Senate Standing Committee on Energy, Utilities and Communications

Alright. Let's call the Senate Committee on Energy Utilities communications to order. Welcome everybody to today's oversight hearing on managing the transportation fuels, transition issues, pricing, an update on ensuring affordable and reliable fuel supply. We've certainly all know that there's lots of concern out in the public about the rising cost of gasoline fuel. It's been an issue for many years of course.

It's what inspired our legislation back in 2022. My Bill, SB1322, which created a whole mechanism for greater transparency about the cost of producing gasoline solely in California by requiring our oil refineries to report specific data to the CEC, our California Energy Commission to better understand what's driving gasoline prices. Those efforts were then further expanded by recent legislative special session Bills.

There was SBX12 from the special session that we all held a few years back which requires additional reporting to the CEC as well as the authority to implement a gross refining margin cap and penalty on refiners among other provisions. I think we're getting some feedback from like is that computer?

Who are you? Peter. Yeah.

That's a big number. Did you already tell everybody that? No. But we're really proud of the, transparency that has been provided by that legislation and I think it's making a difference already in helping you know. Actually, several of the presentations I think you see today will be informed by information that's been gleaned from reporting coming out of SB1322.

So it's certainly been my hope that all of these tools are providing at least some greater transparency and better understanding of, all of these many forces that are impacting our transportation fuels market here in the state.

You know, we've heard earlier and many of you know about professor Bornstein, Severn Bornstein's mystery surcharge that he's written and spoken about extensively. That's 1 thing we certainly have had some more information about.

That's unexpected, unexplained additional cost that California's been paying in there on every gallon of gasoline since the 2015 torrents refinery explosion popped in there and then of course the refinery came back online but the prices haven't come back down to where they might have expected to have been. So then the second extraordinary session, the special session provides the CEC with the ability to regulate minimum supply inventories through refinery turnarounds, maintenance events.

That's with ABX21, which is also another 1 of the special session Bills that came out a couple years ago.

So we've got lots of challenges associated with supply. We know that our 2 additional in state refineries were preparing to close Phillips 66 in Wilmington, Valero up in Benicia. That's bringing our in state refineries to now 7. In state refineries producing California's unique gasoline blend. You know we're also, of course, working toward all sorts of fuel efficient and zero emission vehicle and cleaner fuels transitions.

There's potentially less demand for petroleum based fuels in the future. But, you know, I think 1 of the things that we've been discussing as a caucus and others with others is that the decline may be more gradual than the planned closure of refineries.

And so you know, 1 of the challenges is how do we make sure that we you know, ensure that there's enough fuel supply that's a reliable and affordable with so much volatility in the world right now.

I mean, so we've got this we already had a whole slew of challenges then of course, at the very end of February, President Trump launched according to attack on Iran, killing the supreme leader there with pulling The US into what's now, I think, the fourteenth week of war. Retaliation from Iran and closed the Strait Of Hormuz where 20% of the global crude supply is shipped and that's exacerbated a lot of the fuel cost challenges that we've had.

You know, by all accounts, it's it's increased the dollar per gallon of kind of it's increased cost by about a dollar per gallon since the start of the war. So we're gonna be hearing from a lot of really exciting voices and I'm really I'm glad to see that we've we've been able to pull together a really good mix of perspective. So we're gonna hear from the administration, specifically our CEC vice chair, Siva Gunda, the Department of Petroleum Market Oversight, and the chief director, Tai Milder.

And then also, we're gonna be hearing from our air resources board, California Department of Tax and Fee on the status of various requirements of the special session bills, regulations and reports, as well as the the s v two thirty seven assessment evaluating near term options as recommended by vice chair agenda to the governor. You know, we're we're certainly, then we're gonna be hearing from some, stakeholder perspectives including, Jamie Court from consumer watchdogs, Zach Leary from WISPA, Jeremy Martin from the Union of Concerned Scientists.

So we're very there's a lot of interest here on this committee on this topic as you might expect. We were interested in the status of the current supply, You know, as crude oil and shipments and feedstocks are being affected by the war. You know, refined fuels, they they may be further affected in California due to the closure of in state refineries that need to depend on more imports.

I think we're going to be hearing discussion of some new, you know, pipelines that could make a difference that are under consideration and could make a difference for our supply in California. So let's get started.

Let's have the first panel. So we'll ask Chair Gunda Vice Chair Gunda to come up and and then I know we've got Genti Droboniku, who's the chief deputy director from CDTFA. Tai Milder, who's here from, the Department of Petroleum Market Oversight. And then Matthew Botill, who's the chief for industrial strategies division at CARB. So let's let's get let's give you guys the opportunity to present in that order and then we will open the floor to questions and discussion.

Mister Chair, do you need some coffee or tea or something? I've never seen you so

Well this Chair had a very long night.

You are hurting man. We gotta get this done.

We can put you to bed.

Yeah.

Yeah. Well

Wow.

It's a it's a yeah. Long night last night.

Yeah. I hope you guys can keep him awake.

Yeah. I am.

So let's get started. Yeah. Mister Vice Chair.

You've spoiled us in the past.

Yeah. I know. I know.

Good afternoon Chair and Members of the committee. I'm Siva Gunda currently serving as the Vice Chair of the California Energy Commission for the record. And thank you for the opportunity to be in front of you today and walk you through, the interest around the fuel supply and the long term transition opportunities for California. Okay. Thank you.

So this kind of slide just sets the stage for our conversation. Just elevating a few pieces here in terms of the California's in a long long term. We've always discussed that California is less connected through pipeline networks to the rest of The US. It creates this island kind of effect where we when we need fuel, we'll either have to produce in California or bring it through imports. So, marine imports are continuing to increase.

That's an important piece. And as Cheer Allen just mentioned, we are beginning to see that the market overall is transitioning in how it supplies California fuel. One of the exciting opportunities and potentially a game changer for California in terms of connectivity is the proposed gateway pipeline by P66 and Kinder Morgan. It's a joint venture that other options that are currently being considered. But basically what this does is connect us to Gulf Coast and potentially bring as much as 200,000 barrels a day.

This is another setting the stage slide, but wanted to pull together again, reiterating a couple of points that Chiral mentioned here. The overall refining, the number of refineries in California has been declining or contracting in terms of, you know, what we can produce in California. And I'm gonna walk through how that is changing in terms of import composition, but also how the refineries are producing different blends.

What you will see here on the on the y axis is we approximate the output of the refineries in terms of gasoline at about 55%. And I'll show how that has changed in the past, you know, upward of 60.

So as you see here, we have structurally moved into an import in a state starting 2015 right after we had the torrents event, and it kinda coincided with that. And since then, we have been continuing to import more and more, fuel. And wanted to also recognize here that some of the imports we bring in and the refined, capacity in California does serve our neighboring states in terms of Nevada and Arizona.

And similarly, some of what's produced in Washington comes to us in California and there is a regional connection here. In terms of overall import dependency in 2025, we've got to about a 165,000 barrels of gasoline at an average to fill and we are seeing that the market is responding.

Apologies. I'm just kind of trying to okay. So in terms of, you know, just looking at how the refinery production has changed, I want to call your attention to the overall crude, the stack of what's being produced in California. Over the last ten, eleven years, the overall gasoline production has gone down in terms of share. It was as high as 60% when you take into account both car Bob, but also some of the fuels we produce for our neighboring states.

It was about 60%. And as you see there today, it's come down to about 55%. And some of that reduction has gone into jet fuel production. And that is very much related to long term increase in jet demand that we see. While the gasoline demand is going down, we will continue to see increased jet fuel demand in California.

So I think the main takeaway there is while there is a little bit of flexibility on what the refineries could do, there isn't a lot and they are exercising that to match the demands of the market. Apologies. This is not able to move the slide. Okay. So this this slide here just gives you an overall picture of where our dependencies are coming.

The imports are coming from both in terms of crude, as well as refined fuels. As most of you know, we are currently dependent of about 75% of crude from outside of California. We produce 25% of crude here. At 10% of the 75, meaning, you know, 65 left comes from elsewhere internationally, but the other 10 comes from Alaska. So what you're seeing there in brown and orange shades is where we are having the largest dependency.

And as the war has progressed, some of the lost battles from The Middle East have been made up through South American barrels, as well as Canadian crude. On the gasoline refined product side, because we import both, we have a significant dependence on the rest of The US. So those barrels are coming from both Gulf Coast, but also the Northwest. One of the things that you'll see there is The Bahamas. Bahamas is largely a US product.

So some of the refineries because of the constraints on the Jones Act, you know, vessels send the fuel to Bahamas on Non Jones Act vessels and then bring it back to California. So the Jones Act waiver recently from the Trump administration has significantly helped us in terms of making sure the fuel flows, well. But also important here is there is a lot of dependency on India and South Korea and, more and more, Japan and other, Asian markets.

A piece here is as we have more dependency in California, there is more of a signal globally that California would require a refined product, and that is making some of the refineries in other countries really start producing car bobs. Based on the information today, we see about 10 refineries outside of California are producing California blend or blend stocks.

And those are coming through a variety ways over the over the waters. So just to kind of then provide a kind of continued context from 2025 into 2026, really we have seen some historically high imports coming into California even through March, April, and May. And as you see there, The US kind of dependency from Gulf Coast is really increasing as well as India, South Korea, and other Asian markets.

Okay.

So here's kind of a quick look at month by month imports coming in. And as I mentioned, we've seen some historically high levels of average imports coming into California in 2025. But in 2026, especially after the closure announcement of Valero and and and the war, we continue to see some of the highest levels of imports coming in. Just to kind of point back to an earlier slide, we are looking at about 165,000 to 200,000 barrels of import dependency into California and our neighboring states.

And we are seeing some historical levels of imports coming into California, and that will be reflected in why the inventories have been stable.

So then kind of looking at, how the composition of of the marine, you know, terminals and how the imports are changing. So what this is doing is not just looking at the refined fuels, but it's stacking all the different imports we bring into California. So what you're seeing here is averages over the year. So if you look at the chart, I want to point and I draw your attention to a couple of things.

One, the overall average levels of imports that include crude, gasoline, diesel, and jet fuel collectively seems to be coming at about 1,300,000 barrels roughly.

But as you see there also the second point that the crude has gone down because of the defining capacity shrinking in California. The crude is going down and that is being replaced with import gasoline as well as jet fuel. So the next slide will kind of show while that is the average, what we've added here is a second column showing you the months where we had the maximum amount of imported refined fuels, not crude, imported refined fuels.

So what it suggests again is there is a significant amount of surge capacity still in the system, and the system is using that during these extraordinary moments. One of the things we depend on, internationally, especially, UK and Netherlands, is some of that fuel really comes into California as when we need that surge amount of of blend blend components.

So again as you see here, it's important for us to recognize that we do have good amount of import capacity at this point. And what we are trying to do at the Energy Commission as per the statute, the second special session ABX two one is looking at how to evaluate the import opportunity for California. Whether we have enough refineries across the globe that can produce it, Whether we have enough vessels to move that around both internationally, but also domestically?

Do we have enough dock space in California to unload them? And finally, can you distribute?

So what we are heating more and more is there is a real kind of a congestion or an opportunity for us to work on around the distribution level. While there seems to be enough refineries with advanced notice that can make car bomb and the blending stocks, it's really important for us to think about how to move that within our distribution network.

So that kind of brings to a few slides on where we are in terms of the overall, you can have inventories in the in the pad 5 as well as The US. So the first one you're seeing here, which will be very similar in the next few slides is pad 5, which includes California, Oregon, Washington, Nevada, Arizona, Alaska, and Hawaii.

And, you know, when you look at composite, all of the existing fuel inventory, the gasoline inventory, we are kind of tracking at the lower end of the ten years.

But as you see there, every time we dip below, it starts coming back up again. So that is kind of what the signal to the rest of the importers is and the traders and shippers to bring that additional fuel. We have seen a dip in the last couple of weeks, but then again it got stabilized.

