline when this ends, which is the middle of 2028, and setting a new fee structure in 2029 that reverts to 5 and 10. And that's kind of where I struggle with. Thank you very much.

I appreciate your struggles. And in some ways, you are actually making the case for the Bill that we need to see what the effect of this is. I just want to say with the 5 and 10 dollars, that's just reverting back to 2015 law. And in the Bill, it says the Commission may.

So it's not set in stone that they would actually go to 5 and 10 dollars. And the other thing is, and I'm sure that the advocates would mention it, that right now there are three different income brackets, FERA, CARE, and everybody else.

And as I've mentioned before, for working class folks, they're not included in the FERA and CARE plan. So that's the answer about the 5 and 10 dollars. I think you wanted to address some.

I think I can probably go there. It is a little confusing because you heard before, Miss Irwin just said this proposal is regressive by usage. The less you pay, the less you use, the more you pay. Right. If you're under the average usage, your Bill starts going up. But it's progressive by income bracket, where CARE and FERA are.

So one of the questions is, okay, for households that are low income but don't meet the CARE FERA threshold, like CARE is about 45,000, I believe, for a family of three here in California, there are plenty of working class families who will not meet that and end up paying the $24.

So they're kicking into this right there, clearly. And then the question becomes, okay, well, that money is going to CARE and FERA customers. And you said we need a study on this. So the Ava study, just to understand what Ava did, this is not modeling. They took their rate base of 500,000 households.

This is real data that they have that they're sitting on. And they said, if this proposed decision goes into effect, what is the impact on CARE and FERA?

When I say there's no impact on CARE and FERA, as a matter of fact, a little over half are going to have their bills go up, meaning the money did not go to CARE and FERA in Ava territory, over 500,000 households, it went to higher energy users.

So in that case, it is not progressive in Ava territory, according to their own analysis. And the reason is because these CARE households are using a fraction of the average. If you back the number out, those CARE households are not using 6200 kilowatt hours a year within California.

They're using closer to 2500 kilowatt hours a year in that territory, and that includes Stockton.

All right. Thank you. Assemblymember Reyes.

Thank you, Madam Chair. I want to begin by appreciating the author. We've had a number of conversations over the period of time, and while it was going through amendments, and I think my colleague best described what I thought it was going to be was a study, a study Bill. And I think that is most appropriate.

I think trying to figure out whether, what the PUC has adopted, whether it works or it doesn't work. If it works, then we continue it. If it doesn't work, then we've got to do something different.

There was one comment earlier that July 1 of 28 does not mean that on that date the fixed rate is not removed or, but in fact, the summary specifically states that it revokes that income, graduated fixed charge adopted by the CPUC. I want to be sure first. That's my first question. Is that correct that it does revoke it on July 1 of 2028?

I mean, the date could certainly be changed to make sure that the Legislature has had ample time to look at the report that the PUC puts out.

But specifically, the purpose is to revoke it. It's not on a particular date.

And the purpose is to go through an effort to see whether this works or not. As I mentioned, we have hundreds of other items where we have sunset reviews and we do some slight tweaking, and I don't see any boards or bureaus or tax credits disappearing.

This is really an effort to make sure that there are no big unintended consequences on Low income voters. And again, using real data in Stockton, half of the care folks had higher bills. And so Stockton is not indicative of necessarily the area you represent. But we just don't know. There is a lot of confusion on this issue.

And so I think that it is really important to see what is the net result of the $24 fixed charge and the dates can be moved.

Again, this is the first hearing in the first Committee and whether it can turn into a study Bill or whether the sunset, everybody can be convinced that the sunset is something that really has us all focused right at that time and make sure that the Legislature takes some accountability, I mean, takes accountability over the PUC.

I think that those are questions as this Bill moves through the process.

I think that we would all agree that whatever action is taken by the PUC is action that we should review. I don't think you'll have anybody disagree with that.

We've all had our opinions, as was stated earlier, regarding the actions of the PUC, it's clear that when we're talking about rates and rate design, those are two of the most complicated issues that have come through this Committee. I've been on the Committee since 2016, when I was first elected.

And those issues and the question of affordability are the issues that we've been trying to tackle since we were here. My colleague is clear in her statement that our constituents are calling us all the time, telling us that they are paying too much in the utility bills. And they are absolutely correct in my community.

And I know every community is different. And that's the beauty of California, that we are so diverse. And I think it's clear that we have to listen to our constituents. I will tell you that on this particular Bill, as I shared with you, I've received more calls from both sides.

I've received calls from people that I absolutely trust telling me, you've got to be for this Bill. And these are people I love and trust. And then I have others who are saying, you absolutely cannot be for this Bill.

I think that the voice of my constituents is the voice that has to be the loudest in the analysis. I always appreciate the analysis that is prepared. The last paragraph on page seven helps us to look at just, we can't have an action without a reaction somewhere else.

And it says, electric costs may be likened to an inflated balloon. One can squeeze one side of it to make it smaller, but the result will be expansion in another area. The truth is, we can agree, disagree on how much the fixed charge is going to be or how much it ought to be.

But whatever the amount is, the rest has to be covered through volumetric rates. There's no other way around this. And so who's going to use it the most? It's those people who don't have solar, whether it's because they can't afford it or because they're renters. My district has more than 50% renting as opposed to owning their home.

The other is, we talk about energy efficiency. That's wonderful. If you own your own home, then you can have the studies done, you can do whatever you need to do in that home. But if you're renting, you do not have control over that.

The other, and I think it was mentioned in the analysis, is there are some areas where people are going to use the air conditioning more than other places. That's my area. That's the Coachella area. There's so many areas where they. Absolutely, they have no choice.

That's my community. I have also so many concerns about wanting to undo the CPUC's decision, because without a doubt, at least from what I have seen, that would mean that whether it's July 1 of 28 or 29, should the new Legislature decide to change the sunset, my community, without a doubt, will pay increased rates. With the $24 rate as a fixed charge in my CARE & FERA for my CARE & FERA, and even for my non-care customers in my area, they would all save between cents and up to $20 if it's $20.

$20 may not seem like a whole lot for one community, but in another community, $20 a month when you're on fixed income, that means a lot. My colleague has also talked about the fact that talking about a study Bill, I do hope that that is something that you will absolutely consider in this.

That is what I had hoped it was. I thought that is what it was. But there is so much more to this Bill than just a study Bill.

I think a study Bill is appropriate to see whether or not what has been adopted by these PUC really is saving money for those that it intended to save money on.

Thank you, Assemblymember. Assemblymember Joe Patterson.

Great. Thank you. I, too, have received more correspondence on this legislation than any other Bill since I've been a Legislator, which is only 18 months now. So take that for what you will. But just a couple things I want to mention is that I do think this is generally an issue with the budget trailer process.

I think these are major changes that were made on policy areas that we didn't really have an opportunity to discuss in depth because of the trailer process. And I'm sure that's not the first time you'll hear it from my side of the aisle on various issues. But I just happen to be looking at.

I happen to represent not only a large territory with an investor-owned utility, but I also have Muni in my district, Roseville Electric, which is. And in some areas in my district, people can see literally right across the street, they have Roseville Electricity, and here they have a different utility. And, you know, does.

Is being a member of the Rockland City Council did create, honestly, somewhat of a competitive disadvantage for us, being able to track businesses versus going across the street to a different jurisdiction. And so, you know, people in my district are very passionate about that and also being a major new area.

I mean, Placer County has been one of the fastest-growing counties in basically America, but definitely California over the last 10 years. And because of that, and because of the building codes, at least half the stock has some kind of solar on it. Housing stock has solar on it.

And so when I look at, so I understand how a fixed charge can actually decrease the prices. In fact, Roseville has a $30 fixed charge, but also their rates for under 500 kilowatt hours are nine cents a kilowatt hour. Mine are 42 cents.

Now my understanding is going up to $24 that I might save $1.50 on average in my district, $1.50 or a couple dollars. And so I think we have definitely a systemic issue with our electric prices here in California. And a lot of it is pain that maybe has been inflicted in this building itself.

So, so I'm definitely cognizant of the things that are going to pass out of this Committee or not pass. And I did have, if you wouldn't mind, just for clarification, Chair, if I could ask a question of the opposition. Okay, great. Question for the NRDC.

You had mentioned some things added to the Bill or added to utility costs and things like that. I was just wondering if maybe you could name a couple that particularly draw your ire.

I wouldn't say it's necessarily ire. There's lots of things in the Bill that are shared costs that shouldn't be paid just by people based on usage. But, so the items that I would say are definitely not based on usage are things like the public purpose programs, like CARE & FERA, energy efficiency programs.

There's the wildfire fund, there's nuclear decommissioning charges, and then there's a whole bunch of wildfire-related costs that are built into either the operating or capital expenses that I think could reasonably be paid by all folks, and not just folks based on energy usage.

When you say all folks, you mean like the state's general fund?

It could be state general's fund, yep. Or it could be as a fixed charge based on income.

Well, I would definitely encourage the opponents of the measure to, and anybody to engage in identifying specific things that we can take out because I think we might find a lot of agreement on those sorts of things.

But I mean, that's going to be, the difficulty in this building is coming to an agreement at the end of the day on what those things, because all of those things have value, but all of those things also drive up the cost of electricity. And that's something that I talk a lot in my district about.

And just recently there was some legislation in a different Committee, actually it came through this Committee, too, I think, to expedite transmission. And I saw NRDC, along with others, oppose that and maybe for good reason. But, you know, if we don't cut some of this red tape, you know, these things cost money, time and money.

So I think, you know, I think it's something we have to look at and has to be considered as part of the issue. And I also understand Roseville doesn't, which does an amazing job.

I mean, they have like 100% approval rating and people always poke me in the eye at it, but they also don't have the same challenges, I think, in terms of, they're very obviously consolidated in a one close area. So that also has to be recognized with the responsibilities that they have versus others.

But, well, you're welcome to my office anytime to talk about some things. You'd be willing to cut off the Bill? Cause I'm in favor of those automatically. And seeing if we can get some of those things put in the budget, like wildfire mitigation. I mean, that's a statewide issue, honestly.

