Assembly Standing Committee on Natural Resources

Good afternoon. Good afternoon, everyone. I would like to call to order this Joint Hearing of the Assembly Committees on Utilities and Energy, Transportation and Natural Resources.

We are here today for an informational hearing regarding California's transportation fuels sector, with specific focus on the recommendations that were shared in the June 27 letter from CEC Vice Chair Gunda that sought, and I quote, to ensure that Californians continue to have access to a safe, affordable and reliable supply of transportation fuels and that refiners continue to see the value in serving the California market.

But before we begin and jump into the topic at hand, I have a couple of housekeeping items to briefly review. First, as is customary, I will maintain decorum throughout today's hearing. Any conduct that disrupts our proceedings will not be permitted and any individual who is disruptive may be removed.

Our three committees are joined today by Assemblymembers Addis, Ávila Farías and Gibson, who all have extensive community impact or involvement in these issues. Welcome Members. And as I noted, we are having a three-Committee hearing today. As a result, Members ask for your patience and flexibility if at any point we need to play musical chairs.

Also, in the interest of time, when we jump into the Q and A segment, we'll have a a limited time for each Member to ask questions as we do an initial round and apologize in advance if I cut you off after five minutes. So with that, let's jump into the very important topic of today's hearing.

As we've noted in previous oversight hearings, California's fuel transition plan is one of the most complicated and important challenges that policymakers face must navigate both today and in the decade to come. We certainly do not take this challenge lightly.

The recent decisions by Phillips 66 and Valero to potentially shutter operations of their refineries in Wilmington and Benicia, respectively, provide a pivotal moment in this transition. While many of California's ambitious environmental goals have been signaling this decline for decades, the reality is that the state is largely without a robust, system-wide transition plan.

The California Energy Commission, through the Vice Chair's office, has put forward a multipronged strategy to address both the short and long term impacts of these immediate refinery closures and the larger transition challenge. Today's hearing seeks to understand the solutions that the Administration has put forward.

And I will note before we jump in that it is my goal that we remain focused not just on the very important urgent short term fixes, but also on the longer-term planning that is necessary to ensure that we do not find ourselves playing a never ending game of whack a mole and addressing these in a crisis response.

So with that welcome, Chair Wilson, Chair Bryan and I'll turn to our co-Chairs for their opening remarks.

Thank you. Chair Petrie-Norris. Thank you to the Members of this Committee for prioritizing those times and those new additions to be involved in such a critical conversation. And we find ourselves here really because we are transitioning, but we're also finding that the rate of our transition for petroleum supply does not match the demand.

And that is why this important conversation is happening. As you can imagine as you watch the headlines, especially as it relates to California, there is a lot of major topics happening that we are trying to resolve in the last few weeks of the session. And this is just as critically important.

It involves communities, it involves members of our community, it involves industry that provides jobs. But at the same time it involves what does a clean future look like for us.

What does it look like to have clean air, clean water and a healthy environment that we can leave to our children and ensure that although we might be regressing in other areas, especially as it relates to our federal partners, that we're not regressing in what is critical to our communities and their health and what is critical to California's values.

Now, our transportation fuel market is unique and relatively isolated, partially due to the critical need to address the state's unique air qualities. We also know that in California, refineries are major local employers, providing high risk and often high paying jobs and a robust tax base to their local governments.

Refinery capacity in this state is highly regionalized and consolidated, which adds to the risk of abrupt disruptions during outages. And at the same time, we know that communities located near refineries and oil and gas extraction infrastructure bear the brunt of pollution in the state and have a disproportionate negative health outcome.

But as refineries close and consolidate across the globe, we have to plan for future refinery closers, closures with targeted strategies to support the transition, including stabilizing supply, minimizing price shocks and protecting communities and supporting our workers.

Now, while the state continues to work towards our goals of carbon neutrality, we are facing an historic moment to navigate a managed transition into a zero emission future. And this moment is unprecedented. And we'll take a thoughtful and collaborative approach with all stakeholders present. And I appreciate Vice Chair Gunda for leading those conversations up to this point.

It's important that we navigate smoothly and this hearing is a part of what's making that happen. Thank you.

Thank you. Chair Bryan.

Thank you Madam Chairs and colleagues. And thank you to all of the Folks who came out today, especially those who live near environmental hazards throughout our state and found time in your day to make it up to Sacramento. Our goal is to manage a transition towards cleaner fuels while balancing affordability. And that's no small uncomplicated matter.

California striving to reach carbon neutrality by 2025, which is incredibly ambitious and necessary, but still challenging to achieve.

Over my tenure in the Assembly, we've passed a myriad of laws to reduce our reliance on oil and fossil fuels, reduce and mitigate industrial pollution, establish health and safety protection zones to restrict new drilling near communities, require permanent closures for idle wells, and curb low production wells.

But still our demand on fossil fuels is greater than our transition has been up until this point. We still have some work to do to get this balance right. And I'm looking forward to hearing from you all today in this hearing and grateful to all of my colleagues who could join us here on the dais.

Thank you. All right, so we are going to go ahead and hear from our first panelists. We've invited Professor Emily Grubert from the University of Notre Dame to provide some opening remarks and help us to frame this discussion. I believe Professor Grubert is joining us remotely. Welcome.

Thank you. Thank you, Chairs. And thank you, everyone, for allowing me to come spend a little bit of this afternoon with you. I want to just, in these brief opening remarks, make three big points. And then I really look forward to a conversation, question and answers.

And I should say at the beginning, I'm an associate Professor at Notre Dame and also a consultant to the CEC on some of these transition issues. I think the first thing I want to start with is just to thank you for your work. This is one of these.

The notion of fossil transition is one of these things that is enormously, enormously challenging and enormously global. California is among the first that's actually dealing with many of these questions of managed transition.

And really the particular consideration of how you actually ensure that this is done in a way that protects people and protects the environment, while also ensuring that the process is smooth. California's not alone, but it is early on what this actually looks like.

And so maybe the point that I'd like to emphasize as you do this very difficult work is that this problem is not going to go away. This is not an issue of one or two refineries. It's not even really an issue of nine refineries.

What happens as we think about managed transition in the refining sector is also going to color a lot of how we think about what successful policy looks like as we start to transition, gas-based heating, as we start to transition, the power sector and everywhere else where we use fossil fuels.

As we're trying to think about this smooth managed transition to a future that is likely to be much, much easier to manage once we're no longer in this challenging point of having to manage both fossil and non-fossil systems. So this is important work and it's not going away.

The second major point that I'd like to make right up front is that in general, I think what we see as a pretty consistent thing from other industries, other contexts, and in this one as well, is that the, the public already owns the risk of transition when large facilities go bankrupt or exit suddenly those kinds of things.

If the infrastructure is critical enough that it's actually required to continue to providing services to Californians or anyone else who's affected, there is generally speaking a public obligation to either maintain continuity of operations or otherwise kind of stabilize these systems in a way that means that the liability is already with the public.

This also applies to asset retirement obligations and that in the case of really large industrial sites, that some of the remediation requirements for these facilities is going to be quite large. In the coal industry, we see quite a lot of remediation obligations passing back to the public through bankruptcies and such.

So the public already owns the risk here. And a lot of the policy options that I think we think about deeply on the research side are really how the public can also own some of the benefit of a well-managed transition.

And then I think the third point that I'd like to start with is just this really does set the tone. How the State of California deals with the transition of refining really is going to inform the way that many, many other transitions occur.

I think it was mentioned in the opening remarks a moment ago that it would be good not to have to deal with this in crisis mode every time. So again, this is not the question of one or two refineries. This is really the entire fossil system.

And I think we are going to see that what happens here is going to inform how additional industries and additional facilities think about what they might be able to do.

So in a setting where there is the potential for pretty significant extractivism in terms of requiring state funding and such for stabilizing some of these markets, I think a major question to keep in mind is just what the state is getting in return for some of this activity. So thank you very much, I look forward to questions.

Thank you, Professor. We appreciate you joining us. Members what we're going to do is hear from the panelists from our next panel before we then open it up for questions for Professor Grubert as well as our other panelists. So we'll go ahead now and welcome.

Let's see, we have invited CARB Chair Liane Randolph, CEC Vice Chair, Siva Gunda, Department of Conservation Director Jennifer Lucchesi and Mayor of Benicia, Steve Young. Welcome. Thank you so much for being here.

Good afternoon and thank you for having us. I am going to start with a presentation to sort of kind of set the stage for where we are today. I'm Liane Randolph. I am the Chair of the California Air Resources Board and I appreciate the opportunity to talk about California's transportation fuel market.

CARB is charged with protecting the public from the harmful effects of air pollution and developing programs and actions to fight climate change. Many of the strategies we use to address climate change are the same strategies that will also improve air quality and public health.

Fossil fuel use in vehicle is the single biggest source of climate and air pollution in the state and accordingly, CARB's regulations are designed to decrease demand for fossil fuel. Let's go to the slides. I can continue on while the slides are going. Okay.

All of this began with AB 32, which requires fuel use to be cut drastically to reach the goals in statute. Those emissions reductions primarily come from zero emission cars, trucks and clean fuels. Our clean vehicle programs include rules to advance zero emission vehicle deployment and incentives which are increasingly important in light of current federal disruption.

The Low Carbon Fuel Standard, or LCFS is a critical part of the state's approach to making fuel less polluting by encouraging the production of cleaner alternatives which are needed to displace fossil fuels and reduce transportation sector emissions.

Together with our sister agencies, we are engaged in ongoing collaboration, communication and planning needed to move smoothly through this transition process. The transportation sector, let's go to the next slide, remains the largest source of California's manmade greenhouse gas emissions, accounting for over 50% when you include extraction.

Transportation is also the dominant source of NOx emissions, which are a major component of what creates smog. Heavy-duty vehicles like trucks, buses, trains, ships and planes account for over 60% of the state's NOx emissions, heavily impacting major transportation corridors. Next slide.

The US EPA sets health based air quality standard and despite major challenges, we have seen incredible improvement. NOx emissions have dropped nearly 70% since the 1970s due to California's vehicle rules, which have directly resulted in the development of major technological advancements.

This chart shows the progress we've made in the last 20 years and how far we still need to go. Next slide. CARB and the air districts also seek to reduce risk from exposure to air toxics, which come from refineries, smaller sources like gas stations, and mobile sources like diesel trucks.

Our air toxics programs began in 1983 and has since identified over 200 substances that are hazardous to human health, including lead, benzene, toluene, asbestos, and other toxics. We have adopted numerous regulations to reduce emissions and exposure, including limiting the levels of benzene in gasoline and phasing out the use of carcinogens at dry cleaners.

Today, the state's efforts continue to focus on reducing emissions of diesel particulates, which account for 70% of total known cancer risks related to toxic air contaminants. Next slide California has been regulating gasoline to reduce air pollution since 1971, when the reality of smog and the solution to reducing it became clear.

Our standards for gasoline have been tightened several times, addressing emerging environmental concerns such as removing lead in 1974 and phasing out MTBE in 1999. The fuel standards we use today were first established in 2000 by CARB and have provided significant reductions in ozone forming pollutants. The last revision to our reformulated gasoline Standard was in 2007.

Next Slide. California has two different blends of fuel known as summer blend and winter blend. Summer fuel has a volatility limit to help limit ozone formation, which is another major component of what creates smog. When controlling ozone formation is less critical to meeting air quality standards, the state uses winter blend, which is cheaper.

The use of these fuels is included in the state's implementation plan to achieve federally mandated air quality goals, making the use of that fuel required. Next slide. Despite our success reducing NOx emissions and toxic air contaminants, more work is needed.

More than 18 million Californians live in areas that exceed federal ozone standards, and five of the 10 cities with the worst air quality are in California.