One of the reasons why we saw the dip is we had a couple of refineries in the West, both BP, Shady Point, and P 66 Ferndale had a little bit of an outage, which are back online and that kind of stabilized things again. But also recognizing that every time those are down and the prices spot prices go up, that's the signal to attract more imports.

And everything that you see here is very much corresponding to how the rest of The US is. So in terms of jet fuel, so we are actually tracking at the highest levels. As you as you know, there has been a lot of information around what's happening with the jet fuel across the globe.

One of the pieces one of the important things about the conflict in The Middle East is much of the refining capacity that got impacted in The Middle East is mostly jet and diesel, and that serves Europe. So much of that impact was initially felt in Europe.

But we, as California and the rest of The US, is largely self sufficient. But self sufficiency will not help us from price increases because it's a globally traded commodity. So on slide number 12, quickly showing you that similar to that on the diesel side, we are actually on the lower side in terms of diesel inventories.

While much of California's diesel use is renewable diesel, we do produce fossil diesel, and that kind of sometimes could become the battle that we're we are trading the the the spot market trades are based on. So it's important for us to track that.

But more recently, renewable fuel is trading at a discount to fossil fuel. So while there is a fossil fuel to but but to the extent that we use fossil fuel in California, it still will be pecked at that. But how does all that come together into an important metric that we were able to develop?

And I just wanted to take an opportunity here to say, you know, share my gratitude to the legislature for giving us both the ability to collect more information through the special sessions and giving us those permissive tools to use if we think it's beneficial in public interest. One of the core pieces that we've developed was what is called days of supply.

This takes into account four variables to normalize and and try to compare apples to apples as much as we can with conditions previously. So So what it takes into account are four specific metrics. One, it looks at the demand. Obviously, we know the demands, you know, dropping in California about one to one and a half percent a year. And so that takes into account.

It also takes into account what the inventories are both in California and more in the West. And then it also takes into account what production we see forward looking to two weeks. And finally, we're able to kind of watch imports. So as I mentioned, imports have come really well into California. We don't expect them to diminish, you know, in the near future.

But as you see that see that the DOS or the days of supply metric is right in the balance. So we feel comfortable, and I and I said this in our assembly hearing on the topic. What we know is, you know, even under extreme situations that that days of supply will not fall behind, you know, the ten year range up to, you know, six or seven weeks. Right? So what we meant to say at the assembly hearing is that's the visibility we have.

That doesn't mean that we will run out supply in California. As the supply gets tight in California, the prices will go up and attract more imports. So this kind of coming down a little bit now moving into the long run trends here. This is a slide that you all have seen in the past. The three lines here, blue in California average price.

The black is The US average prices, and the green is the difference between California and US. I also want to point to you, there's a little bit of a difference. There's a second line under blue and green. The black dash line is something that you don't see because it actually overlaps. What those two lines are is two different resources we have.

So one is the AAA OPUS data, which is more widely open for people as well as EIA. So those two resources use slightly different ways of collecting information. For example, AAA looks at the credit card transactions every day and averages that out across the state versus EIA takes a sampling and does a volume weighted pricing. So because of that, you see the delta and and want to observe that the delta is is very visible for California, but for not the rest of The US.

And and it's important for us to note.

We regularly overestimate California's price by about 10 to 15¢. And so then kind of drawing your attention down to just The US California differential. It's important for us to recognize a number of different trends here. So one, after the price spikes that we had in '22 and '23. And again, thanks to the transparency tools and the ability to understand what's going on with the industry.

The kind of The US California differential increase that we are seeing right now is not you know, similar to what we saw in 2022 and 2023. It's structurally very different. So as you look there, a couple of trends. One, the overall the price increases and decreases. The volatility has been a lot more stable, since, 2024.

And there are a few different areas that we, kind of shaded, and those do, incorporate in a times when we had, outages. For example, in 2025, we had two specific issues, one in spring where we had three refineries, one after the other had unplanned outages. And similarly in fall, we had an extraordinary event where we had couple of refineries out at the same time.

But what I want to point to is while there was a slight elevation or escalation in the overall differential, they were much more muted given the coordination that we have been able to do. But I also want to take this opportunity and to address a couple of things that colleagues from the consumer watchdog has mentioned in the past, which is while the escalation right now is really tied to the war, there was a pre war escalation that did occur.

And I wanna just be very clear that we saw that, you know, directly related to the early idling of Valero. Valero, you know, gave us a one year notice in April 2025. And as they were coming close to April 2026, they started idling their units earlier. And similarly, the Martinez, which was supposed to come online in February, as they were turning it on, had time to completely come online.

And so every time you had a delay, that was a market signal as if it were unplanned outage.

So those those did impact. But as you see there, as we were beginning to come down in the California US differential, the water really kind of started moving us back up again. So there was a question on whether resupply would have helped, And I think a well kind of structured resupply statute could definitely help.

But I think what we're trying to do over the last few years since the special sessions is take the whole issue around two refineries leaving California and the decreased amount of in state production and the totality of the context as we develop those rules. And one of the things that the Energy Commission tried to do with the given resources that we had is really point towards figuring out whether some of the assertions that were made by the industry were true.

Look at the analysis to understand where the price spikes were coming, but also thinking through how best to use the permissive tools that you've given us to help in the long term and take them into the context of the mid transition. So through the amendments of the made in SBX one two, refinery operators in California are legally required to report to to CEC any planned a planned refinery closure at least twelve months and ahead of time.

The law, however, does not specify what type of operations they need to do during that time. So as we've learned from the last couple of years, the important part for us is as we think about the resupply rules, how do we take the lessons of the last couple of years to make sure that those resupply rules are actually beneficial in introducing the price spikes.

And finally, the CEC can and has adopted refinery maintenance guidelines, which include a requirement that refineries provide resupply plans before conducting any planned maintenance.

For example, if a refinery conducts planned maintenance during a twelve month period before it shuts down, it is still legally required to maintain resupply plans and provide notice of those plans. So it has been very helpful for us to see the data and work collaboratively, not just through a regulatory frame. So then kind of pointing to the gasoline price spikes, and what we've seen since the start of the war, just calling your attention here. You know, the whole US, the prices have gone up.

So if you take February 28 and see where the prices are today across different states, California's prices have gone up by a dollar 35¢, and we stand about twenty first in the ranking today.

And as you see there, Utah is the highest given that they are really landlocked more than us. And when the WTI prices, the crude oil prices go up, it really hits them. So it really translated for them versus us. And the other pieces here are you see some of the states like Indiana and others have gone up for a while and then they're coming down now.

It's because it's a combination of grass tax waivers that have been put forward by some of the states and some of them had supply constraints because of refinery outages.

But overall, we've been right in the middle of the pack the entire time. So finally, a couple of slides here. As we look into, you know, the prices have gone up and what contributed to those prices, you know, I always wanna recognize that California's prices generally are higher because of the taxes and environmental costs we have in California. But it's also simultaneously true that those don't go up and down and those don't spike.

So as you see there at the bottom, the tax and environmental costs in California have not increased.

It's about $0.05 and that is really tied to the taxes. So the other piece is really coming from the biggest increase is coming from the crude oil costs. The crude oil costs have gone up significantly. And as you see there, sometimes the prices were over $100 $110 So let me kind of take a moment to just translate this to the senators here. Every time the gas the crude oil prices go up by $10, it will be 25¢at the pump.

So if, you know, from where we are today, if there is an increase of the crude oil prices by another $30.40 dollars, it's gonna just translate straight to a dollar at the pump plus any exposure we might have in terms of global trading. So, while we we kind of think that the crude oil prices might have stabilized at the moment, depending on where the conflict could go.

If the crude oil prices continue to go up, it will be a direct translation to the price at the pump, not only in California, but everywhere in The US. And finally, the industry margins have been going up as well. And it's important to make sure that we articulate that clearly.

So the industry margins as a whole, which includes both the refinery margins as well as the retail margins have gone up by $0.75 since the beginning of the conflict. Based on the analysis we have currently, 76% of that has been in the detail, generally on an average. But in this case, about from of the 75¢, roughly 73¢has been on the retail side and and and few cents. But during the middle of the, you know, time here sometimes, the refinery margins have gone up significantly higher.

So it's important to note that the refineries are, making money at this time.

One of the reasons for that is the in state refineries, have wider margins because the marginal barrel is still an import barrel. While their costs of acquisition of crude oil might not change day to day, If the import barrel which is being sold at the rack is is priced marginally at a very high cost, that Delta will be captured by everybody who's selling in California. So the the the defining margins are going up and but the retail margins have also gone up significantly.

And that's important for us to note. So finally, I wanted to close off with this slide and and pass it to my colleague, Ginti, from CDTFA.

Just at the top, you know, one of the statutory responsibilities of the of the SBX one two was to double up a price pricing report jointly between CDC and CDTFA. In 2024, the report, we started, you know, from ground up. Really, we mapped California's infrastructure, establishing some baseline price comparisons against other states and laying out how tax revenues flow. In 2025, that work, deepened significantly and considerably. And thanks to colleagues from CDTFA who have put, a significant amount of time.

We started looking into a spot market and imports and and how that impacts. We also deepened our analysis on the retail prices, margins by by brand and local competition. And this year 2026 report, which is the third one, which we're hoping to send it to you soon here, we continue to deepen our analysis, and I would rather, see the TFA speak to that.

Thank you. Vice Chairman Gunda.

Thank you, Vice Chairman Gunda. Thank you, Mr. Chairman and Members of the Committee, for allowing me to speak with you today. I'm Genti Droboniku, Chief Deputy Director at Department of Tax and Fee Administrations. First, I would like the teams at CDTFA and CEC for their tremendous work on these reports.

I'd also like to thank many in the industry for their collaboration and cooperation. Today, I will highlight some of the main findings from the CDTFA CEC joint report on gasoline prices in California and the related effects on state revenue. My presentation will focus on the retail side of the market.

Specifically, I will address gasoline excise tax history, sales and revenues over time, retail pricing and margins, price variation and increasing gap between brands, and lastly, go over a few topics we would like to explore in future reports. At a high level, if I were to summarize the central findings of this presentation, it would be this.

The widening retail margins suggest that retail price, retail price, retail side pricing behavior, pricing strategies, and business models are playing an increasingly important role on how much consumers pay at the pump. With that in mind and to provide some context, I will start with a brief overview of California's gasoline excise tax. I will not go over a century of legislative history, highlight a few events. Oh, thank you.

So the first excise tax on gasoline was imposed in 1923 at a rate of 2 cents per gallon to fund and maintain road constructions. That increased in 1927 to 3 cents. As the state grew and transportation demands increased, lawmakers enacted several increases over time to support road and highway development and maintenance.

In 1971, the Transportation Development Act applied sales tax to gasoline, and the revenues went to a state general fund. In 1990, voters passed Proposition 111, which doubled the excise tax from 9 cents to 18 cents over a period of five years. The gas tax swap of 2010, which was designed to be revenue neutral, eliminated the state's portion of sales tax on gasoline.

Lowering the state wide tax rate by 5%, while at the same time increase the per gallon excise tax. In 2017, Senate Bill 1 increased the excise tax, excise tax gas by 12 cents and indexed it to inflation starting in 2020, meaning the rates adjust annually in line with California Consumer Price Index.

In 2018, with Proposition 6 on the ballot, California voters had the had the option to repeal the tax increase enacted under Senate Bill 1, but voted against the repeal by about 56% to 43%. Next slide. This slide shows California gasoline sales and excise tax over time.

These are nominal rates, meaning they are not adjusted for inflation. The sales tax on the right y axis is represented by the yellow line as a percentage of sales, and the excise tax, left side, y axis, represented by the blue line and is cents per gallon. As you can see here, the 2010 large drop in sales reflects the fuel tax swap, which lowers sales tax and adjusted excise tax, so the change would be revenue neutral.

As I noted, currently, the gasoline excise tax in California is tied to consumer price index and is adjusted every year. Next slide. Thank you. Here, this slide shows the California excise tax adjusted for inflation since 1923. As the slide shows, when adjusted for inflation, the California excise tax is not uniquely or historically high.

