Assembly Standing Committee on Utilities and Energy

Good afternoon. Good afternoon, everyone. I am calling to order this hearing of the assembly committee on utilities and energy. We are here today for a hearing to discuss what many are calling the worst supply disruption in the history of the global oil market and its impact on California. Before we begin the hearing, I have a couple of brief housekeeping announcements.

First, public comment is welcome here in person. Otherwise, it should be submitted online via the committee website. Second, as is customary, we will not accept disruptive behavior and will apply assembly rules to maintain order and run a fair hearing. With that, the last California bound tanker to pass through the Strait Of Hormuz since the war began is at the Port Of Long Beach right now, offloading valuable cargo, some 2,000,000 barrels of crude oil.

When this tanker is empty, it is unclear where the next replacement ship will be coming from, and we are feeling the impact already here in California.

Jet fuel prices are up 84% since February 28. California refineries are running hard, maximizing jet fuel and diesel production. This means that less gasoline is being produced at the exact moment that our import supply is tightening. We've been told that we have adequate supplies on hand to date. But if this war continues, it is unclear how durable this will be.

California is entering this hearing mid disruption with our petroleum sector in the midst of transition. The near term crisis and the long term transition are the same problem but unfolding on different time scales, and the window for deliberate action is narrowing. Two major reports from the California Energy Commission were released on Friday. Together, they represent the most serious analytical framework that California has assembled for managing this transition and the attendant challenges.

So for today's hearing, panel one will examine where we are right now, how vulnerable is our supply, what tools exist if a shock materializes, and are those tools adequate for a six week import lead time.

Panel two will look a bit further into the transition and ask what it will take to reduce this vulnerability over the next two to five years, and whether the policies that we have long credited with protecting California consumers and our distinct fuel standards are delivering appropriate benefit for the cost. The near term options to be discussed today are really not alternatives to a long term vision. They are the foundation of of that long term vision.

So with that, let's jump into the hearing, and I'm going to call up the first set of panelists from the administration. We are welcoming vice chair of the California Energy Commission, Siva Gunda, and, the director of the division of petroleum market oversight, Ty Mylder.

We'll hear for from our administration panelists and then, welcome additional witnesses who will be presenting. Before I jump in and we hear from from our panelists, I'm pleased to be joined by the chair of the Assembly Committee on Natural Resources. Chair Bryan will also, be joined by the chair of the Committee on Transportation, chair Lori Wilson. Alright. I'll turn it, over to you to offer some brief opening remarks. Thank you for being here.

Happy to be here and wanna thank the chair for this important, and timely conversation. I think petroleum supply in California is at a critical moment, and we came to some of these conversations in a very difficult way last year where we reconciled with some tough choices. Our demand is decreasing and decreasing rapidly, but not as fast as our supply is decreasing. And I think it's important that we manage that decline, which is something we are actively working on.

I would be remiss also if I didn't point out the instability of the world, given the decisions of the Federal Government, in this moment.

And while we can't alone insulate ourselves from those impacts We do need to have a responsible and a thoughtful conversation, not only how we plan for the now, but also plan for the future. So thank you, chair Pichi Norris, for this conversation. Happy to join you.

Thank you so much. Alright. With that, welcome, vice chair Gunda. Thank you.

Thank you, chair. Good afternoon, chairs, and members of the, dais. I'm Siva Gunda for the record. Currently serve as the vice chair of the California Energy Commission. Would request the slides to be brought up, please, for panel one.

Easy. Great. Thank you.

Chepreet, I noticed you kind of laid out the situation we are in right now, and I wanted to just make sure I acknowledge at the top of this hearing that this moment that we're in is is an extraordinary moment, and whether, it's the oversight hearing from from you, and the legislature or, the various, requests for information we're getting from the stakeholders, we really recognize this as an important moment where we need to be able to provide the information and transparency so you could understand exactly where we are, and get both your guidance and partnership as we move forward, with this crisis.

So I wanted to set the stage a little bit about what the flows in California are, you know, just for context, and this has been evolving over the last three years as as most of you know.

So we are predominantly an import state for crude oil. We get about 65% of the crude oil that we consume in California from sources outside of California. About 10% of that comes from, you know, Alaska and other places. So it's it's mostly domestic, but 25 about 65% of that is foreign sources. Second, on the specifically for refined products, we have given the conversion of two refineries right after COVID and closure notices from p sixty six Wilmington and Valero Benicia.

We are now looking at about structural import about 2020% for, defined products. So going to next slide. As, we've already heard, you know, as we see this, demand decline happening, you know, depending on different times, you know, along the, timeline here, we've seen various rates of decline, but it's good to kind of proxy about a percent and a little bit over a percent of decline that we've been seeing since 2017.

There was obviously a big decline during COVID, but, you know, much of that has come back up. But as you already noted, as the demand's coming down slowly, the refining capacity in state refining capacity kind of leaves as a chunk at a time.

And it's important to note that given that our dependence is about 20% last year, we see that the market is beginning to reorient itself to bring the refined products into California, and we were successfully able to meet the 20% of imports last year. Given how much exposure we have on both crude oil as well as, the refined products for imports, we thought it would be good for just kind of set the stage on, where we bring those, different, crude oil as well as refined products from.

So I wanted to kinda give you here, just a way to, read the chart. The kind of the orange kind of you know, the color is crude oil, and what you see in blue is where we're getting our refined products from. And as already noted, about 10% of the crude oil that we get into California, comes from The United States, you know, especially from Alaska, but the rest of it comes from various sources.

A lot of dependence on Latin America, and we do have dependence on the Persian Gulf. And as the war has proceeded, we see that, refiners are moving towards different sources. So much of the, Persian Gulf dependency has moved to Latin America, especially Brazil.

So as we move into the defined products, much of our sourcing, comes from India, but also wanted to note up, at the top, our highest percent of sourcing into California for refined product actually from comes from The United States, and primarily from the Gulf Coast. When you see there The Bahamas, The Bahamas is is really a a kind of a terminal where you're moving the product through, but much of what's going through Bahamas is a US product.

So it goes there from the Gulf Coast and then comes back through to to the to California. So majority of our imports on the refined product are coming from US, but there is expansion of Asian's presence in California. So moving into next slide, I just wanted to give you a quick context, and this is just focusing on the defined product over the last eleven years. The key points there are US domestic barrels remain the core supply for California, a significant amount.

So, again, recognizing that Bahamas is is really a proxy for Gulf Coast, refined product coming into California.

Second, the Asian suppliers have been expanding, especially, we see, a lot of product coming from India, Japan. We have Korea, and and they are based on, conversations we are having, they are looking for more and more consistent presence in California. And typically, you have the European barrels being those flexible barrels that come when we are in a supply shortfall. And so in 2025, we had about 165,000 barrels a day of refined products coming into California on an average.

So then, looking at what happened since the beginning of the war, as you see there, towards the last two columns, the the imports that we've been getting into California, since, the beginning of this year have been even more, have been higher than what we've seen in 2025.

And even through the conflict in February, March, and even April, we've gotten really healthy volumes into California. And, while this the information is detailed information is confidential, we're currently tracking, pretty healthy imports that are coming into California in May. But the important piece to note there is as the gallons become tighter across the globe, we have to compete, and we and they'll that that kind of pricing, will be, baked into, the price at which we acquired those imports and hence passed to the consumers.

Going to the next slide. So given that we are continuing to evolve, what this is showing you, this particular slide, is the totality of imports coming into California, both crude as well as refined products.

The reason we wanted to put it here is to just Kinda provide a a quick, note on, if you focus on the gasoline and blend stock, the Orange Component, you see that that's expanding. So while the totality of the imports are kind of similar, the the defined products are essentially substituting the need for bringing in crude oil.

The crude oil, you know, kind of reduction is both a consequence of the refinery closures or conversions, but it's also a kind of reason for as you have, you know, domestic crude oil go up a little bit, that that'll free up the space. So one other thing I wanna note here is the the exact levels of import ceiling is something that we are still kind of figuring out.

We don't have the exact data on how fast and how much do we have in terms of the import capability that we could use for defined products.

That's an active, work path right now. So then kind of going into given that we're depending on inventories, you know, and it's an important part of our calculation and understanding the supply liquidity in California today, it's important to just recognize the next three slides here are just the inventories that we are carrying in the West Coast. So majority of the West Coast inventories are really in California.

So it's a good proxy for us to think about, California liquidity and how that's gonna move up and down, in the the the West Coast. So it's important to note, for gasoline, we are doing essentially the same levels as as last year.

So the inventories at this point are healthy, thanks to the imports that came in both in March and April. So they built up the the inventories. So I'm not gonna, go into the detail, and I'm happy to answer questions on on these next couple slides. But if you look at the next slide, which is the jet fuel, we're in the same space. The jet fuel is healthier, than when you compare to the rest of the, US.

We're doing pretty well on the jet fuel. Again, there has been news about, reduction of jet fuel imports coming into, California, but that's also could be the market seeing that we have very healthy imports and then, Kinda catering to elsewhere. And as the as the inventories go down, the market does move those imports into California. So finally, specifically on diesel. So diesel is a a different story.

So the as you look at the overall inventories of diesel, you do see lower than the ten year cloud, and wanted to make sure that we articulate this here. Historically, diesel, we are long. And it also doesn't include the the new diesel that we use, which is coming into California to support California's, supply of diesel. So then taking that into totality, again, thanks to the legislature for the various tools of both transparency, as well as the data collecting authorities that we've gotten.

We've shared this with you in the past, you know, something that we developed, which is called the days of supply.

This is really looking at two weeks ahead on how we are doing in terms of liquidity. And as you see there, the 2026 is, you know, within that ten year band. And and going below that band doesn't mean that we've hit scarcity. It just means that once you get below that, the pricing could be higher, and and that's something we need to watch. We've also gotten a few questions on, specifically, some of the refinery outages at this moment.

There is a couple of refineries that are, you know, have a have an outage, which we expect them to come online soon here. So that would, again, help us with our liquidity. So now moving into the pricing. So the the important part here, there has been a lot of conversations about, what is happening to the prices in California, and I'll try to kind of walk this slide carefully. This is something we've always shown you.

The line in the blue, I'll just start with the bold lines, and I'll go and then go to the dash lines. The bold line, what you're seeing here, is the California average that we historically talk about, and and that is, the source for that is AAA OPUS. That's the data we hear in news every day, and that is also inflation adjusted. So just kinda making sure that they're all 2026 real dollars. What you see underneath that in black bold is The US average price.

And then underneath that in green bold, you see the delta between California and The US, which has been an important metric for us to understand how the California supply is different from the rest of the world rest of The US. What you're seeing in the dash lines before I go into a few in the points from here, what you're seeing in dash lines is what EIA reports as the California average price.

The for the black line, you don't see a dash line for EIA because it's essentially overlapped. So what we wanna make sure that you are tracking here is the delta between different sources for California, especially the Federal Government, the EIA versus triple a, has a consistent delta, and that's because of the methodologies that they use, and it's important for us to recognize that.

While that same delta doesn't exist for the rest of The US, because of the composition, and and the and the way the, volumes are weighted.

So then you kinda bring it down to the green line, and I wanna just recognize that the green line showing the 2022 and 2023 spikes are structurally different from what we are watching right now. If you see towards the end of that timeline, the, you know, the the uptick that we saw in The US minus California Delta is consistent with what we've seen during the Ukraine War, suggesting the liquidity problem on a on a global conflict issue, not a structural issue within California.

So we are exposed to global markets, whether it's fossil diesel, crude oil, and that directly impacts us in our prices. To make that so before I go into the the slide on specifically how we are tracking with the rest of The US, I do wanna make one caveat. How we are tracking with the rest of The US, I do wanna make one caveat.

Given that much of our prices are baked in, in a it's and a big chunk of that is coming from crude oil, it's important to know that the crude oil pricing in California is different from what the rest of The US typically sees. The rest of the typical rest of The US typically is benchmarked to, you know, WTI, which is a Texas index, And that and the the California one is more to the Alaska and the European index. So it's a composite. We get crude from different sources. We weigh them together.

But I think the point to take there is, as you've seen with the war, all of them have gone up. That's that's very clear in the data. But the the delta between the California crude oil acquisition and the rest of The US is slightly diverging, which means once this war is completed and we go down, the prices might sustain for California given that higher, crude oil, exposure. So then kinda moving into based on all this, you know, how are the prices, moving in California?

This was as of yesterday, today, different, but let me kinda just, carefully walk through this chart.

What you're seeing here is compared to 02/28, the beginning of the war to today, how are the prices growing everywhere in in The United States? So what you see there is California is essentially in the middle of the pack, about the average growth. So at the beginning of the war, the California US Delta was about one sixty seven, and today, it's one sixty six. So the Delta has not grown.

The overall price has gone up a little bit and right right in the middle of the band, especially given the crude oil prices.

But you see that other states had had persistent higher levels, and the table gives you where we rank. Yesterday, we were ranking about 17. Today, we are ranking about 23. But, you know, it's basically kind of that we are in the right in the middle of the pack. You might kind of see that the Ohio has gone up really rapidly up, and that's because, there are maintenance issues, in the path two region that's really affecting Ohio at this point.

So this chart is really just a visual representation, a heat map of where the price escalations have been. You know, the same table that we've shown in the previous slide, a snapshot as of yesterday. So finally, going to my last slide here, based on all this, you know, how how is this affecting the overall margins in California? And what you're tracking here is looking at the prices at the start of the war to today. So we are over $6 today, the average price.

And where are the contributions coming from? So the bottom of the stack is what we typically talk about. That's our that's our constant taxes and fees and our and our climate programs. And as you see there, that has elevated by about 2¢. And this 2¢is a direct reflection of the increased sales tax because of higher prices.

So that's what you're saying. So that's essentially constant. The biggest difference has come from crude oil. So that crude oil exposure, has put us about a dollar 13¢, exposure on a gallon, and that's important for, us to, think through. And then finally, in terms of the industry margins as a whole, this is both refineries as well as distribution, including all the way down to the retail chains.

What is that, you know, additional premium that we've had? So those are the you know, it's about 100 in it about dollar 13¢on the crude oil increase and about 32¢on the overall industry margin. So those are the things we are tracking today and will continue to investigate. And it's important also for us to convey that, you probably heard this about the the first in, so last in first out, LIPO.

So that's basically a metric where some of the refineries might have had crude oil from pre war that they've used early on, which means their crude oil acquisition cost have not gone up, but they were able to sell at a high price.

But as you go through the war that stabilizes at the end of the other side of it, also they'll be they'll have higher volumes of high cost crude oil, and then the prices depress. So those are the dynamics we have to, you know, closely watch, and we will report back to you. And that concludes my presentation. I'll pass it to director Meilder.

Thank you. Welcome, director Milder.

Thank you so much. I'll ask to bring up the DPMO deck here. Thank you, chair Petrie Norris, chair Bryan, members of the committee. This is a time when the public and policymakers need unvarnished information. I'm gonna repeat what the chair said at the outset.

We're seeing the biggest supply disruption in the history of the global oil market. I'm not one for hyperbole. That's the International Energy Agency. So how is a conflict 7,000 miles away impacting us here in California? I think the the chair selected that, quote for good reason.

It's affecting all of us and all of the country. Two observations from DPMO. First, this is a real supply shock that is driving price spikes around the country. Second, this price spike shows what consumers already know. We have a serious branded gasoline pricing problem.