And if that's built into the rates and everybody's paying for it, including low-income customers, you know, I think that that's problematic, so.

Lastly, I want to say that one thing I like about this Bill is, well, the one thing I don't like about it, I have to go back to my constituents and tell them, hey, we're locking in the $24.

Out of the 400 emails, I've gotten, like 390 of them were in response to supporting the $10, the original language in this Bill. And so if I support this, I have to go back and say, hey, well, we're capping it at $24. And I don't think they're necessarily going to be happy with that, per se.

But that's why I think the study is really important because we have to know if it actually is lowering rates, is it raising $1.50 or when it gets closer to the 9 cent kilowatt hour rate there? So I'm definitely interested in the discussion here. I'm leaning towards supporting this measure. I will say I don't think it has.

At the end of the day, we're just taking buckets and we're moving it around. And I think that that's, and in my district, where I have tens of thousands of new builds and everybody has solar, my customers benefit with a lower fixed rate charge, or not my customers, my constituents, they're all my boss, bosses.

And so I want to do what's best for them at the end of the day, but we're just mixing around who pays for what and we really need global change on this to lower and I'm always open to all conversations on that. So thank you very much.

Thank you. Just quick comment on that. That's exactly the way I describe it, is moving chairs around on the Titanic. The bigger thing is we have to look at lowering costs for everybody.

And I know that the Chair would like to do an affordability committee and look at all those added-on costs and programs and see how effective they are. I also am a big proponent of let's do some more time of use savings. I am very annoyed that the middle of the day for my IOU.

It's not cheaper to charge car or charge batteries. That would certainly add to resiliency. We produce excess electricity at that time. Undergrounding, I think that often we are taking the most expensive approach by undergrounding. We should look at how do we build a resilient infrastructure in the safest, cheapest, and fastest way.

And coding the lines is one study that I read is marginally, is just marginally right around just as safe. And we could be getting this, creating a much safer infrastructure much faster and cheaper.

So I think it's just incumbent on us to look at all those things to lower costs because it's, we need to, as Assemblymember Reyes talks about the balloon, we're just squeezing the balloon in different areas.

We really need to deflate the balloon and we need to look at seriously over the next few years how we do that with all the pressures that are on that utility Bill.

Thank you. Assemblymember Berman.

Thank you very much and thanks for the opportunity to sit in today. And I really want to thank the author for bringing this Bill forward and initiating this entire conversation that we're having, which was a conversation that was long overdue. It was a conversation we should have had in a hearing like this two years ago.

And I don't know about other folks, but as soon as the public became aware of what we had authorized the PUC to move forward on, my constituents lost their minds.

And this was, I remember the community coffees that I had at the end of last year where this was the 1st, 2nd, 3rd, 4th, 5th thing that people brought up in very different diverse communities in my district, from Pacifica in the very Northwest to Saratoga in the very far South, very different socioeconomic communities, very different geographic communities.

Everybody was worried about what was being proposed at that point at the PUC. And I clearly and obviously and definitely think that we are more important than we are.

But I think your Bill that you proposed had a direct causation on the PUC's adoption of a $24 limit as opposed to a lot of the proposals that had been submitted that were three or four or five times higher than that. So thank you for introducing this Bill. Thank you for the work that you've done on it.

This is such a complicated issue that a lot of my colleagues have mentioned, and that's highlighted to me as I was looking through the couple hundred groups in support and the 20 groups who are opposed, and one group in support is the Climate Reality Project, San Diego, and one group that's opposed is the Climate Reality Project, Silicon Valley.

So two different groups of the same organization on opposite sides of this issue. And I think that shows that there are a ton of unknowns. We really don't know the impact that this policy is going to have on the different communities and like a lot of my colleagues have mentioned on the diverse communities across California.

And so I think that's why it's so important that we get good data back. I think it's so important that we get a good report back.

And then I think it's so important that we come back and we have a conversation just like this four or five years from now to determine whether or not this is the right policy in California and to determine whether or not there are small tweaks that we should make to the policy to make it better so that it's actually accomplishing the goals that we, the Legislature have set for the state, as opposed to handing that off to a different organization and just hoping that they do what we want them to do.

And so this is what you have in your Bill, is the ability to bring that back to the Legislature and for us as elected representatives of our communities to have those conversations and figure out what the right balance is for the policy.

And so I have no doubt that once this Bill passes out of this Committee that you will continue to work with the opposition, you will continue to work with all the stakeholders to make tweaks.

I'm sure that the final policy won't look like it does today, but I trust you to continue working on those, having those conversations and making those improvements if they're necessary. Maybe it's not CPI, maybe it's something else, maybe it's not four years, maybe it's five. That can all get worked out.

But I think that your effort has been incredibly important in making sure that the policy first, that we have the public transparency and conversations that the Legislature has that about the policy, and then we make sure that we retain that right to bring it back and have more conversations about it in the future. So I'm happy to support the Bill today. Thanks.

Thank you, Assemblymember Berman. Seeing no further questions. Assemblymember Ting.

Thank you, Madam Chair. I just wanted to echo my colleague from Silicon Valley's points. I think that really having a Bill that takes another look at what we passed in our budget trailer process and really now that we're seeing it being implemented and we're going through a deliberative process, that my colleague from Thousand Oaks bringing forward this Bill, really allowing one to study, allowing all that data to be collected and then allowing the Legislature to again, take that data and then go through a review process.

It's very similar to what we do in business and professions and what we do in revenue tax. It's very common that we revisit a number of things that we pass, see how in fact they've worked, and we decide whether or not we want to continue along that path. I think that's a much more thoughtful approach than just passing it, ignoring it, and trusting that our regulators will just be fine with it.

Because as we all know, none of our constituents, none of the customers actually know any of the regulators, but they seem to know me when I'm in the grocery store and they seem to find me when I'm in the farmer's market and they seem to give me plenty, plenty of earful.

I'm going to have a budget town hall on Thursday. So I'm sure I'm going to hear about this item there. But again, I think it is absolutely critical. I think you had reiterated this earlier. I'm sorry, I was over another Committee, but you had reiterated, but that this is in fact, that the $10, the $5 that is permissive. It's not that you are mandating that it be lowered to that. Is that correct?

It's permissive and it's just what current law is from 2015.

Right. And so again, so would the permissive language in fact impact the current PUC ruling, whatever that ruling may or may not be? I'm asking the author the question.

You mean the number from last week?

Yes. Should that be passed?

As you, and again, this is permissive here, but as you go through a, let's say, sunset review process, oversight by the Legislature, that rate can be put at any amount or at zero.

Absolutely. Right. But I'm saying that this Bill as it's written now, doesn't dictate that.

It does not.

Correct. I'm just getting confirmation, just so we understand. Right? Because I think that there were a number of questions regarding the $5 and the $10 and whether, in fact, that was dictating that amount plus inflation.

I will note, we've had a very robust discussion, and a number of Members, and I think you've heard loud and clear, that a number of Members really appreciate your focus on oversight, appreciate your focus on accountability, appreciate your focus on ensuring that this proposal is working the way that its architects intended.

However, people have concerns about the way in which the language of this Bill handles the automatic sunset, the automatic reversion. I think you've heard that. And to be clear, the language of the Bill that is currently in print would revoke the current $24 a month fixed charge and go back to a $10 maximum.

So it is permissive only in that it could be then a, you know, it could be 4, 5, 6, 7, 8, 9, 10. But the Bill is in print would automatically trigger that shift, which is what a number of Members have expressed concern about.

Got it. Meaning you could go lower than $10 but not higher than $10.

Correct. The Bill as in print.

And it's just going back to what the current law is. The presumption is that you wouldn't have to go to that because you're going through a sunset hearing and having a much more robust discussion based on the data that you've collected over the last few years.

Understood. Thank you for that clarification. And again, I think this going through this process, whether it stays at this number as you go through the legislative process, my hope is that we can actually find what that potentially appropriate number may be.

I know that we're going through a very robust regulatory process, but I also think that we should also go through an equally robust legislative process, as this is really, you know, now that we're seeing exactly how the previous budget trailer Bill is actually being implemented.

So again, at this point, I am happy to continue to support the Bill as is written and appreciate you for, again, raising this issue and again, shepherding this issue through our process.

Okay. Thank you. Assemblymember Zbur, do you have a follow-up?

So, you know, as I read the Bill, I read it. I think the way the Chair has described it, which is that it would sort of roll back and put in place something that doesn't go through the PUC.

I'm just wondering if you're willing to consider making this sort of a true study Bill that something happens, but it isn't a rollback potentially, because for me it's, you know, I want the PUC to be able to evaluate all the equities that I think we all share.

And so something that is sort of this automatic rollback, even if it's what it is today, is not something I think is in the best interest of our ratepayers and the public and our climate change goals.

And so I'm wondering if you're willing to continue working on the Bill to make it more of a steady Bill and also look at the CPI issue or not.

I am definitely, I will definitely continue to work on the Bill.

The concern is that we have so many study bills and the Legislature is much more focused if you are going through a sunset review, and again, I don't think any of you could name a Bill that has gone through a sunset review process in the last two years that has ended a program.

There is robust discussion at that point. There's BMP hearings, there's analysis. There's other suggestions on how to fix things. I just want to make sure that we retain our oversight.

But certainly, if the Bill gets out today, like I said, if there's a better way to do it that makes sure that the Legislature continues to focus on this issue, then I am definitely happy to look at that.

And so I would just hope that you trust that I will get to a place that hopefully everybody's comfortable with.

Yeah, I think the concern I still have is the automatic rollback and the effect that that actually has on electrification investments. Knowing that something that doesn't go through a regulatory process with the time that that takes will happen automatically in a very short amount of time.

Well, there's, there's been, there have been a number of hearings. I think it was PG&E that had a hearing just plopped in the middle because they needed a rate increase.