The real tax burden was comparable or even higher in prior decades. For instance, when adjusted for inflation, even in 1927 excise tax of of 3 cents would be about 57 cents today, pretty close to the current rate of 61.2 cents. As I noted, the recent increases in 2010 and 2017, we saw the real value.

You can see here on the line, real value of the excise tax of a prior inflation eroded transportation funding. Next slide. Moving on to the volume sold in California. Gasoline volume in California remained relatively steady at about 15 billion gallons per year between 2000 and 2019. And it started decline during the pandemic, starting with second part of fiscal year 2020.

And then in 2021, we dropped to about 13 billion gallons or about 14% compared to 2019. After a slight increase in 2022, the last couple of years volume has declined about 1.5% to 2% a year. Among several factors contributing to the decline are increased sales in electric and hybrid plug in vehicles. For instance, in 2016, electric and plug in vehicle sales in California accounted for about 4% of registered vehicles.

By 2024, that number more than doubled to about 10.5%. In 2024, for instance, one in four cars, or 25%, sold in California were hybrid or electric. Also, about 35% of all electric vehicles in United States are registered in California. We are about 12% of the population. Next slide. Here we show California revenue over time.

The blue bar represents the estimated sales tax revenue and the yellow bar represents the excise tax revenue. The decline, as I noted, in sales tax revenue around 2010 reflects the fuel tax swap, which as I noted earlier reduced the sales tax by 5% and was designed to be revenue neutral.

Interestingly, extending the pre-2010 trend line, as you can see here that light blue line there, forward, so use the trend line forward, suggests that the current gasoline tax revenues are broadly consistent with what they might have been under the pre-2010 tax structure. Next slide. This slide here is basically shows the same revenue data but adjusted for inflation.

With a couple of exceptions, so you can see the current gasoline tax revenue when adjusted for inflation are generally in line with historical levels. Next slide. Now moving over to gasoline retail market landscape and pricing. Here we show some shift in California retail market over the last ten to fifteen years, most notably with the growth of hypermarts and unbranded stations.

Hypermarts are gas stations typically tied with large retailers, such as Costco or Walmart. And unbranded stations can be small, independent, independently owned gas stations, your corner store gas station, or it can be very large chain retailers such as 7/11.

The gasoline of this unbranded station sale is produced by the same refineries as branded stations and drawn from the same tanks as branded fuel, but it doesn't contain a branded proprietary cleaning additive. It does contain an additive that meets the requirements set by California Air Resources Board. In this slide, hypermarts are presented by a top bar there, that's a brown bar, and unbranded station on a second bar from the top, the teal color.

As you can see here, between 2010 and 2024, hypermarts almost doubled their share of the market in California, from 10.9% to 21.2%. Unbranded gasoline also grew from about 18% to 24.5%, while some of the major brands are showing slight decline.

I just want to note this is a volume weighted market share. In terms of number of gas stations, hypermarts account for about 3% of total gas stations here. Next slide.... And I've highlighted a couple, the 2013 here and 2025. I know there's a lot of numbers. A few interesting points here I want to highlight is that retailers for some brands have been averaging margins around 85 to 90... Temporary pricing differences increasingly appear structural.

These prices which may have once been short term highs are now annual averages, and these are annual averages. This, there appear to be also a shift in pricing strategies, and the next couple of slides will show more clearly. Comparing here a couple of couple of brands here. Let's say, if we compare, let's say Chevron to hypermart, you see the margin increases. As in 2013, the margin retail margins for, let's say, Chevron was about 35 cents. By 2025, that increased to 87 cents.

Taken it as a percentage of retail price, that increased by about 9% to 17.5%. On the other spectrum, on the right side there, the hypermart, in 2013, they charge the retail margin was about 16 cents or about 4.5% of the price, retail price. And by 2025, that increased to about 27 cents or about 6.5% of retail price. So we see that difference there. Next slide.

Here this slide highlights the widening spread from the median price over time. As you can see before 2017, the gap was relatively stable, then gradually increased through 2020 and then accelerated during and after the pandemic. What used to be a relatively tight pricing market has become increasingly segmented and brands are pulling further above and below the median market.

It is important to note here that this, while retailers face broadly similar upstream fuel market conditions, by that I mean crude oil prices, refinery costs, transportation costs, and government tax and regulation, the widening retail price dispersion suggests retail pricing strategies and business models are playing an increasingly important role on how much consumers pay at the pump. Next slide.

So to better understand the relationship between wholesale and upstream costs and what consumers pay at the pump, over the last couple of years, our teams have looked closely at many gas stations and compared the wholesale purchase pricing and retail sale pricing over time.

What they buy the gasoline for and what they sell it for. For instance, this slide showed the difference between the wholesale purchase price at two different gas stations buying the same brand and grade of gasoline on the same date. Here you see the wholesale price difference and the retail price difference.

As you can see, while the wholesale price pricing for the same gasoline is very is the same or very close to the same, that is that brown orange bar that shows the difference, the purchase price that retailers purchase the gasoline on the same date, the same brand, the same grade. Now the retail price and how much they sell it for is the brown, is the blue bar, which shows by as much as 70% difference.

This shows that this shows that often the price variation between gas stations appear to be largely due to retail margins. If it's costing the same, then the then the retail margin, the decision at the retail level plays a bigger role in how much folks pay at the pump.

Next slide. Here, this slide show the price difference to wanted to highlight sort of those price differences I just noted. The price difference between the 100 most expensive and 100 least expensive gas stations in 2025. This is data between January and September.

This slide highlights the widening gap that I that I noted above and the between the highest and the lowest price gasoline in California. These differences are not, I want to mention here, these are not outliers. These are these are not a one day spike pricing. These are average over averages over a minimum of 200 days.

If we had less than 200 data points for this gas, we'll remove that for the average. We want to get a good read. As you can see, the gap is quite substantially, averaging about $1.70 and the time exceeds $2. In this case, the price of the pump up here, as I noted, appears decoupled from the underlying costs and upstream market conditions.

To get a better idea, we also... Next slide. We also want compare the top 500 gas stations and bottom 500 gas stations, and the story is is basically the same. The average to average difference here is about $1.28. We did the median to median difference.

And for those of you who are statistically minded, we also did trim mean to trim mean differences, and it's the same story and the same shows the same the huge difference between those averages to averages. Next slide. So with that, I want to also highlight sort of further analysis for our future report. One of the areas we'd like to focus is retail outlet ownership and concentration.

Some large companies, including some refiners and private equity firms, are taking ownership or ownership interest in large numbers of California retail gas stations. The data we currently have does not capture this, so our teams will try and find ways to assess the extent of ownership and pricing control concentration.

Next, we'd like to explore the use of pricing software, algorithmic pricing, so surveillant pricing, dynamic pricing, and however some folks refer to and how that affects consumers. Retail pricing appears increasingly driven by commercial pricing software. These algorithms tell the sellers what to change to maximize profit.

It appears that many in the market at all levels using such software and many are using exactly the same software. It's really opaque and the area could use some more sunlight. A recent study in Germany analyzed retail prices for about 14,000 gas stations and found that when stations adopted algorithmic pricing, their margins increased by as much as 15%. The study concluded that pricing software weakens market competition and possibly facilitate tacit collusion.

Various other studies across industries have analyzed the impact of pricing software and found that these systems negatively impact consumers. Another area I would like to explore is continue studying the widening retail margins and the price divergence and try to better understand pricing strategies and impacts on the broader market.

Also local competition, some preliminary analysis we have done suggests that shows the local competition retail level can have a negative, can have an impact on prices and possibly can lower the gasoline prices. Before I turn it over to Director Milder, let me summarize three main takeaways from my presentation.

First, retail margins are increasing, especially for branded gasoline. Second, the retail market appears to be diverging, with a growing gap between lower and higher price stations. And third, retail pricing strategies and business models are becoming increasingly important drivers of how much consumers pay at a pump. With that, I'll end my presentation and turn it over to Director Milder. Thank you.

Could I ask you to repeat number three again? I didn't understand the last one.

The last one. Third, retail pricing strategies and business models are becoming increasingly important drivers of how much consumers pay at the pump.

Good afternoon, Chair Allen, Members of the Committee. Tai Milder with the Division of Petroleum Market Oversight. Appreciate this opportunity. You're gonna hear some consistency with what CDTFA and CEC has said so far. This is the biggest supply disruption in the history of the global oil market.

That's the Iran War conflict. Kind of focus our remarks here on what's happening in the retail market. And at the outset, I wanna really credit SB 1322. You'll see a couple of charts that we displayed today. How we're using new transparency to dig into the high retail prices and to look at some of the costs that go into them.

So we're gonna focus on some of the new visibility we have, as well as some areas where we could use more transparency. One thing I wanna highlight is it's very different. On a personal note, prosecuted a case for two companies, two multinational companies manipulating the California energy market in 2019, 2020 under then Attorney General Becerra.

That case really highlighted the lack of transparency in the California market. It is night and day different today. The tools that the state has and to bring to bear. So it's a pleasure to share some of that data with you. Two observations, this is a global supply shock and so it's affecting the whole country.

And second, as prices go up, it's revealing what we already know, which is we have a branded gasoline pricing problem, and we're gonna show some data that illustrates that. So this is a similar slide to what the CEC showed, which is retail gasoline and crude oil prices over time.

And just wanted to share with the committee what's happening right now is a is a global oil shock consistent with fundamentals. So if you look on the far right of this chart, you see the prices in California jumping up as the Iran conflict started, similar to the rest of the US also with crude oil.

What that means is the fundamentals all, you know, agree. That's not always been the case. So in California, we had two price spikes in red or in orange on your slides there. Those were just localized price spikes. There was no price spike in the rest of the US.

There was no increase in crude oil. And what we've seen at DPMO is that the data is consistent with the price gouging finding in SBX 1-2. That is there were no input cost increases that would explain the high prices that consumers were facing. You can contrast that with what happened in the Ukraine invasion, which is the far left of the chart.

And that shows that prices went up in California and for the rest of the US. So what we're doing now is digging into what's happening for the Iran conflict. So the next slide. One of the things we wanted to highlight for the committee is that when prices go up for crude oil, that's a global phenomenon.

So wanted to show the committee how California crude prices have gone up along with WTI, Alaska North Slope, Brent, whatever the measure you like, the conclusion is the same. Oil is a globally traded commodity, and so prices even for the oil that comes up out of the ground here in California have shot up, and that means gasoline prices have gone up as well. So we're going to talk about what's happening in the rest of the country.

The map in front of you is something we refer to as a heat map.

So you can see how much prices are going up around The United States. Similar to to CEC's finding, we see that California has gone up a dollar 37, which is actually right in line with US average. That's fluctuated some, as different events have affected different parts of the country in terms of the supply conditions. Overall, about a $1 to $2 increase across The US. What does that mean?

That's over $50,000,000,000 more that American consumers have paid for gasoline and diesel. That's an Iran war cost tracker from Brown University. If you're interested it's a great way to see how the conflict is affecting people's pocketbooks. One of the things that's been positive in terms of California's impact is that even though our prices are higher than average, our household cost burden from the increase is much lower. Why is that?

Our households consume less gasoline per capita than much of the country. So it's still been a significant hit about $200 for that gas the the cost tracker for a California household and that's a lot. But Alabama, Wyoming, they've seen increases of over $300. So we were certainly feeling the impact but some of our fuel diversification strategies are working in terms of lowering the overall exposure to changes in in fossil fuel prices.

So one of the things that we were very proactive about was looking to see what was happening in our retail market as the conflict began.

And we saw some high retail prices right at early on in the conflict. So there were some news reports many of you may have seen them about gas stations charging 7 or even $8 a gallon. So if you go to the next slide, the the the phenomenon of seeing high retail prices is not entirely new to this conflict. We saw some in the Ukraine invasion as well where prices really jumped up opportunistically.

So our concern at DPMO was maybe retailers are taking advantage of the conflict as a pretext to raise prices.