I'm gonna focus a bit on branded gasoline pricing today in part because the CEC did a very, admirable job covering many of the supply demand dynamics. I might add a couple comments, as well. And also we have professor Borenstein with us who has commented previously on what's called the mystery gasoline surcharge. So we wanna keep the big picture in mind, but also see what California consumers are seeing when they drive around their town or their city. I'm gonna advance to the first slide here.

This, slide is very similar to the slide the vice chair showed. And what we wanna do when we talk about retail prices is look at the fundamentals. What's happening in the rest of The US, what's happening with crude oil, and what's happening with California? You can see Iran conflict on the far right in gray. Prices are up across the board.

If you look to the far left, you can see the Ukraine conflict. Prices also went up, but you saw an exaggerated price increase for retail compared to the cost of crude. We also had two intervening price spikes in 2022 and 2023. Don't have to remind members of the of this committee about those price spikes. Those were not consistent with the fundamentals.

Prices went through the roof even as prices in the rest of The US were going down or were stable and crude prices were going down or being stable. These are the two price spikes that DPMO has pointed to as consistent with price gouging under SBX one dash two because the input costs had not gone up sufficient to, explain the retail cost increases. As we move to the next slide, crude oil, as we all know, is the biggest input cost driver for gasoline.

So why, is crude going up here in California as well as in Alaska? We've chartered those along with WTI and Brent.

Crude is a globally priced commodity. So our crude, even as it comes out of the ground here in California, is priced relative to these benchmarks. So these crude prices are playing out. These increases are playing out all across The US, so I wanna follow-up on the vice chair's explanation there about what's what we see happening. As we look at California, we are in the median, but I wanna suggest that there's a pattern we can see here.

There are higher prices currently in the Midwest and Great Lakes region. Why is that? That's a market that is normally self supplied within pad two. They are landlocked, although they do have the Great Lakes. So they're not typically importing oil.

So they're relying almost entirely on local production, and they're having a local production issue right now. So what that means is you're seeing a price spike on top of the global fundamentals. Prices are going up even more. Here in California, we had a refinery outage earlier this year. The company has reported this in its quarterly earnings, so I'm not saying anything that's not publicly known right now.

There was one of the two refiner major refineries in Northern California, Martinez, was down for most of the beginning of the year. What that meant is we were already seeing somewhat elevated prices here in Northern California before the conflict started. Then you get layered on top of that the impact of the Iran conflict. So what we saw in California as the Iran conflict happened is some really unusually high retail prices. So that's what I'm gonna focus on for the next few slides.

Our our entity, the division of petroleum market oversight, we saw some retail stations charging 2 or even $3 above the statewide average. And we were concerned that some retailers might use the conflict as a pretext to infight their retail prices. And we saw something similar happen after the Ukraine invasion, prices up higher than the fundamentals would suggest.

So we sent a notice in mid March to, the public, and we also communicated to the gas stations, and we identified more than a dozen retailers in different parts of the state that were charging these outlier ninety ninth percentile high prices. Our investigation's ongoing, so it'll be limited about what I can discuss here.

But what we did find, first of all, was that the outlier stations were all just the major brands. There were no unbranded stations or regional brands in that group. Glad to report that some of those stations are cooperating and providing data voluntarily. We are also issuing subpoenas. And in a positive sign, we saw some significant price reductions after we contacted some of the stations, 50¢and higher reduction.

So when we talk about branded versus unbranded pricing in California, we've raised this already on our annual report. This is a a metric we've been tracking over time. What you can see here on the top is California branded versus unbranded. The gap is growing over the last five years around 30¢. If you compare that to the rest of The United States, it's flat or declining, just over a nickel.

So what we see in terms of branded versus unbranded is not normal and is not reflected in the rest of The United States. As we've been digging into these unusually high prices, we've done some new analysis that we're gonna show you today. What we've done is our economics team has has looked at every station in the state and created a one mile radius around the station to see how they're pricing to their local competition, and then we've sorted that pricing by brand.

If you look here, you can see a dramatic escalation in what the major brands are charging over competition in their same neighborhood. So, again, one mile radius means this these are the same cities.

These are the same neighborhoods. So they should theoretically be facing the same costs of doing business. And yet we see 50¢, 60¢differences between the brands and their local competition. Unfortunately, that problem is getting worse and not getting better, and the biggest markup, as you can see, is from Chevron followed by Shell and ExxonMobil. We saw a good amount of coverage when California average prices exceeded $6.

Wanna echo the vice chair's comment, that's in the straight average of AAA or OPUS. If you use volume weighting, it's actually been below $6. And that's because a lot of California drivers are choosing to buy gasoline at a hypermart or an unbranded station. All gas in California meets the same high standards. So if you look at the $6 average, the only stations that are above $6 on average as of April 27 were Chevron, Shell, ExxonMobil, and 76.

Those major brands together, according to the most recent CEC, CDTFA report that you all received, account for about 50% of retail stations. So one in two stations, if you're a Californian driving in your neighborhood, one of two stations will be one of these brands. These hypermarts where there's good value gasoline is 3%, so three out of a 100.

Many drivers don't have the time or the access to where these cheaper gas stations are, but the good news is there is competitively priced gasoline in California, and, again, it meets all the same quality. I think we all know this already, but for almost all Californians, gasoline is not a luxury product.

It's a necessity. And and lower income Californians who have to drive farthest and may have the least efficient cars feel this especially to be the case. At DPMO, we will continue to follow the data. We're at the early stages of this current price spike. And as the vice chair indicated, the crude oil costs have gone up significantly.

We're waiting for the data to come in to determine how much of this is refining profit, retail profit versus cost. So there's gonna be some time that we need to really digest and process the information that's coming in. The real time metric we do see is called the gross refining margin. Those have been significantly higher than average and are nearing twenty twenty two levels. Thank you.

Thank you both. So before we open it up for questions, we'll hear from, the other panelists on panel one. If we can try to get our remote witness on the screen, we'll go ahead and begin with Norman Rogers. And then in the meantime, we'll go ahead and welcome, our additional panelists. We're welcoming Jody Mueller, who is the chief executive officer at the Western States Petroleum Association, and Severn Borenstein, the faculty director at the Energy Institute at Haas, University of California, Berkeley.

Welcome both of you, and we are hopefully welcoming mister Norman Rogers on, the screen. He is the second vice president of United Steelworkers Local 675.

Good afternoon. Can you hear me?

Good afternoon. Yes, vice president Rogers. We can. Thanks for being here.

Oh, very good. Well, thank you all for the opportunity to participate today. This will be very, very quick in the out of respect for people's time. I've got slides if they're available.

Alright. We'll go ahead and hand out slides to members. And your slides are on the screen, so you can go ahead and begin. Thank you.

Very good. Thank you. So there nothing too complicated about these. These are pretty much a slide per decade of what's going on in California going back to the nineteen twenties. I bring this up because at the height of, refining in California, we had approximately 50 refineries.

And that started to drop in about 1983 or so where we got down to 40, and now we're seeing where we're under 10. I bring this up and if you could go to the next slide, please. I bring this up because back in the heyday when we had all those refineries, a refinery having an issue, having an outage didn't really bubble the market too much, and other refineries could make up the difference.

But we are now in a position where there are so few refineries that any hiccup is going to cause problems as was just mentioned about what happened with Martinez. But it since Martinez, we've also had the Chevron incident in El Segundo last October.

The next slide, please. And so again, these are more recent events. But what as far as sustainability, resilience of the gas market for California, the refineries have to run safely. They have to run reliably. And those two things are interlinked.

And I would suggest that the calculations and the assumptions that are made about what our home space refineries can do needs to be there needs to be an asterisk next to it unless we can get to a spot where we're running more reliably and more safely. And for that to happen, we need to be adequately staffed. The regulations that we're running under need not be under a legal attack and that there is a very, very real connection between reliability, safety, and then, a stable gasoline market.

Because we don't know what the sunset date looks like for refining in California, but there's still millions of people that are gonna rely on the products that we put out. And I'll leave it there.

Thank you.

Thank you so much. Alright. We are going to turn back to the Hearing Room. I believe we'll begin, Miss Muller, with you. Thank you.

Good afternoon, chairs, and members. My name is Jodie Muller, and I am the president and CEO of the Western States Petroleum Association. Let me be direct. California's petroleum system has been weakened by design, and global events are now exposing just how fragile it has become. This didn't happen overnight, and it didn't happen by accident.

For years, state policies have pushed the refining sector toward contraction with predictable consequences, less in state production, reduced resilience, and higher costs for Californians. We've seen the outcome. Refinery closures, increased dependence on imports, and a system with very little margin for error when disruptions occur. And this wasn't unforeseen. The California Energy Commission warned about this repeatedly over the last two decades.

To provide some context, we reviewed the California Energy Commission's integrated energy policy reports going back to 2003, and they warned us that this would happen. In 2005, the CEC said the state's refineries are no longer able to meet current and future petroleum demand. California must increasingly rely on imports and must also increase marine terminal capabilities.

Also, in 2005, the state recognized petroleum would continue to be essential and that new infrastructure to import, store, and distribute fuels would be required, and that the state should work with industry to get it built. In 2009, the CEC warned that reliance on foreign oil imports put the state at risk, especially without expanded port capacity.

And in 2011, they explicitly warned about the vulnerability of relying on foreign sources that are geopolitically and economically unstable. Those warnings were clear, and they were ignored. At the same time, California has become one of the most difficult and expensive places in the country to operate a refinery. That has driven investment out of the state and weakened our local supply base. Today, California operates as a fuel island.

We require a specialized fuel blend that few others can produce. And when supply is disrupted, replacement barrels can take thirty to forty five days to arrive if they're available at all. That's not a resilient system. That's a system exposed to delays, price spikes, and volatility. And the risks are growing.

Global disruptions are not hypothetical. Major global disruptions will happen whether California is prepared or not. We've seen it with Russia's invasion of Ukraine. We see it today with the instability around the Strait Of Hormuz. Will China and Taiwan be next?

Those events are outside of your control. What is in your control is whether California has the infrastructure, the business climate, and the redundancy to withstand them. Right now, it does not. Demand for liquid fuels remains significant, about 13,000,000,000 gallons of gasoline per year. Yet, the state continues to lose refining capacity.

Reducing supply faster than demand declines is not a transition strategy. It's a formula for sustained volatility. The issue is structural. Decades of policy decisions have driven capital out of California's refining sector, leaving us more dependent on longer, less reliable supply chains that are vulnerable to global events. And there's a fundamental imbalance.

In state refiners operate under some of the most stringent and costly regulations in the world, while imported fuels are produced under far less rigorous standards and then shipped halfway around the world. That doesn't reduce demand. It doesn't improve reliability. It simply shifts production elsewhere while making our system weaker. We are now at an inflection point.

Additional policy pressures risk pushing the remaining refineries past a breaking point, further jeopardizing fuel supply, jobs, and state revenues. This is not theoretical. Capacity is already declining. If that trend continues, the next disruption will likely be more severe, last longer, and cost more. There is no quick fix for global events, but California can choose to be better prepared.

That starts with stabilizing what we have left. Lower the cost of doing business, create a level playing field with imported fuels, align state and local policies around the reality that in state refining capacity is critical to fuel supply and affordability. And stop assuming that outsourcing energy production is a solution. It is not. It increases risk, reduces control, and leaves Californians more exposed.

The state should focus on preparing for the next global event and where you as policymakers want to be. Number one, you can start by protecting what you have left to ensure there is enough in state capacity to provide a buffer when, not if, when the next disruption occurs. Two, stop believing that outsourcing your energy needs will solve all of the challenges we are facing. Three, fix the hostile business climate that is pushing investment away. We are still seeing hostile legislation by your colleagues.

And number four, ensure that the state and local governments are aligned that having refineries in California is critical for statewide gasoline supply. Because global shocks are inevitable, the only question is whether California chooses to be prepared or remain exposed. And right now, we are exposed. Thank you.

Professor Borenstein.

Thank you. Thank you for inviting me here. It's a pleasure to address you, and, I will try to address many of the comments that have been made as well as, give a overview. So California prices are up about a dollar and a half since the war started. Part of that, of course, is an increase in the price of crude oil.

That is hard to exactly track because crude oil prices have been so volatile To know exactly how much of that is the crude is tough, but it's probably around a dollar a gallon of the dollar and a half increase. Part of that the difference is increases above and beyond crude prices in what I refer to as the mystery gasoline surcharge, and, part of it is the automatic, multiplier from the fact that we have sales taxes. Let me start with crude oil.

Crude oil, as everyone on the panel, I think, has said would agree, is a global market. It's integrated.

It's also really good at logistics. So it tends to be able to move oil to the highest value point, the place that will pay the highest price very quickly. Not instantaneously, however, and that's why you've probably read in the news that spot prices for immediate delivery have varied quite a bit across the globe. But front month futures prices are pretty uniform, and that's telling us that the crude oil market's pretty good at moving the product to where it's needed.

The difference between California and the rest of the country is not the price of crude oil.

That is pretty much uniform across the country. The difference is in taxes and environmental costs. Those really haven't changed since the beginning of the war with the exception of a bit of sales proportional sales tax, and then what I refer to as the mystery gasoline surcharge. If we can bring up my slides whoops. I should have said this already.

And oh, I do this? Okay. And, I will this graph, which is somewhat readable, I guess, shows the mystery gasoline surcharge. And the basic point here is how high is or California's prices compared to the rest of the country after you take out differences in taxes and differences in environmental costs and a margin for the extra expense of making California blend gasoline. That has gone up somewhat since the beginning of the war.

And part of that so this is everything from the refinery down to the pump. Part of that is the part that is getting a lot of focus right now, which is the actual physical supply of gasoline, and part of it is not. Part of it is downstream from the supply demand balance, but in the actual marketing and distribution of gasoline.

This is a point I've been making now for almost a decade that this mystery gasoline surcharge in typically, actually, is more than half downstream from the refineries. We have to deal with supply issues as people on the panel have said, but we also have to recognize that most of the reason California's gas prices are higher than the rest of the country after you take out the obvious taxes and environmental fees is downstream from the refineries.

It is not a supply demand balance problem. That doesn't mean we shouldn't be worrying about supply and demand in in the short and medium run, but we should recognize that there's a whole additional problem. If you look at the spot price of gasoline, this is the part that represents the supply demand balance.

What you will see is that actually going back to well before, the mystery gasoline surcharge appeared in 2015, the difference between California and the rest of the country in spot prices has varied quite a bit but hasn't shown a real trend. In other words, the reason our prices have been deviating from the rest of the country is not due to, the a supply demand balance problem.

So let me and since I have limited time, let me talk about a few, policy solutions people have talked about. We are facing a decline in the number of refineries. If we are going to reduce our consumption of gasoline, that's just going to happen. So we need to create policies that are robust to that. Yes.

We've gone from 50 to under 10 refineries. We're not gonna go back to 50. We're going to continue to lose refineries as gasoline consumption declines. That creates a couple of problems. One that's been pointed out, which is that there's a lumpiness.

You lose refineries. And when we lost those last two, each of those was 10% of California gasoline supply. When one producer can produce 10% and particularly when they own another refinery in the state, they can have pretty distorted incentives about how much they produce. So it's not just the lumpiness. It's also what economists refer to as the market power problem.