Over 5,000 premature deaths occur as a result of exposure to PM 2.5 pollution, which is mostly produced by mobile sources, and the impacts of those health exposures disproportionately affect low income and disadvantaged communities. Next slide.

We, of course need to discuss the illegal approval of the Congressional Review act resolutions by the U.S. Senate, purporting to disapprove California's Clean Air act waivers for our clean car and clean truck programs.

We are in litigation on this topic and we are confident we will prevail, but it will take years to achieve that resolution and in the meantime, we need to ensure that we continue to make progress.

We recently issued a joint agency report that identified several options for the Legislature to consider that are actions that are not subject to federal authority, including the indirect source rule for large, multipoint sources of air pollution and additional incentives that will be important to drive voluntary action that will offset some of the expected emissions results that we have lost.

Can we go to the previous slide? Okay.

While much of this presentation discusses the air quality and climate benefits of this fuels transition, as we are talking about the air pollution that we are trying to address, it's really important to note that the federal Clean Air act requires the US EPA to set national ambient air quality standards that get reevaluated every five years.

Many of our climate regulations are included in the state implementation plan to achieve these standards. So inaction or loosening of these regulations, including our regulations around light duty and heavy-duty vehicles, could result in failing to meet these standards.

And there are various consequences for failing to meet these standards, such as stationary sources, such as sanctions on stationary sources and the loss of federal highway funding. These sanctions are not theoretical. In October of last year, we were days away from highway sanctions in the San Joaquin Valley.

We were able to resolve that issue, but that threat is real and that was under a friendly Administration. Okay, now let's go to the next slide. I think it's important to acknowledge that California's work is the result of legislative direction. AB 32, as I mentioned, established the state's first climate targets for 2020, which were achieved six years early.

And most recently, the Legislature adopted a new climate goal of carbon neutrality by 2045. And every five years, CARB updates its scoping plan that outlines how to achieve those climate targets. Next slide. In recent years, the Governor and Legislature worked together to pass a suite of climate legislation targeted at carbon neutrality and carbon dioxide removal.

And CARB staff have taken these new statutory requirements outlined here. They are reflected in the most recent 2022 Scoping Plan update.

They include establishing carbon neutrality as a goal, as I mentioned, establishing interim clean electricity targets to achieve SB 100, establishing a carbon capture utilization and storage program, establishing health protective zones around oil and gas infrastructure, which we will discuss, and providing direction on incorporating clean hydrogen and natural and working lands in the state's carbon neutrality efforts. Next slide.

The Low Carbon Fuel Standard was created as an early action measure under AB 32.

The adoption of LCFS and each set of amendments to the regulation was conducted with a robust public process, including multi-year informal rulemaking processes as well as the formal one-year rulemaking process. That included the development of a standardized regulatory impact assessment which evaluates our the economic impact of the regulation on the state's economy.

And as with all of our AB 32 measures, the low carbon fuel standard is required to be technologically feasible and cost-effective, and it's a key tool to transforming the state's fuel market. It establishes an annual declining carbon intensity target for transportation fuels, shown in this chart.

The lower carbon or cleaner the fuel is, the more credits it can generate. Fuels that exceed the standard generate deficits. Fuel providers then purchase credits to equal their deficits.

This creates an incentive for all fuels to reduce their carbon intensity as well as the introduction of clean fuels to provide a source of credits. Since the inception of the program, next slide, LCFS has provided many benefits to support California's clean air and climate goals, including displacing over 31 billion gallons of petroleum fuels with low carbon fuels and generating $4 billion annually to support low carbon investments, including transit.

It gives consumer options with over 200 fuel providers now in the program, I have to note we heard dire predictions that the most recent set of amendments to the program would result in skyrocketing prices at the pump. Those amendments came into force on July 1, 2025 and those dire predictions have not materialized.

At the end of June, gas prices In California averaged $4.56. At the start of this month, the average price was $4.39. We know the main input for California fuel prices is the cost of unrefined petroleum.

However, as Director Milder of the Department of Petroleum Market Oversight, or DPMO, made clear at a hearing earlier this year, the mystery gasoline surcharge is unrelated to California's environmental requirements, but instead likely related to concentration of market power within the refining sector.

So as we consider how to ensure a transition to a zero emission transportation future, I think it's really important to be keeping our perspective on the major drivers of fuel costs for Californians.

While the state remains committed to these climate goals, it is clear that a stable and fair fuels market is needed during the transition to achieve these goals. And the low carbon fuel standard can help with that transition by encouraging the development and proliferation of cleaner fuels.

Next slide. This slide shows how we expect the transportation mix to evolve over time.

Our current transportation mix system relies heavily on fossil fuels, but even with a rapid transition to zero emission vehicles, given the useful life of vehicles and the fact that clean vehicle regulatory requirements phase in over time, we know that conventional internal combustion vehicles will remain on the road for some time and some equipment types are only now in the initial stages of development of zero emission technology and will require liquid fuels for the foreseeable future.

So you see on the right of the chart that we don't expect to completely replace our fossil fuel use with just electrification and hydrogen.

We know there will be continued need for liquid fuels in the future and even in the near term there's an opportunity for in-state production of sustainable aviation fuel to free up capacity to produce traditional gasoline to meet current demand.

Next slide. Analysis from the state's 2022 Scoping Plan show that altogether these efforts will reduce air pollution associated with fossil fuel combustion by 71% compared to 2020 and that will help public health. Next slide. Much of the benefits we are discussing come from the reduction in demand for fossil fuels used in cars and trucks, but we also expect that as demand for fossil fuels declines and changes, that the supply system will also shift and change.

Even with cuts in gasoline and diesel demand, ongoing demand is expected from other sectors including aviation fuel, ocean-going vessels, off-road fuel, fuel exports, hydrogen generation and refining co products. Next slide.

Finally, I know there has been substantial interest in our at-birth regulation, so I'd like to touch on it briefly before handing the mic over to Vice Chair Gunda. CARB's 2020 at birth regulation is designed to reduce emissions from ocean going vessels while they are docked at California ports.

The 2020 amendments build on a 2007 regulation that achieved an 80% reduction in criteria pollutant emissions from cruise ships, container ships and reefer tanker vessels. The 2020 updated regulation went into effect January 1st of 2025 at the ports of Los Angeles and Long Beach and tanker visits and fuel import volumes remain unaffected.

Tanker emission reduction requirements will extend statewide January 1, 2027. You will note that there was a five-year lag between the first compliance state and a second year lag for the second compliance date.

That lag was intended to recognize that these are complex vessels that will require complex emissions reduction strategies and the number of emissions capture systems on the market to address the needs of those vessels is increasing in partly as a result of CARB's process to approve and deploy systems.

Currently, six approved emissions capture systems are actively being used for compliance. Technology providers are expanding treatment capacity to control more auxiliary engines per vessel and to control boiler emissions. CARB cannot and does not turn tanker vessels away.

We are monitoring the CEC's petroleum industry reports including the weekly Fuels Watch report on refinery stock. Since implementation for tankers began visits and fuel import volumes remain unaffected.

I will note there is existing litigation on the at-birth rule, and we are continuing discussions with the parties to that litigation about how to resolve issues around at-birth. So that is the status of our current work to achieve our legislative, air quality and climate goals.

And now I will turn the mic over to Vice Chair Gunda.

Thank you. Chair Randolph. Good afternoon, chairs of the committees and the Members. Thank you for the opportunity to be here. I'm Siva Gunda with the California Energy Commission, and I'm going to go over some of the impacts to the market. And how best to stabilize the market. Next slide, please.

So, as the slides are being pulled up, I think most of you have the printouts. The first few slides are really recognizing some of the opening comments that were made by the chairs of the Committee. It is, as you look at the first plot that might be in front of you, there are two lines on the plot.

Should I just wait—just for a second? Okay. On the first slide, we have two lines on it, and the first one, that shows in pink, is the gasoline demand in California.

If we look all the way back to a decade ago, the peak of California's demand occurred around 2007–2008, and as it was going up, you had the 2008 financial crisis. And then, you see a dip in the demand.

But, in recent times, the peak in California happened in 2017, and since then, the demand in California has been going down.

But I also want to note that, given that many of our refineries support the fuel supply in Nevada and Arizona, when we look at the total demand of gasoline coming out of California refineries supporting the western region, the peak has happened in 2019—and even that is beginning to go down.

So now I'm kind of moving forward with—yeah, great, awesome. So just, you know, that's the chart we just spoke about. Going into the next slide, please—what the next slide shows. I'm going to keep working through this.

So, as you will see in the next slide, the slide is looking at how the supply in California, in terms of refining capacity, is changing over time.

And one of the key points that the chairs have made earlier in their opening remarks is: the supply of the refining capacity in California is going down faster than the demand for the fuels that we supply in the West. So—next slide.

So, furthermore, as we think about the system as a whole, and we are looking at the upstream crude oil—and just reminding everybody that we have crude oil coming into the refineries that then converts into refined fuels in California.

The upstream crude oil in California, coming from California, has also been declining at a much faster rate than the demand. So, as we look at those three things—going to the next slide—as we pull all of those three things together, one of their consequences that we begin to see on the system is the price spikes.

Something that the Legislature has spent a lot of time thinking through—how best to protect the consumers. But that mismatch of in-state demand, and the in-state refining capacity, and in-state crude oil are all connected to the price at the pump and have direct consequences.

And I just want to note—and thank the Legislature—for the many tools that were given to the Energy Commission. And I also want to uplift that you've asked us to really think about prudent usage of those tools and put a lot of guardrails on how best to use them.

To date, the Energy Commission has fundamentally focused on transparency and getting more data to understand the industry before we deploy additional regulatory tools. Next slide, please. Next slide, please. Okay, so now, kind of bringing down to what's happening in terms of the demand and the supply of refining capacity in California—let's.

Let me just kind of set you up on this. The bottom, in green, are Southern California refineries. So, each bar is the capacity of each of those refineries. The ones in blue are Northern California. And what you have on the top are those that have either converted away from refining fuel or have indicated closures.

So, one of the things that is very evident from the chart is the gap between the demand and in-state refining capacity. And what you see in shaded yellow, between the overall demand and the refining capacity, is our dependence on imports.

Today, we get about 10 to 20% of our demand being met by imports, depending on the month of the year. As you move forward, one of the critical things that we all have to focus on is: we'll have a lot more dependency on imports, regardless of what refining capacity stays in California.

And as we—as Dr. Grubert mentioned earlier, and the chairs of the Committee commented—one of the core impacts that we need to think about is: as these refineries go down, it not only impacts the supply and potentially the prices at the pump, it also impacts local communities, labor, and such.

And thinking about a holistic plan is really important. And after Valero's announcement in April of this year, the Governor sent the Energy Commission a letter, really asking us to redouble our efforts to make sure we have a clear transition plan and stabilization of the industry.

And I'm going to talk about some of the recommendations in that letter that we sent back to the Governor. Next slide, please. So, as we started working through the response to the Governor, one of the first things we wanted to do is continue to take advantage of the transparency tools that the Legislature has provided us.

And I want to thank, here, the industry for continuing to collaborate with us to provide critical information to us—confidentially, of course—but continuing to advance the conversation to develop more transparency of the industry as a whole.

Second, there has been a cross-agency task force that has been established by Secretary Crawford and Garcia from EPA and CNRA. And we have been meeting since February of this year to really de-silo the conversations between the entire state apparatus, and one of the critical parts of our conversation was getting their input into developing the letter.

And finally, we mentioned this in the past: we had roundtables with all the impacted communities and stakeholders.

And I just want to take a minute to thank all those Members who've sat with us in those roundtables—sometimes 10 hours at a time—and really provided information to understand the overall and holistic impact of the transition, and how best to develop recommendations.

One of the pieces that I'll show you in the letter that we've put forward is, really, from the Energy Commission's perspective and from our office's perspective. One of the most important things for us was to faithfully represent those discussions and make sure that we provide a holistic view to you as you continue your deliberations on what was said in the room, and what are some of the recommendations that came out in the room.