So we and you know, in contrast to past years, we're able to proactively engage with a lot of those stations. We reached out to them. We're continuing that process. That's an ongoing investigation. One of the things we wanted to report to this committee is all of those stations were major brands.

So the household brands that people are familiar with here in California, none of these high priced stations were unbranded or hypermart, generic gasoline. Again, all gasoline meets the same high standards in California including detergents. So it's puzzling in some ways that some brands do charge what they charge. So that's one of the things we wanted to bring more info to the committee about. Next slide.

VPMO has already pointed to the difference between branded and unbranded pricing. And right now on average, if you put all the brands together, the major brands and regional brands, it's about 31¢between branded and unbranded. That is night and day different from the rest of the country. The rest of the country we have that figure there is about a nickel. So there's something happening in California that's different than the rest of The United States.

And that's where we use additional data transparency to look into it. Next slide please. So here I want to really lift up SB 1322. So after the Torrance Refinery Fire, there was this jump in prices and that was the beginning of the appearance of the so called mystery gasoline surcharge. So you'll see a bar on that chart that shows when that fire occurred.

And one of the questions is why did gasoline become more expensive immediately following that fire? Now thanks to SB 1322, we have data that goes back a decade to before when the fire occurred. So what we've done is broke broken it out by sales channel. And I'm gonna do this a little slowly because some of this is technical Jargon, but I hope I hope it's accessible. If you look at the top line, there's a blue line called dealer tank wagon.

And that is the price that jumped up the most following the the torrents explosion. And that's a dramatic price increase. What is dealer tank wagon? It's a legacy of the standard oil company, which is now doing business at Chevron. And that is delivery to the gas station directly by the brand.

And they set the terms of the the price. So typically it's to a franchisee, a station and they get gas that way rather than a jobber or an independent distributor getting fuel from Iraq. So that dealer tank wagon is really something that occurs a lot in California, but doesn't really occur in other markets. So every time it's a dealer tank wagon, it's higher prices going to a branded station. This coincides with when the mystery gasoline surcharge first appeared.

So we can show that branded gasoline delivery prices did go up significantly. As CDCFA earlier presented, that doesn't explain everything that's happening in the retail market, but that's a significant clue that branded gasoline price increases are contributing to the mystery gas in surcharge, and that's something we're continuing to work on. Next. Another thing this is new analysis from our economics team at DPMO that we've been looking at. We hear sometimes that higher prices for branded are due to just higher operating costs.

So what we've done is compare branded stations to their competitors within a one mile radius. So imagine planting a little flag on each gas station and then comparing it to its most immediate competitors. And what we found is that the major brands, particularly Chevron, but also Shell and ExxonMobil have been continually increasing the amount more.

So so the the price above their local competition even as those you know other stations presumably have costs that go up and raise prices, Chevron, Shell, and ExxonMobil are raising their prices yet more. So this chart shows that price spread over time.

It did jump up shortly after the the torrents explosion. Those prices were very tightly, in a tight band before the explosion and now they've gotten much much wider. So in in this is in average, Chevron is selling for about 60¢more than its local competition for the lowest price within a one mile radius. Next slide please. We wanted to highlight for the committee, we've seen some coverage in the news about California gas going up above $6 a gallon.

Even though that's the case for many, many stations, on average that's only the major brands. Prices have been going up significantly. Again, the Iran conflict is driving up crude oil prices, but also industry margins as the CDC presentation showed. So we just wanted to delineate very clearly that as of the end of May, it was only Chevron, Shell, Exxon Mobil, 76 that were significantly above $6 a gallon. Valero now as well but they were they were below that a couple weeks ago.

The thing that's sort of bracing is if you look at that price spread between Chevron and a and a Hyper Mart, that's 70 or even 80¢. It sort of varies week to week. It almost makes it seem like gasoline is a luxury product but for Californians, gasoline is not a luxury product. It's a it's a it's a necessary commodity and in many, in many neighborhoods you don't actually have these hypermarts.

So the CEC CDTFA report shows that a large volume of gasoline is being sold by these hypermarts. That's on a volumetric basis. Only 3% of gas stations in California are hypermarts.

What does that mean? It means three out of a 100. And if you, in some cases, may not be a member of Costco or may not have the time to go to a Costco to wait in that line. And then by contrast, almost one in two gas lines is a major branded station. So it really depends on where you live to determine if you have access to competitively priced gas.

The good news is that there is competitively priced gas and it meets all the same standards. Next slide please. We wanted to drill down. We actually since our testimony in the assembly got a complaint from residents of Humboldt County and this also lines up with the triple A data. So a resident of Humboldt wrote to DPMO complaining about how much higher their prices are regularly.

We looked at the triple A opus map and Humboldt is the highest priced county in Northern California and by a good amount. One of the things in terms of a supply perspective that's important to note is it's the only part of Northern California along the the with ocean access along the coast. And so it's the only place where there is a terminal, but that terminal is a proprietary terminal operated by Chevron.

And then within Humboldt County, Chevron and Shell make up about 40% of all the retail stations. So as we showed before, these branded stations are much more expensive and in this case a lot of the supply is controlled by one company.

Now just comparing it to a neighboring county, Mendocino County where I'm from, the county is Medicino has far fewer branded stations, has about less price by about 40¢less per Gallon compared to Humboldt. And this is even though it does not have its own terminal, so it would actually have more distance to travel to come down from Humboldt or in in each case being being trucked quite a quite a long distance. So we're taking a a systemic approach to analyzing why the prices are higher.

We're just starting but wanted to raise this to to the committee depending on where your districts are, you may have seen that there are cities or areas where prices are a lot higher and a lot of it depends on what retailers are working there. Next slide please.

Wanted to also mention pricing algorithms by which CDTFA raised up. Just wanted to flag for for the committee that DPMO has sent a notice to market participants letting them know about AB 325 and the the new law in California. So the the the retail sort of community is aware of this issue and this is a groundbreaking law. I wanna really credit the legislature and the governor for enacting this law.

So we sent this notice and we're continuing to monitor trends in the data to see if algorithmic pricing is a is a concern.

And that's something that's going to be ongoing. Just a couple closing points here. The diesel market in California has had some real challenges since the Iran conflict start. As many of you already know, California is a global leader in, renewable diesel and biodiesel production, and most of the diesel we consume here is not actually from petroleum. But towards the beginning of the conflict, we had a big price spike in fossil diesel or petroleum diesel.

So we wanted to flag here once again that prices on our spot market are determined by something called the oil price information service or OPUS. And they're a private pricing entity that charges a subscription. And there just aren't many trades for petroleum diesel in California. So we saw prices go up to about 75 or even 80¢above what's called the NYMEX, the New York Mercantile Exchange, and then just stay there. That's the green bar.

And that that lack of liquidity and those extended high prices are a real concern and have contributed to high diesel prices in California. Thankfully, some of these prices have receded but we continue to stress the need for more transparency in spot market pricing and whenever you have a for profit service that means that the public can't see what those prices are and that and there may not be as much transparency as needs to be for market participants.

So we wanna continue to advocate for for public transparency and spot market pricing. One last slide here. One more note about SB 1322 which is again gives us way more visibility than we had before in terms of charges, prices up and down the supply chain. This is about costs. So one of the

issues, we're all sensitized now to both the issues of cost of operating a business in California, as well as profitability. I think we here at DPMO are are very interested in what is it that, refiners need in terms of a reasonable return on investment to continue operating and serving, the public and including our our value based part of the segment. The good news is 75% of our gasoline and maybe 80% comes from in state refiners.

One of the challenges though is that what's reported to the CEC on form thirteen twenty two for for in terms of costs is quite different than what's been reported to investors. So we did here in our annual report is did a comparison of the 1322 operating expense data with what was being reported to investors and there was a lot, a huge difference.

On average it was 72¢per gallon in the in the 1322 assessment of sorry, data for operating costs compared to about 24¢that was being reported to investors. Really wanna credit CEC staff, DPMO has been collaborating there, supporting CEC staff. But the the data quality has seemed to improve more recently, but that's one where we really need to to make sure that the data is sound to understand what is happening with with refiners.

So at DPMO, we'll continue to follow the data, and the early indicators now are that the brand conflict is leading to much higher industry profits, but it will take time to really see the full impact. And what we don't wanna see is, refiners, marketers, or retailers using the conflict to pad the profits at the expense of consumers.

Thanks so much.

Thank you, Tai. Yes, sir.

So I think we have a second set of presentations now moving away from the Iran Conflict and the observations from the data that we have. Again, I want to thank colleagues from CDTFA, DPMO for the different analysis of the data that we have and be able to tell a compelling story overall on on what's going on with the market.

I want to just start by saying as we go into the other parts of SPX one two and ABX two one, which are usage of certain permissive tools that the legislature has given us and the opportunity to iterate on long term transition pathways for California. So what I wanted to kind of share before I go into this specific slide is just to reiterate what Director Meilder must mentioned. The new transparency has significantly advanced our understanding and regulations are an important part to get this right.

So I think what we have seen over the last two years between the analysis that we all have been collectively doing, you know, because of the tools that have been given by the legislature is, you know, getting sharper and sharper in diagnosing the problems, that exist across the, ecosystem. Data transparency has been transformative. Legislature but gave us some statutory guard guardrails to use during implementing the regulatory authorities that you've granted in the special sessions.

Analysis of the impacts to supply and care about impacts to business decisions was an important part of the statutory language and your guidance to the CEC. We were also asked to look at the health and safety protection for employees, local communities, and the public.

And overall, your guidance has been to ensure that the, benefits outweigh the costs of implementing the tools and ensuring that the business decisions are consistent with the, benefits to Californians. Specifically for GGRM, the statutory language notes that finding that the likely benefits to consumers outweigh the potential cost to consumers. For resupply regulations, the statute directs us that it shall protect the health and safety of the employees, local communities, and public.

And for the minimum inventory, which was the third tool, regulations shall protect the health and safety of employees, local communities, and the public, findings that likely benefits to consumers for avoiding price volatility outweigh the potential cost to consumers. That's you've reiterated that to us over and over.

Recent events and resources redirected to coordination and to a holistic approach. P66 announcement to close its Wilmington Refinery and Belarus announcement last April to prematurely idle their Benicia Refinery further emphasized the need to thoroughly understand potential impacts to market. Furthermore, the governor directed collaborative work with the refineries in the wake of the announcement from Balero to ensure that they see value in serving the California market. And it was another important directive and guidance to the CEC as we move forward.

Limited resources, to work on special sessions tools authorized, you know, the regulations meant we had to divert those tools to more of coordination to ensure that some of the, assertions that were made by the industry in the wake of the special sessions are fully understood, so we can take a holistic view and the mid transition framework in implementing our tools.

And it's also important for us to really, note that the CEC's primary role is coordinating across a variety of agencies. The CEC doesn't have the statutory authority to implement safety, implement aid regulations, or implement, you know, price security. Our job is to understand how to coordinate all those different expertise that are within different agencies and coordinate a transition that ultimately benefits the consumers of California. For example, DPMO, as they presented today, is an important voice in flagging the potential for market abuse.

And that's an important part of, CEC to take those insights as we develop our regulations, to the point that, CDTFA mentioned.

It's an important voice for us to understand how pricing is being done at the retail stations. Agencies, upstream, like CalGEM on production, fire marshal's office, provide very specific inputs on different areas of expertise. And finally, the DIR, our our department of industrial relations, are extremely important in providing voice on worker safety and what it means to maintaining reliable impact.

And our job, CEC's job has really evolved over the last two years to ensure coordination and consultation with a variety of agencies and make sure we bring them all into a single room and desilo the conversations to ensure a long term transition. So, to that end, petroleum task force has convened over 10 meetings.

Roundtable with stakeholders have been about 11. This is the roundtables that we mentioned about, including industry, environmental justice, and virus in the same room and and and talking through. We have been meeting once a month on an average with the local agencies and eight districts particularly to get their input on how to make sure our regulations can move forward and the convening of ICFAC.