That when you get down to a small number of producers, any one of them may have an incentive to reduce supply in order to drive a price. And we saw this during the California electricity crisis, and we've seen it in many other industries as well. What can we do about that? Well, there are discussions about subsidizing refineries, and I think that we have taken some steps in that direction actually with the new cap and trade, bill.

But I think that that's really not the, fundamentally sustainable approach.

I think, fundamentally, we have to recognize we are going to have fewer refineries, and the solution is imports. And that is making sure that those gaps and I think it was, vice chair Gunda showed that graph that that showed the number of refinery the amount of refinery capacity falling faster than at least very recently than our demand for gasoline. That gap has to be filled.

We as a state have to make sure there are facilities to that can fill that gap, and that is all about imports. It's about port capacity.

It's about pipeline capacity to get the pot product away from the ports. And most importantly, it's about storage capacity because storage is what makes us resilient to disruptions in the gasoline system. We are not going to be able to be resilient by having a lot of refinery capacity if we don't have crude oil and we're not going to have crude oil in state to put through those refineries because the disruption in the crude oil market is still going to be a problem.

Fundamentally, we need to be able to store enough product and enough crude oil so that when there are disruptions in the world, that that we will have product in inventory to avoid major disruptions. Mostly, this is about California specification gasoline because as previous speakers have pointed out, we there are limited, not very limited, but limited number of other producers in the world.

With enough warning, there are for prior contracting, there are there are a lot of facilities that can produce either California specification gasoline or the blending components that are needed to blend up the product to California specification gasoline. Let me just address a couple other ideas that have been floated that if we had an inventory requirement, we would have somehow avoided the shock to California gasoline prices. That's just not true. California's the discussion of an inventory requirement was about dealing with disruptions in California refining.

When the price of crude oil goes up, that's not gonna help, and we still would have seen that happen.

That we should have imposed a refinery margin penalty, I have not been a supporter of this since it it was originally suggested, not because in theory it isn't a useful idea, but in practice, I think it's just impractical to actually do that sort of regulation. And I am old enough to remember sitting in gas lines in the nineteen seventies. And as much as consumers hate high gas prices, they hate gas lines even more.

So and then finally, and I know this won't make everybody in this room happy, there the suggestion has been made that if we just go to an e 15 blend instead of an e-10 blend, blending on five percent more ethanol, that will solve our problem or at least will reduce gasoline prices by 20¢a gallon. It really won't.

It might be helpful at very limited times when we are in extreme shortage. But over the course of a year, we're not in that situation very often. And the math just doesn't even make sense. If you took 5% of gasoline out of the system, even if you could replace it for free, it wouldn't lower the price of gasoline by 20¢a gallon. And, of course, ethanol is not free.

Ethanol, it costs almost as much. So e 15 may be a good idea for other reasons. I don't have a real view on that, but this I just as somebody who studies pricing, I think it's my responsibility to point out that this is not going to solve a pricing problem. And I guess I will stop there, and I'm happy to answer questions. Thank you.

Alright. Thank you. So as we turn to member questions, I guess if we can do our best to sort of focus the the questions for this panel on kind of some of the short term issues and challenges solutions. We are going to be hearing from a number of other panelists sharing some perspectives on more of a midterm strategy, including digging into questions around import strategy, e 15, fuel blends, etcetera. So with that, mister Bryan.

Thank you for for all of the presentations. I think they were powerful and important. I have a few questions. My first question, are we all in agreement that the war in Iran has impacted the price of gas in California in a way that has negatively impacted consumers across California? Is that something this panel unanimously agrees on?

Yes.

It's impacted prices across the world.

Okay. Just wanna make sure that we're talking from the from the same point. And we saw from the division of the Petroleum Market Oversight that we've seen price spikes before. And in 22-23, they weren't directly correlated or causal to prices in crude oil and suggest perhaps some sort of gouging potentially. But in this particular instance, all three seem to be going up consistently, and and that's why we're in agreement that it's Trump's war in Iran that is most crushing for California consumers in this exact moment. Right?

The lion's share of the high prices we're seeing are attributable to the conflict.

And then my other question, my last question, also from that same presentation from the division of Petroleum Market Oversight, I found that in insightful and very interesting that branded gasoline was more expensive in California. I had never thought of that. It was especially shocking to me to see that, I guess, the most egregious contributor to prices at the pump for consumers right now is Chevron based on the data that you've collected.

And then when pointing out that they are overcharging or charging more for gas than any other retail place that folks could get gas prices then dropped only after they were called out? That's what you told us?

I wanna separate that first and that second part. So first, objectively looking at statewide data, and this is coming from the oil price information service. Chevron is the highest price by average in the state. They're also the most the the the highest market share. So most the most likely station you're gonna come across in California is a Chevron. It's also gonna be the highest priced on average.

Secondly, in regards to the the investigation and and some of the contacts we're doing, at this point, we're only saying publicly that it's just major brands, not identifying the individual stations. But, yeah, the the all the gas stations that were 2 or $3 above the statewide average that we contacted were one of these major brands.

And then my last question, professor, been following the mystery surcharge work for some years. Is it safe to say real plainly that the mystery surcharge is bad for consumers and goes directly to the profits of big oil producers and and retail gasoline stations?

I think it's safe to say that it's bad for consumers. I think that we still need to dig into where it's coming in the vertical chain. And as a result, who is actually getting that money? I am open to the possibility that there are costs that are driving that. The oil industry has I've been contacted by many people in the industry who said, well, the cost of doing business is higher in California, and that is definitely true.

I think, though, that the sudden appearance in 2015, and it the graph is really quite stark on this, is not explained by higher cost of doing business. I will say, however, though, that when we start saying that they're taking advantage of consumers, there is this fact that I am always troubled by, which is the dispersion between stations, often just a block apart

Is just remarkable in California. If you drive across the country and you check out similar sized cities in other parts of the country, you'll see 5¢or 10¢at most price differences across stations. If you drive around the Bay Area where I drive around, you will see 40 or 60¢. I live in Orinda. There is a station that regularly charges 60¢less than the Chevron.

It's three blocks away from the Chevron, and yet a lot of people still go to the Chevron. So I am puzzled by that. I spend a lot of time talking to the media, asking them telling them to tell people to shop around. But beyond that, I'm still sort of baffled by why we have such price dispersion.

Thank you. Thank you, madam chair.

Thank you. And, yes, I think in every time we have a hearing on the market, I think our you know, the main public service announcement that we want to communicate to Californians is shop around. And the good news is these non branded gas stations, the gas is as high quality as their branded neighbors. So everyone should be getting their gas at the generic brands. With that, welcome, chair Wilson.

Thanks so much for joining us. Thanks for being here.

Here. I'm gonna do a quick statement, and then I have a couple of questions, and I know, some of my colleagues, have questions. I definitely wanna thank the chair, for inviting me to be a part of such an important discussion. As was noted from this first panel, the subject before us, the transition away from fossil fuels with the specific focus on this near term petroleum crisis has garnered widespread attention.

As a legislator, the only legislator in my family, it is regularly the topic of text messages, phone calls, and conversations around the dinner table.

Most California residents continue to rely on fossil fuels, whether to drive or take the bus to work, to have that package delivered to their door, to do whatever their comings and goings are. And as was noted, from the panel and brought out, by chair Brian, the ongoing war in Iran and the closure of the Strait Of Hormuz has thrown into sharp relief, the existing vulnerabilities in California's petroleum market with rising fuel costs straining California's pocketbooks.

And as chair of the Transportation Committee, petroleum fuels continues to be at the heart of our policy discussions, powering transit, personal vehicles, and the supply chain that delivers both raw materials and finished products both to and within California. Transportation emissions are the single largest contributor to the state's greenhouse gas, nitrogen oxide, and diesel particulate matter emissions, necessitating the transition away from fossil transportation fuels. However, we must strike a strategic balance while ensuring both the physical and economic safety of our residents.

Managing the transition away from the fossil fuels necessitates clear direction, goals, and structure. And I appreciate this discussion today, and I'm committed to do the hard work and strike the right balance to provide for those that we are responsible for. I noted that, chief executive officer Mueller said that global shocks are inevitable, and we have to do our part as a state to mitigate against those global sharks shocks.

And I was wondering, from the panel based on what I heard so far, and I got a glimpse of it before I got a chance to come down, is, we are moving to more of an import model given the refinery closures. How do we then, mitigate those types of global shocks if we are regularly reliant on, imports?

I'm happy to say. First of all, there are gonna be global shocks, though this global shock is the largest in my lifetime. California is not going to mitigate those global shocks. Producing more oil in California is not going to change how the price of gasoline for consumers changes in the midst of those global shocks. The price of gasoline in California went up right with the rest of the world.

The oil industry is very quick to say, we're not the ones who set the price of crude oil. It's set in the world market, and they're absolutely right. But that's also true when there's a global shock. So we aren't going to be able to mitigate the price of crude oil, in with any policies.

There is one way that California could change the impact on consumers that I proposed almost twenty years ago now, which is to have a gas tax that does decline when the price of crude oil goes up.

And I know there's some people in the legislature who like that idea, but also increases when the price of crude oil goes down. So this would be a gasoline stabilizing floating tax. It would it would increase the volatility of gas tax revenue to the state at exactly the same rate, it would decrease the volatility of the price of gasoline to consumers.

So that's something legislators would have to think about whether they're willing to absorb in the volatility in the budget, but it would there's no question it would help consumers. I am worried, however, about the half of that proposal that I keep hearing, which is when the price of crude oil goes up, let's decrease the gas tax.

And in some states, without any we have seen without any real pathway to increasing it again. I would strongly advise against that, but I think there is a way in which the state could buffer the volatility of the world market.

Yeah. I would I would add to professor Borenstein, that diversification, I think, professor Bornstein mentioned that you you really can't avoid a global shock, but local or regional shocks, if you have more inventories, more supply on hand, that can help as a buffer plus having different sources of supply. So it is true that we are increasing the amount of imported refined product we're bringing in. At the same time, we're decreasing the amount of crude that we're bringing in.

So our import mix is shifting as the vice chair explained, and we're getting that fuel from the Pacific Northwest, from the Gulf Coast by way of The Bahamas and from abroad.

And what that means is if one of those areas has issues with their refiners, there's diversity in where the fuel is coming from, and we're not refine relying just on our in state production. I should say having a a resilient in state, refining core is also really important and having them online, not having accidents and explosions. I think we've seen record profits in California in past years.

If that happens again, I think one of the big questions is, are those refiners investing in keeping their refineries operational and refineries operational and modernizing and safeguarding those refineries? Should also note, California in the last decade has drastically reduced how much, gasoline we're consuming.

So from the height to today, it's about 2,400,000,000 gallons less per year. And we can imagine how much money that has saved drivers in conditions like today. So diversifying the type of transportation people are relying on is also a great option.

Yeah. I think the points are well covered by professor Borenstein early on is, ..., as we think about moving towards an import model and and having more imports playing a significant role in meeting the demand, I think it's really important similar to how we plan the electricity side. You have, you know, a kind of a solar, I mean, it's kinda intermittent, and you need to be able to stabilize that with enough storage.

So I think what we'll have to continue to contend on is the same things that, professor Borenstein mentioned, which is do we have the port access? I think we we talked about this, previously.

Look at four variables. Do we have enough molecules across the world that can source California? I think the answer is yes with precise signals. So one of the things we need to think through on on sourcing molecules is where they're coming from and those specific refineries in those countries wherever we are sourcing from, are they able to make sure the necessary conversion to the molecules happen quickly and steadily?

So, for example, if there's a refinery in Japan looking to support California, if they are always making CARBAB, it's a better situation than going from CARBAB to another blend and constantly so on.

So it's an important thing to think through. Second, do you have enough vessels that can bring those molecules into California? The answer seems to be yes, but I think the importance is during times like this, there'll be exposure to the cost of those freight. And right now, we are seeing, significant increase in the freight cost coming into California. Third, do we have enough port access, within California to make sure those molecules could be unloaded?

And finally, unload and stored. And finally, do we have the distribution network necessary to move those molecules well? I think where we are really needing to focus right now is three and four, making sure we have enough storage access, and then the distribution network is really adapted to places where the imports are coming into. So I think those are the pieces we need to think through.

Again, no matter what we do here, I think it needs to be deliberate and then understanding the trade offs of what what those deliberate choices are and mitigating against those trade offs.

And I'll respond by saying that continuing to move to more and more imports will put this state at more and more risk. If you think we are in a precarious position right now, we will continue to see more and more volatility moving in that direction. I can't remember whose slide it was, whether it was CEC or DPMO that showed the map of the country.

And you saw the one area that has prices similar to ours right now in the Midwest because they not only have this global situation, but they have a a refinery issue that's going on there. I actually just flew back from Chicago yesterday, so I saw it with my own two eyes.

So you see, typically, they are able to be self sufficient within that pad and and have the fuel refined within that area. Now they have a disruption, and they're having to rely on more imports coming in, and their prices are going up. So they're seeing California type prices in that area. That will eventually go down when the refinery issue, is is, you know, brought back up to speed. So they will go back down. We still are starting at that higher level than anywhere else in the country.

Thank you. Just a couple two quick follow ups, or follow-up and then one question. Professor Bornstein, you noted that you strongly advise against the just the decrease doing one side, but you didn't state why if you would mind stating why you strongly advise against. And then I'll ask the second question so you can answer, and then we can go give it back to the chair. There was a a question about, the policies, within the state having an impact on pricing.

You noted the mystery surcharge started around 2015 that you thought some of it related to the higher cost of doing business. I wondered if you saw any correlation between the, policies that the legislature has passed as it relates to, this, whether it be for in state production or the policies on our refineries to prices? Thank you.

So the reason I would advise against, gas tax holiday without an a written commitment to re to restarting it is I think it's always difficult to raise taxes. And so if we are going to have a gas tax holiday, I think it is important to say it will last exactly this long and it will return to the previous level. On the I I actually am not sure how much of the mystery gasoline surcharge is due to the higher cost of doing business.

California had a higher cost of doing business prior to 2015. There is evidence that, for instance, minimum wage laws and weigh and average wages have grown faster in California, but wages are very small share of the cost of distributing and selling gasoline.

So I think that I and this is something I'm looking forward to doing more work on. I I it is not obvious how much these higher costs are driving things. The one place that there's a strong reason to suspect is that California has fewer gas stations per licensed driver, per registered car, or per gallon sold. So gas stations are not as numerous as in the rest of the country. That is probably partially due to environmental restrictions.

It's probably partially due to the high cost of property. But when gas stations are further apart, they don't compete as effectively against one another. So I think that we are probably seeing, to some extent, the high cost of business showing up in that way. All that said, none of that suddenly changed in February 2015.

So I think the mystery remains of why did we suddenly see this departure that and I I will say in March 2015, I wrote a blog post that said, let's all stay calm.

This has happened before. It goes back to the normal relationship. And that's what I was expecting. And I changed my mind when it didn't go back down, and we have ever since seen this additional 20 to 50¢a gallon, that consumers have been paying.

Assemblymember Irwin.

Thank you very much. First, thank you all for being here. This is a a really critical issue, but it seems like we've been talking about a lot of these subjects for the last four years, and who would have predicted that we would be in this situation. So I just wanna start with the the committee background or was very thorough, and I have to commend the staff on that. They always do an outstanding job.