Next slide, please. So, before we go into the recommendations—pretty quickly—the kind of conversation of prices at the pump kind of extended into the entire ecosystem.

There are several parts of the ecosystem, and I want to make sure that we just take a minute to think this through—because oftentimes, there is a confusion in the conversation here. There is an upstream element. So, we are talking about crude oil production.

And then it comes down to the refineries—and the refineries, whether they use California crude or imported crude. And then, there is a passage of that refined fuel into the distribution side. Currently, we import over 65%, close to 75% of our crude oil from elsewhere.

So, I just want to make sure I note that 75%—roughly 75%—of our crude oil consumption in California comes from outside of California. And as we move down the chain, much of that is converted to refined fuels, and about 80 to 90% of the refined fuels in California come from California.

But we still depend on 10 to 20% of imports on refined fuel as well. So, just want to make sure those two distinctions. And finally, as we move down the value chain, there is this whole discussion we've had around consumer protection—on how the price at the pump gets made. Next slide, please.

So, just to make sure that we dig further into the crude oil—and again, as we showed in the previous overall picture—there are several parts of that infrastructure that are critical, in the sense that they're brittle.

So, you cannot say to some parts of that infrastructure, “You cannot bring it down to 10% consumption or 20% usage”—and they either are there or not there.

So, the most important part of the ecosystem is: we need to think about which parts of that critical infrastructure have to be maintained in order to have a stable supply at the pump.

So, as we think about the crude oil—and I just want to talk about the impact of the crude oil—what you see here is: looking at 1989 or so, when we had the highest crude oil usage in California, to now, the overall demand for crude oil has gone down 28%.

While that happened, our reliance on California crude has dropped by 65%, and the rest of it is being made through imports of crude oil.

The impact of this chart is given that much of the infrastructure that connects us from the wells all the way to the refineries and downstream, those pipelines that connect crude oil to the refineries are now approaching critical low levels. And that means some of those operators, for either business case or safety or reliability, could shut down.

And that directly makes us recognize the importance of stabilizing the crude oil volume to then stabilize those pipeline systems. Next slide, please. So this was just put in there for your record and we can talk about this in Q and A if you have more questions.

But at a top level, want to just recognize that there are three systems, pipeline systems that are now that we rely on. One goes from Central Valley to San Francisco area where we have refineries, Central Valley to Los Angeles and Central coast to Los Angeles. Those are the three pipeline systems that we're talking about.

And because of economic and physical volumes that they can carry, there's two things happening. One, they either need to shut them down or if it's a common carrier, they will have to go to CPUC to, to get an increase in the rates that they can charge for transport of that volume.

So in either case we will have this trouble of that cost being passed on to the pump. Next slide please. So again, thanks to Professor Grubert who spoke at the top. I really want to commend her and thank her scholarly work for helping us frame this conversation.

When we take all the information that we were just presented to you, California has had significant success in climate targets and health targets. That is evident from the chart that we showed you earlier, which is bending the demand. We have hit maturity and the demand in California for fossil fuels is going to continue to go down.

As you think about that transition, what we call in scholarly work, again to Dr. Grubert's work, this is called the mid transition. The mid transition is basically when you have the legacy system, while declining, has still a significant part of the market to be serving. So we have demand in petroleum going down, but it's still very significant.

At the same time you have the new emerging technologies, the Clean Energy Technologies that are coming up but have not achieved full scale. So what this mid transition requires is three things. One, continued investments in the legacy system, ensuring that the market has confidence to invest in that legacy system. Two, we double down our efforts.

Two, continue to put money and effort towards scaling the emerging system. And three, a proactive planning to make sure that this crisis does not impact our local communities and vulnerable and workers. And so all those three things have to be done now so that we don't continue to react to this in crisis. Next slide.

So this is my last slide and I just want to make sure I thank the roundtable Members for their incredible hard work on making sure we put these recommendations in front of the Governor. So we put our solutions in three buckets and I want to make sure that those three buckets are not or buckets. They're and buckets.

We agreed that all these conversations, the interests that are laid out here are interests that really are from the diverse stakeholders we have. Industry has a lot of input on making sure the industry investments are stabilized. We as state agencies have a lot of interest in making sure the supply and the consumers are protected.

But at the same time the long term transition is done.

So just to kind of give a quick check on this on bucket number one is about given that Valero has given notice and I want to just note that if Valero were to close next year in April as they've indicated, we will have only two refineries in the north and that will reduce the resiliency in the north.

Again, as these retirements happen, the market will solve for itself. And we are seeing that. We will continue to see that. But while the market tries to solve it in the short term, we will have the transition periods where the market is still trying to figure out. And that's where we are most exposed.

And it's important for us to proactively whether Valero chooses to continue to operate or not. It's important for us to make sure that the long term transition to a significant part of our fuel coming from imports is debottlenecked actively and proactively.

That's 1A and then going into the second one we're continuing to have conversations with Valero and they're confidential in nature. So I'm going to hold that here in second bucket is primarily focused on making sure the industry entire value chain feels confidence to continue their investments in California.

This is the fossil infrastructure that requires stabilization of crude oil and the reasons behind it that I mentioned a few minutes ago. And a colleague, Director Lucchese, will talk about the proposal from the Administration. Second, we need to harmonize some of the state regulatory tools with the MID transition.

And as Chair Randolph mentioned, CARB is looking at some of the tools that they have in their hands. And from Cec's perspective, one of the tools that the industry has talked about as one of the most destabilizing for them from investor confidence point of view is the penalty cap, the margin cap. We are working with the industry.

We have a business meeting set up on the 29th and and the staff intend to bring that's August 29th in 10 days intend to bring a resolution putting out a resolution for a margin cap pause.

And the length of the pause and the exact context of the pause are continuing to be debated right now and we expect the staff to bring it up for a vote on the 29th and the 3rd.

For local districts, it was an important part that there is a discrepancy sometimes between a districts in a local agencies, regional agencies and state agencies.

And in order to harmonize our efforts, Chair Randolph and I started conversations with aid districts and other local agencies to form informal working groups to make sure we are aligned as we move forward in this transition. And finally, I want to just make sure I uplift the bucket. 3 that's what we call them.

The last section, the holistic transition. It is really important for me to faithfully represent the conversations in the room that we've had that these are really important for labor and communities.

As Professor Grubert mentioned, when industries, fossil industries we've seen in coal and other places in the world, when they shut down, the impacts are quickly passed to the communities. It's important for us to actively think about what what are the measures we are going to take to ensure we protect them.

These have many recommendations in our letter, but three key points. It's around funding the transition and making sure the communities and the worker transition continues to happen. Second, in terms of liability, what do we do? As Professor Grubert mentioned, as refineries leave, to the extent that there is liability that's going to be passed on to the communities.

How do we actively engage in regulatory forums to allow for that to not fall on them? And finally, the health and safety. So I'm here to answer more questions when we're ready. But with that I'll pass it to Lucchesi.

Good afternoon. Thank you for the opportunity to speak with you all about the administration's petroleum market stabilization proposal. My name is Jennifer Lucchese. I'm the Director of the Department of Conservation. We host CalGEM, the state's oil and gas regulator. Next or our first slide? It would have been the next slide after Vice Chair Gunda's. There we go. Thank you.

As Vice Chair Gunda explained, the Administration is taking a comprehensive approach to stabilizing the petroleum market system in this mid transition period. Building on the critical environmental protection and public health goals and policies established by the Legislature.

The central objective of this proposal is to return California crude production to 125 million barrels a year stabilization target in order to sustain our interstate pipeline system and ensure a more reliable domestic crude supply for our refineries. Again, during this mid transition phase. This proposal includes four components.

It codifies our regulations banning well stimulation treatments, also known as hydraulic fracturing. It protects the Kern county permitting ordinance and associated EIR from further litigation risk so it can be implemented immediately. It creates a narrow temporary CEQA exemption for new drill permits in existing oil fields.

Paired with a 2 for 1 plug and abandonment framework that creates an incentive to seal wells in neighborhoods. And finally, it strengthens and affirms requirements for spill prevention, financial responsibility, coastal development permits and safety testing for oil pipelines. I will not go into detail on this last component.

My colleagues from our partner agencies with responsibility to implement these components are available to answer questions. Next slide, please. So, how does this proposal meet our stabilization goals? This chart shows our estimate of how these proposals could reverse the in state crude production Decline starting in 2026.

As you can see, the production trend rises initially and then declines at a slower rate. The chart shows the 125 million barrels a year stabilization target. And the chart includes the anticipated decline from 2021 under a status quo scenario compared to our projection of production. With implementation of this proposal beginning on January 12026.

The Green Line is a statewide projection. The Magneta Magenta excuse me line represents the Kern County projection. As you can see, the components of the proposal are a critical piece to stabilizing the petroleum market during this managed transition. There are also a few critical assumptions made in putting this projection together identified on the slide.

I'm happy to take questions on. In reality, many factors, including the price of oil, operator decisions, rig and equipment availability, and labor supply will influence annual production levels and the demand for new well permits. Next slide, please.

This proposal codifies the state's regulation prohibiting the issuance of permits for well stimulation treatments or hydraulic fracturing that went into effect in 2024. This is as straightforward as it seems. There are no proposed changes other than to codify the existing regulatory prohibition. Next slide please.

The next aspect of the proposal is the statutory validation of the environmental document associated with the recently adopted Kern County ordinance governing oil and gas permitting. This will resolve the decade long litigation allowing permitting in Kern County to move forward.

We've included a brief overview of the Kern County ordinance on this slide, recognizing there is much more detail in the ordinance and in the EIR, including 87 mitigation measures to improve air and water quality. The boundary of the Kern ordinance covers the unincorporated area of Kern. County.

Importantly, this ordinance recognizes the 3200 foot health protection zone set by the Legislature in SB 1137 and excludes county permits for drilling within those boundaries. This preserves the public health, safety and environmental objectives built into SB 1137. Next slide please.

While Kern county is by far the largest production area in California, the proposal also provides for contributions to the production stabilization efforts in other oil producing regions of the state.

The 2 for 1 plug to drill proposal is designed to support the parallel goals of reducing public health and safety risks from marginal oil wells and helping the state success successfully navigate this critical period in our energy transition by requiring two existing wells to permanently be sealed for every new well drilled.

It further requires that one of the permanently plugged wells will be in the same oil field as the new well and the other must be inside a health protection zone. The sealed wells also cannot be used to comply with other requirements, including commitments under operator idle well management plans. Next slide please.

For the new wells, the proposal requires the following the new wells cannot be part of a project with a valid CEQA document. This means wells inside the jurisdiction of the current ordinance are ineligible for the 2 for 1 program, as are wells that may be subject to other local ordinances.

They must be located within existing onshore established oil fields and outside of health professionals protection zones. They must be in addition, the application for a new well must not require an individual take permit for state or federally protected species or require a streambed alteration permit.

The last requirement is that the new well cannot be in a location where cultural or historic resources are present. This is a statewide proposal. However, it limits new wells to existing historically established oil fields so it will not contribute to new exploration or a large proliferation of new wells outside of current production areas. Next slide please.

We included this map to help visualize the geographic scope of Kern's ordinance as outlined in red and the areas within Kern county that would be eligible for new wells under this two for one component, the ordinance would primarily affect the oil producing west side of the county inside that red boundary.

All of the gray areas represent the areas within the jurisdiction of the Kern ordinance. The orange areas represent the potential existing oil fields that would be available for new wells under the plug to drill component.

Given the conditions of eligibility for this component, the potential universe will likely shrink Next slide please as an illustration, this slide shows the top five oil producing counties in California in 2024, along with the orange shaded areas indicating where there are existing oil fields outside of health protection zones that are potential locations for new wells.