These are important parts of the conversation, and we needed to make sure that we have a full context before we implement regulatory tools. So with that, I wanted to kind of point to one of the important parts of the statutory requirements is to start thinking about how do we mitigate the prices, price volatility, but start thinking about the long term transition in California.

So our 2024 transportation fuels assessment was our first attempt to start looking at it. And, you know, I think we've got a lot of, you know, support from the legislature on making sure we laid each of that strategy with both pros and cons. And that is extremely helpful as we move towards the transition Because from the vantage point of CEC, this is about trade offs and making sure we reduce the impacts and maximize the benefits to the consumers.

Consumer protection means prices, consumer protection means health, and consumer protection means jobs, all of them together. And the CEC's mandate has been, how do you bring them together to ensure a transition?

So in our first attempt in 2024, we have laid out some strategies which we continue to sharpen with every iteration in every year. And I wanted to call out, colleagues from California resources board for incredible collaboration on a number of these elements and the entire, group that participates in the, task force.

So first, you know, I think the important takeaway from 2024 was continuing to double down on our clean energy trajectory in terms of reducing demand and moving the miles vehicle miles traveled more to cleaner vehicle miles traveled. That was an important part of the first element. Our category of solutions, We kind of uplifted the importance as we move forward here.

It's industry at large and stakeholders at large continue to agree that we are going to lose the refineries from California as the demand declines. And as we move from point A on where we are, and as the refineries contract in California, and our dependency on imports continue to increase, it's important that the imports become competitive. You get those imports in a competitive manner to help with the price stability in California. And that includes some of the access to the infrastructure.

So that's an important part of what we talked about.

Similar to the, electricity system planning, you have solar and wind. You need to match them with storage to ensure that the intermittent resources are well matched with storage, and that has been an important part of our work on how do you balance, these intermittent, resources that are gonna come into California on on vessels far from Asia, sometimes Gulf Coast, multiple days, and and how do you make sure that doesn't impact volatility, and that's really around storage strategies.

We also talked about there is a pathway here for us all to consider if we want to retain, refineries and the the monopolistic or, you know, oligopolistic, you know, situation materials in California. There is a pathway to consider a cost of service model, and that's something that we raised, as a potential pathway for California to balance the supply, long term. So those are some of the core elements including, state owned refineries, which is what some of these, countries have decided to do.

Then going into

Can you just give us a I heard a colleague mentioned what's the cost of service model if you wanna give us some

This is PUC rate regulation essentially guaranteeing an ROI for the service. Then kind of moving into, you know, what happened in February, the legislature came back to us and said, okay, we gave you tools and you've given us some initial ideas, but we have two refineries that we just had closure notices on. Give us a holistic transition plan, and thanks to many of you on the dais here who worked on making sure we had further clarity on how to move this forward.

And one of the core pieces that came out of that conversation was three buckets of conversation that we set up. One, before we understand the impact of losing more refineries, there is some level of stabilization that we have to do reactively.

But the important part here is we cannot be in that reactive mode by having every asset that decides to leave California, something that the California state has to solve. Some of these decisions are privately made, but it's important for us to think about immediate impacts of a crisis. The second part of that was to think about to the extent that we know that the refineries have to be here. Some of them have to be here as do we think about the long term transition.

How do you stabilize that investment opportunity in California?

That was the second bucket, that we've uplifted in the last year conversation. And finally, the proactive transition governance. And it's really important for the CEC to continue to make sure that we uplift. This came not just from CEC. This came from very vulnerable and honest conversations between many stakeholders who generally don't tend to sit in the same room.

This is our faithful representation of all the needs that they've laid out in front of us. Not all of them agree on all pieces of this, but it's important for us to say these are not or, but these are and. And it's really important for us to think about long term proactive governance because some of the work of transition issues, long term climate goals have to be done as we think about having a managed transition away from the the fossil fuels.

So that kind of ultimately that letter that we wrote to the governor from our office, you know, made its way into the two thirty seven assessment, which we published earlier this year. It's really double downs on the idea of making sure all those three elements are done carefully.

We do uplift the importance of not having the active crisis asset by asset behavior and really doubling down on long term transition plan. And here, I would like to offer, to the, to the members here, there are a multitude of modalities that the state of California can go. On one side, we can work on every regulatory pathway to keep every refinery in California even it means to export fuel from California. That's the modality that the state could choose.

The other modality is we rapidly adapt to contraction of refineries with imports.

I think it's somewhere in the middle. It's important for us to think about the risks of losing another refinery in the immediate. As we understand the ability to import enough fuels, you know, while we are trying to continue to solve for workers and communities, it's important for us to retain the refineries that we Harabedian and have the plan before, we continue to move forward. So, the recommendations here, again, just a quick, you know, we can come back in questions.

You know, we continue to want to manage the transition deliberately, really prioritize buckets two and three, which is stabilizing the investment environment in California and long term transition.

Thinking about within the long term transition, there's a bunch of issues that came out in terms of worker funding, understanding the liability to the communities as these resources exit, and then thinking about what the state needs in terms of toolbox to support this transition.

will leave there. Now I wanted to rush through because of the number of slides. And with that, I'll pass it to my colleague, Matt from CARB.

So I

Thank you, Vice Chair Gunda, and good afternoon, Chair Allen and members of the committee. I wanna recognize and congratulate to my members here on the panel, my colleagues on the panel for all the great work that they've done on analyzing the fuels market. There's nothing quite like spending the day after a, you know, a long election day, you know, diving deep into the complexities of transportation fuels market. It's it's been a a very good educational session. So as I mentioned, I'm Matt Botil.

I'm the division chief for the California Resources Air Resources Board, and in that capacity, oversee a number of climate and fuels regulations. I'm gonna speak really briefly about this overall fuels transition and how it connects to our environmental and health goals. No slides for me, which I'm sure the vice chair will appreciate it. As many of you know, the state continues to suffer from poor air quality with five of the 10 cities, with the worst air pollution nationwide here in California.

As a result, people in these areas suffer unusually high rates of asthma and cardiopulmonary disease, and much of this pollution comes from combustion engines used in the transportation sector.

For decades, Californians have been paying the price for combustion emissions with their health. And for decades, CARB and the air districts have worked with US EPA to reduce air pollution and meet our health based air quality standards. And while we have a ways to go, that work has paid off. Ozone forming emissions have dropped dramatically since the seventies due to California's vehicle and fuels rules. Toxic emissions and exposure have also dropped by controlling these sources of emissions.

In 2006, when this legislature signed AB 32, approved AB 32 and the governor signed it into law, California's air pollution reduction efforts expanded to also include reducing climate pollutants. Given that the transportation sector is the single largest largest source of both climate and air pollution in California, we redoubled our efforts to reduce emissions. For the past two decades, this has meant working collaboratively across all facets of California's public and private sector to transition to cleaner fuels and cleaner vehicles.

So you've heard some of this today, but some quick facts. In 2006, when AB 32 became law, the state used almost exclusively fossil fuels.

Since that time, California has increased alternative fuel volumes from 5% of the fuel pool to now over 25%. We've also seen of the fuel pool to now over 25%. We've also seen over two point five million zero emission vehicles sold in California, and the state is seeing consumers continue to choose clean vehicles in support of our environmental goals. And this is not just about climate and air quality.

Transitioning to alternative fuels and zero emission vehicles also support the state's efforts to provide reliable, adequate, equitable, and affordable transportation.

Simply put, more fuel diversification with alternative fuels helps to reduce overall fuel supply market concentration, and more efficient clean vehicles reduces the amount of money consumers spend to travel the same distance. Given these combined policy, consumer, and other market forces, we're now in the midst of a transition in our transportation system.

Over the past few years, this legislature and our state agencies have recognized this and identified the need for both near and long term planning and actions, which brings me to the work of the Transportation Fuels Transition Plan or TFTP, which we released earlier last month. The draft TFTP complements CEC's SB 237 work, which you just heard from the vice chair, and brings forward information on the changing fuel demand and supply conditions across the gasoline, diesel, and jet fuel markets here in California.

It also provides insight into how the transportation fuel system may adapt in the future based on projected future fuel demand, the role that imports and exports, of finished fuels play in meeting that demand, and the role of regional and local economies and communities.

The draft TFTP includes potential mid and long term transition strategies for fuel supply and demand, as well as transition strategies for workers and communities. Our goal with the draft TFTP is to provide the legislature, state and local agencies, and the broader public with insights into the evolving transportation fuel system, as well as a menu of policy and program options that if pursued have the potential to support a more affordable, reliable, equitable, and adequate transportation fuel system.

Many of these same strategies are talked about in the two thirty seven analysis and are things that we are continuing to work on as state agencies. And with that, I wanna thank you all for being here today. Happy to answer any questions you have.

It's been a marathon session, so looking forward to the questions.

Thank you. Thank you everybody. Okay. Well, we've got lots of lots of lots on the table. Let's go to start with, Lucinda Caballero.

First, let me say thank you very much for your your testimony here today as well as the reports. I like you, have a hard time concentrating on the details the day after the election but here we are. So let me just say that that fascinating information. I probably would have a different question on each each one of the presentations, but let me start with the last one because it's what I heard last.

And you talked about the TFTP and I I'm I will read it, in detail.

It's briefly mentioned in our document. And what I want to make sure that we include in that document and it may be there so I apologize that I haven't read it ahead of time is the workforce. And I say that because I think we've ignored to a large part alternative fuels that are that move us in the direction of using renewable renewable resources and, that that could give us, what we're looking for in terms of equitable, adequate, reliable, affordable, affordable fuel.

We we have subsidized solar and wind energy, but but we haven't really subsidized, alternative fuels. And, other countries are gonna be looking at bio gases in particular, but also hydrogen to move the the maritime in particular.

And since we we have pretty active ports, the ability to be able to refuel here in this state is gonna be pretty important. So so I'd like to keep a focus on on that, as we proceed in the future. But also hydrogen because it's being well, carb has basically said you gotta you gotta use we should be using 1,700 times more hydrogen in order to meet our goals. And and we're not we're not really moving on that very, very aggressively.

And I wonder if you could talk a little bit about, about how we how we make this transition because then this gets back to the issue I think that was raised earlier about, making a transition that doesn't leave people high and dry.

That doesn't end up costing so much to continue using a fossil fuel that that people feel like desperate about it. So first of all, it's the workforce and I'm very concerned about that. In particular because much of the, fossil fuel extraction happens in the Central Valley, which is what I represent. But also because those are the kinds of jobs that, that are second chances really can take advantage of and and be very productive in.

And we wanna make sure we're we're creating good jobs that provide good livable wages.

Yeah. I I really appreciate those comments and senators. So a couple of of pieces to to to think and grow on this. One is I appreciate your recognition of as we move towards alternative fuels and as we transition our fuel system, there will be opportunities for alternative fuel production, for hydrogen, for investments in reducing the carbon intensity of our existing crude and refined gasoline supply. And we're we're seeing some of this now.

We've seen it over the last few years with the conversion of some of the state's refiners into alternative fuel production. Just a few weeks ago, I was, you know, visiting representatives of CRC down in in in your area who have have invested in carbon capture and sequestration, and and they've they've invested and built a project down there. And so you're seeing some of these new opportunities, come into California as a result of this transition that's happening.

But there is also a recognition in the transportation fuels transition plan and some of the work we've done across the state agencies, that the existing fossil refineries are major employment sources for California and that there are workers there that, you know, are part of this transition.

And so there are a number of strategies that have been identified across our various different planning documents to help support a transition for, the local workforce, and that is a a a component and an important component of of our our fuels transition plan.

And maybe I'll hand it to to vice chair if he wants to to add anything.

Thank you, Senator. I think I, you know, would would kind of double down what, you know, Matt said. And I think I just wanted to add that it has been an important part of the conversation as we write both the transition plan, but also the transportation assessment on thinking about how best to support labor as an important group.

As you noted, I think, you know, you meant that you said the second chance programs, and I was in Kern County, and I had a chance to visit with a number of people there. I think, you know, when we think about current, it's a good example where you have, you know, the largest amount of clean energy resources currently being, you know, on the electric grid coming from Kern County in the state of California.