One of the questions that was brought up was that it doesn't seem that anybody is really functionally in charge. So the CEC seems to have some statutory authority. But what additional authority does the CEC or a different agency need to effectively coordinate, manage, and address the issues that we're facing here in California?

I think it's easiest to pun that question because of, you know, coordination with the administration and the other state agencies. But I will try my best to answer that, you know, Assemblymember. I think, you know again, I I wanna give Laura Shai, but a shout out for the backgrounder. I think the a number of us have very clear statutes on what we are focusing on.

The energy commission has the statute on thinking through the reliability of the supply, emergency, you know, kind of planning, forecasting, kind of following the prices and so on.

I think as a policy, we typically move to the the blueprint that the scoping plan provides on what the economy wide transition looks like. I think the transition plan that you will hear, in the next panel is a good way to kind of lay out the vision on what we need to do step by step.

I think, to your point, and I don't have a good answer, I think this is something we'd love to continue the conversation with the administration and the legislature is how do we formalize a structure where, I think the way chair Peter Norris on the electricity side usually ask us who's on first here to really give us a clear understanding on on what we're doing.

I think right now, the distributed nature of our mandates has been helpful for a long time, because the we could efficiently optimize our work within the, statutory, bandwidth we had. But I think moving forward, I think it's a good question to ask.

How do we lay out a clear plan, and, you know, who's best positioned to support that? And I would differ to that for a following conversation if you're okay.

Could I add one thing since neither of my colleagues from the CEC are will be willing to say this? We are massively underfunding the CEC folks who work on gasoline. The DPMO was set up with 10 people. If you do the math, we're spending less than $3,000,000 a year investigating the mystery gasoline surcharge, and they have other responsibilities as well, which is costing consumers over $5,000,000,000 a year. This is we just don't have the firepower we need to actually dig in.

The fuels division, I don't know the latest count of how many people they have who do analysis, but I bet it's under 10. And or in and so, again, we're talking a few million dollars a year on an industry that California spends over $50,000,000,000 a year.

And with all due respect to the legislature, I think being unhappy with them for not delivering products on time or doing the depth of analysis when they just don't have the people to do it is is just not going to lead to better outcomes. That's my view.

Well, there it is. Did you pay him?

I've been whining about this longer than either of them have had their job. Just

So I'd also wanna follow-up on the inventory that's required as we have more imports. Who is who is doing that inventory, or do we where where we're talking about the the port and marine infrastructure and storage, do we need to assign it to somebody? Is the CEC looking at inventory? Does the legislature have to pass something to to see what it is that we actually need?

Yeah. I think and thank you again, as it may be my brother question. The CEC on the natural, you know, derives its kind of statutory obligations from all the way from WARNAquis Act, PETA, you know, which was four decades old, and more recently, the two special sessions. I think consistent with, you know, the overall statute, CEC does have an obligation to, continue to, gather this information. But oftentimes, when it is vague, it becomes hard to prioritize.

So I think, you know, because of where we are with the petroleum industry, we are prioritizing some of those data gathering, you know, specifically with the SBX one two and ABX two one statutes. But I again and I think it's a conversation we wanna have with the legislature. I think it's really important for us to have strong inventory information on what storage exists, you know, who owns what, how is it being used to be able to really help shepherd this transition.

K. Because we're we're looking at, like, how do we help you come to these solutions. Just my last question is and and, first of all, I have to say to the professor, really, you really helped create the Department of Petroleum market oversight, and it's so good that we have so much information now. Because in the initial hearings when we were talking about the high gas prices, we really were operating blindly. So I'm glad we have that information.

But what other data might we need to collect to be more proactive in planning for a smooth transition?

One piece of information that's critical right now that goes to the assembly member's earlier question as well is that import infrastructure is largely coextensive with the refining industry. So the incumbents in this space already control most of the sort of locations where product can come in and get stored. So there's not a lot of independent or available storage for new players who might be competitors to the existing industry. So that that's one area we'd like to to flag.

In terms of additional data, the the the interplay of what's happening here in California and the world is something that wanna lift up the CEC's work as well as DPMOs.

We need to know the costs of, delivery from different locations to California. We also need to know some of the the costs of doing business here in California. I think, as as professor Bornstein has indicated, there's been sort of this talking past each other where we show that branded prices are much higher than competitors within one mile, but yet, industries also say what the costs are higher. I think ground truthing some of that would be really, really important.

So getting better data on industry costs would be, I think, an area.

I think we've started in that direction in SB 1322, but there's areas where that could be really improved. Because I think having an honest discussion where everyone agrees about the facts on the table and then and then analyzing it from there, those ones I would I would pick out.

Actually, I'm gonna suggest something that's not an economic data, but I think we should run to ground, which is the issue of California special specification. I the California Air Resources Board has a mission, and they pursue that mission. And that mission does not include lowering the cost of gasoline. And they do a great job, but I think that we it's time to revisit. And I don't know what the answer is.

I'm an economist, not a air quality specialist of how what we're getting out of the separate blend of gasoline and whether we can get some good information about whether the costs outweigh the benefits or not.

Alright. Thank you very much. And we are gonna dig into that very question in the next panel. So thank you for the preview. Okay. Assembly member Alvarez.

Thank you. I wanna thank chair Petrie Norris and one for the hearing. I think this is an important conversation to have, and the work that you have done in this committee for a couple years now, and I wanna thank speaker Rivas for the opportunity to sit in today. And, again, as others have done, call out the work by the consultant in the analysis and background that we've been provided with today. Appreciate that.

I wanna bring us back to what I think the chair the way the chair has structured this conversation, and this is this first panel is about what what's happening near term.

Because I think a lot of the conversation has been about in a few years long term, and I think I think we have to treat the moments that we are in with the same level of urgency as we had two previous extraordinary sessions that were called by the governor as a result of two other points in recent history when the price of gasoline has been unrealistic for Californians. And so that's why I appreciate that this hearing is is happening.

Since 2002 when I was elected, so a little over three years ago, we have had two special sessions related to the price of gasoline. The fur there's been a moment in time when the governor has insisted that the gas price spikes were a result of market manipulation.

That's why we had that extraordinary session. Since then, we have not seen any of that evidence. We granted authority to do the work in order to identify that. We have not seen that. In fact, what we've heard is that supply has been constrained because of refinery closures, outages, and foreign supply disruptions.

After the announcement of closures last year, I believe that was last year. Yes. The governor asked us to the the CEC to identify ways to support in state production to prevent further refinery closures, which led to increasing cost of gasoline. And as a result, the legislature passed SB 237 to boost in state crude oil production to support pipeline operations and keep refineries open and keep the price at a attainable rate for Californians.

Now I have to acknowledge, and you all did as well, there is no question about it.

President Trump's reckless war in Iran has led us to where we are today, and that's created a new dynamic that we need to respond to. We're experiencing, according to the International Energy Agency, I wanna quote them, the largest energy crisis we have ever faced. And I think I've heard a couple of you mentioned that as well. The imports that we hoped to rely on have become more precarious. Prices for gasoline, diesel, jet fuel have increased sharply.

And I don't wanna be touting, and I don't think anybody should, the fact that, in California, it's only increased by a dollar and 47. It's we are still the highest priced gasoline in the entire country. No one else crosses $6. Only a couple cross $5. And so that's how serious and how urgent this this issue should be for all of us to address for Californians.

I'm proud that with a couple of other co chairs, a bipartisan group, Problem Solvers Caucus sent a letter to the CEC asking to release three past due reports, which we finally saw posted yesterday. I'll admit I have not had the chance to read them. I will be doing that. And we'll refer be referring to some of it during the next panel as we're talking about long term. But I think that's important information that helps us make we'll make better decisions going forward.

So that brings me to my questions, and I wanted to first acknowledge vice chair Gunda who, I've always thoroughly enjoyed learning from and exchanging with questions about what is happening and what is not happening and what we can do better. So, vice chair Gunda, this will not be a surprise. Some of these questions, I think you you're familiar with, the type of information that I hope we can see get from you in order to move forward.

The committees the committee's assessment on page five, states that if the straight closure, this the Strait Of Hermos, obviously, extends another thirty to sixty days, which is not a plus implausible scenario as I stated here, that we can have a more serious supply gap. First question for you is do you agree with that statement?

Thank you. I think the the let me kinda structure that question step by step. I think the first thing is, historically, CEC was able to look at three months ahead or so in terms of establishing solidly what the liquidity is. At this point, we have visibility on imports that are six weeks ahead. So taking that for the next six weeks, we do not see an issue with liquidity in California.

Second, based on daily conversations with the industry on whether there would be supply shortfall in California, the first, I wanna break it again into two pieces here. One is crude, and second is a refined product. As in terms of crude, the the industry has largely moved away from our dependence on the Persian Gulf to either sourcing more from Alaska, Canada, or Latin America.

So in terms of crude oil supply, I can confirm that based on our conversations as of this morning, we are not in a situation of running out of crude oil in the next in a few months.

In terms of refined products as well, given where we are in terms of the inventory in the West And looking at two of the refineries that are almost coming back online, they have been outages both Chevron as well as that expected to come online shortly here, which will improve the liquidity in California.

And one of the things we have seen is it really as a new member, it comes down to pricing. I think what we have seen is when the market is tight, California outbids the rest of the rest of the world. And we basically have the Asian molecules divert diverted towards California. So what I would what I would say is I do not see presently at least up to six weeks, you know, a shortfall or or product a supply shortfall.

Beyond that, I think based on what we're hearing from the industry and what we have observed, the pricing will move move molecules towards California, but it will come at a price.

And that's something that we need to closely watch.

So I think it's important to note, and I don't wanna misrepresent or summarize what you said then. For six weeks, at least, there seems to be some certainty. But almost as certain is that if this situation continues after six weeks, we would likely see more price increases for gasoline.

More exposure. Yes. Absolutely.

K. Thank you. Do you have you had a conversation about developing an emergency plan knowing that we've got six weeks at this point, it sounds like, of some certainty what the plan is at seven weeks and beyond if this were to continue?

Yeah. Absolutely. I think so. There's a few conversations that I wanna make sure that I cannot break the NDAs, but I will share as well as as I can. Are these NDAs with With the industry.

Thank you.

Industry.

Primarily. So we are looking at long term imports from Asia that are so, for example, Japan's long right now. So Japan, with its a decrease in in demographics and as the numbers go down, they predict they don't refine they don't need all the refineries they have. They are in excess of 20, and we're looking at the opportunities of having what we call rated supply into California. So, basically, I think one of the things we need to really think about this, it it might be counterintuitive.

As our dependence on imports increases, there is a stronger market signal for the global refineries to send molecules into California. 30,000 foot level, the the globe as a whole has about 103 to 105,000,000 barrels of refining capacity every day. They run about 80 to 85% utilization factor. So there is a headroom. But the war has definitely destroyed five to 6% of that cushion.

You know, some of the refineries in Russia, some of the refineries specifically in the Persian Gulf that are disproportionately produced jet fuel and distillates diesel have are gonna are gonna not come online immediately. So you have the cushion reduced, but there's enough refining capacity across the globe, and it'll be a competition on markets in in how we source into California. K.

So without obviously asking you to disclose anything from NDAs, you are currently in negotiations, it sounds like, to try to create some stability. When do you hope to accomplish those agreements so that and will you be communicating that to the legislature to let us know that that there is a backup plan in place?

Yeah. Absolutely. I think I would put them at between three to six months as a member on all the conversations in terms of actual, private transactions. There are a lot of conversations that are happening that we are tracking in terms of, specific assets and the commercial interest in specific assets. Our job primarily is to facilitate those conversations, make sure that there are parties interested in letting go of assets and there are parties interested in buying them, and how do we facilitate through regulatory streamlining.

Let me let me ask for clarification. When you said three to six months, is that on finalized plans, or you think that what you are working on today would give us an additional three to six months of certainty?

Yeah. I think it it's the latter. I think it's give us three to six months of certainty. Again, I think I I said this in my opening statement. I am really glad that we got pulled in here today for the oversight hearing.

This is an extraordinary moment, and there's a lot of questions, you know, around our ability to source molecules in California. I think based on the information that we have today, the liquidity in the short term is okay. And remember that the inventories in the West are really healthy at the given moment. So as we move forward, it's really about making sure more ships are coming, more marine vessels are coming. In May, we are tracking, you know, significant molecules coming into California.

Again, these are shared with us under confidential agreements. So the the the few pieces we are thinking through are, one, can we work with our industry in a coordinated fashion to ensure that they can bring imports? That that's one. Two, to the extent that some of these refineries might have plans to have planned outage, can they source molecules or resupply voluntarily?

And I I wanna report that that 2425, we had a lot of voluntary support from the industry, and that's why we've seen such stable prices in 2425.

So that's two. And three, the long term transition and the near term opportunity for commercial interest to protect assets. So while the molecules, I assume, are all utilized with

with the refining process, so you're taking crude oil and you need those those minerals, You stated that the certainty on these six weeks relates primarily to the actual gasoline product. Both. Both? Okay. On page four of your presentation, I wanna ask whether you've reassessed since this was put together.

I know that, for example, you've you've identified India and South Korea as sort of important to could be important suppliers to us. Very recently, South Korea has approved caps on fuel exports. India has done, I think, some maybe tariffs or fees are are becoming additional. How has that been part of your calculation?

Yes. Absolutely. So for South Korea, just wanted to make sure they capped the exports to the 2025 level. So there's still room to get the same level as what we got in 2025. So that's and with India, it's a open conversation right now, and we don't see any import reductions from India yet.

K. Vice chair, do you do you think it makes sense to base our fuel strategies around imports while we are living through, obviously, the world worst energy crisis we have ever seen? Should we basically, at this moment, given where we're at, just sounds like to me please correct me if this is not what you're trying to communicate. Put all our eggs into that basket.

No. I think as a member, I think there is a few pieces here. So first, I think that refinery exits from California or closures would happen regardless of with the reduction in demand. I think the the question is as they go down, how do we stabilize the California demand and supply? And what we have seen in 2025 is the industry has really pivoted, into imports.

Some of the early questions on whether we can bring enough imports into California will the globe source into California was an open question. But I think in 2025, we saw, and even in 2026, the last two months we've stand seen significant imports coming in. So the the ideal solution would be there is a significant amount of refining capacity in California.

There's a base level that's supported by imports that's not just oscillating with this minor thing because that won't send a signal to the rest of the world. But as long as you have a consistent signal of imports, you will bring that into California.

And then the the third thing to ask ourselves is, would that protect us during periods like this? And and when we answer that question, there are two parts to it. Would it would it support us in terms of prices? As professor Bohnestein mentioned, having more crude oil access in California, so California crude oil would not help us with reduction in crude oil prices, because they're globally indexed. But they would make sure that the California refineries can run efficiently.

So for example, the California refineries are tuned to a certain crude oil mix, and as long as that crude oil is available, they can perform really well. So as they adjust during these times for different global crude oil mixes, their overall output could reduce, and we need to take that into account. The second is, could we actually source molecules? The sourcing of molecules really is a supply demand balance that's gonna be pricing related.

So the more the the overall world molecules get tight, it'll be you know, it will pay a premium to attract those molecules into California.