So I don't think that, you know, we can look to make sure the timing works out, that there is time that we don't want to have uncertainty in the market. We want to just make sure that this flat rate does what it is supposed to do.

Assemblymember Holden.

Not to beat a dead horse, but for me, and I accept the commitment that you have as an author to continue to work on the Bill.

But at least I think in this particular instance, there's a highlighting of a very important component of the Bill that very clearly states that this is going to revoke, and this is, has nothing to do with Sunset Review.

Sunset Review can take on a variety of ways of looking at issues I've observed on business and profession for four or five years. So I understand that process.

But this specifically says revokes on July 1, 2028, the income graduated fixed charge for electric investor-owned utility residential customer recently adopted by the California Public Utilities Commission and replaces it with prior statutory language, capping the fixed charge at $5 for California, alternate rates for energy care discounted customers and $10 for everyone else. That's pretty clear.

So it would seem to me that if there's a commitment to pull that out, I guess I will support you moving forward. I will support the concept of studying and looking at how we can position this down the road to have additional information and then make further decisions at that time.

If this language is going to be left in the Bill, I will not be able to support it. I will vote to allow you to go forward today with the understanding, next Committee or at some point along the way or on the floor, this will be addressed.

But if it's not, then I'm not going to be able to support it.

And again, the language, the idea is not to revoke, it's to go through a review.

And why does it say revoke?

Well, this Bill was pulled, remember, it was pulled back, and we put the language together as quickly as we could to do what we thought we wanted to do. And so if some of the language is not precise, we'll certainly fix that. But the idea is to do the study and to do a review.

Legislative review or legislative oversight. I'm not sure what I can commit to right now, but we can move the word revoke out, because that's certainly not the intention.

Look, Assemblymember Irwin. I value your leadership. I trust you. You've heard how I feel.

And so if you're saying that by the time this Bill shows up on the floor, there will be language that makes it clear that this is not predetermined in an outcome based on language that suggests that when the report comes forward, whatever it says that the outcome is going to be, that we will roll back to the earlier, as you said, statutory language that currently exists.

If you're talking about adjusting that, then that's what I would vote for on the floor. I will vote for, with the intention that you're going to move forward understanding that concern. It's not just mine. I've heard it from others. So if that's the case, I trust you. And you'll make that change? I'll be supportive.

Assemblymember Santiago.

Just so that I'm clear, I was going to ask a different question. Just so that I am clear. I'm asking the Chair because that's who normally, unless I can ask the author.

You can ask the author whatever you want.

Yeah. And I always hate to ask this question from authors from the dais. Right? Because I didn't ask before, but. So has the Bill then changed, just so I understood correctly, to revoke the language of falling? Has the Bill changed then, if there is a current agreement, that it will not go to $5 or $10 under.

If there is an agreement. I don't want to put words in anybody's mouth, for sure. But is that what we're voting on today then? That it's not going to go back to $5 or $10? That it is in fact only going to stay at the current 24, 12, 6 with CPI?

Is that the understanding of what we're gonna be voting on? I don't wanna, I just wanna make sure that I'm clear.

I think, I mean, I think you can ask the author what commitment she, if you want her to rearticulate what she just committed.

Yeah. Just to be clear, I'd rather be clear about what we're doing.

We can again look at the language for. So, I mean, the main thing is we want to have a review by the Legislature. And so that goes beyond a study. It's a, it's a Sunset Review by the Legislature. And, but we can, if your concern is the 5 or 10, we can definitely work to fix that language. If your concern is the revoke.

I just want to be clear on, I want to be clear on what you agreed on so that I know what I'm voting on. Sorry that I jumped in.

That is fine.

No, I'm just, I'm not trying to architect language today. I'm just reading what's in the analysis as I read all of the analysis. And I trust what's in the analysis. And what's in the analysis says revoke. Now you're indicating that you're flexible to try to adjust that language based on the concerns you've heard. And I'm trusting you to do that.

I am. The presumption is that the understanding is it's a Sunset Review where the Legislature is able to have a discussion on it. But we could change. Yeah.

And Assemblymember Santiago, if I can answer the question that perhaps you're asking, we are not going to come up with specific amendment today right now that we're going to vote on.

My understanding, and, you know, the basis for my vote, based on what I hear the author saying, is that it is not her goal to revoke the fixed charge or undo the PUC decision.

She is working to evaluate whether or not the fixed charge is working as intended and that she is open to modifying the mechanism by which that happens in order to address some of the concerns that Committee Members have surfaced in that the timing of the study with a revocation does not make sense. So that's what I heard the author commit to.

I heard something different. Just to be clear, what I heard, just to be clear on, I heard, yes, I'm gonna take out the revoking piece. That's why I wanted to be clear with you, Madam Chair, what it is that there's an agreement on.

And what my original question was gonna actually really be was on the graduated income, the way you put it, like, could there be consideration for graduated income as well? Because I think where my concern was coming from was making sure that low-income communities aren't burdened with a higher cost as an unintended consequence.

That's where I started, and that's where I'm going to end. And that's a question I would ask. But in between there, there was a question to ask, and I want to be very clear, because working on it is very different than committing to change that language so it doesn't read the way I understand it.

And I also trust the analysis that says, and number three, remove statutory authorization to make fixed charge economic graduated. And right before that, it says, you know, reinstates July 1, 2028, previous language capping the fixed at 5 or 10. Those are working towards and committing to do are two different things.

Yes. Understood. And to be clear, you should hear from the author in terms of what her intention is.

Yeah. And just maybe my question is on some consideration for graduated income, as is stated there, for those who are at the lower economic level, that they're not overburdened with higher cost of energy costs altogether.

Like I have said before, this Bill has a very long and arduous trip through appropriations and then the floor. It has a long way to go. My intention is to have a report and to have a review oversight by the Legislature to make sure that it's working.

And so we're calling that a Sunset Review just like with ENP, if there's, we are happy to change the language, if the concern is the revoked language. But that is my intention.

Just on the graduated income, because that's what they're calling it there. I mean, that's where my concern's at.

And the PUC and all the advocacy groups did look at graduated income and came up with these three different the CARE & FERA and the third plan.

All right. Thank you, Assemblymember. Assemblymember, Jim Patterson.

Thank you. I think the value of having these kinds of discussions and having the robust interaction is very important. Initially, I thought I might be able to support this. I cannot support it now. The kinds of issues that have been raised, the uncertainty that's also been raised, the complexity, sometimes I wonder.

I think the other Patterson here made the point about the buckets. The buckets are the problem. And until we dig down and fix the problems that are driving these rates sky high, we're going to have these kinds of discussions.

And so I'm going to lay off, and I hope that the next time I see it, there are the kinds of changes necessary to win support of someone like me.

Thank you, Vice Chair Patterson. All right, seeing no comments or questions. Oh, I'm sorry, Assemblymember Reyes.

I know the question was asked a number of ways. I just want to ask very directly, are you willing to amend this Bill to make it a study Bill that would be in line with how the Bill was characterized to me?

When we talked about the Bill, I said there was a sunset, and I know you had interpreted that differently. I certainly was not, I was not trying to mislead. Again, this Bill has been in print for just a few days, and there is a lot of work still that we can do on it, but to turn it into a pure study Bill at this point, I am concerned that it will not have the same focus from the Legislature.

So the idea of that at a certain date, it goes off the cliff and goes to 5 and $10. The concerns that Assemblymember Santiago has, we certainly, we will certainly continue to work on the language. All of you have another opportunity to look at it on the floor.

It still has to go through appropriations, but at this point, to make it a pure study Bill, we have many, many, many study bills that end up in drawers. And with the Legislature not having a full discussion, and I don't think that that is fair to the people that are potentially negatively affected by this $24.

I hope that the PUC study shows that this is very good for that. This moves things in the right direction. For lower income folks, that it also moves us to dealing with climate change as quickly as possible.

But as we need to have this discussion again to really talk about who was positively affected, who was negatively affected, did we continue to move toward our goals? Did we continue to move toward electrification? Was the grid robust enough to actually handle the additional electrification? And what are the steps that we're doing to reduce overall costs?

And that is a discussion that really needs to be had again. And there's no, you know, there's no guarantee of it if there's, if it's just turned into a study Bill. But certainly something I would consider. I would consider if, you know, we can't get there.

Well, the Bill has no language that requires a hearing on what you're going to find.

So instead of a sunset date, perhaps there should be language that requires that there be a hearing in 2028 to review what has been studied, to review these charges, then have this Committee look at it then to see if something should be changed.

I think we could definitely look at that. I think that's a, you know, anything that has that effect of the discussion happens in the Legislature?

Well, I think that the language has to be in the Bill. I think as we have it now, it is a cliff and it is a revocation, even though I hear your commitment, it still will be revoked and we're going back to something else that does not take equity into consideration.

I'm very concerned about that. I think that the Bill can be salvaged, having it a study Bill, putting language into the Bill. And I'm not trying to dictate the language of your Bill. This is your Bill.

I want to be able to study what the actions of the CPUC, but I don't want to revert to something that is not tenable for the majority of Californians, especially not in my district.

And so that is the reason that I ask the question is if it can be a study Bill and instead of a sunset, that there be language in the Bill that says that it comes back to this Committee. We received the results of the study and the Committee, I won't be on it anymore.

Neither will you and many of my other colleagues. But our chair will still be here and some of the others will still be here. They can then look at what the study shows and determine what the next step is rather than saying it'll be revoked. Here's a sunset. Here's a deadline.

Instead, we have a study that will be reviewed by this very body to determine what the next step is without taking the power away from the PUC in as much as we have complaints about them. But to be able to study and bring it back here.

We will work on language. And again, I do not want to make this a study Bill. So if there is, at this point, I would not like to make this a study Bill because I think this, we've really been thinking what the most effective way is for the Legislature to pay attention. If there is some other language.

I do not know what it would be right now, but it is obvious that we need to work with everybody on the Committee because otherwise the Bill is never going to pass the floor.

We don't have anything to work with right now until the study is done, and then I think this body should review it. But thank you so much. Thank you, Madam Chair.