Because of the February, we will have some opportunity, on the workforce as well as stabilizing, some of the refineries in California on the upstream. And to, Matt's point, I think it's really important for us to think about the how do we have the transition in a way that there's a durable, funding mechanism for the workforce to transition into other jobs. And I think we place, your importance right in the middle of all the work we do and I appreciate you raising that. Thank you.

Yeah. If I could on on that on the workforce issue is, one of the bills I was interested in running a a number of years ago was workforce training. For the transition and and I had a really good conversation with, with the trades where where they were very clear with me. We don't need money. We just need the projects.

And we'll do the training. And so that I guess that's where I go is that, unless we can, look at opportunities to have projects co located in areas where, there are already training programs or where you have the industrial infrastructure. Because I've had, conversations with with some of the environmental justice community members where they say we don't want any heavy industry in California anymore. And to me, that is it's it is a laudable goal. It's not a practical goal.

Because we have need for for energy production and we're gonna have a need for, individuals that are trained in, heavy industrial work. And we have a need to get rid of waste byproducts, whether it's agricultural waste or it's trash or it's the the waste from the from the dead and dying trees. We need to get rid of that and there are good applications right now that will take that and transition it into a fuel. And the dairies, for example, real good example.

But but we're gonna need to expedite and I think the more we can, you know, focus our attention on how do we how do we do that.

What would it look like? How quickly do we need to move in our planning documents makes it a lot easier for the legislature than to take that and than to take that and run with it. So thank you for your both of your comments. I appreciate.

Thank you, Senator. Senator Richardson.

Thank you, Mr. Chairman. I have quite a few questions so

I'm gonna ask them as quickly as

possible and I'm gonna and I'm gonna ask if you could respond as quickly as possible. First, Matthew, could you submit your comments to the record for the committee? So we we have a record of that. And I'm gonna I'll throw out my questions to everyone unless it falls specific to someone. The original climate goals that we were hoping to achieve through the reduction of producing crude and you know, refined fuel.

What were those goals? And based upon those goals, if we achieve a decline of one to one and a half percent, how long is it gonna take us to get to those goals or do you foreseeably actually see us meeting those goals? That would be my first question.

So, happy to to take that one. So our, climate goals are driven by the statutes that the legislature has enacted over the years, on our greenhouse gas reductions. So they're, greenhouse gas reduction goal. We have a 2030 goal, and we have a 2045 goal right now.

Our 2045 goal is kind of our guiding North Star, and it is an 85% reduction in greenhouse gas emissions in California by 2045, as well as carbon neutrality by 2045. What CARB has done in working with other state agencies, working with this body, is identify the mix of strategies that would help to, get us towards those long term, greenhouse gas reduction goals. And and maybe I'll pause and and just take a note too just to claim a little bit of a victory lap.

We did have a 2020 greenhouse gas emission reduction goal, which we hit about six years early. So, historically, we've been successful in meeting our greenhouse gas reduction goals.

We do have much more ambitious goals going forward into 2045. We also have air quality goals that the state needs to achieve, and what we have recognized through our, you know, efforts with this body, through our planning exercises, is that partly, truly, the strategies to achieve those long term climate goals and the air quality goals, at least in the transportation sector, point us towards, reducing combustion emissions, moving away from fossil fuels. That's the the Okay. Yeah.

What does that look like though. If you were to say we're gonna have 85% reduction, emissions reduction. What does that look like? Does that mean we have 25% of the vehicles currently now? We have, you know, 25% of the trucks that we currently have.

What does that translate to real world? What do we expect to see?

Yeah. I don't have the specific metrics in front of me, but we did articulate in our 2022 scoping plans. This was most recently done about three and a half years ago. The milestones that would get us towards that 85% reduction in GHG emissions. The Senator Caballero mentioned one of those, which was increasing deployment of, low carbon hydrogen, for instance, to displace fossil fuels because low carbon hydrogen doesn't have the same greenhouse gas emissions profile as as a fossil fuel.

And so we have many of these metrics identified in our scoping plan. And largely, what that means is, decarbonizing the transportation fuel pool through zero emission vehicles alternative fuels, reducing industrial emissions through fuel switching and and installation of technologies like carbon capture, continuing deployment of renewable electricity and renewables in the electricity space to decarbonize the electricity sector. Yeah.

Out of respect to my colleagues, because I do have quite a few questions. I need though for you to really answer the question. My question was, if we're to achieve 85% reduction by 2045, what does that look like. Now you told me that means we would implement zero emissions vehicles. We're gonna do, you know, implement you know, reducing the grid.

We're gonna do this and that. But have you told this committee and Californians, what is that going to look like. I'm asking you a very direct question. I'm saying if you're going to complete zero emissions, are you saying that no Californians would be driving gas vehicles. 15% of the people would only be driving gas vehicles.

I think we have a responsibility to paint a picture to the Californians that if we're going to achieve these goals and if we're going to implement these strategies, this is what California is gonna look like. And I think this committee, this body, the legislature and the American public should have an opportunity to say, is that really what we signed up for.

Because in my community right now, I would venture to say if you were to do a study and say, how many people actually drive electrical vehicles or hybrid vehicles or different types of vehicles or how many people in my district have solar panels and if you all these strategies that you were talking about, a lot of people in my district are not utilizing that.

So that's why I'm getting to the question of in order for us to achieve this, what is that picture going to ultimately look like. And then I think we have to say, okay, well how are we gonna get there.

So if you don't have the answer to that question today, and I respect that that you may not. I would just ask that you'd return back to the committee that information. But I I really think and I'm new on the committee. I've only been This isn't my first rodeo but I've only been in the Senate for a year and a half.

But, I think part of my role of where I can be helpful on this committee is to really ask those not I'm not saying I'm anti of implementing the goals, but I think we have to be honest in how are we going to do that.

And what does that look like. And are people prepared to be that. And I don't think we've honestly answered that question, which leads me now to my next question. Do you have the answer to that question or would you like to get back to us.

Well, I would like to just offer a clarification and you had asked about, you know, is everybody driving an electric vehicle for instance and broadly broadly no. What we've identified in our planning towards carbon neutrality is increasing use of things like zero emission vehicles and more efficient fuels and clean fuels.

But we've recognized that, as consumers make decisions on the types of vehicles that they need, that there will be a continued need for liquid fuels, whether it's finished gasoline or diesel in the future as some consumers choose to utilize those technologies. And so we've worked across our energy agencies and others to identify how do we also reduce the emissions profile of those fuels for instance. So Okay. I just just to clarify that.

Again, the question that I'm asking is, I'm asking you a tangible question and I think you have a responsibility to give us a tangible answer. What I'm asking you is if you're saying, okay, some people are still gonna drive gas vehicles. Yeah. That's what I believe is gonna happen. How many?

And so, if we end up saying 50% of the people currently now who drive vehicles, let's say, are still gonna drive gasoline vehicles, then that leads me to the next question. If we're still going to need 50%, how many refineries are we going to need to fulfill that. Because then what I don't want to be a part of is implementing regulations, driving legislation to create something that I don't even have a picture of what it means.

So then, here you have legislators who are sitting here and going oh my God, okay. Well, we need to close refineries.

Well who is going to finally tell us, you know what. Actually you can't close them all. In fact, you're going to need some of them. And what I'm asking is, how many are we gonna need. Because at some point, we need to have an honest conversation with legislators, with Californians, with the industry of okay, if we're gonna achieve our goals, what does that look like.

What is the end game? How much are we still gonna need? How much are we gonna use? So by the way, we protect it. Because I'm in the boat of I think we're tottering very dangerously.

Having now had two closures. That what's to say that the industry just goes, okay, you want to import everything, import everything. And I think then we have other problems. So what I'd like for you to do is to follow-up with the committee. Maybe it's a subsequent, you know, hearing.

I don't know what it is. I'd leave that to the direction of the chair. But I really hope that at some point, we could have an honest broad discussion about okay, we're going to these goals but what is it gonna look like? And what is it going to cost us? And what does that mean?

What else are we gonna need? So we're not talking in these broad, oh, well it's declining. Okay. It's declining one to one and a half percent. So if it declines one, one and a half percent each year, where does that put us?

We we need to know more specifics. We have roles as legislators. I realize you work, from an agency perspective, but that doesn't resolve us from our responsibility to make sure the right things are happening because we actually answer to the people. You don't. We do.

You answer because you're appointed and you're hired. But that's not how our role is. So if you would kindly provide us with that information so we can have broader discussions of how do we plan legislation going forward that we're not just, you know, planning something and in the end we did the wrong thing. Which leads me to the next question.

I'm concerned that when I hear all this talk about importing, I really believe you have a responsibility to us, to Californians to say what is that impact going to be of importing.

I don't think it's fair to say, oh, we're just gonna keep importing. Okay. Well, sir, let me tell you. How are you gonna import is coming through my district. The Port Of Los Angeles and the Port Of Long Beach.

So you have yet anybody here to have told anyone in my district, how many more trucks does that mean? How many more storage tanks does that mean? Where are those tanks gonna be? What is the security vulnerability to that? Do we, in fact, by importing this fuel is what we're getting better than what we already have here now?

And if it's not, I don't understand how we're really meeting our goals. So I just Mr. Chairman, I appreciate this information. In fact, this is probably one of the best overview kind of helping to understand kind of the strategy that we've gone down. But I really think we're missing the key points of so what happens when we do it?

What are the impacts that we when we do it? And I really think we're doing a dereliction of our duty to be encouraging further imports when you're not telling me, okay. And you did say impact to your credit, impacts to local communities, to the workers and so on. But again, what does that mean? Does that mean that our ports now are going to grow in size by 30%?

Does that mean we're now gonna have how many more vessels coming across? What does that mean to the impact? Because right now, not all of those vessels are connected to a grid system. How long is it gonna take us to create a grid system? I mean, why aren't we having those discussions?

I think need to be had of how we're implementing the strategy. How do we do it? And what are the impacts? So at some point, I think we have a responsibility to say, is that really what we said we wanted to do? And so I have probably 10 more questions.

I will put my questions in writing and submit them to the panelists. And I would ask, with all due respect that you would respond and through the chair, that all the committee members would have it. But I just think, I let me end with this point. I grew up in Los Angeles. When I went to school, you could not see downtown from where I lived.

You couldn't see it. Smog, you know, asthma, everything going on. And to the credit of this body, to a lot of hard working stakeholders, to agencies, people have come up with better fuels, come up with amazing things. That now most mornings, when I drive up the 110 Freeway, I can see downtown. That from outside of my backyard, I can actually see Catalina Island.

So I do not want to be remissed in saying that where we're going is helping and is getting better. But my question, the question that I just want us all to make sure that we can answer is as we go forward and as we continue this process, I think we have to answer all the questions. Not just the questions of oh, yeah, you know, we're reducing. Oh, you know, we're gonna import more. Oh, we're doing this and that.

But we're not saying all that other stuff. Because all that other stuff may not necessarily answer are we on the right track or are there adjustments maybe that could be made. Maybe 85. I don't know who came up with 85%. Did anyone say when we came up with 85% what that would look like?

And at this stage of the game, I think someone needs to say that maybe we say it's not 85%. Maybe it's 80. Maybe it's not 85%. Maybe it's 95. Maybe we can go all the way.

Okay. I'm there. But we just have to make sure we're answering the questions and we're not jeopardizing the goose that lays the golden egg. And now all of a sudden, we're gonna have some serious problems. And I'm just not convinced from what I'm hearing in the presentations that we are answering those questions.

And certainly, this hearing wasn't intended to answer all questions. I get that. But I just think at some point we have to when we have these kinds of hearings because people are listening and thinking oh, okay. We're doing okay. We're importing more.

We're reducing A's. Everything's okay and I'm not sure everything's okay.

Let me get the vice chair the opportunity to answer and and as you do so, it'd be I'd be interested in your thoughts on some of the pipeline opportunities that might be coming down the pike as well beyond just shipping oil in?