For context, we've also included a snapshot of the current number of active and idle wells in each county which may be eligible to be sealed. In total, the State has over 86,000 active and idle wells, with the majority of them located in Kern. County.

Under this two for one component of the proposal, the number of active and idle wells will be reduced while achieving our stabilization objectives.

In summary, the intent of this proposal is to achieve market stabilization goals while preserving and advancing crucial public health and environmental protection policies and respecting local government decision making while reducing our overall inventory of active and idle wells.

In closing, I want to thank you not only for the opportunity to speak with you today, but for your meaningful engagement and important questions building off the comprehensive and and thoughtful work of Vice Chair Gunda and his team around this extremely critical and complex mid transition phase of our energy transition.

And with that I'll either turn it over to you Chair Petrie-Norris, or to the Mayor.

Thank you Director. Thank you to all of our panelists who have joined us thus far. I think we will go ahead and hear from Mayor Young and then we'll open it up for Member questions. Welcome. Thank you for being here.

Thank you for the opportunity to testify. This is a fraught time for our state as we contemplate life with less oil refineries and gasoline and the challenge about a transition to a cleaner future without saddling the people of California with significantly higher gas prices.

I'm the Mayor of Benicia, a community of 27,000 people on the shores of the Carquine Straits in southern Solano County. With the exception of Chair Wilson, who's our representative, you may not know that Benicia was in 1853 the state capital before it moved to Sacramento.

We are also the home of Valero and Valero is our biggest employer, our biggest taxpayer, and although they don't pay any sales tax because they are a wholesale operation. They do pay property tax and utility user tax, and they buy over half of our water that they use in their processing operation.

The closure that seems certain will result in losses to the city directly of about 10 to 12 $1.0 million a year. And we are not a big city where we can easily absorb that kind of a hit.

We have engaged an economics firm to fine tune that number, and we're going to have a little bit more accurate information available to the community shortly. We were surprised, as anyone by the announcement by Valero in April that they would be closing in April of 26.

After a day of trying to understand the reality of the situation, the council took an immediate action to create four different task forces to look at the impacts of the closure on the community. One of them was to look at the impact on surrounding businesses in the industrial park.

There are a number of businesses for whom Valero is their only customer. So when Velero closes, they are likely to either close or they're going to have to scramble to find new customers. There's also the impact.

Another task force looked at the impact on secondary beneficiaries, if you will, restaurants, hotels, and also nonprofit organizations and sports teams and others who are recipients of Valero's contributions for various community events. And finally, we wanted to look at what is the future, what could be the future of the 900 acres that they own.

Because when they leave, we have to be prepared to have a plan in place for moving forward. And there are lots of locational advantages that Benicia has. It's on the port. We have a port, we have rail. There are two freeways that intersect us.

And again, we have these 900 acres that Valero owns, as well as additional space in our industrial park. The preference, my preference, the preference of the city would be that Valero would be able to stay open for a limited amount of time beyond April. Two years, three years, five years. And that's for a couple of reasons.

One is, frankly, try to put off the economic hit that we're going to take. We know that dismantling all the equipment is going to take several years. Remediation of the site will take many, many more years than that.

We're probably looking at a minimum of five or 10 years before we will have productive development happening where we could start seeing some kind of revenue to replace what we will lose from their closure.

We are aware of the recommendations of the Energy Commission, and I want to thank Vice Chair Gunda for including our city manager, Mr. Giuliani, on that team. And he has Been coming up here regularly to meet with them.

And a lot of the recommendations that came out at the end of June from the Commission, I believe are sensible and rational, given the existential challenge that we face in trying to balance the environmental progress that we have made with maintaining enough gas supply that we don't have exorbitant price increases that are going to hit low income people the hardest.

But there's one recommendation in that set of recommendations that seems inevitable, but is also sort of a worst case scenario for Benicia, and that is the idea that a large or the idea that refined gasoline would need to be imported from elsewhere and then stored before being reintroduced back into the domestic market.

Because we have a deep water port and existing storage tanks, it seems inevitable that we're going to be targeted as one of those places where we become a terminal. And that from our perspective is a lose, lose, lose scenario. There is no jobs that come with this. There are no taxes that come with this.

There will be continued emissions from those tanks that will need to be monitored. And most importantly, we will not be able to plan for replacement of that site, plan for redevelopment of that site, as long as that's there.

Our port, which certainly serves Valero now, and they bring in all their oil by tanker, it is old, it's not electrified. So I was interested in what Chair Randolph said about the possibility of perhaps upgrading the ports. Because right now these tankers come in and they spew.

They have to, they can't turn off, so they spew diesel into the air continuously while they are in port. So if we could electrify the port, that would be a big environmental benefit to the community.

If it's going to be our fate that we would become a gas terminal, then I think there should be some way to compensate the city for the severe and significant loss of money that we're going to experience as a result of that decision.

And the most frustrating part of all of this for me is that these decisions are being made in the boardrooms in San Antonio and here in Sacramento. And we're not at the table. We have no influence over what's going to happen.

We are simply waiting for the decision to be made and for our fate to be revealed to us when it comes to this. Like the state, we share the value of investing our resources and energy in policies to ensure a healthy environment.

And we take seriously our responsibility as civic leaders to thoughtfully consider ideas and actions that protect our future for the next generation. Yet in order for those aspirational goals of environmental sustainability to succeed, we need to ensure that it's also economically viable for our community. And so that's both the opportunity and the challenge that we now face.

And I'm happy to answer any questions about this. I thank you for the opportunity to speak today, and I look forward to continuing the conversation. Thank you.

Thank you, Mayor. And thank you to all of our panelists. We'll go ahead and now open up for some questions and conversation from Members. Just as a reminder, because this is a three Committee hearing, we're going to go ahead and limit Q and A to like, five minutes per Member.

So apologies in advance if I cut you off. We'll do kind of a lap and then come back as time permits. So, Chair Wilson, did you want to kick us off?

Yeah. And I don't know if you caught that. I did. Great. Thank you. Thank you to the panelists. I really appreciate you including one of my mayors, Mayor of Benicia, Mayor Young. And so I wanted to ask you a clarifying question because I think it's beneficial for this Committee to hear and then go on to the panelists.

One thing that you did not include in your opening remarks is the City of Benicia as far as the community Members and their commitment to a clean environment and some of the successes they've been able to have in relating to monitoring Valero in terms of community Members and monitors and just how important it is in terms of the environment.

So can you talk a little bit about that? Because people may have the assumption that you're here and advocacy of a particular industry which would be inconsistent in terms of where the community is.

Thank you. Thank you. I hope I don't come across as an advocate for the industry. I'm an advocate for Benicia, and certainly there is a large contingent of people in Benicia who are of the opinion that the sooner it closes, the better for environmental reasons.

We've had a number of environmental issues as a result of accidents and leaks and other types of things that have happened at the refinery. And so for many people, the closure couldn't come soon enough in a macro sense. I understand that. But, you know, I'm a mayor who has to balance a budget.

And when you look at the economic impact of the closure, that's where the conflict comes in between my own personal environmental desires and those of some of the other Members of the community, and you might hear from them today, and the need to balance a budget and come and figure out a way to come up with revenue to replace what will be lost.

Thank you. And what I've heard from community Members as well. Is wanted to leave, but maybe not yet. And it speaks to the transition. This question is for Vice Chair Gunda in terms of.

And we've heard this from some of our Members of the community in terms of additional data to be able to help us understand the in state crude production needs to stabilize the gasoline market. And maybe it maybe is for better for Director Lucchese. My apologies. You had the chart up there at the top. We're solving to this.

I believe it was 125 barrels. Let me go back to that slide.

And is that—I mean do we feel like that is sufficient and is there any way to provide additional, is there any other additional data that you can provide that would help us understand this is how we stabilize our fuel prices as well?

I think Vice Chair Gunda will start off and then hand it to me. Thank you.

Thank you, Chair Wilson. I think just going back to the pipeline system, so the number the that we are looking at today, again, in terms of consumption in California, we're looking at about 500 to 580 million barrels a year. So, about a half a billion barrels that we use in California.

And when we look at the pipeline system, the three arteries that we showed, in order to stabilize them to about 40% throughput, so that they can continue to operate, both in terms of safety but also without rate increases. On the common carriers, we think of it as about 25 to 30% of crude oil coming into those pipelines and that's the volume that comes to 125.

And I will just add that CALGEM and the Department of Conservation don't regulate production. No state agency does. We regulate oil and gas, drilling, wells, operations, and maintenance. So, we're using well permits as a proxy to get to that production level.

With that kind of foundational setup, the number wells are—it's very variable how much a well can produce or not. That's a factor that goes into the assumptions in our projections along with decline rates and also operator decisions.

And so, that's a long-winded way of saying that this is an estimated projection based on a very objective approach to the assumptions. With that said, it does not account for potential additional production from Bureau of Land Management leases and lands, as well as existing, currently operating outer continental shelf production offshore.

So, do we think that this proposal with the projection target that we've identified will, will stabilize production? Yes—or the market—yes, we do.

Thank you. And I'll ask my last two questions quickly so we can hold and set the example for others. And so, I'll have the people answer and then that'll be it. One would be for—you noted, Director Lucchesi, about the, we don't regulate production.

So, my question would be to Professor Grubert is when you're in a mid-transition, would that be an appropriate thing to do is to have someone who actually does that? And then the other one is noted to Tara Randolph. You mentioned in your remarks that companies have compliance pathways to meet the at birth regulation.

And as I understand it, there's really two pathways which is electrification or you know, pay a CARB fine? Is there any outside of that? Are those the only two pathways to meet the—two compliance pathways to meet the at birth regulation? Thank you.

Thank you very much for the question. I think in general, what our research suggests and what some of the theoretical basis for a lot of this work suggests is that you do need some centralized coordination here.

A lot of the work that we're doing right now does look at that as happening through some kind of public ownership or public management, whether that's at a federal level, a state level, or a sub level.

But yes, I think in thinking about what you actually need to do in order to have an effective managed transition, thinking pretty carefully about what kinds of supply and demand you need and need to guarantee and how you manage that is actually pretty important. Oil is a little bit different from coal.

But I will say, one of the examples that we've been talking about a lot in the scholarly literature, just in terms of how you might think about managing fuel supply, is in the case of coal in the United States, there are potentially some opportunities to, for example, stockpile of fuel up until the point where you have enough to kind of ride you out for the number of years that you think you still need it.

There are probably also creative solutions with oil, although again, less clear that it's capable of actually kind of disassociating the timing of supply and the timing of demand.

But something where you are very, very clear about how much production you actually need and when, and setting very clear expectations about when that's going to stop, I think is generally considered to be beneficial from a theoretical and example perspective. Thank you.

Okay. The regulation does not require a specific technological pathway, rather it requires the companies to reduce emissions. Shore power being one of the common strategies. And one of the reasons why there's that five year and seven year lag, as I mentioned, is to allow the companies to develop their strategies.

So, a lot of the companies are working on these capture systems that I mentioned in my opening remarks that we have to sort of approve each system that's proposed, and we have approved six of them and they're continuing to work on those strategies. The other compliance option is what we call the Remediation Fund.

It's really important to note it's not a fine because a fine would imply that the companies are somehow not in compliance. Instead, the Remediation Fund is funds that basically say the company is not reducing the emissions themselves but instead, are providing funds to the local air districts.

And the air districts take those funds and use other emission strategies to reduce the overall emissions that are attributed to the companies. So, those are the compliance paths.

Let me ask a quick follow up question regarding some of the demand projections in the various slides. So, Chair Randolph, I don't know what slide this is. I think it would have been 13, but it's not numbered. This is your projected transportation fuel mix slide.

So, it both shows the fuel mix changing fairly dramatically, but it also shows a quite dramatic overall demand reduction, which I'm puzzled by how steep that is. Can you help me—help us understand that?