Thank you. And Thank you, Members, for the robust discussion and debate. I think, as Assemblymember Berman noted. Oh, I'm so sorry. We have a couple of other folks who want to continue the robust discussion and debate. Assemblymember Wood.

I'm sorry I missed most of the robust discussion and debate. We were robustly discussing insurance in another Committee. So this, as written, this Bill would go and first of all, you know, I have reservations. So we've had some discussions. So this Bill would go into effect January 2026. If passed, when would this Bill go into effect?

I assume that it goes, yeah, if the Bill passes, it would go into effect. I mean, it doesn't do anything because it wouldn't do anything right away because the flat fee that was already determined by the PUC is not going to go into effect till 2025 or 2026, depending on which IOU you're talking about.

And then at that point the fee can increase by CPI. And so then at 2028. And what I've already said is we are happy to look at the dates this Bill came together, really, because it was, the Bill to overturn 205 was pulled away.

And we put this Bill together to talk about, how do we evaluate what happened? What the flat fee will do to low-income households, to electrification, to our climate change goals? How many people end up with higher bills? We want to evaluate.

We would like to have a report that evaluates all that and have a discussion, which generally in the Legislature is a sunset review. And right now the date is 2028 to do that. But we're happy to move that out further. The main thing is that we want to make sure that there is continued oversight by the Legislature.

Well, I guess part of my concern is you start looking at the dates, if this doesn't go into place until 2026, you're asking for a report by July of 2027. That's not very much time to collect any data. And unless I missed something if I did. But that's what I'm reading from the analysis here.

And then that revoke language that has spurred a lot of discussion here, happens on July 1, 2028, the ability for the Legislature to adjust and do something during our legislative process. It's pretty rare that you get any sort of legislative proposals through the Legislature by July of any year unless it's some urgency process.

The idea is really to have two or three years of data and then the dates again can be adjusted. This is a Bill that we just turned into leg counsel because we were trying to meet the requests of the speaker, and so some of the dates could certainly be changed.

Two or three years, we think, is enough time to be able to evaluate the data and to make sure, because if you have, if you, if you wait too long for this review and it ends up hurting low-income taxpayers in the CARE & FERA plan, we don't necessarily want to keep this plan in place. We would like to see an adjustment.

Well, hasn't SMUD been doing this for years? They have a fixed charge. They've had it for years. I mean.

But SMUD's bills are also 55% lower.

But that's not the point. The point is they've had one for years. And so there's certainly data there to suggest what it might, what the impacts might be. Obviously, populations are different, but there is data.

Well, and what. Maybe you can talk about the.

Oh, to the. I mean, an analysis that was done by Ava Energy, formerly known as East Bay Community Energy, serves Oakland, Livermore, Tracy, and moving into Stockton in 2025. They did do an impact analysis across their 500,000 households to see what the impact of the proposed decision would be and with regards to CARE & FERA programs are showing.

Can you pull your microphone a little closer?

Oh, sorry. I'm too far back. They did not show significant savings for CARE & FERA customers. As a matter of fact, in their existing territory, they saw a marginal increase for the CARE & FERA customers and then approximately a median increase of $75 for the general rate base. So there is some analysis by a CCA, Ava energy.

Okay, well, like I said, I apologize that I missed a lot of the debate here, but I have concerns. I will.

I'm going to be laying off on this today.

Thank you. Assembly Member. Assembly Member Holden. zero, did you, did you want to. Sorry. No, I'll just repeat myself. Okay. All right. Well, once again, I guess I'm struck by a couple of things.

So first, and I think others have, have pointed this out, I really do appreciate the shared focus on affordability and equity that we've heard from both the proponents of this measure as well as the opponents of the measure.

I'm also struck by the fact that the proponents and the opponents have very different analysis and have drawn very different conclusions about what impact the fixed rate charge is going to have on Californians.

And I know, I think it's that uncertainty that, in my mind does make it appropriate for us to ensure that we do evaluate whether or not the fixed rate decision that's been taken by the PUC is working in the ways in which the architects believe that it will and is.

Assembly Member Chava said, we all hope that it will. And so I know that that is very much in the spirit with which the author has brought forward this accountability, this oversight.

I do believe you've heard loud and clear that there are very widespread concerns from Committee Members about the way in which the sunset review and evaluation has been structured.

I trust that you will continue to work both with the opposition as well as with Committee Members, to thread that needle and ensure that there's neither a cliff nor something that is entirely toothless and ignored. I also want to echo points that others have raised.

And I think that the firestorm that this Bill really has set off on both sides, the amount of attention that this measure has received, I think really is a testament, and I think we all need to be listening.

It's a testament to just how frustrated and angry our constituents are about their electricity bills and how much they feel like rates are out of control. Well, this Bill, and I think we all have our own analogies. I mean, this is a Bill that's essentially about, we're fighting over how do we divvy up the pie. Right?

How do we slice the pie? And certainly we want to all, and I know I speak on my behalf of the author, we really want to dig into a fight around how do we start to shrink that pie so that when constituents are opening their bills, they've got a pleasant surprise on the other side.

So look forward to continuing that work with you, with the other Members of the Committee, and. Okay with that. Would you like to close?

All right. Well, I would like to thank this Committee for holding the hearing. And as we saw today, this subject really needed debate a number of years ago. It should not have been passed as a budget trailer Bill.

Legislative oversight is the crux of AB 1999, and this Bill will, as we have talked about many times, will require the PUC to report on the results of the fixed charge and make sure that we are moving in the direction that we want to move. I hope that we can have further discussion. I am certainly open to.

I am open to discussing your concerns if we move forward. And we really need to think about our constituents and doing everything we can, as the chair said, to deal with these runaway utility rates. So with that, I respectfully ask for your. I vote.

Thank you. We need a motion and a second. All right. Motion from assemblymember shiabo second from assemblymember Ting. zero, sorry. Assembly Member Friedman. Second, Assembly Member Ting. Madam Secretary, please call the roll.

[Roll call]

[Roll call]

Okay, 80. That measure is on call, and we will leave the roll open for absent Members to add on. We're going to leave the roll open for five minutes. We're going to then conclude this portion of today's hearing at 340. We're going to take a brief recess and. zero, there we go. Okay.

Madam Secretary, if you can, please.

[Roll call]

All right, 90. That measure is out. What we're going to do now is briefly recess and then transition to the second part of today's proceedings. We are going to begin our oversight hearing at 340. Thank you. First time here at 50.

Good afternoon, and thank you, everyone, for your patience. This is a two parter for the Assembly, utilities, and energy Committee today would like to call this hearing to order.

We are here for an oversight hearing focusing on the activities of the Energy Commission and their new division of Petroleum market oversight in monitoring and reporting on the oil and gasoline industry. The Committee is welcoming the participation of a number of our colleagues who helped negotiate Senate Bill SBX 1.

Two Assembly Members, Irwin, Lee and Garcia, may be joining us at some point to participate. Just a couple of housekeeping measures before we jump into the hearing. As is customary, I will maintain decorum throughout the hearing. Any conduct that disrupts our proceedings will not be permitted. Any individual who is disrupted may be removed.

We will be having public comment at the end of the panelist discussion. For decades, Californians have seen gas prices rise and fluctuate wildly, prices that are much higher than the rest of the nation. These high prices hurt hard working California families, and our constituents are, with reason, frustrated and upset. They want answers. They want solutions.

We're here today for the newly established Division of Petroleum Market Oversight to provide an update on their efforts to monitor the oil and gasoline industry.

Last year's special session provided a number of tools to not only the division, but the Energy Commission, as well as the Department of Tax and Fee Administration to collect data, crunch numbers and come back to the Legislature to share what problems, if any, may be present in the market.

I want to note that we had emphasized at that time our expectation that actions be data driven and examine both the supply and demand that is impacting market behavior. Welcome insights today from the panelists on these points and really look forward to hearing today's discussion.

With that, I will turn it over to any of my colleagues who might wish to make opening remarks. All right, hearing and seeing none. Thank you so much. We've invited the agencies to join us as our first panel and provide us an update on the work that they've been doing. Let's see. I'm going to ask all of the panelists to come on up to the dais, provide opening statements, and then we'll open it up to Committee Members for questions.

We are hearing today from Siva Gunda, the Vice Chair of the California Energy Commission, Tai Milder, the Director of the Division of Petroleum market oversight within the California Energy Commission, and Nicolas Maduros, the Director of the California Department of Tax and Fee Administration. Thank you for joining us. Thank you for your patience. And Vice Chair Gunda, I believe we're going to begin with you.

I'm Siva Gunda, currently serving as the Vice Chair of the California Energy Commission. For the record, and I imagine you have the printed decks with you, so I'm going to keep moving to the next slide, please, before we go into the observations that the agencies are able to pull together just at a high level.

Chair Yu summarized it really well at the start of this. So we have been seeing a number of price spikes, especially we had three over the last five years, leaving out the COVID years. So you have 320192022 and 2023.

We had those spikes that really triggered the conversation around how to make sure we have options and opportunities to reduce those spikes and eliminate them.

One of the core issues that we were able to kind of premise this conversation last year was when the Legislature asked us last year about this time if we could explain what was going on in the market during the price spikes.

We had little to no visibility except some broad strokes that we could observe from the data we had. So we would really like to extend our thanks to the Legislature for giving us the tools, especially on the transparency, which really drives some of the insights we have that we're able to share with you today.

The third element that the Legislature has pointed out last year during the discussions was little to no incentive for the industry to necessarily manage the market, the spikes in the market that we were seeing, and it was essential to understand what is causing those spikes and what can be done.

And there was also an understanding in the SPX 12 that these price spikes, given the overall demand destruction that's happening in the petroleum industry because of our growth in the electric vehicles and other climate measures that the state has been taking, that this is going to be a long road that we have to really think about the transition thoughtfully and ensure the consumers are protected at the end of the day.

And the spirit of SPX 12 is really giving the state agencies some new tools to really kind of point to how do we protect the consumers at the end of the day. With that, the next slide, please.