That's two. And then finally, I think it's really important for us to think this through. There are a number of countries that have inventories today, whether it's UK, you know, Australia, and so on. None of them have had reprieve from price escalation at this moment. So what we see is that those inventories that are designed are for short term fluctuations, not an extraordinary moment that we are living through right now.

And moments like this, to your point, request more deliberate and intentional plans, And, you know, because of this crisis, we are driving towards developing a plan.

Do those plans this this question is definitely gonna sound familiar to you because I asked it at least two times in the last two rounds of conversations on this issue. What are we solving for? Meaning, do should we have plans with a target in mind as to what we should be supplying on our own? Or is that do you believe it's completely inconsequential because of the way that, oil is priced worldwide as you just stated?

Is it completely unnecessary for us to have an actual target of what we're going to be producing in California to control our own destiny?

I I I know I've asked this of you before during the last two rounds of the special sessions. I don't think yet unless one of your plans that you just delivered to us includes an answer to that. I don't think we have did you have anything to add on? Should we have a target in California?

Yeah. I think the last target, as a member, that we shared was really based on protecting the asset class we have today. So if you look at the refineries that produce car bobs today in California, it's a mix of in state dependency on crude oil and marine vessels bringing in crude oil.

Some of those refineries have fully moved to crude oil dependent over over marine vessels for several years now, and they are not gonna necessarily come back to California crude because they've adjusted their operations of the refineries too tuned to them. So some what we tried to do last year was really around a few of those refineries do not have marine import access, and we did not want to lose those assets while we are still thinking through this planning exercise.

So I think what we landed on last year is at least having 25% of the cal of crude oil usage in California coming from California was a good benchmark. That's where we landed last year, and we're continuing to do analysis.

I don't know if this question has been asked of you, and this will be my final one. And I thank you. You've seen the communication from Marathon on their signaling that the cap and invest regulatory rules the way I read it, and I don't know if you've read it differently, their business model is at risk and whether they stay in California is in question. Are you are you familiar with that?

Yes. Familiar with you know, given that it's still an open discussion at at the NACARB, we are tracking the issue, and we continue to communicate amongst our agencies.

And I asked that only because of your response to the previous question, status quo would include what we had, including Marathon?

Yes. K.

Alright. Well, thank you. I appreciate you always for answering questions for us. Again, I've been very clear and and very vocal on the mistake that president Trump has in in Congress' duty on this war issue, and and this is definitely why we're here today. But I think even I've asked myself this question and to others, even if the war were to end tomorrow, I I don't believe that the energy crisis is ending for us.

We've worked to do, and certainly blaming Trump or just having hope is certainly not enough to resolve this and to help Californians, the ones that I I represent. And I think we are all in a position of of some privilege. But if you talk to people in the San Diego economy who are, you know, service sector workers, hospitality workers, they are feeling it really, really tough right now. Maybe not for us, but for, typical workers, it it is a very, very bad thing that's happening.

So, I I I'm looking forward to taking a different approach to I'm glad to hear that there's at least six six weeks of certainty and that there's plans being made.

I'm looking forward to hearing what those plans are beyond the six weeks, and I'm glad that we are really opening up our eyes to what we're seeing happening in other places already that we don't want to happen here in California. Madam chair, thank you again. Really appreciate your time.

Thank you. And before I turn to Assemblymember Hart, just a quick follow-up question. So what should California consumers be expecting in terms of price if this conflict continues for three months, six months?

It's all forecasts are wrong. Some are for useful. With that with that basis, since the start of the conflict, chair, we have been trying to figure out what the pricing could look like. Wanna just offer this one point and then share the potential forecast. The actual the price elasticity in California doesn't really kick in until the prices are about $5.50.

Meaning, the demand doesn't really go down when the prices are until, you know, under about $5.50. But as you escalate beyond $5.56, you do see demand destruction. And what we're observing right now is there is clear information that suggests that the sales are moving from high priced stations to lower priced stations. So that's definitely something we're observing. And as I shared earlier, there's a difference between, the triple a prices and the EIA prices because of how they're weighted.

So taking all that into account, if the prices continue to go beyond $6.06 25, you will really see, demand coming down. So we would expect, you know, the prices to stabilize under seven, more like $6.50.

Okay. Mister professor Borenson.

I I I think what you were asking was about if the Strait Of Hormuz stays closed

Yes.

And we continue to lose probably less, though there will be more ways to work around it, but still over 10% of the world supply. We have been gradually running down world in inventories. And as that happens, the value of those inventories goes up. And as we get near the bottom of those inventories, it goes up a lot. I could certainly see the price of crude oil going up another 40 or $80 a barrel if we really went sixty more days.

And I use those two numbers because they translate to another dollar or 2 per gallon. I don't think that's implausible at all. Unfortunately, I think that would be a crisis, and it would be completely out of control of the state of California. So we would I I think the one thing we could do is this inverse gas tax, basically, a gas tax holiday. But beyond that, I don't think there's a lot that public policy in California could do to impact that.

I know we all hope that doesn't happen and that the flow of oil resumes, but the reality is we are on borrowed time as we run down inventories.

Thank you.

Alright. Mister Hart.

Well, thank you, madam chair, for pulling together this amazing panel. There's such an interesting, range of opinions represented here and a lot of technical valuable information. The two things that I'm really struck by in the multiyear conversation we've had about, fuel supply in California is the benefit of having the transparency and the tools that the c CEC and the DPMO have, looking into the industry, being partners and stakeholders and collaborators, and trying to figure these things out.

We were blind to many of these issues, and except for the work that professor Bornstein was doing independently, academically. But now we know more than we did before, and it's critical for us to have, that information to make smart decisions.

And I think we probably need more information, and I would love to know from both of you what we ought to be thinking about legislatively to make your work even more effective. And the other, macro point that is really clear from this conversation is how important competition is to making this all work. You know, we are in the supply situation. We are because of the disruption in the Strait Of Hermos.

But in spite of that, we have been able to bring fuel into California, albeit at a very painfully high price to consumers.

We have not seen mines at the pump because of our economic power, our ability, to move markets and to have companies react to that and say, we wanna supply the California market with fuel. There's a profit to be made there, significant profit. I'm looking at the charge that you shared earlier. The markup at the at the end of the pipe after crude prices is 40¢a gallon more than it was prior to the war.

That that's a windfall profit by any definition, and it's something, you know, I think industry ought to respond to is, you know, how is that okay when The United States is at war and we and consumers are feeling the pain and oil company profits are at record levels, you know, not just because of the cost of crude oil going up, but because of the extra charge that companies are charging, because of the lack of competition in California.

You know, that the consolidation of our market has gotten to the point now where there is disproportionate market share power amongst a concentrated few companies, and that is a real problem for us from a public policy standpoint. And there are multiple solutions to that, and we're gonna talk some more, you know, in the future panels, but it's a fact. And what's really interesting at the retail level is the concentration of power at gasoline stations and this huge disparity in prices.

You know, if you shop at Costco, it because it is so painful now, more and more and more people are moving their purchasing to hypermarts because the price differential. That's just completely rational.

Why pay 60¢? Actually, between the most expensive branded gasoline in California, there's an 82%, 82¢per gallon price difference. People are moving to that. They're reacting to that. To gen generic unbranded gasoline, there's a 55¢per gallon difference.

And we do mention this at every hearing that we talk about. This is our opportunity to educate California consumers. Shop for gas. It's the same gas, and you should pay less. You can reduce your gas by 55¢by simply going to a non branded station, 82% by going to one of the hyper or 82¢per gallon by going to a hypermarket.

So, this kind of a hearing is a great opportunity for us to look at these issues, pause, recognize where we have made progress, where we need to make more progress. And I'm particularly interested in this competition issue and the transparency issue. So I'd love to hear from mister Grunda and mister Milner what they think we ought to be thinking about. We obviously have a crisis right now. It's you're doing everything you can.

But as legislators, we have very little ability to influence that today for the next six weeks or six months, but we need to build a system that's resilient over the next years and increasing competition and enhancing transparency. And there's a bunch of questions I could ask, you know, about the spot market. That was a big issue last time we had a hearing, you know. Is is there real transparency in the spot market? And is that a contributing factor to the price of fuel in California?

Should should we make that more transparent? You know, why is it that the spot market privately reports information to you, but does isn't required to, transparently transmit that that information to the market so that it's more efficient and more fluid? We don't have enough time to get into all the questions that I just asked in that monologue, but feel free to jump in anywhere you think would be helpful.

Yeah. Thank you, Assemblymember Hart. I'll I'll start, and I think there's a lot of points to cover, but I think we'll you know, this is the the slate of questions that you asked is a really good opportunity for us to continue the conversation on this, but just validating a couple of points that you mentioned, which is transparency and the data that we have.

So armed with those data, we have a much better coordination with the industry, because we are able to see at at a minimum what their competitors don't see. Right?

So, typically, one of the things that is really important for the industry is they cannot talk to each other. At least that's illegal. So we as a state are able to see the totality of the situation so we can help with coordination sometimes. So that's one. And the other side of it is, because we have that information to the extent that they are bad actors, they know that we have the information.

So that also discourages bad behavior. And on the third, you know, we have DPMO, which is, you know, specifically put in place to investigate, you know, any potential market issues. So that's one of the transparency. Just wanna validate your point that it has been incredibly helpful. This is where I wanna take one additional point on.

Over the last three years, the conversation in California, I I would not say evolved, has been enhanced. Right? So we went from we we saw the incredible spikes in '22 and '23, which are very specific to California based on the supply issues in California. And we have been given tools to understand how the spot market works, understand how the inventories are, and what we can do to coordinate. Right?

So that that has been really helpful. But we've also seen a closure of a couple of and closure notices of two refineries. And the legislature and the administration and the governor has really asked us to make sure whatever tools that have been given to us are not only looking at prices, but the overall transition, and how they fit into the overall transition. And that required us to think about the tools that you've given us more holistically and more completely.

So I just wanted to, like, lay that as an important evolution.

And now, we are in a third third issue, which is not structurally similar to '22 and '23, the spikes, but it's similar to what happened during Ukraine war. And the incredible spike we are seeing because of the global, you know, you know, structural issues. So what I would say is, you know, continue to have your support for both these conversations and kinda helping us, get some guidance. We need to, as a state, really think through as we see point a to point b transition.

As we see that through, what is the framework that the state is going to use?

And and I think this goes into the second panel, but I just wanna preview. We have talked about three different buckets of solutions we need, which is reactive, trying to figure out what we can do asset by asset. There is a stabilization of the industry, to your point, competition. So competition means investment, and investments means certainty on on investing in California. And the third is, because we know that this transition is going to happen, it's not about whether it's gonna happen, it's about when.

How are we going to protect the rest of the different groups that are gonna be impacted, whether it's cities, labor, communities who live around there? So I think it's really important for us to think about the framework moving into bucket two and bucket three. How are we going to understand the viability of the private investments in California, and how do we make that? And then how do we protect the communities that are gonna be impacted regardless of because the transition is going to happen?

Yeah. I would, thank you, assembly member. I would say competition is the answer. And so the question then is, how do we get competition at different levels of the market? So just in brief, there's the spot market level.

So how do we get competition there? Make sure that not just the refiners, but other competitors can import fuel and sell it at the spot market to bring prices down when prices go up. You mentioned more transparency, having a public spot market report so people can see what's happening at the spot market might also attract more players as well because if you don't know how high prices are in California, you're you're less likely to to think about investing there.

So what can the state do to to reduce what are called barriers to entry? How can more competitors be in this market?

Not three or four refineries, five, ten, 20 different companies that are importing and selling and competing with each other. At the wholesale level, that's the supply, the gasoline truck going to the gas station. So one thing that's very, not well known outside of California is we have these exclusive dealer tank Wagon contracts. So a branded company is selling to a retail station at the price set by the branded company. The retailer cannot even negotiate on what that price is.

The contract says you shall pay this price. So if that price gets increased for one of these major brands, the retailer has to pass that along. That's a California only phenomenon. It goes back to Standard Oil of California. At the retail level, we're actually seeing investment in California.

I would like to lift up companies like Costco and Safeway that are investing in HyperMarts, but also Chevron is is increasing their retail footprint. They've they've expanded the number of stations that they have. So California is a very desirable market for retail. So looking for ways to have access for some of those value players, making sure that there's good value players in different neighborhoods, things like that, planning for retail competition.

So making sure this California market that is, as professor Bornstein said, $50,000,000,000 a year, one of the largest in the world, is open for competition.

Thank you. Thanks for the opportunity to speak about some of our work, and I have some slides if you could bring those up. Thank you. So, and I'm gonna focus on gasoline specifications, which we've talked about a lot in the kind of the short and medium term.

Great. Yes. So that's me. And, you know, in the list in the transportation fuels assessment, there's a list of strategies. I'm just gonna focus on a couple related to fuel specifications. And start noting the California's unique gasoline plant has been discussed and evaluated for a long time.

The Transportation Fuels Assessment sites general accounting office study back from 2005, which found then, you know, similar to what we're discussing now that car bob improves air quality, but also complicates supply and increases costs. That's actually the title. So twenty years later, we know that resupply and cost issues are more salient than ever, and it's clear that California's unique specification makes the market less competitive and less flexible and more prone to price spikes, especially related to resupply.

So but UCS has done some analysis recently, trying to update our understanding of the implications for pollution.

And we found that replacing all of California's gasoline with oh, I'm sorry. I skipped a step. A few things have changed since between 2005 and the present that are important. One of them is that cars have gotten a lot cleaner because of the good work that CARB and other agencies and the EPA have implemented. And the other thing is that EPA has largely followed California's lead and adopted tighter specifications for sulfur and benzene.

And so now the difference between California fuel and federal fuel is much less than it was 20 or 25 years ago. And so in that context, we did some modeling using the EPA moves model to understand what would happen if California just dropped its specification special specification and ran on US average gasoline and found there would be a significant increase in pollution if that happened. But that pollution comes overwhelmingly from a small number of the oldest cars on the road.

And so then we thought about, you know, what if we were flexible about the fuel specification, especially when we had short term supply disruption, and then used collected a mitigation fee for the use of non carb fuel and use that to retire some of the oldest cars on the road, and would that trade work out?

And basically, what we found as is shown on the right here, and it supports the idea that that strategy could work because and so bringing and so the on the right, we've modeled, like, if we just replace 10% of the fuel, and then we also replace the number of the oldest cars.

And so 10% of the fuel would be enough to deal with periodic shortfalls when, you know, when we need to speed up resupply. And so, anyway, this would be a a win for consumers because of avoiding gas price spikes, a win for that, clean air, and a win for the people who would benefit from the vehicle replacement programs like Clean Cars for All, which would help get people with older cars into, newer used electric vehicles.

We also wanted to just briefly think about, you know, well, what's the market impact? Because this and so this compares the spot price market, the wholesale market. So this is, not the mystery gas surcharge, the retail issues.

This is just related to these spikes we see because of the time it takes to resupply. And so, we found the median difference in the wholesale price between California and the New York, and the Gulf Coast is about 18¢ a gallon, but it regularly spikes to considerably more than that. In fact, 36% of the time over the last five years, it was more than 25¢ a gallon.

And so if by adding this flexibility, we were able to limit that price difference to 25¢ a gallon, that would have saved $5,000,000,000 over the last five years and also gotten a lot of old polluting cars off the road. So just to oh, well, just a comment.