Right. So, that is the demand reduction that basically is reflected if all of the strategies in the scoping plan are implemented as planned, which means, for instance, that as uncertainties arise and as delays arise, that demand will not move as quickly down as indicated on that chart.

And the scoping plan does include a whole section about potential uncertainties. And unfortunately, we've seen some of those uncertainties arise. We have seen the attacks from the Federal Government. We have seen efforts to stop the implementation of our rules. We are currently in litigation to try to prevent those pauses, but they are real.

And I think as part of this sort of management issue that we're all talking about, we need to be mindful of keeping an eye, not only on the projections, but on sort of how that demand is actually reducing in real time, over time.

And I think that's part of the continued engagement that we, as state agencies, are committed to because we recognize that we need to be adaptive in how we work on these transition issues and recognize that if demand is not moving down as fast as anticipated, that we need to be thinking about how to address that and how to manage that.

Again, I might—I think I'm missing something because everything you just said would—so, for example, the yellow is like electricity, so that's how quickly we're moving people into EVs. But you're not showing like a relatively flat overall demand with, you know, a growing share of EVs.

You're showing that demand period is going down by like more than 50% in the next 20 years and by something like 30% in the next five.

So, this is on road transportation fuel demand, and so, it includes things like strategies around vehicle miles traveled and things like that. So, it includes the whole suite of potential on road transportation fuel demand strategies.

And the reason why I wanted to make sure and share this chart is because even if you sort of assume a higher demand, you're still going to see a significant change in the fuel mix as electrification continues, as the low carbon fuel standard supports electrification and other types of fuels like hydrogen and renewable fuels.

So, that's why it's sort of titled the fuel mix slide, because it's really kind of about how this fuel mix is going to change, and even as that demand curve may go down at a slower rate, that mix is going to fundamentally change over time.

Okay, so I am correct in understanding that the yellow is supposed to be like, that's literally supposed to be like EV miles traveled or the equivalent of EV miles traveled?

Yeah, it's meant to equal the percentage of the overall demand that's being met by electricity, as opposed to by a liquid fuel.

Okay, wow.

Okay, this is quite startling. I think we have to come back to this because this is like the fundamental thing that we're trying to solve for.

And I don't think anyone—I don't think anyone believes that we're actually going to increase overall demand for some mix of transportation fuels, clean or otherwise, this dramatically over the next 20 years.

And the other thing that I'm confused by is that this chart—your chart shows the demand for liquid, again, if I'm understanding this all correctly, your chart shows the demand for liquid petroleum fuel going from like 2.25 EJ and then going down, whatever that is, going to 1.125 by 2030, which again, that's a huge reduction.

Whereas the CEC chart shows overall monthly demand going down very minimally between 2022 and 2027. So, again, this might be comparing apples to oranges, but it looks to me like you are projecting a tremendous, very, very rapid decrease, and this is not reflecting a very rapid decrease at all. Is that, is that correct?

Yeah, Chair, I'm just going to slide number 26 on the mid transition chart, that kind of goes to 2050. So, on the previous chart that Chair Randolph mentioned, it's, you know, given that we are talking about different fuels, it's put in the energy context of exajoules.

But in terms of pure gallons of transportation fuel, what you see here are two lines projected forward, one in yellow and one in blue. That gives you the range of future scenarios that we are currently considering. Under the blue, which is high electrification strategy, you will see a lot more rapid decline in the fuels.

But the yellow is the more forecasted as of today, forward looking, and that uncertainty, to Chair Randolph's point, is what we need to plan for. Because while we want the blue line to happen for our carbon neutrality goals, the yellow is a conservative scenario, and we need to think about how to supply California no matter where we are in the middle of that.

Okay, so you're saying that the CARB chart reflects the, I guess kind of ambitious scenario, but you're—which is the blue line—and you are planning for the baseline scenario?

Yeah. So, those are the two once the forecast, once the carbon neutrality pathway and we're looking at both of them to ensure, you know, we most likely will be somewhere in the middle and thinking about how, how to absorb that uncertainty.

Okay, I'm going to let other folks ask questions. I might come back to this because I think that there's again like this, it's one thing to assume a very ambitious chair and ZEV adoption and I think we should do that and implement policies to do that.

But expecting that we are just going to somehow reduce overall demand for transport in the state that dramatically, I don't think is a realistic assumption. So, I think that as we think about our long-term transition plan, we've got to make sure that we're coming back to very grounded, I think core assumptions.

So, I'll come back once we give others an opportunity to ask questions. Let me move to Assemblymember Kalra.

Thank you all so much and thank you to our chairs for organizing this meeting. And you know, as was indicated, you know, there's been a 40 year kind of decline that has a lot to do with global trends, as well as what we're seeing in California.

And we know, based upon some of the information that was given to us and has been given to us, that the production here is part of a larger global market and is really just kind of a drop in the bucket, so to speak.

But as indicated, does have an impact, of course, particularly as applies to jobs and what have you as to what's happening here in this state. One of the questions that I want to pose, I'll pose questions that can either be answered if there are folks in the next panel want to as well.

So, in the interest of time, one question is regarding this kind of, this transition away from combustion engines. The proposed RN does not address, from my understanding, the Energy Commission's recommendation to rapidly deploy investments to decrease gasoline demand through VMT reductions, zero emission vehicles, and related infrastructure.

So, why does the proposal ignore the demand side solution which include other co-benefits, including job creation as well?

Yes, I can take that.

I think, you know, we have a robust set of demand reduction strategies and, and I think this work is really about thinking about how to stabilize the fuel prices and the fuel supply, recognizing that we will continue to have programs like low-carbon fuel standard and VMT reduction strategies that will ideally provide other options besides just gasoline use.

But we do want to be mindful that sometimes it is some of our most vulnerable residents who have difficulty making the transition to the newer technologies and we want to make sure and be protective of affordability concerns that they have while still continuing to advance our public health and climate goals.

And some of that, and just as a comment to that, some of the infrastructure, some of the transition can also address Californians that may find it out of reach now.

But again, building out that infrastructure and giving credits and what have you a part of what we've been doing that I think that still haven't reached enough Californians, but I do believe that there's certainly more work to be done there.

Can I just also note really quickly, as Vice Chair Gunda mentioned, the third sort of pillar, the third bucket really kind of circles back to that basic point.

Thank you. And then, also, the Energy Commission analysis showed that planned and unplanned maintenance events due to safety incidents have the most direct impact on gas supply and prices.

So, what steps would this proposal take to prevent price spikes from unplanned maintenance activity in order to, you know, ensure that we're preventing explosions, obviously, but also, you know, that harm consumers, workers, frontline crew members, our climate, but also in terms of stability?

Thank you, Assemblymember. So, for that one, we recently, last business meeting about 10 days ago, formally opened a rulemaking on working collaboratively on the long term with the industry and the stakeholders on the resupply obligations that ABX21 provides us, but also the minimum inventory. So, we are conducting our analysis.

We opened a rulemaking; we opened an informational proceeding to gather information. But you're absolutely correct, those are important strategies that we need to continue to invest on, and so, that that proceeding is a formal venue for that.

Thank you. And to pivot a little bit to the closures, the closure announcement of Philip 66, workers left behind are certainly facing extreme and unsafe working conditions in addition to future economic uncertainty, and so, does the state have a plan for how to help the impacted workers and communities as refineries close?

Kind of a broad question, but kind of drawing from the specific example of Phillips 66.

Yeah. Assemblymember, to your point, I think all three questions, part of that touches the bucket three and I think it's important for us, you know, as, as we looked at the letter and tried to begin to work on that, some of them are clearly within the regulatory tools that the administrative agencies can work on.

So, we're working on some of them. I think there is a proposal. I think the Governor's Office mentioned about it being a starting point, but I think we need to continue to work through operationalizing all the recommendations in time.

And just generally speaking, I know that a lot of other types of facilities, nuclear power plants, gas, fire, would have fired power plants, what have you, are required to do so. But our California refineries required to submit closure plans that include plans for safety, commissioning, decommissioning, and site cleanup.

Yes, there are some plans. The thing that we, again, to faithfully represent the discussions in the roundtables, it has been noted in the conversations collectively that there could be regulatory improvements to ensure that these plans are done more holistically to the point that you're making on how best to close those gaps that might exist.

Yeah, I agree. I think that there could be more. I'm glad to hear that there's an agreement that more work needs to be done there. And just in the interest of time, I'll just close with, again, a more general question.

The state already has a regulatory process for approving new wells across California and what is the justification for waiving that process entirely given what is possibly at stake for the environment, communities, and our climate goals?

Thank you for the question. The proposal is not a free pass to industry to drill indefinitely. It's a very targeted approach that's temporary. It has a sunset date of 10 years from now and it is a CEQA exemption.

All other regulatory requirements, including local regulations, continue to apply and CALGEM will continue to apply its robust technical review of all new well drilled permits along with plugging and abandonment obligations. CALGEM has also, through additional resources from the Legislature, thank you, built a very robust and comprehensive enforcement program that it will continue to hold industry accountable during this mid transition.

And I would also just want to emphasize that this proposal is really focused and targeted for this immediate need to stabilize the pipeline infrastructure and stabilize production.

That's the need that we're trying to address, not open up California for more drilling opportunities indefinitely.

Thank you. Thank you, Madam Chair.

Thank you. Assemblymember Zbur.

Thank you all for, for being here. Really appreciate your taking time out of your very busy schedules. I had a couple questions related to the CEQA exemption. I mean, if you had asked me a couple years ago whether we'd be seeking a CEQA exemption for oil drilling, I would have said that that would never happen in California.

And I've got to say I've got concerns about that. It's, it's not, as I understand that this isn't streamlining, it's not speeding it up. It's actually an outright exemption.

And so I know it's coupled with the 2 to 1, but could you sort of COVID what would be typically the kinds of mitigation measures that occur that happen when CEQA is applied to these kinds of well drilling and sort of what we're giving up?

Because it seems to me that under CEQA you would actually have to, you know, you'd analyze whether or not there's significant impacts to the environment or communities. You'd actually have to mitigate to the extent feasible or have overriding considerations. But there would be series of mitigation measures that would be imposed to protect the community.

There would be, you would actually have public processes to make sure that I think the goals of what I think you've stated even in the letter that this not be near homes and sensitive receptors.

I mean part of what happens to make sure that you, that that you're, that you are complying with those kinds of things or that you are complying with the other state requirements for oil drilling happens because CEQA happens and the public understands sort of whether or not something's been missed, they understand how it's going to happen.

So I'm really nervous about this outright exemption and what that really means in terms of protecting communities, protecting public. So I wonder if you could actually go through what, what are the typical kinds of mitigation measures and project features that would occur when CEQA is applied to oil drilling?

And so what, what are we sort of giving up?

That is a really critical question. Thank you. So the proposal, the two for one is intended to address through those conditions outlined the typical impacts that would normally be seen in a established field.

So requiring that take permit is not required, that a stream bed alteration plan so no impacts to waterways are impacted, cultural and historic resources are identified. In addition to that, there is still the requirement of CALGEM and the Water Boards to ensure that injection wells do not impact our aquifers and our drinking water groundwater supplies.

So that is not being exempted under ceqa. Through this proposal. In addition, it keeps in place existing environmental reviews, mitigation measures, and local government regulatory requirements for those existing fields that exist now.

So in terms of what we're giving up, the intent of this is to really narrow the scope of what's available for new drill permits, taking into account protection of groundwater, taking to account protection of species, cultural resources, et cetera.

So what are, what are the, what are the protections to assure that, for example, you're not locating a well, even if it's within an existing oil field in some place it actually where you've got some kind of protected species or habitat.

I mean, typically that would actually happen through CEQA because you do some kind of, you know, high level review to identify whether you potentially have species there. And then that would be what would trigger the state or regulatory, state or federal regulatory process to protect the species. So what, how does that happen?