So this chart just revises the information we've shown you in the past with additional information that we collected in 2023. As you see there, there are two fundamental trends that I want to allude to. But let's just set the chart here.

The top chart in the chart, the top line, the green line, is the California average retail prices. Then you see in red the US average. And finally the difference between them. Two things to observe there. As chair, as you mentioned, it's really time to think through the data driven approach here. Two things to observe.

One, there is a slight divergence between California and the US averages. That was a problem that was noted last year. But more so, these extraordinary spikes that we saw. And what was happening in those spikes, specifically to call out in 2022, that difference between California and the rest of the US was almost $2.59.

And in 2023, that was $2.25. And those were extraordinary highs that needed answers from the agencies. And thank you again for the tools you provided us. Go to the next slide, please. So then, kind of contextualizing the price spikes.

Given that much of the discussion here was to ensure that we have a transparent conversation around the price spikes, it's important to just down the overall price that is seen at the pump into the key components.

So what you see here, this is a dashboard that the Energy Commission has developed since the passage of the Bill last year, where all the data we are gathering is now put publicly, respecting the confidentiality rules.

So what you see there at the bottom four, the flat lines or the flat area curves, is the taxes and fees in California. So it's important to note that that does contribute to the overall price in California. But it's also important to note that it is pretty stable. The price spikes do not come from them.

It is a portion of the overall price, but the price spikes don't come from them. The second element on the top of that is directing your attention to the green portion there. That is the crude oil prices. The crude oil prices that we have in California and the US and the globe broadly, are indexed globally.

So any price spikes that you see on the crude oil front is seen by the rest of the US and California. So those price spikes in the crude oil absolutely contribute to the price of the pump, but that is something we all see across the country.

So now comes the unique portions of what sets California apart in this pricing. So the light blue and the dark blue portions are of interest for us because the rest of the pieces are either stable or are not within the California jurisdiction as it pertains to the crude oil prices.

So the other two are the refinery margins and the retail margins. And it's important to, again, just define them. This is when we talk about refinery margin, we're talking about the acquisition of the crude oil costs. And when they process that and sell it out of the refinery gate at the wholesale, what is that margin?

And that margin fluctuates a lot. And so that is what we are focusing on one part, and the second part is on the top of that. When the retail outlets, they buy that, the wholesale price in a product, the commodity, and then sell it at the retail outlets, and there is a margin on the top of that.

So now, given the focus of those two, we just want to remind again that much of the SPX was looking at the refinery margin, but there is a secondary effect on the retail margin, which I would like to just emphasize, and some of the speakers today are going to emphasize that further. So next slide, please.

So what you're seeing here in blue now is the summation of the taxes, the crude oil and the refinery. So now all we're doing in this one, in the green is isolating the retail portion or the retail margins that contribute to the overall price at the pump.

The importance here that we want to draw your attention to is when there is a spike in the wholesale price of gasoline, refined gasoline, that obviously comes along with the refinery margin. But what it does is it induces a secondary spike in the retail margin.

And this is what we talk about, up like a rocket, down like a feather on the retail side. So when you see a wholesale refined gasoline gallon going up, spiking the retail prices, catch up with that. But when the wholesale spot prices are coming down on the refinery wholesale part, the retail does not come down immediately.

It slowly comes down. So that secondary kind of induction of these refinery spikes, or the margin spikes, really does affect the consumers at the end of the day for a much longer period of time. Next slide, please, and the next slide. So I want to now touch upon just quickly some of the implementation.

The slide deck that we used for the Senate hearing last week is broadly the same deck, but we did, given the timing here, we pared down a little bit, and some of those slides are put in the extra slides for you.

But I will try to summarize a number of our slides, implementation update slides on this one slide here. So when we think about the SPX 1.2, there are broadly six categories of work that the Legislature has asked us to work on.

And the first one, obviously one of the most important ones that we spent the last nine months on is data collection and monitoring and improving our visibility of the industry just at a very high level for those of us who work in data.

It takes a lot of time to, one, get the right data, two, to process it, and then to be able to ask what the missing data is. So it's an iterative process that I want to just highlight for the Legislature here.

That's a work that we do in a very iterative process to ensure that we have the right data.

So up to now, conservatively, we estimate about 15,000 hours, staff hours have been put into developing those data forms, collecting the data that we have as of today, and being able to summarize that in addition to the support that we have from DPML, CDTFA, who are represented here, and some of the consultants we have, obviously, I want to note it here before we jump into the questions.

It's a collective expertise and an all government approach here. All three agencies are working here closely, and to the extent that we need expertise from outside, we have been able to bring in two industry consultants on board to help all of us. Second, I would like to go into the refinery maintenance and monitoring.

This was an important element of the legislation. It expands the CEC's data collection in this area. So we are able to now look up front and say, when are the planned outages happening in a planned maintenance happening? And it's first of all, having a visibility on what those planned maintenance events does to the prices.

I want to note it here that this is a very deliberative process. We have not made any decisions on this particular area other than making sure we fully gather that information. We are closely working with Dir.

Department of Industry Relations to ensure that any data that we are gathering and subsequent action we may take takes into account the safety of the workers and ensure that we are doing that in a very deliberative and careful manner. Third, we were asked to look at the refinery margin.

I'm going to go down and up the refinery margin. We have had two workshops to date where we both gathered some initial framing. What does even putting a gross margin means and what does a cap really do to the overall prices?

We've done two workshops and happy to go into questions on that, but at this point we have multiple testimonies on what that can do, and that's the data that the staff are looking through to provide a recommendation to the Commission later this year.

Another important element on the margin penalty is we have put out what is called an information request from stakeholders. We've requested options on what the Commission should consider in developing the penalty framework, and that has just closed and we're reviewing that information as well.

I will let Director Milder to talk about the market oversight analysis in a little bit and just to kind of touch at the top, given that this problem of the gas price lines and the price spikes and the overall transition of our petroleum products in California is not going to go away, thank the Legislature on asking us to do two policy documents.

One is transportation fuels assessment. This is really the first assessment that the Energy Commission has conducted.

The draft is out, and we are reviewing the comments right now as one laid out the overall ecosystem of the industry, but then put out a bunch of options on the table that could be and can be considered as we move forward into the transition.

The CARB, California Resources Board and us are jointly required to do the transition plan, and the transmission plan is currently being kicked off. And then we have some meetings coming up.

We did one workshop where we presented how the transition plan is going to take the analysis and options from the assessment and going to run through that next slide to provide just a quick summary. Again, this is a chart. We can refer back to this. A number of actions have been taken.

It's been nine months, about 10 months now, since the Bill became a law.

Much of our work early on was to ensure that we provide administrative support in standing up the DPMO, which Director Milder is going to talk about, and that's what CEC is doing as it pertains to DPMO, is one, provide administrative support, but also provide analysis of some of our early data as they were building their team.

So Director Malder and his team can look into some of the data and make some initial observations. As I mentioned, we have now gone through a number of data related proceedings. We have two data related rulemakings that were started, and I will come back to that in question and answers.

And finally, the transition plan has been also kicked off. Again, I'm putting this slightly quickly, so in interest of time, and we'll circle back in q and a with that. I'll pass it to Director Milder to discuss his division, but also some initial observations.

Great. Thank you to the Vice Chair. Thank you to Members of the Committee. My name is Tai Milder. I'm the Director of the new division of Petroleum market Oversight. As we go to the next slide, and actually the one past that as well. We are the independent consumer protection entity within the CEC.

Our mandate is to protect consumers, and that mandate comes directly from the California gas price gouging and transparency law itself. We look for market design flaws, market power abuses, and any other anti competitive conduct. Our mission is broad because the challenge is large. As you know, we've had price spikes in three of the last five years.

The two years without price spikes were during the pandemic when demand fell off of a cliff. On the next chart you'll see how we are building the new division. Our focus is on investigations and economics. We have four investigative council and three professional economists in our chart.

Of the 10 total positions we've already hired, nine, although not all have started work yet. We hope to be fully staffed by the end of June. My own background is in law enforcement and that's the perspective that DPMO will approach our mandate with. We will follow the facts wherever they lead.

We are independent in our decision making and we promote transparency and seek accountability as we move to the next slide. In a moment, we're gonna talk about some of our early observations from our oversight role.

Before doing that, I wanna reiterate this is a data driven approach and we want to thank the CEC for their work and collaboration. Overall, a lot of that data, the lion's share of that data is going through CEC and much of it is new from the transparency tools in the new law.

My comments today are going to focus mostly on the refining sector of the industry. These are large industrial scale operations processing crude oil into transportation fuels, gasoline, diesel, jet fuel among them. In California, four companies control over 90% of our refining capacity, which means it's a highly concentrated market from an economics or an antitrust perspective.

We're going to share three charts with you today and then talk briefly about DPMO's policy recommendations. The first chart here is going to reference the work, which you probably know from Professor Bornstein at UC Berkeley, who's on the panel later, and he'll explain the methodology that he uses.

His work, which is independent from DPMO, has shown that retail gasoline prices in California are inflated even after you account for taxes and fees. That trend, as you see by the vertical red line, started in 2015 following the explosion at a refinery in Torrance, California.

In the years that followed that explosion, the higher retail prices have persisted even between years where we have these price spikes. So we try to demonstrate that those inflated prices with the red arrows there. DPMO is working on identifying the potential causes for these inflated prices from the refinery level to the retail level.

Looking at this chart, the peak, the highest part of the mystery gas surcharge, was also during the gasoline price spikes in 2022, which preceded the passage of the Bill. Some of our early work has been to look at the price spikes to try to understand why they happen and where the profits go during the price spikes.

Turning to our next slide, when we see price spikes, one question that I think a lot of consumers have is where is that money going for those higher prices? We all know that taxes and fees, as the Vice Chair mentioned, are stable from month to month, so the price spikes are not related to taxes and fees.

We're at the early stages of digging into the data, but I asked our economics team to look at the last two price spikes, September 2023 and September 2022. That's what's displayed on this chart. Looking at the data, one trend is immediately clear. Price spikes are profit spikes for the oil industry.