Thank you, chair and and Senator Richardson. Thank you so much for that question. And you know, I would love love to welcome Matt to kind of adhere to, but I think the spirit of the question that you just laid out is really the importance of this moment.

I think the work we have done historically in bending the curve of the demand, in addressing the air quality issues as you as you mentioned, which was really important for this legislature and people of California are precisely putting us in this moment of mid transition. Right?

Something that we laid out. And that mid transition requires us to both double down on the long term transition. But I think to your point, really now begin to articulate step by step, not just the programmatic design, but step by step the impacts.

And I think to what you've just raised, CEC and CARB together in our transition plan as well as the fuel assessment, and we are going to do this again in in fall, started to looking at not just a single scenario, but multiple scenario of demand destruction. And to your point, the demand might not get destroyed under a very slow transition.

And in a long transition, and I think we have precise numbers we're happy to share with you. And for each of those different transitions, we have identified how many refineries we would need in California. I think now the path forward from here is now that we understand those scenarios and precisely to the point that you made, which is each scenario will come with trade offs.

And those trade offs have to be transparently put in front of the legislature to get further guidance on which modality are we okay with move forward. I think, those modalities then will dictate to the extent that we are getting, you know, in a pro, results from that, benefits from that.

It also will have some, you know, cons on that, which is, you know, whether it's community impacts and what do we do proactively to reduce the risk. And I think I'm 100% with you on the importance of having a step by step very clear articulation of what each modality will mean from multiple lenses and being able to present to you.

And I think we as a team, by fall, as we complete the the TFA, the Transportation Fuels Assessment, which the legislature asked us to do to 2.0, we should be able to lay that out a much, much better given what's happened in the last couple of years. The first one, we did not have the vantage point of this level of understanding of the industry nor the dynamic movement in the industry.

Now that we understand it, I think we'll be in a better place to provide you with more details later this year and get your guidance on which way we go here together at the state of California.

And with that, I'll pass to Matt if he wants to add anything.

Just just a real brief, I think the the vice chair did an excellent job of summarizing it. I just want to extend, like yes we do have quite a bit of additional detail and and data on how fuel demand could potentially decline in the various different scenarios going forward. Happy to work with you in your office to to answer those questions. So look forward to to being able to do that.

That's all I ask and, I hope you heard, mister Gunda, when you were, reappointed. I spoke very highly. Even though Please know, even though I ask questions, I do respect, talent. I do respect knowledge and I do respect people who are trying to help us, get there. So, I look forward to those discussions and, for my colleagues here who've heard of Laura 2.0, I'm really excited to read this report 2.0.

So, I'm committed to working with you. I'm just going to challenge you, to answer all the questions. And the chair briefly said about, you know, well let's talk about pipelines. You know, also again, I'm gonna remind you those pipelines come from somewhere. And what that means is that pipeline goes throughout my district.

The fuel that comes in, that pipeline's gotta go through somewhere. And when we talk about digging and hitting pipelines and safety and all of that disruption to streets and infrastructure and all of that has to be on the table as we discuss our strategies. And, so we know what we're doing and we make the right choices. That's all that I'm asking.

Senator, I just wanna reiterate. I just wanna, say thanks to you and the body at large. It has been incredibly helpful for us to get those pointed in a questions from you. I think, in a in the best form as state agencies, we are here to provide you with the best information that you could guide the decisions. So I really appreciate that.

And just as closing, again, just on the opportunity of the pipeline, the contemplation right now is for a pipeline to be built from the Gulf Coast all the way to Arizona and connect it to the existing pipeline, Kinder Morgan pipeline and reversing it back into California. Again, it provides opportunity, but to your point, the reversal just doesn't happen. The reversal comes with certain safety considerations that we need to actively think about and whether whether the constituents and the perspectives align with that.

So absolutely and we look forward to con continue to talk to you.

Thank you. Likewise. Thank you.

Thank you, Senator Richardson. We're gonna continue now with Senator Becker and then Senator Grove.

Okay. Thank you. First of all, a super informative presentation. Lots to dig into here in the in the coming days and weeks. One point, you know, you mentioned one point where we're reducing say 1% to 2% a year in terms of fuel demand.

Obviously, it's quite high, about 35,000,000 gallons a day still. So I guess, one, from your perspective, what is the what will we need to be reducing a year to hit our goals, number one. Number two, you know, when you think about the transition, think about things like trucks. Right? Which obviously are a large component of transportation fuel.

China is has about 20% to up to 50% some month of new heavy truck sales are electric. We're at less than 1%. There are 25% of new truck sales overall. Again, we're under 1%. Why is that?

Why are we, in your mind, so much lower. And and what can the legislature do, I mentioned, you know, specifically one thing is electricity prices. So we are working on that. Obviously, we did a lot of work last year.

And, you know, we built this year bills to tackle utility incentives, utility profits, as well as dealing with wildfire costs, which are a big percent of bills. So those are things we have to look at. But in your view, you know, I mean, take that heavy truck, for example. Why are we so much lower than, say, a country of China?

So, Senator, if you're okay, just we'll take it a little backwards and then we'll pass it to Matt as well. So today, the gasoline demand in California right now is about 800,000 barrels a day, roughly. And if we have to meet the carbon neutrality goals and and go through a rapid transition that the carbon neutrality contemplates, we need to drop that to a 100 by 2045. So it's a, you know, very rapid reduction.

And I think to your point, it directly implicates the importance of, you know, electrifying both light duty, but also heavy and medium and medium duty.

I want to just talk about a little bit of the electricity planning we're doing, and I'll pass it to Matt on specifically the programmatic opportunities. In terms of, you know, the one of the barriers for, electrification has been the, transmission infrastructure. So both PUC and CEC have been working on figuring out transmission corridors that allows for trucks to move north and south.

And that also, you know, means that we have to do a better job thinking about allocating the load to specific busbars and providing that proactively to the utilities so they can do the upgrades. So I'm going to just start from the requirement of the infrastructure.

I think that's important. Second, to your point, principally, the parity the cost parity of the vehicles is something we need to think through. And I think I would differ to Matt on this issue. And to your point, no matter, you know, the cost of the parity, operation costs are important and important for us to think about long term reduction of the overall prices. And I think I continue to thank you and and grateful to this committee and and your colleagues.

I'm continuing to work on demand flexibility as an important strategy, to reduce as the prices and reducing the, denominator. So with that, I'll pass to you.

Yeah. No. I appreciate the vice chair's remarks and the question, Senator. And kind of just a second, some of the information about fuel demand, continuing to decrease that fuel demand, roughly 70% to 80% by 2045 will help get us towards that carbon neutrality goal and 85% reduction goal. And, to do that, you know, increasing the the deployment of zero emission vehicles is a key strategy.

I think you you know and other members of this committee know that we've been CARB has been under unprecedented attack from the Federal Government on its vehicle authority. We're continuing to to to, work through that. But in the meantime, we've been looking for opportunities to, expand the deployment of zero emission vehicles through, incentive programs, something that, you know, this this body can also, potentially help with.

Most recently, we announced, the clean fuel reward program, which will provide additional incentives to medium and heavy duty, electric vehicles, which will help expand, the incentives and the attractiveness from for fleet owners to to purchase those battery electric vehicles and and those electrified trucks, which, you know, pointedly to your question about why aren't the deployment happening? Well, they're more expensive.

And so we're trying to work to bring that cost down to increase adoption through through these incentives and look forward to working with this body on additional options to to be able to to support that.

Okay. Yeah. You know, we'll follow-up on that have some other ideas. I'll probably just do one other question for for for now to focus on the the crude inputs looking at some of this data, it looks about 29% probably of total crude imports are from the Amazon region. Looking at the some of the data here And I think it's increasingly understood that the Amazon itself is at a tipping point.

This was came into focus last year with the first ever COP conference in the Amazon region and the governor's trip there. They just completed the first ever international conference on transitioning from fossil fuels in in Colombia and we did have a California representative there at that conference. So as you think through that, you know, that aspect of the of our imports, you know, do you think there are ways that we can look at this. And I appreciate, you know, you guys here. And I think the members of administration also meeting with representatives from the region. But thoughts on on that.

Senator, I wanted to first thank you for providing the introduction with the colleagues, with the tribes, and then and the, you know, native population from the Ecuadorian Amazon. You're correct that we do source from the Ecuadorian Amazon, and I think we put in our transition in the February assessment. That's an important part. We recognize the resolution you called for for kind of decoupling ourselves from that need. We haven't yet had a full dialogue on how best to do that.

We've had some custody conversations on understanding why, we source specifically from them. As you know, the importance of California to source crude that is similar in density and sourness, I think, has kind of moved us away from California into South America as another destination. So I think to your point, we will circle back with you with potential options as we continue to explore diversity of sourcing.

And thanks again to the legislature, that passage of the two thirty seven, the sum of the increase in the current production that we anticipate should reduce our reliance elsewhere. Also want to recognize that while increase in production here might reduce our dependency elsewhere might not actually impact the prices because the prices are still globally indexed and that's something that know, we should keep in mind.

Yeah. Good. Well, thanks for all your the data on the pricing as well. Really eye opening both in terms of the cost of the Iran War, the $50,000,000,000 price tag and as well, you know, the impact to the California consumers of this war and as well as the difference between branded and unbranded really eye opening important stuff. So a lot of other questions but we'll turn it over to my colleagues.

Thank you.

Thank you, Mr. Chair. I really appreciate it. I just have a couple questions. One for Mr. Milder. In your presentation, it seemed like you got to the point where you were talking about market manipulation. Have you found evidence of illegal market manipulation in price gouging by any California refiners?

Thank you, Senator. One thing I mentioned was market manipulation when I was at the California Attorney General's Office. We prosecuted a case. When it comes to what's happening currently in California, we flagged some concerning trades in 2023. That is something that our office is scrutinizing.

It's an active investigation, which I'm not gonna comment on further here. In terms of price gouging, the statute for price gouging in California is a criminal statute. So Yeah. If you raise price more than 10% without a corresponding increase in cost, that can be price gouging if the governor has declared an emergency. So we haven't had an emergency declaration to cover gasoline prices.

I can tell you that in 2022 and 2023, we have found those facts that the prices were raised dramatically above the input cost corresponding input cost. So had there been an emergency declaration that would have, you know, satisfied

But going back to it, you're would have but have you found a California company price gouging? Have you convicted any California company that price gouged?

Currently. Currently right now as we stand, has any company been convicted of price gouging in California?

Without a emergency declaration Senator, there isn't a criminal violation but the conduct of raising prices above cost we have found that and put that into the record.

But it seems to me but again, a central focus seems from the DPMO is the public messaging is price gouging but there hasn't been up to this point any company that has been convicted of price gouging. Is that correct?

So again, the Attorney General's Office is the office that would bring cases like that.

But has the Attorney General's Office had a conviction on that case?

They have not and I would add for for gasoline and I would add though that we at DPMO have been very careful about how we talk about this. We've talked about increased costs. We haven't accused anyone of criminal price gouging for that reason. But we also consumers wanna know why prices have gone up so much. I think even here today you've seen prices have up in California at about a $1.30.

The cost portion of that

Well, there's many different reasons why that can happen. Is that correct?

And part of that is the increase in crude oil cost. But also

But there are many there's many different variables to that. Is that correct?

Yes. Including the industry margins that have also gotten

And one of the other things I wanted to ask is, have you put forward any recommendations to reduce regulatory barriers to improve the business environment and climate for refineries?

So there, in terms of regulatory burdens, Senator, could you maybe elaborate more in terms of

I've talked to industry. I'm sure they're gonna come up here but you know, we we've as policy makers talk to a lot of the folks who do this business and the regulatory environment that they're in. Have you focused on any part of the any recommendations to, you know, kind of reduce the regulatory barriers to improve the business climate so we don't have a shutdown that just happened with Valero or Phillips 66?

We have engaged in discussions with a number of market participants, including market participants who would like to, either participate more in the California market or participate in different ways. Some of those discussions are confidential. Happy to to entertain those discussions. We do we do talk with industry quite a bit and would add to date as I understand it, the transparency measures are largely around reporting data.