If you don't have ceqa, you've got a complete exemption, right?

So it'll happen through the implementation of this proposal by CalGEM, working in consultation with our sister agencies that are responsible for those resource protection regulatory frameworks.

So as application for a new drill permit comes in, a, it needs to identify the two wells that they've already completed plugging to be able to even have us consider that new well permit.

Then we would go through and identify the location of where that new well permit would occur, or, excuse me, new well would occur, ensuring that it's outside of a health protection zone. We have a process already set up through the implementation of 1137.

We would utilize existing resources to determine protected species, determine whether there's a waterway involved, consult with our partner agencies on that to make sure that they've checked all of those boxes in terms of the conditions.

So there is a robust process that's involved in ensuring that the new well permits applications would meet all of those conditions outlined in the Bill.

That's my other question, which I, which I'll ask later because I know my colleagues will have questions as well. But I think the last one would be what kind? I mean, how important is this exemption to the overall proposal? How much time does it cut off?

Why, why did you not consider something that was more a streamlining proposal where there's at least some opportunity for public input and comment? You know, we're talking about, you said it's a focused effort, but that's, this is something where it relies on, it will result in oil wells that I assume will operate beyond the 10 year period.

It's basically goes on for 10 years. And then so I just wondered if you could sort of talk about the timing. And then secondly, how does this, you know, how important was this aspect to the proposal?

Right. That's a great question. So in the chart as part of the package that's in front of you in the presentation, using the projections, you can see what the statewide 2 for 1 adds to the production stabilization effort. So that's what we'd be gaining in terms of meeting that stabilization goal through the statewide component.

In terms of timing, again part, as Vice Chair Gunda talked about in terms of investment confidence and market stability, seeing a pathway for new drills to help stabilize new drill permits to help stabilize that projection level, but that it's bounded by a time period was important for that, not only to stabilize actual production, but also to help with the investment confidence, particularly in the pipeline infrastructure.

Thank you very much. I mean, I'd like to follow up and sort of understand some more about sort of what is in the criteria and the CALGEM would be using on the to assure that other environmental requirements are being met. And I just want to thank you for your time today.

We'd be happy to. Thank you. Thank you, Transportation Vice Chair Davies.

Thank you, Madam Chair. Thank you all for being here. I want to start out with Chair Randolph, if I may. Does Air Resource Boards analyze how its clean air rules impact costs to the drivers and consumers?

Yes, as I mentioned at the outset, we do for major regulations, prepare a standardized regulatory impact assessment that assesses both cost and benefits of the rules as they are implemented.

And then where can we find that?

Each regulation that we adopt has a page on our website and each regulatory package has all of the background documentation, all of the public comments, information from workshops and the board hearings when the regulations are adopted.

And just a quick follow up, I believe in May 2025 you had stated that you weren't doing that. Is this something then you just started back up?

No, we've always done that impact assessment. The conversation previously was about the question of retail prices and retail prices are difficult to anticipate. However, the overall economic analysis is carefully considered in extensive economic analysis that goes into what we call the cerea.

Thank you. And also the governor's first special session Bill required by law the Air Resource Board to submit a fuel transition plan by 12-31-24. Just wanted to see, have you submitted that as of yet?

We are currently working with our sister agencies on that plan. We part of the process was delayed because the fuels assessment that was also called for in legislation took additional time to prepare. And that was a direct input into the transition plan. Once we got that, we were able to get started.

We've gone through numerous public workshops and public engagement around the transition plan. And you know, Vice Chair Gunda and I worked very closely on that plan. We retained a consultant that did a lot of market and economic analysis for the plan. And then events overtook us.

And so we have spent a lot of time, we've been able to use the analysis from our consultants that helped informed the work we're doing that we did on Vice Chair Gunda's letter.

And we will use a lot of the input and discussion around this work to help us prepare a draft and release it later this year or early next year. And so we have not been losing time.

This all will be an input ultimately into the transition plan as we think about how best to articulate the importance of adaptive management and the strategies that we think are necessary as we lay out how we can continue to have these critical policy touch points and analysis in the future.

I look forward to seeing it submitted. Thank you. Also, Vice Chair Gunda, appreciate you being here as well. Just a question.

What are three things that as legislators we could do to stabilize the fuel supply as well as bring back the investors confidence in California and basically from now until September 12th, since we're finished up in September 12th.

Yeah, thank you, Vice Chair, on that one. So just 30,000 foot level. And as we look through the bucket to important things around ensuring that the upstream petroleum stabilization, crude oil stabilization occurs, I think it's an important part for the short term.

I do want to make sure we lay out that as we move forward with the reducing demand decline in California, we will have refineries exit over time. So that's going to happen as the demand goes down and with that, the reliance on specific crude oil pipelines will go away. So I think two parts.

One, for immediate stabilization, ensuring that we have the crude oil that stabilizes around 2530% of that system and over time having the analysis done to make sure that that continues. Two, on the regulatory tools specifically for the Energy Commission.

I think it's incumbent upon us to think about the pause on the margin gap as we continue our analysis and really double down our efforts on resupply and minimum inventory. So we're going to do that.

I think the second most important, I think in terms of really third, for us as a state to ensure that all stakeholders feel heard and and are a part of this transition, I think we really need to invest time in thinking through bucket three.

I appreciate that. I think that obviously we again don't have much time here, but I think this is something urgent that we probably should work on before we leave session. So we're not waiting until next year. That's great. And then. Great. Thank you very much. Also, if I may, Director Lucasi, thank you very much.

Right now our oil and gas operators are already requiring to plug wells under current law because I know that the Governor had put in work plug two wells if they're going to open up a new one. Aren't they already doing that?

Operators are required under idle well management plans to plug Eidl wells under various conditions and those plans can change as they decide whether to bring wells back into production or not.

The proposal, this proposal, the two for one, is targeted to create that balance of both stabilizing production while also advancing our public health and safety goals, particularly related to wells within health protection zones, as well as not expanding existing fields.

And so that's why we have why the proposal includes plugging two wells, One in the field that they want, an operator wants to drill a new well in and two, the second well in a health protection zone.

Okay, great. And then just hypothetically, what would be the economic impact on the state in terms of tax revenue and jobs if oil and gas effort is required to plug two wells for every new well that is drilled?

I will have to get back to you on that.

Okay, thank you. And then just. Mayor, I appreciate your time. Just one question. The Viejo sun reported in June that the soon to close Viera sorry Valero refinery in your city contributes substantially of course, amount of city tax revenue and 10% its budget.

What will your City Council have to cut in order to fill the gap that's created by this major employee's leaving your city?

And Mayor, I'm going to Vice Chair. That's going to need to be the last question and if you can just answer that rapid fire, that would be great. Thank you. Thank you.

Well, of course the entire council is going to have to go through a long process of meeting with the community and looking at all the parts of our budget. But I can say that police and fire represent over 50% of our General Fund spending.

So if you're going to cut that much money out of our General Fund and police and fire are top priority, that means that a lot, most of the cuts might fall on places like parks and libraries and some internal city operations. But it's not up to me.

It's going to be the council going through a very long and brutal process with the community to get to those decisions.

I appreciate it. Thank you. Thank you, Mayor Young. Chair Bryan.

Thank you, Madam Chair. I am conflicted on this two for one proposal. I have the largest urban oil field in the state. It's set to close down in 2030. I could imagine scenarios where folks would be incentivized to help close that down faster being a good thing.

I guess some of my challenges go to things that were raised by somebody Member Zabur and Assemblymember Kalra around a CEQA exemption for oil drilling even in existing fields feels very concerning to me and there are many components of of ceqa, including sensitive habitats.

But tribal consultation, I think the current language speaks to an archaeologist evaluating but CEQA has a more extensive and meaningful tribal consultation process that would be circumvented if we went this route.

And I'm curious what your thoughts are on whether an exemption feels right or perhaps even a more like a tailored streamlining of some kind, which I would still be relatively uncomfortable with but to me feels a bit more appropriate also because I'm curious if some of the things that you mentioned are ministerial and therefore could be different if you are not in charge or if the Governor should change and say 2026 and have a different posture.

The fact that it's not legislated very clearly, could that be a problem?

I think you and Assembly Members were raised really important questions and important points and just to reflect earlier in our presentation that this is a starting point for the conversation and I hope that we can have additional conversations around this.

This was a proposal to with like I said, the goal was to meet the stabilization goals while also trying to protect and advance particularly important recent legislation that the Legislature has passed to protect communities and protect the state from liability.

And so if there's other ways to meet all of those goals, we are happy to have those conversations.

I appreciate that. And then Mr. Gunda, what is the cost to close a refinery and is that cost solely borne on the refinery? Are there instances where refineries have claimed insolvency like idle wells and orphaned wells and the taxpayers have been held on the hook for for cleaning up and remediating all of this harm?

Yeah. Thank you, Chair. I think the answer is if we look at it holistically, nationally or internationally, there are several examples where the owners of dealing with this has fell on the communities.

We have a refinery in Philadelphia right now that was closed and it's being contemplated for a development and it's many years now and it's over 500 million in cost. So these things do sometimes fall on the communities. I think in Californ, the Water Boards, the regional Water Boards have some of these responsibilities.

And within the plans that we see, refineries do have some planning for that. But I think to the earlier question, there could be gaps in that. And then I think we should think about overarching. How do we ensure two things happen right? So one is safety and the second is land future of the land.

So the future of the land around ensuring that we have asset retirement plans, clearly articulating the remediation plans and how to do that safely I think is an important part. I think we should continue to discuss an opportunity and how best to close those gaps.

And if I could, I would add that Valero has already written off $331 million on their books as the cost of dismantling all of the refinery equipment. That doesn't get to the cost of remediation.

The Valero is the third operator of this refinery since it was built and no one really knows the extent of the pollution until everything is gone and you start digging into the dirt. So that will be tens if not hundreds of $1.0 million on top of that. But the refinery is responsible for that.

But that gives you an order of magnitude, I think in our case, and.

I guess what I'm getting at, and then I will wrap up, is just should we require more disclosure on these costs and the ability for the owner and operator, owners and operators to cover these costs when they announce closure plans or even prior to that, just as they're operating so that we can always plan for the future decline of this industry and make sure that the burden doesn't fall on frontline communities who it so often has.

Yes. Chair, thank you for raising that. I think in the roundtables, again, I want to make sure I do a faithful job of sharing those conversations.

It has been raised as a very important part of the discussions by the communities to ensure that there is disclosure and understanding of the environmental liability and safety of the sites and the transfer plans. So I think any opportunity to make that transparent would be helpful.

Thank you. All right, Assemblymember Irwin, thank you very much.

And this has been a very informative conversation. Appreciate all of you being here. So I have not dug deep into this yet. This is one of the first times that I'm looking at the proposal. But so if you the chart on page 15 has the state production increasing and the current production increasing.

They're both increasing, it looks like around by the Same amount. And when I look at the four stabilization proposals, I am not sure where each, how you're, how you're figuring out that production, where is it coming from?

So for instance, the fracking prohibition, how much fracking is there currently and how many, you know, how many barrels do we lose if there is a prohibition?

Yeah. So Amit, just to respond to your initial question right there, fracking is not occurring now. There is a ban on fracking that was in effect beginning in 2024.

The proposal includes all four components because as we have learned particularly over the last eight months and longer for Vice Chair Gunda, that the oil and gas ecosystem is an entire life cycle and that it needs to be addressed in a policy during this mid transition in its entirety.

And so when we are looking at this particular proposal to stabilize in state production, you're looking at not just the two components, but you're looking at what additional health and protection aspects can we include in here to help create a balanced approach to all of this?

Again, the goals are from this proposal to meet the stabilization goals while also advancing the very critical health and safety and environmental protection goals and policies that the state has passed and has determined our priority. And so that's what this proposal is, is the balance looking at that holistic approach.