In 2022, the refinery margin went up over 250%. In 2023, it went up almost 220% for the months of September. This refinery margin is where the refinery profits are. It's the difference between the cost of the crude oil and the sales price at what is basically the wholesale level.

Any retail margin is on top of this refinery margin. Some of our refineries in California sell largely at the wholesale level, but some of our biggest refiners do sell at retail. So this chart likely understates their profitability during price spikes.

In our final slide, I'll explain how our team did these calculations and how refiner margins are correlated with retail prices. So I'm going to try and explain what's on this chart, and with apologies, it is sort of small. The bottom chart compares the refinery margin over time.

Our economics team did this by looking back at the refinery margin before 2015, before the first big price spike, and then adjusting for inflation. And the question is, how do refinery profits compare now to when they did in this benchmark period? Again, the orange charts demonstrate that the refinery margin is often up over 200% during price spikes.

We then look to see what was happening at the retail margin when that refinery margin was spiking. That's the top chart with the orange arrows. When those arrows go up, you see prices moving above $5 a gallon, and in 2022, even above $6 a gallon, we are seeing a clear pattern.

Price spikes at the pump coincide with profit spikes at the refinery level. I want to focus your attention in particular on the red box that's highlighted there. These months line up with the Legislature's finding that the extreme price spikes were consistent with opportunistic price gouging in 2022.

If you compare the red box and look down at the refinery margins, you see that's the highest spike in the refinery margin, which was up 257% in September of 2022. These sudden and large increases in price, they're not based on increases in cost because the margin is where the profit comes from.

So I'm going to finish and hand it over to Director Maduros, but I want to highlight some of DPMO's policy recommendations that we've made related to price spikes. In September 2023, we provided an interim update on the gasoline market to the governor's office and to the Legislature.

I'm not going to try and summarize all the details here, but we saw that a single trade on the spot market could spike the market up, the price up by almost 50 cents. And that spot market price quickly translated to the wholesale and then the retail level, meaning prices went up statewide because of one trade.

The underlying core problems that we identified was that there was inadequate inventories of gasoline and blend stocks, which were a result of our refineries creating conditions of undersupply during maintenance. After we issued that public letter, the Governor directed the division to provide policy options for reforming the market, and we did that in January with two central recommendations.

First, we should democratize the data and publish a public spot market report to increase transparency so consumers can see why prices at the pump are going up. Second, there should be minimum inventory and resupply requirements for refiners to help buffer the state against the impact of maintenance. I want to underscore this last point.

Thanks to the new law, refineries are required to report how much substitute supply they are getting from out of state when they are planning to do repairs. That data shed new light on the fact that the refiners were causing conditions of undersupply by not securing adequate replacement supply in 2023 during maintenance.

We saw a similar pattern this spring, and prices rose as well. To reiterate, these policy recommendations are aimed at the refiner level and at addressing price spikes. We are also seeing the persistently high margins at the retail level as Professor Borenstein has focused on, which are not an issue of taxes and fees.

EPMO's analysis at the retail level is ongoing and it's already been the focus of some important work by our colleagues at CDTFA, so I'm happy to turn it over to Director Maduros.

Thank you so much, and thank you Members of the Committee for Having me. I'd also like to give a big thanks to the team at CDTFA and to the Energy Commission for their work in putting out this first gas price report. Also, thank you to industry, many in the industry who cooperated with us in gathering the data.

The report is long. I hope some of you will take the time to look through it, but today I will try to be brief and just hit a few highlights.

This first slide here takes a look at the state's taxes on gasoline, which last fiscal year generated about $8.7 billion, plus an additional 866 million in district sales and use taxes, which were applied in benefit all of our cities and counties around the state.

The structure of these taxes was changed in 2010 with the gas tax swap, which was designed to be revenue neutral. The swap eliminated the state portion of the sales tax on gas. So we have a very Low statewide sales tax on gasoline.

It's just two and a quarter percent, as opposed to the seven and a quarter percent that we pay for other tangible personal property here in the state. At the same time, it increased the excise tax and had it adjusted annually for inflation.

One thing that Lao has noted is that they've projected a 65% drop in the excise tax revenue over the next 10 years as Californians purchase more zero emission vehicles.

So the transition that CEC is working on for the gasoline market is also implicates the transition that the state will have to find in revenue sources to support our transportation transportation infrastructure if we can move on to the next slide. As has been mentioned, our research primarily focused on the retail market. And you can see here the.

Well, you can't see because the print is very small. You can see if you have bionic vision, the range of retail margins, which is the difference between the wholesale price paid by gas stations and the retail price that motorists pay at the pump. A couple of interesting points here.

If you look at the retail margins, they have increased substantially, outpacing the rate of inflation here in the state. And for some of the retail brands, they are now averaging a margin of about a dollar per gallon, which is used to be seen only in price spikes. And now these are annual average retail margins.

You can also see that the price spread between the highest priced gasoline and the lowest priced gasoline has almost tripled over the last 10 years or so. So this is a very good time to be a gasoline station operator in the State of California.

The important thing to notice or to note that I think is, is really important for Californians is that all of this gas is basically the same. It's stored in the same tanks, it's swapped between refiners. It all meets the CARB spec.

If you look online, you'll see consumers worrying about watery gasoline and refusing to buy from certain stations. There's clearly a lot of misunderstanding, and that confusion is costing Californians a lot of money. The only difference is what cleaning additive is mixed in.

Generally at the rack when the truck is loading up with the fuel, all California gas must have an additive approved by the Air Resources Board. Some brands have their own proprietary blends. The data show that these additives may add less than a penny to the wholesale cost of the gasoline.

And yet, if you could see this chart, you could see that, zero, you have it good. It's $0.60 more per gallon.

All of these materials in your packets as well. Thank you.

So, less than a penny and it shows up, as, you know, as much as a 60 cent difference in price. The next slide, just very briefly, we identified a number of additional issues that we will be looking at, just to highlight a few of them. One is the interplay between volatility and high retail margins.

As was mentioned earlier, there's this expression in gas pricing. Up like a rocket, down like a feather. That is certainly what we've seen in the data. Looking at 10 years of price data for every gas station in the State of California every day. When prices increase rapidly, it takes about five days for retail prices to catch up.

When prices drop rapidly, it takes 34 days for the retail prices to come back in line. So given that lingering impact of price spikes, it's really important that the state figure out some way to mitigate these price fluctuations.

Two shift in pricing strategies I mentioned the growing gap, price between, or price gap between highest priced brands and lowest priced brands. We're looking at the data to see how price moves by a single market participant, even at the Low end of the market, can impact pricing throughout the change.

Because if you look at the pricing strategies of the various brands in particular, they all appear to, they're all different, but they all move, sort.

In unison. Three, the impact of local competition. Our preliminary analysis indicates that, on average, having a competing station within a half mile can impact prices by 2.6 cents per gallon to 4.6 cents per gallon, with a greater impact if the nearby station is unbranded, which typically sells at a lower price. Each additional station within that radius decreases prices about 0.7 cents per gallon. So we're continuing to look into that to provide you with more data as the state figures out what to do about the transportation infrastructure here. For the use of new pricing software, gas prices are increasingly driven by commercial pricing software, with algorithms telling sellers what to charge to maximize profits.

It appears that many in the market at all levels are using such software, and concerningly, it appears that many are using the exact same software. So we'll be doing more investigation to that and we'll provide data as we have it. And fifth, retail ownership concentration. Some companies are taking ownership interest in large numbers of California gas stations. The traditional data collection that CEC was doing didn't capture all of this information. So it is one of the areas that we will now have access to. So our teams are assessing the extent and impact of these market shifts. With that, I'll turn it back to Vice Chair Gunda.

Thank you. Director Maduros. So going to the next slide, I would like to now bring the overall insights into one cohesive framing here again. So I again thank Director Maduros and Director Milder for providing insights that they have observed both on the refinery margins, but also the retail margins and how that constitutes into the totality of the prices at the pump.

So I want to go back to one of the slides we started the build discussion with last year and just updated for 2023. What we see here are about five colors or stack of different values, but I would like to direct the Members to just looking at the bottom three and top two differently. So one, just kind of going back to our original framing. The bottom three, whether it's taxes and fees or environmental programs, are pretty stable. So it does not mean that they don't contribute to the prices at the pump, but they don't cause price spikes. That's the key takeaway from that.

And so that is within the context of what we do in California. Two, the crude oil prices. While that contributes to the spikes, we can't mitigate that given that it's globally indexed and anchored. Now then, the two points of focus for us over the conversation the last year and a half has been really looking at the refinery margins and the retail margins. So now I would like to introduce the spot market again into the conversation.

As Director Milder mentioned. Given that the wholesale prices of refined gasoline is indexed to the spot market prices, and as Director Milder mentioned, a single spot market price could move the entirety of the wholesale price up or down. So that is the importance of the spot market. And then because of the refinery margins introducing the retail margin spikes, you have the secondary impact. So it's really important for us to just look at the spot market prices and the importance of that as it pertains to the rest of the discussion. So I'm going to go to the next slide.

So now, bringing that together, sorry, there's a lot of charts here, and we thought this is the best way to kind of provide some of the visual insights here. What you're seeing here are three lines across January 19, sorry, January 2019. And we talked about three spikes over the last five years. The top line, again, is the California retail price. The second one there is the spot market price. So the spot market price could be thought about as the proxy for the wholesale prices of refined gasoline in California. And then at the bottom is the defined margin. So those are the three lines that you're seeing.

And I think visually, beyond the statistics that we are conducting behind the scenes of this data, it is really important to note the clear correlation between those three movements. And the spot market prices moves the refinery margins, and that moves the overall prices at the pump. That's just data. That's what we are seeing. They are statistically correlated.