So, we proposed this bill. WISPA, not surprisingly, perhaps opposed our proposal. Those savings for consumers are, of course, what we sometimes call windfall profits for refiners. And they argued, and perhaps they'll comment on it today, additionally, that that their members made large investments and these being able to recoup that was important. And also, that allowing the sale of non-car bob gasoline could undercut in state supply and lead to more refinery closures.

So we specifically, you know, tried to avoid that in the design of our bill. But in any case, I think it's important to point out that these investments that we're talking about were largely made thirty years ago. And California has been a very attractive market to sell gasoline over the last thirty years, so I think that those investments have certainly paid off.

And in effect, this argument boils down to the idea that California needs to remain an uncompetitive market subject to price spikes, and that this is a feature of the market that we should retain rather than a bug that we should fix. It's I don't think this is the price that we should ask consumers to pay to make the market attractive for refiners.

So just to wrap up, fuel specifications are just a piece of the puzzle and and not the biggest piece. But from from where we sit, it is important to adapt the fuel infrastructure to reflect the market structure that we have and that's emerging. California now is no longer a self sufficient fuel island. It is relying on imports, and so it's important to make sure that the infrastructure is there to accommodate that in a smooth way.

And by 2030, more market changes are likely to come with connection to pipelines in the rest of the country that will also change, you know, the fuels that we're using and the fuels that we need.

I wanna reiterate what many people have said about competition in fuel markets and all the way through the fuel markets, making sure that people can sell the gasoline, you know, when the price gets high that people are able to come in and compete for that market, but also all the way through the supply chain to, you know, from the terminals all the way to the retail. And finally, gasoline regulation updating gasoline regulations, I think, can help in the short term with a waiver.

And I think by 2030, we should think about whether we can modernize and increase the flexibility of the fuel in California with some updates to the California's Gasoline Regulations.

Alright. Thank you. We are now going to go to Doctor York who should be joining us remotely.

Alright. I think I'm connected.

Yes. Welcome. Thank you so much, Doctor York.

Okay. I have a few slides if someone could, put them up for me and then okay. Yeah, if you just, flick what that just explained to the Baker Institute. Let's just go forward to the third slide. And while we're getting there, I just, similar to Professor Borenstein, I wanna recognize all the efforts by Vice Chair Gunda and the California Energy Commission.

You know, they're operating inside a system where many of the key drivers, global supply, geopolitics, logistics, are outside of the state's control. And I think that reality, should shape how we think about solutions. On this slide, we're looking at straight up our moves. You know, California doesn't operate in isolation. We heard that a lot in the first panel.

What I'm pointing out here is that, you know, that not only is the Strait of Hormuz in a critical choke point, but after the conflict is resolved, it's gonna take around months to get the supply chain back to normal because we've got, you know, roughly 4,000 vessels that are trapped either inside the Gulf, in the Persian Gulf, or are loitering outside the straits waiting for the straits to reopen so that they can, you know, resume their transits. And the system currently isn't stable.

That's not surprising anybody. And it's currently being balanced in real time with high cost barrels and in a constrained logistics. Now, the reason why this is important to California is that, is we talked a lot in the first panel about gasoline, but jet fuel is another fuel that's important for importation into California.

20% of the state's jet fuel supply comes in via imports. And that's currently the market of all the petroleum product markets. That's the one that's actually most been most disrupted globally. And when you get these when flows are disrupted, the refiners don't just lose the crude oil. They have to rebalance their crude slates and the product slates that come out of it.

And those jet fuel disruptions then quickly translate into broader price pressures, and we're seeing those go through, not like jet fuel, but also impacting diesel and gasoline prices as well. In a system that's as tight as we're in right now, small changes in supply are gonna have outsized impacts on prices and price volatility. We can go to the next chart, quickly talk about marine logistics and sort of the even when the supply exists globally, California has to be able to receive it.

This chart kind of shows that on an annual capacity on an annual basis, capacity looks sufficient in both Northern And Southern California, but the issue isn't capacity, it's about reliability at the margin. And when markets tighten in California and incremental barrels are needed most, port births and supporting logistics are often come come become constrained, and we start seeing congestion.

And the timing of delivering supply off the water into the California system starts to break down, and that's when the system is most needed. The flexibility is when it is when it actually loses it. So the system depends on marine exports on marine imports to backfill or to balance supply, and it needs it to be stable. But the system is the logistics system isn't built to scale under stressful situations.

So if you go to the next slide, I'm gonna take a step back and take a and make a broader point around pipelines.

And that flexibility in, is flexibility in a very real way is the supply. This chart shows that the what delivery infrastructure can do, you pick one of the numbers of various pipeline projects, petroleum product pipeline projects that are being proposed to run eastbound into the State of California. And that shows you that these projects can move volumes equivalent to multiple refineries in the state of California. And the takeaway isn't about any single pipeline project. It's more that in systems with flexible delivery can respond to disruptions.

Systems without flexibility tend to amplify disruptions. And a more flexible delivery system changes how the entire market clears. So I'll just go now to make a couple of, you know, recommendations or thoughts about what could we do in the next five, three to five years. If you go to the last slide. First thing I would say is you protect system stability.

This was kind of mentioned on the first in the first panel that resilience starts by keeping the system that you have running, and the policies that support operational continuity of either existing refineries or the supporting infrastructure should be viewed as core to the resilience measures. And when capacity is tight, resilience becomes supply. Second thing is you look at accelerating investment incentives. One thing we talked a little bit in the first part was about some of the permitting reforms that have gone into place.

And there are specific areas where, if you could accelerate the rate at which permits are approved, you could increase crude oil production in California.

They're not necessarily gonna be large volumes, but in a system as tight as it is, every incremental barrel matters. And that becomes any anything you can do to bring more domestic supply and divert supply, your supply, whether it's in crude oil or products, becomes a trap in terms of resilience. And then finally, you know, look at sustainable aviation fuel.

We talked about how California has a 20% import requirement for jet fuel, and sustainable aviation fuel is one of those ways to diversify the supply chain and to bring jet fueling from a different supply source, a feedstock that doesn't depend on crude oil. And it doesn't help just jet fuel.

It also, you know, more SAF production actually increases total fuel supply. It yields a coproduct called renewable naphtha that goes directly into gasoline blending, and it also frees up refining capacity. You don't have to make as much jet fuel because you're making more of it in state from another facility. That opens up refining capacity that could be used to make other products such as gasoline.

When you put that all together, the system becomes more flexible as you add diversity, as you diversify the supply sources into that market.

So in closing, I agree with the first panel that California can't control global markets, but it can control how resilient the California system is. And the objective should be making the system more responsive at the margin, because it's those incremental barrels and gallons is where price and vol when the where the market clears is where price and volatility is set. So I'm I'll with that, I'll close my comments and look forward to participating in the conversation.

Thank you, Doctor. Alright. We are going to bring it back to the Hearing Room. Welcome to Miss Lehane, who's joining us from the State Building and Construction Trades Council of California.

Good afternoon, Chair and members. Thank you for including the State Building and Construction Trades Council of California in this very important conversation. My name is Erin Lehane, and I have the privilege of working on Energy Policy for the members of the Building Trades. The Building Trades represent 450,000 hardworking skilled and trained construction workers across the State of California. Our members have built the wind, solar, geothermal, and pump storage that have made California a global climate leader.

They stand ready to build the hydrogen carbon capture and advanced nuclear that will allow California to reach its aggressive climate goals. We also proudly represent thousands of members working in California's oil fields and refineries in day-to-day operations as well as in the labor-intensive turnarounds and capital improvements. California is unique because due to SB 54, our in-state refineries are built and maintained by an exclusively union, skilled, and trained workforce.

In the Building Trades, we are extremely concerned about the increased import strategy being discussed by this afternoon's participants, especially at this moment in time. Currently, a third of the world's crude oil is being held up at the Strait of Hormuz.

The EU has said it will run out of jet fuel. And in California, we could in fact face an imminent fuel shortage. Our members are super commuters. I cannot stress enough how scarcity how scarcity crisis will compound the already high fuel prices they're experiencing just to drive to work to feed their families. Ultimately, an expanded import strategy is both an environmental and labor values issue.

Taking the tanking fuel thousands of miles that was produced under low or no environmental standards, then having it idle on our shores comes at a higher global climate cost than producing it here under the strictest environmental standards in the world. It strikes us at as hypocritical at best for California, a global climate leader to embrace this type of high carbon solution.

Additionally, choosing to buy refined fuel produced in foreign jurisdictions that does not benefit from our robust labor and safety laws potentially goes beyond hypocrisy to exploitation. To put this in the most simple terms, I have a teenage daughter. We talk a lot about this.

She's a consumer of fashion. She's a teenage girl. She can choose to buy a high volume of clothes from foreign low wage retailers with a reportedly exploitive labor practices at staggering low prices. But thanks to have been virtually raised by the building trades, she doesn't. She knows that cheap products made by low wage, poorly treated workers comes at a high cost, too high of a cost.

In California, we don't wanna devolve to a Shein or Temu style fashion energy policy. In California, we have the world's strongest labor, safety, and environmental standards. Our policy should focus on supporting in state production, its workforce, and affordability until we transition all fossil fuels. Thanks to the new infrastructure our members will build.

We need to advance policies that embrace an affordable retention strategy for in state production so that California can maintain its climate leadership, not become beholden to refined products from places like India, which is selling refined Russian crude to the world, and uphold our moral obligation to the workforce and provide a much needed fuel for every Californian family. Thank you.

Thank you. I believe our next guest is also remote. We've got Neale Mahoney joining us from Stanford University, I think. Professor Mahoney?

Can you see me, Madam chair?

Yes. Hi. Good evening. Thanks for being here.

Thank you for having me. I have slides if somebody is able to share them.

They are on the screen, so you can go ahead.

Amazing. I wanna thank the Chairs and the members for inviting me and thank my co panelists for a important conversation. So, I'm going to just say a few words on how imports can be a key part of a diversified California transportation fuels portfolio building on a white paper that myself and my Chief of Staff, Ryan Cummings, put together. I'm a professor of economics at Stanford and the Director of the Stanford Institute for Economic Policy Research. Next slide.

So, I think there are three key arguments for why imports should be a part, not all, but a part of our transportation fuels portfolio. The first, and actually if you could advance the next slide, I think it will reveal some text. The first is that being a net importer is normal. Almost 40% of Americans live in states without a single refinery. And the vast majority live in states that import either crude or refined products on net.

So, there's nothing unusual or troubling about being a net importer. Next slide. The second point is that relying on some imports helps breathe competition into our market. So, this is a chart from Salomon Associates, which shows the cost of a barrel of refined product produced in California, in the rest of The United States, and in the Asia Pacific Region, including the cost of freight.

And as others have mentioned, because the newer refineries are larger and use more efficient technology, often even including transport costs, they have a lower cost per barrel than California.

This means that having some imports puts downward pressure on prices and adds competition to our market, benefiting the California consumer. Third slide. Next slide. The third point, and it's come up in various remarks, but I want to elevate it, is if we could wave a magic wand and go back fifteen years and increase our production in California, both of crude and refined product, that it wouldn't have safeguarded us from the closure of the Strait Of Hormuz.

The map I'm showing you is a map of tankers heading from The Middle East to Texas, where over the last few weeks they've been filling up product and bringing it to the global market.

And the reason I show this is to illustrate that if California had more production and refining capacity in a tight global market, we would be a net exporter and we would export more. And our domestic economy would still face higher prices. Prices in Texas are up about a dollar and 40¢ per gallon, which is very close to the price increase in the rest of The US and the price of California. So having more production, it can be good for our industry.

It can be good for our workers.

But we should be clear that it wouldn't protect consumers from the disruption we've seen on the global market. Next slide. So what do we need to do to have imports be part of a diversified strategy? So, I'm gonna focus on Benicia because that's what we wrote about and is the most imminent decision we face. But I think the clear strategy here is to convert Benicia to an import terminal in a way that enhances competition.

And I think enhancing competition is important, either making sure the terminal is open access or controlled by a company which is not one of the main refiners, or some people have spoken about government ownership contracted out. But something that maintains competition in the market is important. Part of doing this will be required to go through environmental and safety standards at the state and local level.

The need here is to do it quickly, not to cut corners, but to do it quickly so that this conversion can be done to meet the moment. And I think the other thing that's come up, including in the previous panelists remarks is the need to take care of refinery workers and fence line communities.

That you know, a shift to imports does have consequences. And making sure that workers are compensated for lost wages and communities for lost tax base. The lost tax base is key to making sure that this transition is equitable. So, you know, I welcome your questions, but I didn't want to go beyond my allotted three minutes. So that is.

Wonderful. Thank you so much for joining us. I am now we've got our last panelist, Zach Leary, who is from the Western States Petroleum Association.

Great. Thank you, Madam chair and members. Zach Leary on behalf of the Western States Petroleum Association. Good to see you all. Really appreciate this critical hearing.

I did wanna start by addressing just a couple things that were raised in the previous panel, about the year 2022. There was alluded to that kinda came out of nowhere. If you go back in time, that was when Russia invaded Ukraine. We were also coming out of COVID. There was a, I believe, a shipping shortage a ship shortage at the time, and then there was four refineries, I believe down on the West Coast for maintenance.

And so it didn't come out of nowhere. There was reasons behind seeing that price spike, and it was largely due to a global event. The other issue that was brought up by Assembly member Rogers was this issue of inconsistency and reporting. That is why the Western States Petroleum Association, we called for rulemaking on this. No.

I'm and we were not granted a rulemaking. We thought there should be more clear guidance on the data reporting at the CEC. And then I think Assembly member Irwin brought up a point. She's said, who would have predicted we would be here? And that I said, we did.

We we've been telling the state we're one global event, we're one big issue away from exposing just how weak and fragile the California market has been made over the two decades of bad policies that have been systematically dismantling the infrastructure in the state. But I wanted to get back to my main point. We've been clear and consistent with the legislature, with the CEC, with anybody who will listen. We are the most competitively disadvantage refiners in the entire world.

California has made its laws so onerous that it is cheaper to make the product in other states halfway around the world and deliver it here with a tanker.

Even with the transportation costs, as Professor Mahoney pointed out, it is still cheaper to make it in these other countries and deliver it here. The solution isn't necessarily imports. We're gonna need imports to meet demand. The solution is to make us as our refiners in California competitive. Unfortunately, the rules, the regulations, the laws have made us so costly to do business in the state that we're not able to compete with refineries in a global market.

And that, you know, we've heard a lot about competition here today, and that's what we're asking for. Let us compete in the global market, but put us on a leveler playing field because it's the policies of the state that are making us disadvantaged in that market. I do find it a bit ironic in a deep blue progressive straight state that the strategy being discussed here today is outsourcing energy production. Outsourcing your energy production is not good for the state. It's not good for workers.

It's not good for the consumers. And what we're asking for in kinda all across all state agencies across the legislature is to put us on a level playing field with those imports. I did wanna address just one term that continues to be thrown around, which is this term mid transition. It seems to be a bit misleading to the public. We are not even close to mid transition.

13,000,000,000 gallons of gasoline a year is not mid. Growing jet fuel demand, nothing mid about that. We need to be honest with the demand in California and where we are at in the realities we are facing. Because the demand is robust in California, Arizona, and Nevada, which are states that California supplies, but we just need to decide as a you need as leaders need to decide where are we gonna get the supply from?