So in terms of the well stimulation component, again, there has been no fracking authorized since 2024 and this would be a codification of that regulation.

But is there. So there's been no fracking authorized, but is there fracking currently going on in California?

Not that I'm aware of.

But it would be. All fracking would be prohibited. Correct. And so that's loss of barrels of production, you're saying it has no effect on this chart.

So it's not the potential if the states regulation banning well stimulation treatments is not in effect and there is no codification of that. This projection chart does not include what that potential production from wealth stimulation could be. It's currently not occurring.

Okay. And then for the 2 to 1 plug to drill. So I guess that program and the pipeline safety program makes up the rest of the state increase in production, is that correct?

That's correct. So validation of the Kern County EIR and the immediate implementation of the ordinance that regulates oil and gas permitting in Kern, county, plus the statewide two for one would meet our, based on the assumptions that we've used to develop this projection would help meet our stabilization goals.

The pipeline safety aspect again is on the other side of that ledger to help with important environmental protections.

Okay. So forgetting current not that one. So the two for one, I look at these four main counties, it happens that my county is one of them. What is the expectation of increased production in each of these counties?

And you said there is still local control, but, you know, I don't think LA is necessarily going to be with local control. Wouldn't be increasing production. I'm not sure about Ventura, but is there. How do we.

I would like to know what your calculations are for what is the increased production in each of these counties and do you have willing local government?

That is a great question on the willing local government. Again, this proposal is really geared to preserving and protecting local government decision making in however, the local government wants to implement their decision making as it relates to new drill permits.

With that said, in terms of your question about production, that's a more challenging question to answer in terms of what the potential potential is based on potential new drills in particular areas. And that's because of a couple things. One is what you're seeing outlined here is the potential universe for new drills.

But the conditions outlined in the proposal, plus local government decision making, plus operator decision making, will reduce that area and that potential.

And we are using an assumption of a new well being able to produce about 30 barrels a day, but that is based on a range of anywhere between 15 barrels a day and 50 barrels a day, again, depending on a lot of different factors, price of oil, operator decision making, timing, all of that.

So what we've estimated is, is that outside of Kern County ordinance, what we'd be looking at is new drill permits of about 360 annually and then declining from there. Now, how that is actually implemented by operators and where that's an operator decision on whether they want to kind of opt into this framework.

Okay, so I guess really. And so this is a very, very rough estimate of how you might increase supply because you're. It seems like the expectation is that these four counties, which have most of the rest of the drilling, are the ones that are going to make up that difference.

And we have no idea what the local governments or local ordinances are going to be doing in those counties.

So that's correct.

Okay, thank you. All right, thank you. Let's see. Assemblymember Lackey.

Yeah, thank you. I appreciate this open conversation because CALGEM and CARB in many ways have a more direct control or impact on the public than we—the elected Legislature. So, it's really important that we're collaborating and speaking with each other.

I'm one of the ones that actually decried the potential increase cost from LCFS and because we were quoting experts that give us that indication. So, I'm thankful that those didn't come into fruition. But I will ask this particular question, and I hope you won't refer me to the website.

I wanted to know how much per gallon, and this is to Ms. Randolph, how much does each consumer in California pay per gallon due to LCFS? Do we have some rough figure that we can report back to our people? Because in my district, we have a very, very high commuter district over 100 miles a day.

So, this is a really big cost.

Yeah, that cost fluctuates. Currently, I think it's around 14 cents right now.

That's helpful. Thank you. And my next question goes to Ms. Lucchesi, and I just need some clarification. I know we've talked a lot about the 2 for 1 program, but I just want to make a distinction of abandoned wells versus idle wells.

They are two different things, and I just want to make sure that the 2 for 1 is for idle wells and not abandoned, abandoned wells.

So, the way that the 2 for 1 is structured is that the operator can—would—choose where to plug and abandon a well within that same existing field and in the health protection zone. The intent is for idle and active wells, in addition to their commitments under their idle well management plan.

So, they can't use their idle well management plan to help meet that two for one. With that said, we also recognize that there may be wells that are—don't have a responsible party and that an operator may elect to acquire that well for the sole purpose of plugging and abandonment

That clear cut?

Correct.

It's kind of nebulous based on that description you just give me.

The idea is to seal wells, active, idle, or without a responsible party, within a health protection zone or/and within the field.

Okay.

To help reduce the inventory.

Thank you. Those are my points.

Thank you. Assemblymember Rogers.

Thank you so much, Chair. So, I want to piggyback a little bit off of Assemblymember Zbur and Chair Bryan's comments on the CEQA exemption.

And you mentioned, I think three different times, that it would be—that the information that is normally found in a CEQA document that you'd get from existing resources, and you use that phrase multiple times. Can you give us some concrete examples of what those existing resources are?

Or are you relying on things like the environmental impact report that this proposal would have us certify as complete and accurate?

So, what I meant to convey was that there are different resources that agencies have, consultants have, to identify areas and where protected species are, or are not, where waterways are that could be impacted or not. Those are the existing resources that I was referring to, to help meet those conditions.

I think—not to belabor the point because I think that my colleagues hit it particularly hard—I think we're going to want some concrete answer on what that is, especially when we talk about things like tribal consultation, or waterways, or the impacts.

Just sort of a trust me, the bureaucrats have it is not a good answer that especially when the public is not involved in any meaningful way in those conversations at that point. So, we'd like more information on what that looks like moving forward.

Understood and will do. Of course.

Great. And then, Professor, do we still have Professor Grubert with us?

Yes.

I was struck and I took a note down your comment about how the public already owns the risk of this transition and you've talked about where it has not been handled well with coal.

Are there any examples that you can point to, especially hearing from the Vice Chair, that this is on the table as part of the discussion about how we manage this transition?

Are there any statutes, any states, any other countries, whether it's from coal or other types of infrastructure that you think have handled that transition well, that could meaningfully inform how we could do this with fossil fuels in California?

Yeah, thank you for the question. And I think one of the things that I talk about a lot is we don't have a ton of great examples of this working really well because we haven't had to do it before, partially.

And then, also, just in the context of governance perspectives, the United States is essentially unique in the fact that many of these assets are privately owned. Generally speaking, a lot of these sort of critical infrastructures that you can't afford to let leave, which is basically why the risk is already publicly owned.

Many cases, those are already publicly owned, and that's more typical internationally. So, I don't want to imply that the fact that we don't have a ton of examples of this means that it's a completely brand new thing. It's maybe more that the structure of having public management of these kinds of assets is actually more typical globally.

But in terms of examples that I think are good, one of the things that I spend a lot of my time on is thinking about advance notice foreclosures. And I know Mayor Young brought this up.

It's actually the topic of one of the projects I'm working on right now in the power sector, but really thinking about deadlines and regulatory targets that truly try to align supply and demand in a way that allows you to see this transition happening.

So, the example in the United States that I think is actually quite an interesting one that's currently underway is CEJA in the State of Illinois, which has talked about very explicit targets for when their coal fired power plants are required to close and then has also put into place quite a bit of public support for communities that rely on coal mining or some of those plants.

It's not perfect. They're also not at the end of that process, but I think that the notion that they're talking about actually trying to really communicate very early when these target deadlines might be, is really important.

California comes up, I think, in this regard because there are quite clear dates that are associated with many of the state's targets, but that's not done at an asset level particularly. So, something like the 2045 carbon neutrality target doesn't explicitly say this asset, this year.

I think one of the arguments for more public management of some of these timelines is that that gives you a little bit more space to have some wiggle room if you need to in an emergency situation.

So, for example, Ormond Beach, the power plants down in LA that have had to—had their lifespans extended a little bit because of supp concerns. Being able to manage that directly without having to renegotiate every time is an argument for greater public control.

But in general, yes, things that really line up asset deadlines and communicate very clearly, timelines for when a new system needs to be in place I think have tended to be the most successful.

Right. Thank you so much, Professor. And then I think my last question that—I'll turn it back over—is for the Vice Chair. We've heard you speak a number of times. I always appreciate the conversation. You have previously mentioned that volatility in California is also largely because of the California spot market.

You mentioned again today that the compaction or loss of options for folks around refinery is a portion of that. How do these strategies get towards that component of this? And can you talk through how to control the volatility or how to address that in these proposals?

Let me ask you to answer that very simple question in 30 seconds or less. Thank you, sir.

I cannot answer questions...Assemblymember, thank you for that question. I think just kind of going back to the previous point, we opened the proceeding to work on resupply and inventory. I think to your point, these are strategies that all have to be done concurrently. You have to stabilize the investment so the market will put the money in.

But at the same time on the other side, we need to balance to the extent that spot market is driven by illiquidity at times, we have identified through special session two that resupply and minimum inventory are really important. And so we are continuing to work on that.

Thank you.

Amazing. All right, moving to Assemblymember Ransom.

Thank you, Chair. First of all, thank you all for being here. I think this is a really important conversation. I did not expect to, my first year, be part of a conversation that is this important. So, I have questions that—bear with me. They're going to be—it might be a little bit redundant, but I want to kind of expand on some of the things that we've talked about. And I really think this moment speaks to our goals that we've had as a state versus the reality.

It's kind of like the intersection of where you have really lofty goals and then, you know, you plan for those things and then reality kicks in. And so, I'm wondering if you can kind of speak to some of, you know, the environmental tradeoffs.

Because for me, from an energy and economic security standpoint, I'm definitely concerned about, you know, the closure of facilities and the reliance that we have, even in your own doc demonstrations, the reliance that we have on the foreign supply.

So, when we're talking about like the tradeoff of imports, what—how will this help if we are able to adopt this plan? Does this help with like the exposure of importing? I mean, I know we have this at birth policy, and we have clean production policies, but then we also have all these imports.

So, does this help with some sort of environmental trade off as we look not only just to kind of keep places open, but is there an environmental trade off you can speak to?

Thank you, Assemblymember. Just want to take a moment to just recognize, I think there are different layers of strategies that we need to concurrently do. So, I think the first part is even if we go to 1990, right?

So, 1990, and you look at refineries like Shell in Carson City, you have seen those refineries close and convert to product terminals, right? So, then they moved to an import strategy. This was 30 years ago before any of these stringent regulations. And I think so—just want to observe that the changing demand conditions and evolution of market models will drive market evolution and how business is done.

So, that's one part. And so, we can definitely expect refineries to leave California or convert to product terminals, so that's one.

I think the question is how fast will they do and what do we do about it? So, the second, given that some of these refineries will go, it's really important for us to think about incremental imports beyond what is needed. And you are absolutely correct that in state refining will give you the most resiliency.

But at the same time, these business decisions are done based on the bottom line on what's best for the company's ROI. So, as they move, I think the important part in solving for imports is not just imports, but the storage with the imports.

Because as you pointed out, we will be very exposed to global trends because of imports. And we need to make sure those imports are coming in and stored in California so we can dip into it as we need. So, that's second. And the third one is ensuring that there is market competition.

So, currently, the, the tankage that we have in California for third parties is very limited. So, how do we ensure that those tankage is available for third parties so you have the most competition possible in any given system? I think taking all those things collectively, I think we need to solve them.

You know, we need to solve for imports, we need to solve for resiliency of the industry to continue their investments. And to the extent that we need additional import barrels and competition, how do we solve for that? So, I think all of them have to be done concurrently.

And do you have data points for what it looks like when we have the foreign imports? Like, we know they don't have the same standards for cleanliness and then we know there is emissions and all of those things.

What are the data points between, you know, because I know we got, we have a, you know, there's a lot of enviro concerns here, but what does that trade off look like from a data point? Do you have like a quick point you can help me with?

I guess I will note that, you know, different fuels have different carbon intensity profiles. Your point is well taken that the transportation, you know, importing fuel into California because we do not have—if you're thinking about importing crude, you're looking at, you know, tankers and you're looking at, you know, potentially trains.