And the importance of that is, what do the spot market prices, how are the spot market prices themselves moving up, and what are the conditions taking that? And so that moves us to the next slide. And this, I think, is really, again, thanks to the Legislature for giving all the tools we have today to improve the transparency. And again, as we were asked a question like this 14-15 months ago, we really didn't have an answer as to why these were moving. And if there is one chart that I am proud of between the three of us working together is this, and this is data driven.

And there is no ambiguity of this, which what you're seeing here is mass balance. So basically, you're saying, okay, spot market prices are really important for setting the wholesale prices of the defined products. And it's really important then, in terms of secondary effects on the retail margins. So then why is the spot market moving? So what you see here is the data of all the spot market rates, and that those spot market rates could be extremely small. For example, we in California use about a gallon per day per person. About 38 million gallons of refined fuel moves, and about 100,000 gallons could entirely move this up or down.

And so it's important to understand how those spot market prices are set up. And every single entity, whether it's a trader, whether it's a refiner, all the market players are doing this math in their own way, but generally they're seeing the same trend. And what you're seeing here is when the fuel on the horizon between what we have in terms of refining capacity, you remove all the planned outages, you remove all the unplanned outages. You're just looking at what can be refined in California. You're taking that and you're adding to that, how much storage inventory do we have in California?

That's two. And three. How many ships of refined fuel and blend stock are in the ocean near the ports? Those three gives you the idea of how much fuel availability do we have? And then I understand on a weekly level, the demand, the potential demand. And when you normalize that, basically what you're seeing here is when the fuel inventory falls below 16 days, the spot markets prices just spike through the roof. So that's what you're seeing here. So everything contributes to this math.

So how much storage we have, how many ships are circling the coast of California with refined fuel, and how many planned outages do we have? All of that computes into how much fuel liquidity do I have out there? And as the number of days drops down, you see a hockey stick effect. And if there is one thing we want to take away is how do we as a state, with all the tools we have, maintain liquidity of more than 15-16 days worth of fuel in California going into a summer? So that's the takeaway from this chart. Next slide, please. So what are we doing going into the summer?

Given that Director Milder talked about the importance of spot market and the wholesale prices we are now talking about, how do we ensure we protect the consumers this summer? As we've seen between the 2022 and 2023, the 2023 price spikes were a little lower. And we would attribute partly that to transparency and being able for everybody observing this. And I want to take a minute here to talk about some of the good faith discussions we are hoping and we hope we are having with the industry.

The industry has been open in providing some of the data, and they are right now trying to work with us on thinking through how to make sure that there is liquidity in the market. And what can they do to create certain, meet certain targets for the summer. So between transparency and those targets, I think those are the best tools we have today, based on the Bill and based on all the tools you've given us to go into the summer to mitigate those price spikes that are driven by spot market spikes. Next slide.

So now, going into the transportation fuel assessment, I want to close with a couple of slides here. So the fuel assessment then is looking at, okay, we have this problem both in the short term and in the long term. And given that this problem is not going to go away, especially because you have the overall demand is going to continue to reduce in California. We now know from the data that 2017 has been our maximum consumption, and today we have an EV penetration of one in four of new sales, and it's going to continue to go forward.

We expect that as the vehicle miles traveled catches up with that coming to kind of penetration, you could see a pretty significant decline in gasoline usage in California. And market will do what market will do, and the market players will begin to think about whether they want to keep a refinery open in California or not. And that is going to change the overall refining product we have in California. And so that is really what the fuels assessment is trying to do. As you move forward, what are the options, both in the near term and in the long term, to ensure that we are ultimately protecting the consumers of California?

Storage seems to be a very good answer to think about. How do we create more storage of the fuel that will allow us to absorb these spikes and volatility. Fuel blends has been put out by some of the stakeholders on. Given that most of the states in the west have their own unique blends, would a regional blend allow for more liquidity in the market? So that has been put on the table. There are some highly complex ones, whether there is a way to regulate the market in a way, in a cost of service or utility model, those have been presented, and I probably expect you'll hear that from your next panel. How do we ensure imports are actually coming in at a certain rate to allow for the liquidity?

And finally, the demand side strategies. I think demand side strategies are extremely important in terms of ensuring that we have a clear line of sight to what the demand is going to be. Some of the stakeholders have put on some ideas about potential free ridership on transit during the summer months to mitigate directly impact on their household incomes. Especially the low income communities have put that as an important element. So that's what you will see in the transportation fuel assessment and happy to discuss some of those ideas further.

And finally closing off with next steps and timing, we're going to continue our data collection efforts. Market oversight analysis is continuing. As we mentioned, we have some initial thoughts and framing on what a penalty framework could look like. The Commission has not made a decision. We are going to continue to do a couple more workshops, really review all the stakeholder comments and the staff will present some recommendation to the Commission at a future date. The refinery maintenance and monitoring, that's something we talked about.

One of the most important parts is understanding the visibility of the planned outages or the planned maintenance closures. It's important to note that in good faith, if we take the industry's input on good faith, none of the industry players know what the other industry player is doing. So if they do not know, there is no real way to think about if there is any way to optimize, any way to shift those timings without making sure that safety is of our highest priority. If there is wiggle room, the industry would not know that today.

And having the agency have some line of communication and what those outages are and having the ability to discuss with them about the room they have in those planned maintenance is a valuable tool and obviously the penalty will be continued to work on. And we kick started the fuels transition plan.

And as my closing, it's important to kind of note that over the last three years, when we had the price spikes, there was no regulatory paradigm and the price spikes happened. And moving forward, without any regulatory paradigm, we don't have the confidence that those price spikes won't happen. I'm not advocating for any single regulatory paradigm, but it's important to note that the tools that you've given us have at least helped us establish the problem and help us put some solutions on the table for discussion. And we look forward to the engagement with the Legislature and your guidance to think about how best to protect Californians. Thank you.

Thank you. Thank you so much for those comments and for the work that you're doing. Let's go ahead, we'll go ahead and open it up for questions or comments from Committee Members before we move to our next panel. Assemblymember Schiavo.

Thank you so much for this information. We have been waiting with bated breath for this, and I have to apologize. I was out for part of it, but watching on my phone while I was walking over here. And so I just want to make sure what I heard in transit is correct. So I was looking at this one, which is particularly interesting to me and what you said is what the Legislator, what the Legislature believed to be true was true, is that oil companies were greatly profiting off these price spikes that we saw in 2022. Is that correct?

Yes.

Yeah. So and so. And can you explain, again, margins or profits? Is that what you're saying?

So margins already account for the cost of crude oil. That's the biggest input cost on refining. There are other costs associated with refining, but that margin, you can compare it to margins in other parts of the country, for example, is high by any standard. And I think the way to measure it, like apples to apples in California, is to look before the price spikes started in 2015, at least the biggest price spike, and compare the margin and to see it go up by over 200%, I think, only yields that conclusion.

Absolutely. I hearken back to our hearings in this Committee on the Bill last year, and one of the things that the industry kept saying is it was supply and demand, supply and demand, but they control supply. And so then if you can charge as much as you want to by controlling supply, then you can artificially increase the price to wherever you want it to go, basically. Right?

Yeah. I think it's really important also to understand that demand is inelastic, which is an economics term. But what it really means is a low income worker who has to drive to get to their job, may not live near mass transit, doesn't have any choice but to buy gasoline. And so I think it's important to recognize that price spikes hit disproportionately the lower income households the hardest.

Yes, absolutely. And I heard people in my district talking about, you know, not being able to afford to go to work. I have someone who was so grateful that they could work from home because they couldn't afford to drive to work if they had to. The other thing, Mister Gunda, that you raised is around the regulation piece of this. And that until there's regulation, that this will be, that there will be this kind of volatility and these huge spikes in gas prices. And we saw them even this weekend, I feel like there was a big spike. I was driving to an event. And so I was in the Inglewood area, and I saw gas. I got off the highway. It was $6.89 a gallon on Saturday, and the next, and that was at a name brand gas station.

And then the next morning, I drove by the gas station that I used to go to when I had a car that used gas. And I always track where that gas station is because it's usually the lowest. And it was $5.29. So it's over a dollar difference in less than 24 hours. And so I think it speaks to also the concern around retailers really taking advantage of being able to charge exorbitant prices as well. And that's certainly impacting people in our community. I don't know if you have any more comments on that.

Yes, ma'am. Thank you for that. I think. Absolutely. From where we are looking, just starting off with the data and as we present it to you today, and I think it's important to note in good faith discussions with the refining industry. So we at the CEC has a slightly different job. We are trying to look at what can we do to mitigate the price spikes. And if there is market power, market manipulation, we look to DPMO for guidance on those issues. But even in our good faith discussions, I don't think the industry would say they're not making money during the time. Right. It's about then, as you pointed out, it's really around the supply. And I would like to make sure that we kind of have the data driven factual observations. When the market is tight, today the industry does not have incentive to bring in more fuel.

They don't have to do anything illegal. And I would not accuse of that. It's just that they have their contractual agreements that they have to honor. And so when the overall refining capacity goes down, most of the industry meet their contractual obligations. But what we are seeing here is if the overall liquidity in the market goes below just those contractual obligations, we see the spikes. So the question then becomes, just on a fact based process, how do we increase the liquidity in the market? And if there is no market incentive for a market player to increase that liquidity, what can we do within the tools that you've given us and maybe more to help induce that.

Thank you. And it's encouraging to hear that the industry has been speaking and coordinating in good faith or cooperating in good faith. And I think that there, if you were to ask constituents in my community if some regulations, if they would support regulations that would bring the cost of gas down, then they would be all for it. And I feel like that's kind of where people are, at least in my district, is that whatever we can do to bring down the cost of gas, that's what people want to see happen.

And so this data obviously is really critical for us to figure out now what, what policy steps that we can take to make sure that we address, you know, these breaks basically in supply that lead to these huge spikes that really make people suffer trying to figure out how they're going to get gas in their car.