Is it the remaining refineries you have left or is it continuing to outsource to foreign countries that don't share the environmental or labor laws that we have here?

Alright. Well, thank you again to all of our panelists. I know the hour is late, but I think we have actually got a lot of ground to cover. So I think we are gonna dig into to some questions. I don't know if my colleagues have questions before I jump in.

Okay. Well, so and let me just start by making sure that I understand what all of our panelists are are saying. Because I think I heard every panelist in the previous panel, and I think I've heard every panelist here say that, step one in ensuring that so is it you know, number one, we need to ensure that we have a diverse supply of fuels to ensure stability, for the State of California.

I heard everybody say that step one of that is stabilizing in-state refiners and protecting the production and refining capacity that remains. Does anyone disagree that that is an important part of this strategy?

I know you think it's an important part of the strategy. You just said that's the one thing we should be doing.

And if I may respond, Madam chair, I think for us, we need to see action on actually stabilizing refining. We saw a great work by the legislature last year on SB 237 to increase production. That's important. That's one part of the system. You have a whole another segment of the business operations, which is the refinery itself, and little has been done to stabilize the refining sector.

Okay. And I am gonna get into those questions, but I also wanna explore some of the other I wanna dive into some of the other content that was in the transportation fuels, if it's in the assessment or in the transportation fuels transition plan, but in here. So, I wanna dive into, you know, some of the things that was the assessment puts on the table and some of the things that have been discussed here.

So this topic of fuel specification reform, as you mentioned, there were there were kind of three things that the TFA had outlined.

One was E15. CARB provided an update on the status there. The second was the alignment of a gasoline specifications for Western States. That was included as part of SB 237. My understanding, Carbon CEC, is that assessment is going to be completed in 2027. Is that correct?

Or sooner. We'd we'll welcome it sooner.

Sure. So, again, I'll defer to CEC on the the the due dates for the the transportation fuels assessment. There is an update that is due. But as far as the work that we need to look at changing the fuel specifications. So as Doctor Marten referenced, there's air quality considerations, there's emissions considerations, and there's infrastructure considerations.

And so Carbon CEC have started this process to look at what could the potential emissions changes be from changing our fuel specifications for the entire state in terms of emissions impacts for California and for specific areas that are currently under nonattainment? Those are the areas that we have the biggest concerns about. Could changing the, fuel specifications in California result in more nonattainment, in more incidence of asthma, premature death, other health impacts that could come from changing the fuel specifications.

Right now, the major changes that, you know, could be made for alignment with. For instance, federally formulated gasoline involves things like changing the read vapor pressure, potentially benzene and sulfur. And so, we wanna make sure that if those were those changes were something that we wanted to consider, we understand what the impacts could be on California's population.

So that's step one. That involves emissions analysis and emissions testing. And then step two on the infrastructure side also means looking at where could that supply come from. If we were to change our fuel specifications, we wanna make sure that actually has a material impact on the fuel availability for California. So that's another part of the consideration for the TFA and something that we're working on with the Energy Commission, and I'll defer to Commissioner Grund on the timing.

The next report will be coming in twenty twenty seven January. That should expand on that. Actually, I wanna take this opportunity to just kind of make sure that we bring back the conversation that you started. I think whatever we do in California has to be directionally stable.

So, you know, whether we are choosing a change in fuels, whether we're thinking about bringing in more imports, or we believe that as an industrial transition, not just an economic theory around price stability, but we're thinking about industrial transition, and we're thinking about workers, the signal that that we need to send to the marketplace on whatever pathway we are choosing has to be consistent and durable to attract those.

Yes. I guess, since commissioner Green took the opportunity, I wanted to. On that first question with respect to kind of the strategy over the long term, we we spent a fair bit of time talking about this in the transition plan, and it's really about how do you continue to reduce, liquid fuel demand and fossil fuel demand over time and then support a transition for, reliable supply. And so it it isn't one specific strategy. It's a mix.

It's a mix of strategies that are being identified. And to commissioner Gunnar's point, it's, you know, directionally being consistent about those strategies over the the next five, ten, and twenty years so that there is, clarity on, you know, where we're headed from a policy and investment standpoint.

Alright. Yes. And I think there's, you know, there's certainly no doubt that we are in the midst of transitioning from a fossil fuel economy to a clean energy economy. I think, there's also no doubt, and we went through many, many slide decks over the course of these number of hours illustrating that, a, there is, significant demand in the California market today, and, b, even under our most ambitious scenarios, there will certainly continue to be significant demand in the California market in 2045.

So I think that's something that we we all recognize and all agree on.

We are certainly, you know, pushing forward with all of our efforts to decarbonize the economy. And as you said, there are a, there are myriad strategies that, we are deploying in order to achieve that. So that's not well, super, super important, that is just not the focus of of this conversation. Alright. So, coming back to my question about the study you're doing regarding the gas the potential alignment of gas specifications for Western States.

So is the work that you are doing to evaluate that, would that also be, work and analysis that's relevant to this question of the I think Severin Borenstein asked. We've got the University of Concerned Scientists asking. I think there is an important question about the role of CARBAB now in 2026. There's also no doubt no doubt that when that fuel standard was implemented over many decades ago, that that made sense and that the cost and benefit absolutely made sense for California and California consumers.

I think that's an open question in 2026, and I think that that's an important question for us to interrogate.

So as we think about how best to interrogate that, I guess my my real question is is the work you're doing gonna already cover that?

When yeah. For for CARB, when we think about the current fuel specifications for CARBOB and California reformulated gasoline, we think about it from an air quality standpoint. How is this fuel specification helping us make sure that we have healthy air in California? So that's absolutely gonna be a question we're gonna look at as part of evaluating, could there be a change in the fuel specification?

As far as a a Western fuel specification goes, it does open up a mix of questions because there are federal requirements for gasoline specifications that apply to various different states on the West Coast and in the the rest of the country.

And so there is not one specific fuel standard nationally. There's a mix of them. And so trying to identify what could make sense for California, what should we evaluate, and what could make sense for the Western fuels market is a question that we're looking at and that will take some time to to ultimately work out. And it also involves some discussions with our Western state partners as well.

Okay. And that is ongoing? Yes. Alright. But what is your, I I guess, initial reaction to the question of whether or not, for lack of a better word, is, like, is the CARBOB juice worth the squeeze in 2026?

Yeah. You know, hard for me to make a judgment call on that. Like I said, we wanna lead let the science and the data speak for itself. And so for us, that means looking at the fuel properties and doing the emissions testing and doing the emissions and and air quality analysis that we need to do.

Okay. And then, I guess, moving beyond the sort of fuel specification strategies, There was, also, at least in the transmission transportation fuels assessment, some discussion around a strategic storage reserve. That's not something we really talked about here. Is that a strategy that we think is important and one that we are recommend continuing to pursue?

Yeah. Thank you, chair. I think we are, looking at it, again, given that the legislature has enacted, the minimum inventory and and how the minimum inventory, rulemaking moves forward, I think that's a discussion we should absolutely continue to discuss. There's there's two parts of the conversation here.

Ultimately, to the extent that we have imports, even if you are not relying on imports to the example of pad pad two right now, what Ohio is as dealing with, having inventories regardless of being self sufficient is really a helpful thing under, duress of supply.

So to the extent that, you know, we want to protect California from disruptions in supply, whether it's because imports are disrupted or whether in state is disrupted, it's important to think about how to create that cushion and whether that cushion's coming through a minimum inventory regulation from California, from from the CEC, or in the TFA that the specific thing we were discussing is a state sponsored strategic reserve. And I think that's an open question we need to think through.

Mister Leary?

Madam chair?

Not to rehash.

We'll let mister Leary and then, we'll let our professor come in.

Not to rehash the second special session, but that was also legislation that we opposed. We continue to believe that establishing that minimum inventory could have ultimately shortage impacts on the market and could ultimately kind of back up production at the refinery. So if your storage tanks continue to be occupied through a minimum inventory requirement, where are you gonna put the output from your refinery? So tanks are constantly moving up and down, mixing, blending, sending out.

And so if you're told to have a minimum inventory of whatever the amount, it could potentially impact production at the refinery.

Oh, madam chair.

Yes. Go for it.

So let me make a couple comments on inventories and then return to an earlier point by mister Larry. On on inventories, I think it's an important complement to other strategies to have sufficient inventories so that we can bridge a refinery outage or another disruption to supply. I think there's a real question about whether that's best achieved through a minimum inventory requirement on the industry or through government inventories.

A drawback of government inventories is that if the government holds more capacity, that provides less of an incentive for the industry to hold capacity. So there's there's crowd out.

That is if the industry knows that government will release product when prices are high, then they will hold less product to release. To mister Leary's concerns, most countries in the world have minimum inventory requirements for refined product and their work. And so, you know, I'm not a petroleum engineer. I couldn't tell you in in detail how you move product in and out of the storage facilities, but it is something which is done in probably over a 100 countries in the world.

And so, I think it could be done in California as well.

Just to return to the initial question you raised about supporting refining capacity in California, I think nobody disagrees that there should be a level playing field and that there shouldn't be onerous, regulations on California refineries. But we also need to be realistic that new refineries are larger and more efficient. And the older, smaller refineries we have in California, may not be as efficient as some of the other refineries that we can import from.

So, you know, I'm all for removing or dialing down regulations that don't pass the benefit cost test in terms of their environmental benefits or the safety of workers. But I think we can take that too far.

That if we start writing checks to refineries, then every refiner will be knocking on our door asking us for a check. And so, you know, we should be careful about how far we go and where we drop the line.

Alright. And that is a good I I'm going to use that as a transition to give mister Leary an opportunity to, articulate for us because I think your your, core point in your opening comments was that the legislature in California, we need to take action to make California refineries competitive and level the playing field. So what does that mean in practice?

Well, I I think, largely, we've talked about it in many different hearings. I think, first, it's about stopping the bleeding of the continuous onslaught of new legislation targeting our industry to ultimately put us out of business. I mean, that we see this all the time in the legislature is, oh, big bad oil, big bad oil. We gotta, you know, do x, y, or z. We're in a new era in California.

We have to have a relationship between our industry and the state to ensure adequate, reliable fuel supply in California. And I'm gonna give a lot of credit to mister Gunda for the relationship that he's built with our industry and the trust that we have built between many conversations and really has done a service to the state in understanding the market. I think so starting there, stop the stop the bleeding in the legislature.

At the Air Resources Board, I would say the at birth regulation continues to be an issue that that we are facing, our companies are still facing at the ports. It's something that needs to be addressed.

We've been talking about it for, I think, four plus years now in the legislature since the first special session. I think post 2030, looking at the cap and invest program and really understanding what that program's gonna look like because in the current proposal, it goes out to 2030 for allowance allocations.

But post 2030, not a lot of certainty provided to my member companies that are, you know, investing big, you know, hundreds of millions of dollars in their refineries on five, ten, fifteen year investment cycles and need to understand the policy certainty and program certainty that it what it's gonna look like in that five, ten year, fifteen year cycle.

As it relates to local air districts, these air districts, South Coast and Bay Area air districts Menjivar, operating in silos outside of the jurisdiction really of of the legislature, but they're implementing the Clean Air Act, And they're adopting rules and regulations. They're imposing fees and penalties that are quite significant.

And, ultimately, those regulations, fees, penalties that they're imposing or adopting are having biz you know, financial implications for businesses operating in their jurisdiction. And, ultimately, it's gonna affect statewide gasoline supply. So they are operating in silos. We think the state needs to do a better job coordinating and understanding what air districts are doing and whether that's gonna trigger a business decision to close the next refinery. Whole host of other issues.

Happy to go in more detail, but that's, I think, top four or

five. Alright. Thank you. Okay. And now I do wanna dig into this conversation about imports, and I'll acknowledge.

I know that there's differing views on our panel. I think we're dealing this entire topic, we're dealing with very, very hard problems and challenges. I think that we forge the best policy when we bring people with different perspectives around the table and try to find a solution. So I I just wanna ask I guess miss I guess it's the CEC chair. So what what does a formal import strategy look like?

You've heard some, perspectives from two of our, panelists regarding the pipeline for imports, utilizing Benicia for imports. What is you what is the current plan?

Thank you, chair. So first, I wanna acknowledge that the CEC, in in most of its work over the last year and a half has really focused on trying to be reactive to the closure notices from p sixty six and Valera Benicia. So I think in in good faith, I wanna acknowledge that while we have always talked about transition, you know, pertaining to these two assets, it was a more of a reactive posture that we had to take.

So what the CEC wanted to do last year was work with the industry to keep the option of potentially having Valero Benicia as a refinery open for for California. So as you know from Valero, the the general tenor for Valero has been they're moving towards idling the refinery, not a complete closure, and it's important because closure would mean they are essentially giving up their air permits back to the aid district.

And at that point, it would be irreversible. So what we were able to, through the coordination and through partnership, at least have gotten from the industry is to have the strategic option to restart if needed. But what we've seen in 2025 is that the market reacted, not because the state did anything other than coordinated. The market reacted by bringing in more imports into the state. So the the question is twofold.

So one, do we want to like, what is the state's industrial transition policy look like? So I think that is a bigger question than than the energy commission. So whether we talk about offshore wind, whether we talk about refining industry, crude oil production, it's really about worker transition, communities transition, environmental transition, and and a whole suite of things. So it's it goes beyond supply and prices.

So I think a conversation that we need to have and continue to have is what is the state's industrial policy and transition look like?

And within that context, can we keep the prices and supply stable? And to the extent that we are in 2026 in in May, the industry has solved itself to bring about 200,000 barrels a day of imports into California to bridge the gap between the demand and in state supply. That's happening today. That is not because the state has provided anybody money. But it also came with the cost that we've heard of some of the labor transition and

the jobs both at p sixty six Wilmington and Valero Benicia. And I think it's important for us to recognize that those are the trade offs that we are talking about, and this market will solve for itself, and the state intervention for imports is really around making sure the import infrastructure is accessible and ready to do so. We will have certain level of import needs for sure. And, you know, the the broader question is around the industrial transition policy that we need to really agree on.

and and

And I just wanna respond to kind of the 2025, '26 imports coming in. And I think, largely, you're putting your, you know, supply system into the global market's hands. And I think we've seen a lot of supply come from Asia, which their economy is somewhat depressed right now. And so just as you're thinking about this import strategy, if Asia's economy increases, the molecules are gonna go where they need to go.

And if their economy increases, it will likely flow into the Asian economy and potentially not flow here to California.

So we're kind of an open market, but if other markets open up that are closer, cheaper to get to, that could be a possibility.

The only thing that I would add is there has been a number of announcements and build outs of more refining capacity across the globe. I think it's important for us to know that if the refineries were to close in California and we need molecules across the world, there will be refineries built. But the question to the point earlier is, in that case, what do we do with the labor transition, and how do we protect the labor and the broader impacts of an industrial transition?

Yeah. And I think this gets back to the broader point of California's climate goals and the ambitious goals it set of being carbon neutral by 2045. CARB has the mandate to get there. They also have the mandate to mitigate environmental and economic leakage. And leakage occurs when the refinery closes and the emissions just pop up in a different country.