And if you're looking at importing gasoline from other states, you're also looking at emissions from, from imports as well. So, I think, you know, I think your point is well taken that, that we need to consider all of the, the carbon intensity of fuels coming into the state, whether it's crude or refined fuels.

But we also have to recognize, as Vice Chair Gunda mentioned, a lot of this transition is reflective of a global transition toward consolidation in the industry, towards, you know, refineries that are putting product on the market that's cheaper. And so, those are the kind of things that we, as a state, can't control.

So, we just have to figure out how best to react to those kind of conditions.

Okay, so, it sounds like there's not like a fine data point, so, but really, it's fine. But I guess my next question is if this plan is adopted, how quickly would this help kind of build the supply for California? Because we are seeing that the supply is, is declining faster than the use. So, how?

I know there's a number of—can you give me percentage? Because I see that, what is it, like 3 billion barrels a day or something like that. But can you give me like what that looks like percentage wise as far as like actually being able to be helpful to our issue?

I can start with how immediate we will see production from this proposal. So, with the validation of the Kern County EIR, in consultation with Kern County planning officials, permits can start being issued pretty immediately. With that said, there is a lag time between permits being issued and operators then utilizing those permits to start drilling.

So, we would like, we hope to see increase in production throughout next year as permits are issued, particularly in Kern County. And we're looking at a ramp up over time of about 17 or, excuse me, 1,000 permits through next year and then increasing from there.

Got it. And then lastly, kind of with the CEQA exemptions, the way I'm looking at this, correct me if I'm wrong, it looks like there's going to kind of be some self imposed, you know, EIR type reporting.

Will this be like on a regular schedule, like the reporting of the information or the environmental reviews that you will be doing as part of this practice?

If we're going to not use the traditional CEQA, if we're going to be waving and relaxing CEQA, are we going to be relying on you to give some regular reporting of the process and what the—so that the community can see how safe this, this is actually going to be?

And can I ask that we make this rapid fire?

Yeah.

Yes, we have regular reporting requirements that could be built into to this proposal.

Okay. So, we should be asking—should we ask for the timelines of that or is that something you've already? I've not seen it. Is it existing already?

Our existing reporting or reporting requirements are existing already. I would anticipate that permits that are issued under a framework like this would be reported through those existing legislative reports and also reflected on our website.

Thank you, Director. Assemblymember Hart.

Thank you very much.

Does the state monitor or have transparency into the pipeline volumes that are operating currently for, for crude oil? You know, the premise of this proposal, one of the big pillars is the idea that we're going to stabilize capacity in those pipelines.

And I'm not aware that the state is engaged actively in that essentially private sector asset and private business.

So, you know, how are we going to assure that we have independent, you know, evaluation of the capacity and the volumes and engineering and maintenance and all of the things that go with putting our eggs into this basket and saying we're trying to solve this problem? We don't have any information back about that system.

Yeah. Thank you, Assemblymember Hart. So, right now, you're absolutely right. We don't have detailed data that we gather within the tools that you've given us in SPX 1 to an ABX 21. We're exploring if we could gather that information within that statute. But I also know that there's some legislative efforts to provide that information to the CEC.

And finally, for the initial analysis, we had to really rely on private discussions with the pipeline holders, and I just want to thank the Fire Marshal's Office who has engaged, and they collect some of that information and they were able to substantiate many of the assertions and provide us guidance on that.

But it would be valuable and important going forward to have a better, tighter relationship with state regulatory agencies and the operation of those pipelines to make sure that we're meeting the metrics that we're talking about.

Absolutely. And I think part of the, to just elevate the point that you're just making, there are many data gaps and analytical gaps as we move forward.

I think again, to Chair Petrie-Norris's point early on, we are kind of trying to react to a crisis and, you know, it'll be really important for us to proactively think about the analysis data and potential measures we need to take as a state to stabilize this over time, proactively.

And I think that is one of the most important things about the legislation for the last couple of years is providing the active data that you need to mitigate these issues and to work through them with industry and have a partnership to develop a solution.

Without those tools, we would be flying blind completely in this situation and may very well need a lot more of those kind of transparency tools to be effective.

I cannot thank the Legislature enough for the tools that were given. And I think three years ago, when you asked us these questions, we had no answers. I think we have a lot more daylight into the situation, but we'll be better served with more information.

And then completely unrelated, Ms. Randolph, you spoke at the beginning about the development of sustainable aviation fuels, providing additional capacity for production of carbon. Could you talk more about how that works exactly? That was a point that just kind of came and went, and I think people would benefit from understanding it better.

Yes, because there is opportunity for the—we have refineries that have converted to renewable diesel and sustainable aviation fuel, and then that allows for other facilities to produce the jet fuel that's needed, and it reduces the, the—let me back up.

It reduces the need for the fossil refineries to produce fossil jet fuel and it will help supplement the supply of jet fuel and then allow for more production of gasoline from other facilities.

Thank you. Appreciate that.

Thank you. Assemblymember Harabedian.

Thank you, Madam Chair. Thank you to the panel. We'll go quick because I know you're tired and it looks like the crowd is sleepy as well. And we have a whole another panel. But we're here because obviously there's a, there's an imbalance between supply and demand.

And I think what's confusing to me is that in California demand, we include exports to Nevada and Arizona. Why, why is California demand including exports to two other states that do not adhere to the same values, I would say, from an environmental policy standpoint as we do, and why aren't the numbers only for California demand?

Thank you, Assemblymember. Two points there, just 30,000 foot level, almost 90 plus percent of Nevada's gasoline comes from California refineries. That's a historical precedent. And similarly for Arizona, it's about 50%. And as we are transitioning away, both those states have indicated to us in our conversations that they're looking for alternatives.

And I think part of the discussion in the past was around those exports. And I want to point specifically two pieces. One, you know, just the interstate commerce and I don't think we can dictate what the industry has to do to ensure the supply and just being good neighbors, in terms of making sure the supply is met.

Two, currently, the product that leaves California is typically the low quality product that cannot be used in California. So, as a part of the defining process, you will always have some molecules that do not meet California spec, and usually those go to Nevada, Arizona, but also South America. And the South America part is significantly lower.

And usually the first step that refineries take in serving us is to cut that out. And to the extent that they can manage the flows outside of California, they do that too today.

Very helpful. So, in all of the charts in your presentation where you show an imbalance of supply and demand, what percentage of demand that's not being met is actually Nevada and Arizona?

Roughly 10%.

Okay. Significant material. So, I think going forward, we need to make that very clear because I think that this isn't exactly honest about where California demand is and where California supply is. Being a good neighbor is fine. I don't think Californians should pay.

And we should not be running at such a sprint of a pace to figure out a problem where we're, we're supplementing two other states. And I'm not sure there's a legal obligation to do that. It might be just a historic precedent, but I think that's something, frankly, that we should consider.

If 10% of the demand is going to two other states that again, have not put the amount of time and effort into actual sustainability measures like we have, I think that's something we need to discuss.

So, I do think going forward we should talk about what that solution would look like to actually have California take care of California, rather than California demand actually being California, Nevada, and Arizona. And then finally, because I know we have no time, this, this presentation, the whole conversation has been really detached from economics.

You can see two different axes: the most economic efficient way of handling this and the most environmentally friendly way of handling this. We very much rely on the environmental aspects, which I can very much appreciate. However, we need to obviously balance this.

And I think if this is a short term emergency that we're trying to get through, again, putting Nevada and Arizona aside, what would just be the most economic efficient way of doing this? Would it be—it doesn't seem like it would be importing, importing already refined gasoline.

It would seem like it would be actually just producing crude here, right? Drilling and actually producing it here and doing everything in house. What is your answer, though, to that? Which, again, is in here—what's the most economically efficient way of solving this problem? And then I'm done. Thank you.

Yeah, thank you, Assemblymember. Just noting the data points we have today, the crude oil, the incremental cost, the delta for crude oil acquisition through imports is approximately 5 to 10 cents higher. That's just a data point. So, refineries who have to—who cannot absorb that are at risk of refinery closures.

So, I think just on cost, the crude oil from California seems to be a good indicator. But at the same time, I think given the overall throughput, I think one of the pieces that we do not want to lose in this conversation is the decline of California crude over time—is not only litigation, it's also economics.

Sometimes, you know, these, these companies produce or not based on the global crude oil indexes and today, those indices are very low. So, there would not be a lot of interest for California companies to produce the crude. And it's cyclical, but over time, it does seem to suggest that, you know, California crude generally is cheaper.

Thank you. Assemblymember Ellis.

Madam Chair, thanks. I'd like to address Chairman Randolph.

Due to air quality regulations in the state, we produce the cleanest oil in the world, we refine the cleanest products in the world, then we bring in a million barrels a day, imported crude, that the ships are burning, internal combustion engines, number six fuel oil which puts out polynuclear aromatic hydrocarbons, cryo benzene, and these are pollutants by EPA standards.

And for three or four weeks at a time, they're bringing these ships in and we're polluting the atmosphere, and the jet stream brings it right into California. How do you address that?

We address that through the at birth regulation. And the goal of that regulation is to reduce emissions from those ships.

But do we reduce it 20 miles out when they convert over to low sulfur diesel or do we get to regulate them from point of origin?

I see what you're saying. We regulate them when they come into California waters. We do have some regulatory, you know, limited regulatory control around fuels. The, the international entity that regulates that is the IMO, the International Maritime Organization, and they have made proposals to reduce emissions from ocean-going vessels.

Okay, thank you. Next question.

Valero, among with the other refineries, has spent hundreds of millions of dollars and Mr. Gunda, if you can answer this, how do we ensure that reformulated fuels when they get into the US are actually reformulated into our standards, that we have these refineries spend hundreds and hundreds of millions of dollars to improve their facilities?

Thank you, Assemblymember. I think two points just on the, you know, the mechanics of it, and a lot of this fuel when it comes into California has to be further blended. So, I think, you know, you're noting that. In terms of what we've heard from the industry, you know, competitiveness.

To your point, I think imports do not always have the same regulatory burden as in state, and that does put the refineries at a disadvantage, in state refineries at a disadvantage. And I think that's something that we need to continue to think through.

Okay. Ms. Lucchesi, we have, in 2024, there were 84 new wells drilled in California and 4,000 plugged and abandoned. Can you address that and why we only had 84 new wells?

Yeah, that is part of the reason why we're in this position in terms of upstream production and the significant decline. There have been a number of different CEQA lawsuits that have then resulted in either stays of, meaning no permits can be issued, like the Kern County ordinance, or just through active litigation.

CALGEM has not been able to move through the CEQA process efficiently and with certainty and reliability. And so, that has been the primary reason of why permits have declined.

Okay, thank you. Two more questions. On the two for one, can you tell me, did you take into account the small operators that had five wells, 10 wells? Is that kind of a catastrophic business proposal to them? Has that been considered?

Our intent was, again, to try to find that right balance of, again, being very targeted in the stabilization goal while also advancing our health and safety policies.

Is there a way to develop a formula that would include those small operators?

I am not sure about that. We'd have to follow up with you.

I'd like to consider. Okay, next thing. Well stimulation. Can I make sure that well stimulation is not necessarily considered fracking? There are a hundred to 200 different techniques, and I just wanted to clarify that for everyone today, that well stimulation is not necessarily fracking.

That is an important nuance and point. The well stimulation ban under the existing regulations has a very specific definition to it.

Okay, thank you.

Thank you. Assemblymember Calderon.

Yes, thank you, Madam Chair, and all the chairs for this wonderful hearing. And this has been very informative, good information. I know we're short on time, so I'm just going to jump right in. How much more supply would well stimulation produce? And what would there be an effect on cost?

So, that is a very complex question to answer right now, and I would like the opportunity to be able to follow up with you on that.