Just on the closure on that one. I just want to reiterate this, the hard stuff for us has been the magnitude of the work and how do we do this quickly but thoughtfully with the industry? We recognize that there is a lot of expertise with the industry on thinking through how to navigate these price spikes. And so what, we will always have different perspectives. Industry, I still feel like there isn't enough time to go through some of these actions that the Commission is considering right now. But we are trying our hardest to ensure that there is public process, there is conversation to ensure at the same time to come to some fact based observations as quickly as we can so we can provide you with the tools that we can support the consumers at the end of the day.

Thank you, Assemblymember Irwin.

Thank you very much. This is, well, at least for Alex and I, very, very exciting, because the way the Legislature has responded in general to these price spikes is a Select Committee, and then we talk a lot and then nothing happens and then the prices go down. And when we were working on this Bill, it was really about data. And then to actually now have the data collected and you're able to do an analysis based on the data, I think is really moving the state in the, in the right direction. So, and I don't know, did you get appointed today? I didn't approve. Did the Senate?

Not unless it happened while we were in here.

Oh, okay. All right. Well, so how large is, how large is DPMO? How many people do you think that you're gonna be having there eventually?

Yeah. But a total of 10 positions, and glad to report that we've filled nine, although not everyone has started, and that's largely professional economists and investigative council with the idea that we're going to follow the data, use the data from the statute to understand what's happening in the market.

Okay. And so, you know, this was really about the excess profits penalty. And, but one of the, one of the things that we, that was in the Bill is to make sure that anything you do does not adversely affect supply or consumer prices. And there's a list of things that you have to be wary of. So I presume that as you're thinking through whether you're going to actually apply this penalty, that you are looking at the effect on consumers. And have we come close to actually triggering the penalty based on the data?

Yeah. So on the penalty, the CEC has the authority to enact the penalty. And so DPMO is giving input on that process. And I think one of the really critical things that the Vice Chair mentioned is incentives. So, usually in a market that's functioning where there's not some type of market failure, often where the market's not as concentrated as the one that we see, is high prices attract more supply.

And so if high prices, though, attracted supply, we wouldn't have seen the problems that we've seen, because the price spikes would get mitigated very quickly by the market itself. So something's not working in the market so that high prices aren't bringing supply in quickly enough. And that's, as the Vice Chair indicated, because the incentives may not be aligned for the refiners to bring in more product because they benefit from the high prices.

So I think, as we look at the margin, the penalty, obviously, just giving input, I think critical to understand, would a potential penalty change those incentives to make refiners actually bring in more product? Because if you can't make astronomical profits on a smaller set of transactions, you have to take a reasonable amount of profit on more transactions. The hope would be that it incentivizes refiners to produce more and to import more. But those are questions that the Energy Commission is going to be addressing with the use of data and experts, and that process is ongoing.

Yeah, I'll just add to it. I think Director Milder really summarized that well. Assemblymember Irwin, again, thank you for your leadership on this. I think the way we are thinking about the penalty, again, ultimately, is what Director Milder mentioned. If the problem statement is more liquidity in the market, will the penalty help increase the slack in the market with more fuel? So we've had two workshops. As we mentioned, we got a number of different comments. We had industry experts weighing in. We had some of the environmental justice community's labor weigh in. Who you'll hear from next.

I think what we have summarized now is there are three ways to think about this, at a minimum and to the point on timing. Later this year, there'll be a recommendation from the staff on this. I think the first point is to Director Milder's point. If there is a cap, by economic theory, it should maximize the refining capacity in California. So the question is, how much more refining capacity do we have, if any, and will it be maximized? So that's the first point. So by maximizing that refining capacity, you'll increase the liquidity.

Two, even if you maximize the refining capacity, if you're not starting with enough inventory to begin with, in a crunch summertime, are we bringing enough imports? Would a penalty increase the imports and increase the overall storage inventory ahead of summer in the planning. So then the question becomes, so if those things are not materializing, and there is diverse opinion on that, and that is what the staff are now continuing to dig into with economists and experts that we have as consultants, the second thing becomes, if a penalty is there, the refinery is not exceeding the penalty, would at least blunt the price spike.

And three, if you decide to go past that penalty, the framework will allow that money to come back to the consumers of California. So those are the three frameworks we are working on. We have good data. There is some divergence of opinion, which we are really - thank again, Director Milder's staff, we have economists on his team, economists on our team, economists that we have under consulting relationships right now really weighing in. And we look forward to briefing you as soon as we have the data.

All right, thank you on that. And Vice Chair, I think we have dumped so much over at the CEC. I hope that you guys are able to handle it all. But certainly so far in this area, it sounds great. And also, of course, with EV charging reliability. But really the most exciting part for me on this was, or one of the very exciting parts was the Transportation Fuels Transition Plan. And I think as we know what happens with the market, the oil companies are continuing to reduce refining capacity as demand decreases.

And then the big concern for us was that if you have low income folks that are not in EV's that they're going to be ending, they're going to be paying higher and higher prices for their fuel. And I didn't think it was really thought through. So I feel that all the answers are going to be coming out of this report. How do we make sure that as we transition that we don't adversely affect our low income communities? Communities. So I don't know if you've had any insight. I know the report is supposed to be completed by the end of the year, but do you think you can find a solution there?

Yeah, absolutely. I think as the assessment kind of lays out, there are a number of options for us to think through. And I don't think that it's going to be one specific silver bullet, but a measure of things that we need to do. And Assemblymember to your point, at the end of the day, we might be in a situation where the state might have to do extraordinary actions as we move forward in protecting the consumers. I would draw parallel to the electricity reliability stuff we have. As the reliability is being challenged to those extreme spikes in demand and winter or summer conditions.

One of the things that the state and the Legislature provided tools as to how do we create that buffer. So I think moving forward, most of our assessment policies, all are triggered towards how do we continue to have that slack in the market, even under uncertain retirements and refining reductions in California. And again, those discussions are happening very well at CARB and CEC. Staff are working together, and we will look forward to providing the transition plan. And I feel optimistic. I think the solutions will be there. It's about how do we implement those solutions?

And I assume, I mean, the industry has to be part of the solution.

Absolutely. And I would again reiterate, much of the work we are doing here under SPX12 is ensure that we are able to answer this body questions when you ask us. And that is about data gathering. And the best we can do is when we work with all the data sources, including the industry, and providing the data to you. And I would reiterate what Director Maduro said, we have had good coordination with the industry on the data gathering, and I understand their concerns and their perspectives. But I think we as a state agency are charged with a single job. How do we protect the consumers? And that's our incentive.

All right. Well, thank you very much. Like I said, I'm kind of a data nerd, so this is really exciting for me.

Assemblymember Lee.

Well, thank you so much to, thank you so much to our panel for being here today. I want to second a lot of the excitement that Assemblymember Irwin has. You know, when we were working on this Bill just slightly over a year ago, we wouldn't have imagined that where we are today. And you have so much data and so much to show for it, and acknowledging that it's been less than a year when everything is really up and running, I think the data and the arguments given today give us a lot of confidence.

And, oh, of course, I want to thank the Chair for inviting me here today to be part of this oversight hearing today, because it's very rare in which we actually get a very quick live status check about legislation that we pass. It's quite rare we often do this, but it's good to be able to do this even early in the process. And some of the questions I was about to ask you are already covered under Assemblymember Irwin's questions, but I thought it was important to reemphasize some of the points you made to the public and to our Committee.

Is that like we had tried to talk about last year, is that the taxes and fees in California are constant. They're a constant flat line. And it's those other factors you saw with the refineries that were up and down correlated with those price spikes. So, especially one of the last graphs you showed. And then, of course, the spot market too, is quite illustrative of the kind of price changes. And I think profitability that we see that a lot of consumers instinctively understood, is that, yes, gasoline, unfortunately, is an inelastic good.

And I think the industry understands by and large, what a California consumer is willing to tolerate, even when it's so intolerable. And I want to commend you for that, because it's really important in that sense that a lot of opponents to the measures that we're trying to do to protect consumers spread a lot of misinformation out there. To say that because of our tax and fees and all these things, suddenly your gas will change from one day to be $7, 6 days to the next is ludicrous.

And I think part of the Bill in which we worked on last year, when envisioned, was to have this data, to tell the truth, and then secondly, to have the watchdog. And I'm really glad to see that while we've had the watchdog and see, even though you're 90% full right now, not 100% full, we haven't seen any extreme spikes like we saw in the last two years, even one single year, we saw two outrageous spikes.

Of course, gas is always going to be subjectively too high for most people because it's an inelastic good. But I think it's important to have that perspective. And one of my own data points and visual aids I wanted to bring too, is to point out for the public, is that our gas companies still made record profits in 2022 especially. And in 2023. In 2023 alone, ExxonMobil profited $36 billion, billion dollars.

And I think Exxon will bring up that up is quite timely because the Federal Trade Commission just last week stop the former Pioneer CEO from sitting on their board because that CEO was found to have been trying to attempting to collude with OPEC to cut production. So this is the kind of behavior that, while I know our esteemed panel are going to be very diplomatic and polite about it, I can say as much more so is that this is the kind of profiting behavior we see, is that if they can constrain deliberately production, whether it's internationally or domestically, they will do so.

Because the fact that the reality isn't the industry knows this, is that the fossil fuel era is going to die out within our own lifetimes. It will be phased out. It will be replaced by lots of different things, and we will have lots of great alternatives. And that transition will be more painful or less painful, depending on the choices we make today. But that is going to be the reality. So I just wanted to reiterate that is, that's the kind of behavior we see into some of the comments made from my colleague, because at the end of the day, these fossil corporations are out to make money. And I'm really glad that we have the watchdog out here.

It's really right now to recommend different behaviors, and I know some of the behaviors you're going to study also about some of the automated price setting software that other retailers use. So there's a lot of courses of investigation that I think will be very useful for us to look at. And hopefully we'll not come to it to have to hit that pricing, that price cap one day.

But I think we are on a really good path to avert that situation one day. But we have a lot of tools and instruments to regulate because without it, like you said, without a regulatory - regulatory framework, we would be completely grappling in the dark and perhaps subject to much more higher price spikes. So I thank you for presenting so much robust data today, and thank you for answering all the questions I already had.

Thank you.

Thank you.