And so greenhouse gas emissions don't know state borders, but it it actually increases that carbon intensity of that fuel. So while the policies are so onerous here, they're actually forcing shutdowns or forcing folks to make a business decision, and the emissions are going somewhere else where they're not regulated and they don't have the same labor standards that we do here.

Alright. In the interest of of time, and I know we'll have plenty of time to continue to dig into this very important topic, I I wanna kinda limit the back and forth so that we can conclude some questions and get to the end of the hearing. Alright. So I do wanna ask did you wanna ask me? Yeah.

Alright. I I wanted to just quickly thank you for the summary, vice chair Gunda, of the SB 237 findings and recommendations. You gave us a handy list of 10 things, which, if any, of these require additional legislative direction?

I I think the current statutes allow for most of it. But I would say prioritizing bucket two and three, especially around both kind of stabilizing the market and how do we coordinate as well as the long term transition of doubling down investments in clean energy, but also worker protections. And the the required funding, I think, is important that that builds both in two and four.

I think five is important, and I know there is some legislative activity right now to think about how to protect against at least understand the liability that the state carries. I know there's a bill in the Senate.

So I think those are there's some legislative act actions already in place, but the statute allows for us to continue working on this.

Alright. Thank you. Assemblymember Harabedian?

Thank you. Thank you to all of you, and thank you, madam chair, for doing this. I I have a very specific question. It's it's not really on topic for what we were just discussing, but the aviation fuel demand, I think, is something that obviously is going going to continue to be something we have to deal with. And and, doctor York, I think you're still here, but you've talked a lot about sustainable aviation fuel.

And I I guess my question to you, if you're still there, is how much of that can we actually produce? And I think you've said in writing and maybe testified before that the more sustainable aviation fuel we use, we actually help, on the gas side, the gasoline side for the average consumer. So can you just actually speak to that and maybe educate me a little bit more about both of those?

Yeah. So, if you kinda look at there's two currently two plants in California that are capable of producing sustainable aviation fuel. One is the Phillips sixty six plant in Rodeo. It would produce something around 15,000 barrels a day of SAF, or two thirty million gallons per year. There's another one in Southern California in Paramount by World Energy, but it's currently not in operation.

So what the study we did is we looked at the Rodeo plant since it's in operation. And what we said is that if you took that 15,000 barrels a day and you have to blend because you don't take sustainable aviation fuels directly in So you have to blend it with another, 50 it's a fifty fifty VIXA petroleum jet fuel. That would expand the jet fuel supply.

But by bringing in that 15,000 barrels a day from a different supply source, because it doesn't run it doesn't come from crude oil, it'll it would allow you to either back out imports, and that would open up burst space for more gasoline tankers to come in, or or it would allow you the refineries in California to change their operations and return back to sort of the yield profiles, the product yield profiles that they had in 2017, 2018, which would be more gasoline and than they're than they're making today and less jet fuel.

The combination of those things, if you and and then there's the renewable naphtha that also comes in the gasoline pool.

You add all three of those together, you have the potential to increase the California gasoline supply by four to 6%, which may not sound like a really big number, but it backs out the most expensive gasoline imports that are coming into California. And our estimates are that that would reduce the cost of making gasoline about 20 to 40¢a gallon.

And so it's one of those opportunities where the diversification of supply into the jet fuel mix actually helps you diversify other fuels as well that California also needs. So it's really trying to solve multiple market the diversification of multiple markets at the same time.

Super helpful. Thank you. Thank you, madam chair.

Assembly member Zbur.

So I wanna thank, our chair for bringing us together. I wanna thank all of you for being here today. You know, one of the things that, just comes to mind as I sort of, think through this is just how complicated this issue is. Obviously, you know, I'm someone who, and I think all of us here, you know, really want us to make sure that we're meeting our greenhouse gas reduction goals by 2045 and that we stay on track for that.

On the other hand, you know, it is concerning to me when it looks like part of what we're doing is moving to an import strategy, and we're basically that's not only importing import you know, importing to The United States refined fuel, but it's also exporting our jobs.

I mean, how many what can we learn from other areas of the country or other parts of the world? I mean, do we are are there are there places where we actually that that actually have carbon reduction goals on one hand and at the same time, you know, are doing better than we are in terms of affordability for, you know, for for our transportation needs and at the same time having more reliability.

I mean, it just doesn't seem like do we actually have other areas that are actually doing this without any refining capacity?

Yeah. So California is obviously not alone in trying to tackle climate change. There are policies that exist in other states, other countries. The European Union, China also has greenhouse gas reduction targets and policies that they're implementing.

The closest analog is probably the European Union with its EU ETS, its emissions trading system, where they have, similar to California, instituted mechanisms within their ETS that are meant to help prevent the outcome that you're talking about, where industry, you know, relocates outside of the borders and shifts that emissions and economic activity outside of the borders to no net benefit.

So both California and the UTS and some of these other policies also are designed to to help prevent that outcome. And, in fact, California's programs have some of the most generous kind of leakage prevention measures, you know, when compared to other similar policies outside of California.

So yeah. So and and then I'll let anyone so what specifically are they doing that we're not, I guess?

Sure. When we when we think about the emissions trading systems, it's usually how you distribute allowances within those programs. And what what California does is rely on a leakage prevention measure where we freely allocate allowances under emissions training system to our industrial entities, and that that is part of California's strategy that is consistent with what other EU ETSs are also doing. And California's allocation strategy for its industrial utilities is is actually quite a bit higher than some of the other comparable jurisdictions.

And so are the other jurisdictions experiencing the same kind of issues with respect to refinery closures in the transition that we are?

Yeah. As professor Bornstein mentioned earlier, it's it's pretty difficult to compare these jurisdictions because the fuel markets are so different, the demand and the production associated with them. So it's hard hard to really say. And, you know, when it comes to California's policies, we've gotten a lot of direction from the legislature over the the the last decade or so in designing our climate policies to help mitigate and prevent this type of emissions leakage. And so we've been looking at it within a California context.

We're running late, so I'm not gonna ask you any more questions. But I think, you know, obviously, it's very complicated. But as we're thinking about this, I think we need to think about it not only in terms of making sure that we're making sure that the price of of of gasoline is is, you know, is low for Californians.

I mean, obviously, if we were at the end of the transition and we were looking at a fully electrified fleet, I mean, I don't you know, in my district, the price of gasoline is way above $7 a gallon already. I mean, I think the other day I saw it was at $7.65.

I don't bear that because I drive an electric vehicle. So, I mean, it's but but most people in my district still do. And, obviously, you know, that's an issue. But we I think we have three goals and, you know, and I I heard all I I heard some of this in terms of the strategies. But, you know, one goal is keeping the price reasonable.

Second is continuing to meet our climate goals. And the third is preventing unnecessary job loss. You know, we need to keep these high skilled, high wage jobs here in California. And frankly, a strategy that results in us, exporting these jobs before the demand is down is one that is something that I think we all need to be, you know, ultra focused on. So

Thank you. Assembly member Hart.

Yeah. I appreciate my colleague from Santa Monica centering the workers' situation, and mister Gunda also did that as well. This is a real complex part of the challenge. Appreciate miss Lahain being here, mister Rogers previously talking about the real world impacts of this transition on the people, you know, who work in these industries. And, this is an enormously complex subject.

I really appreciate, Vice Chair Gunda's calm and his willingness to collaborate. You know, the folks from WISPA recognize your ability to do that. It is not easy to do. This is there are a lot of big stakes in this conversation. And I do think that we need to be nimble and be flexible and be open to change.

And I appreciate mister Bontill from the CARB talking about it needs to be data driven and based in science and looking at, you know, the CARBOG standard and whether we can be flexible about that is a complex issue. But I am very intrigued by, what doctor Martin is proposing, particularly on the side of, you know, it's linked the issue of changing the standard and at the same time increase the reduction of, emissions from long distance commuters and heavily polluting cars.

You know, that strategy, it's not just a stand alone evaluation of the air quality benefits of car bog. It's a marrying of the two ideas. How can we reduce emissions on the demand side, by being creative and innovative and targeting a very specific market?

And then also, you know, recognize that there may be some air quality degradation benefits that are offset by that. And that's why I carried, Doctor Martin's bill. And, we're trying to work on that. It's it's perhaps a longer term project than was originally envisioned. But, I wanna talk about how important it is for California to be a technology leader.

You know, in addition to managing the reality and making sure we're taking care of workers and protecting consumers, You know, one of the things that is most important about California is that we're trying to invent this technology and protect our economy and make a difference and demonstrate to the world that it can be done. And when mister Leary mentioned the at birth regulations, it popped into my mind that there is a company in my district, Stacks Engineering, that has made tremendous strides in that space.

And so we're hearing a story where, you know, the regulations haven't evolved. It's a it's a it's a crisis point for ships at the ports. And in my district, this company, using union workers and manufacturing their equipment in the state of California, is capturing emissions from ships and reducing that problem to the point where now it's just a cost issue.

You know, before it was a literally a technology issue. Can't be done. What are we gonna do? And and everybody was panicked and saying, you know, California is creating a rock and a hard spot. Well, because we push, our regulations on the environmental side, we've created technology, the rest of the world's probably gonna adopt.

And I think that it is always important to remember that not only do we have to solve our problems in California, but we have to demonstrate, you know, as a leader, and and the fourth largest economy in the world, that we can do both. We can have environmental quality, we can have labor protections and environmental standards that protect our workforce, and we can drive technological changes that's gonna solve this problem. Zach, you got your finger up. You've spoken a lot already.

So let me finish my remarks.

The opportunity to have additional gasoline supplies from other states through a pipeline that connects California to, Arizona is something that we have to look at very, very carefully. And, you know, we have to send a market signal to folks who are operating oil refineries in other states that that is an option. And and we need to have mister Gunda's, careful skills at the table in negotiating those things and talking about how that works and how we can protect jobs in California at the same time.

But we can't just stand still, and we can't just say, we've been doing this wrong for twenty years and we need to go back to some point in the past. We are not going to do that.

We there is no reason to do that. We are succeeding. We are the fourth largest economy in the world, and we are having it both ways. And, I don't have a question in all this. I just wanted the opportunity to say all those things and, leave it up to the chair to ask the final questions and bring this home.

Alright. Well, thank you. As yes. As a reward for being some of the longest members standing, welcome to give your closing comments after the hours of the hearing. Just a couple of of additional questions.

So I did feel like the transportation fuels transition plan. It actually read to me like less than I thought it was gonna be more of a plan. It feels a lot like a menu of options and a bunch of things we might wanna consider doing rather than a plan. You know, I think a plan in my mind is has some dates, you know, some concrete goals, and some concrete steps to meet those goals.

So I don't know if we need to have kind of, you know, a take two or if if you all are relating to this as, you know, we're we're this committee is working through another report where, actually, we asked the California Earthquake Authority to repair the climate, disaster resiliency study, which they did.

That was very much understood that it was going to come back to us as a menu of options for legislative review, consideration, and further action. This is a hard problem. I feel like two years ago, we said to you, hey. Will you go make a transportation fuels transition plan? Feels a little bit now, are you coming back to us and saying, here's a bunch of options.

Pick a path. Or do you anticipate turning this what you've given us into an actual plan?

Thank you, Sharon. I think it's a and. So so I will just say, I I think the legislature has put a lot of trust in the agencies, in kind of working through this dynamic situation. For me, each one of these reports, whether it was the first assessment, now the transportation plan, the February report, and the next transportation fields assessment, they're all building off of each other to make the plan more cohesive and clear.

So I think we are at the place where we recognize a number of options could work.

And to your point, the next assessment will kinda continue to refine that framework based on the evolving conditions. But at the same time, I think to colleagues on this panel, there needs to be a conversation had on the directional pathway we are going to take. So at, you know, assembly member heard kind of, like, really gave that holistic pitch. It's like there's a lot of things we're doing.

I don't think we're calling for walking back, but given where we are today, point a to point b of carbon neutrality by 2045, there are still a variety of pathways we can take, and each one of them will come with trade offs.

And I think our first responsibility is to provide those trade offs to you as faithfully as we can so we can get some guidance on how to further narrow that.

Did you wanna also comment?

Yeah. If I could add one thing, and and maybe that is, I think you're right in terms of the transportation fuels transition plan does come across as a a menu of options. And the way that I like to think about it is the more of those options that we pick and we deliver on, the greater our success of or chance of success of navigating this transition. So to to commissioner Gune's point, it's more of an and.

It's it's can how many of these things can we pursue to be successful in this transition as we deal with supply, demand, and community and workforce transition?

And not to sound critical, but that feels a little bit more like throwing spaghetti against the wall and kinda seeing what's gonna stick. And I don't think that that gives we've talked a lot about the importance of competition. We've talked about a lot about the importance of, market participants having some certainty. Like, we've gotta say, this is what we're doing and how we're gonna get there. I think, with a with significantly more clarity than we have done to date.

I don't know if we we haven't been in hearings together. I think vice chair Gunda has heard me say this. Whether we're talking about our climate goals or our transport transportation fuels transition, Like, a goal without a plan is just a wish, and we are not going to get there unless we have a lot more because but if we had the best plan in the world, this is still very, very hard. We need to be very, very clear understanding the trade offs.

But we gotta weigh those trade offs.

We've gotta make some decisions because we're dealing with an industry that is making decisions, making investments in a, you know, twenty, thirty year time horizon. So I I think the time for us to make those decisions is now and look forward to our continued collaboration and work together in order to do that.

Chair, if if I may just add one thing on that. This was relayed in the previous panel. I think it's really important for us to have that same data that we are working from. Whatever we are gonna do requires a set of data that we all agree on, facts. 100%.

think at this point, we are not there yet. As to the points that Director Maurer made and and, professor Bernstein, I think there are some alignment issues we really need to Kinda solve this year.

Agreed. And I think a couple of the other things that we need to solve this year are highlighted in the background document. It's gonna be this longer term consideration. So I think it's the governance question. Yep.

Once again, who's in charge? It's gotta be somebody. This is too hard for it to be, like, a committee decision. And number two, the destination question, which is an incredibly important one for us to answer. Alright.

And then assembly member Davies.

Yeah. I just wanna finish up. And first of all, I wanna just say thank you to our chair. You've done a fantastic job. I mean, this whole year bringing these issues up.

And just the bottom line is everyone that's on this panel, in order for us to succeed here, each and every one of you has to be at the table. And I think that's been one of the biggest concerns is that you're not at the table. And certain groups are deciding on the way this should be, and then you find out. And now, you're basically on defense trying to come back. And I think that we can all come together.

Everyone has great ideas, but we and we have great goals, but we have to remember that those goals cannot produce harm to Californians, whether it's their health or it's their jobs or it's, you know, income revenue coming our way. But, again, I wanna see everybody at the table. And if you're not at the table, please let me know. Thank you.

Thank you. Just building on assembly member Davie's comments, I do wanna thank everyone who joined us this evening. We appreciate your engagement. We appreciate your insight. We appreciate our continued work and collaboration together as, we tackle this incredibly complex, and incredibly important challenge on behalf of Californians and the people that we are all lucky enough to represent.

So with that, you can go to your dinner or go grab a cocktail or whatever whatever you need. We're going to go ahead and turn to public comment. So if you'd like to provide public comment, you can go ahead and approach the microphone at this point. And please first state your name and organization, and each witness will be given two minutes to speak. Thank you.