Not you know, don't wanna gain say that's a regulation but reporting data is also something you have to do with Federal Government.

A lot of the data gets reported both to the state and to the Federal Government.

And then I have for Mister Gunda. Your report says California's become more dependable on import fuels. Does the state's view think that that's a greater reliance on imports? Is that a success for the California?

Senator, I wanna make sure I answer that question as clearly as I can. I think, you know, if we are gonna import, I think there are pros and cons. And I think we're seeing both of them right now. So let me articulate that. In 2025, because we had one of the refineries completely shut down, PBF Martine, because of the fire, we have seen a need for imports.

And that kind of has helped with the streamlining and the market signal that imports would be helpful when California are needed. So in that sense, I think imports, you know, as you have more opportunity for other players to bring in fuel during surge capacity, during need for unplanned planned maintenance, or just for price stability, I think it's helpful. On the con side, I think we're also seeing it right now.

You know, without the Jones Act waiver or without kind of, you know, the ability to continue to produce, you know, fuels outside of California, we're at risk. It's a resiliency risk.

So I think, you know, until we really articulate, you know, what is the path we wanna go and address the cons, I think we you will have some level of exposure.

Thank you. A follow-up question. You mentioned a pipeline that might go into Gulf Coast. How would that work when we have a California formulated, gasoline to get oil from or refined oil coming from Gulf Coast?

Yeah. I think the plan right now is for the new pipeline that is being contemplated to connect a few refineries that produce CARBOB. And so it's gonna specifically look for shippers to put CARBOB into the system. And I think the exact mechanics of how they're gonna do will evolve as the business plan comes together. But the idea is to put CARBOB in it.

What will be that timeline for the pipeline?

2029 is the current expected timeline.

And then, I don't wanna take up too much of the other members' time because I know we've been here a long time. If I could just end on my own time and say, I think that my good colleague from Wilmington, I believe, is her hometown. Is that right? Or is it Long Beach? San Pedro.

Thank you. Thank you. I think my colleague said it exactly clear here. What does this look like? I don't think a lot of at least people in my district have the same goals as some that's coming out of CARB and I understand CARB's implementing what some of the legislature's done.

But if you have these, big goals, you know, for example, no gas powered cars by x amount of dates. We wanna know what that looks like as elected leaders and we wanted to share with our constituents because I do believe when we do know what that looks like, I don't think it's gonna be as popular as everybody thinks it's gonna be. Especially when we talk about the economic impact on our jobs and hardworking California families.

When we talk about the price of fuel and the price of gasoline and what the cost, the offset cost is moving forward. So, you know, on one end it sounds great when you say it.

But then, I think my colleague said it best and I would like to see that as moving forward in the future committee. What does that look like? That's one of the best questions. What will that look like? And what would that mean to an average California family of four?

In that transition in those goals? And so I would end with that. I want to thank my colleague from Bakersfield for allowing me to go because I had to get going and I appreciate everybody's time here today. Thank you.

Your colleague from mega show.

Thank you. Mister chair and thank you for being here today. I have the utmost respect for the chair. You all three have street cred because he's sitting next to you. Just to let you know that.

I wanna follow-up and I wanna echo my colleague from Long Beach or Orange Counties comments regarding the statements that were made by our colleague from San Pedro. Cut and paste her comments, so I don't have to reiterate all that. We wanna know what it looks like. And, but I wanna ask some questions based on the comments that were made instead of making long statements. In 2016 years ago, when AB 32 was put into play, 15,800,000,000 gallons of gas were used every single day.

Twenty- in California consumers. In 2022, it's 13.2 to 13,300,000,000 gallons. In 2024, it's 13,400,000,000 gallons. And in 2026, it's back to 13.3 to 13,400,000,000 gallons every single day. You guys have all you have all made presentations before this committee and the legislative body as convened both on the assembly and the senate side.

You've all mentioned the transition. And now, it's a mid transition. And we're changing that phase. Again, with all deepest respect, what is a mid transition mean? And, what are we there?

Are we halfway there? Are we part way there? Because based on the numbers that I have before me, we are not reducing consumption, and we have spent anywhere almost up to a $100,000,000,000 implementing AB 32 at taxpayer expense or when I say taxpayer, the producer, the refiner, the people who are buying allowances, all of that stuff to stay in business in California. So what does that look like? What is a mid transition phase?

And are we there? Or where are we?

Yeah. Thank you, Senator. I'll take the question. So the way we have, defined the mid transition is based on some of the scholarly work that came out of, you know, professor Emily Grubert at Notre Dame. The specific definition is while we have a decline, the decline has begun in the legacy system but it still continues to be substantial.

So while that is happening, you're also having an emerging system that's beginning to come together, but it's not at scale yet. So it's not necessarily defined by a specific moment and it could last a number of years. It could last five. It could last ten depending on how the demand destruction happens and how the EV penetration continues to happen. So what we believe based on the definition is that as you pointed out, our usage of, you know, in a gasoline in California is significant.

We are either third or fourth globally, depending, you know, and on the data. We are only next to, The United States, China, and sometimes we exceed Brazil. Sometimes we are behind Brazil. So our gasoline consumption is almost, you know, a gallon per person per day in California. So that is happening.

But as you pointed out and some of the some of us pointed out today in the testimony, we begin to see about 1% to 2% erosion. And to your point, while it eroded quickly, it has slowed down in its erosion the last couple of years, and we want to continue to see what happens. And the EV market is right now, you know, one in three of new sales in California are EVs. So it fits the definition.

But I think the important part of why we call it the mid transition is you need continued investments in both legacy system and new system to continue to go around this path and we cannot neglect each of them.

I appreciate that. And again, the deepest respect to you, Mister vice chair. Going over the numbers that are here with the the decline, from 13,400,000,000 to 13.3 or 13.2, there's a range there at a $100,000,000,000 cost. That's a significant cost per gallon of gas for the California consumer.

Significant hundreds of thousands of dollars per gallon, basically to try to implement this. When, I don't wanna say, when do you throw away the towel. You can't do it. I realize that we're gonna do a a transition. But my question is that at what cost?

A $100,000,000,000 to implement AB 32. And my other question to that is at what cost to Californians, but also we do ocean board or ocean born, and we import a lot of fuels. Those foreign companies and those foreign countries and those companies that are producing either refined fuel or crude oil that we're bringing to our ports, they're not buying allowances. They're not competing with California producers or California refiners. It's cheaper to produce Japan or India produces a lot of fuel for us.

It's cheaper to produce it in India and transport it over here with one point, what, 6,000,000,000 or 1,000,000 not billion. Million metric tons of carbon emissions to bring that ship here, which affects air and air quality. But yet, they don't pay the price that we do to produce it. And how is that even beneficial to Californians?

Oh, there we go.

I really appreciate the questions and I think in in keeping with the theme, I'll actually tell you I'll have something Senator Richardson said which which is, you know, what we've seen over the past few decades in terms of air quality improvements which particularly have been prominent in the South Coast Airbase. And as we've seen, air pollution, non attainment days, we've seen instances of unhealthy days of decrease over time has been in large part due to our movement to cleaner vehicles, cleaner fuel.

We're pushing forward to help bring those health benefits to Californians. And all of the analysis that we've done around this transition, this movement to cleaner vehicles and fuels has shown that on net, we're gonna be the recipients of hundreds of billions of dollars of health benefits and societal benefits associated with the air quality improvements and the avoided cost of climate change that comes with our emissions now.

So happy to share that information with you, Senator, to kind of provide some information about the benefits of why.

I do. And I appreciate that.

Why

But you have 90% of Californians. 90% of 40,000,000 people in this state that still drive gasoline cars. I mean and we've been doing this since 2008 at a $100,000,000,000 cost, roughly. There's a estimate.

It's 80 to 100,000,000,000. But roughly, I said the high side issue is at 80,000,000,000. What 90% of Californians in the last ten years still drive gasoline powered cars, and this is all supposed to disappear in 2045. Are we gonna make it?

So, just to be clear, nowhere in my testimony or I think any anyone else here on the side said that all gasoline cars are going to disappear in 2045. I think we've acknowledged and recognized that we actually will have liquid fuel demand including gasoline demand well into the future as as vehicles.

So do we meet the 2045 deadline?

We have outlined in our long term planning a path to be able to hit the 2045 targets that are set by this legislature for emission reductions and for carbon neutrality with still accepting and acknowledging that there will be continued gasoline and diesel demand past 2045. There are

Is that really a reduction? I don't mean to interrupt you. I know the chairs we're on close on time, and I know you guys have been here for a long time. Is that really a reduction or is that just a pay like, buying allowances to operate? So you're not really reducing it.

You're just paying money to to pollute.

Yeah. Happy to elaborate a little bit. And I appreciate you recognizing the decline in overall fuel demand that we've seen over the past few decades. We've reduced our overall, total transportation fuel demand by about 20%. And then buried in that $13,000,000,000 number that you have, I'll give you an example of, is also the diesel fuel consumption.That we have here in California. And.

As total.

Yes. Correct.

Because that was gasoline and diesel total at at 13,000,000,000 gallons includes both of those values. As the vice chair mentioned in in his remarks, in the diesel fuel pool now, we have almost three quarters of the diesel fuel pool being met with not fossil fuels but, low carbon alternative fuels in the form of renewable diesel and biodiesel. Those fuels can be used in a same diesel truck that is using fossil fuels. They can use those biofuels.

Those biofuels have a lower air quality impact or pollution impact and a lower greenhouse gas impact.

And so that's an example of a strategy that will help us get towards those climate targets and the air quality targets that we have in California, without, you know, specifically near like requiring zero emission vehicles, for instance. So there are these types of strategies that will help get us

Thank you.

Into the office.

Given California's current market demand in gasoline with only six refineries left. And I'm gonna preface the fact an industry is probably gonna just come in court when I say this. But, it's actually just four companies. I mean, we're getting to a monopoly stage here. And they're gonna hold all the cards because this body has driven most of them out of the state.

And we need them. And, so it's four companies. We have six refineries, but four companies. Is that correct? Or is it three companies?

It's four companies. And so you have the smaller producers that have well, Valera was not small, but you have smaller producers and refiners that have not been able to sustain the allowance purchases, the cap and trade issues, the demands on regulatory compliance, you know, $125,000,000 for set up for fence line monitoring when they don't produce produce constituents that, you know, would require monitoring. I mean, all these things that come out of this building.

So I just wanna make it clear that I think we're going to a monopoly situation. I'm getting that dirty look over there.

But what other options exist for meeting the demand for gasoline besides importing? I mean, I know we're importing. But again, a 126,000,000 metric tons of carbon emissions to bring those ships to this shoreline so that we have a refined fuel or a crude oil price or a crude oil that we have to have in order to maintain these 90% of Californians that are still driving gasoline vehicles. They don't pay into the cap and trade program. They don't have to buy allowances.

They're not competing on the same wavelength that we are required as producers and refiners for California compliant oil.

Oh, that's Yeah.

I'm looking at you but it could be anybody. Sir. yeah.

Just just one one quick comment on this. I appreciate your concerns about the the kind of concentration of number of fuel producers. One of the outcomes of this transition work that we've all been under as state agencies is actually seeing, you know, alternative fuels come into California, which is helping diversify the fuel supply system. And as the vice chair mentioned, we are in this mid transition.

Those alternative fuel producers are starting to grow in numbers. We have roughly 200 or so alternative fuel producers that are providing things like electricity and biofuels into California. Hydrogen is Senator Caballero referenced. And so that is helping to provide a diversification on your your question related to the gasoline fuel pool. I'll just lift up some of the actions that the legislature took just last year.

One of those was, AB 30, which this which was sponsored by Assemblymember Alvarez, which allowed for E15 sales in California. Again, this is in keeping with that overall theme of broader fuel diversification because those ethanol suppliers are not the same as the fossil fuel suppliers are, you know, much more diversified. So maybe with that.

Yes, Senator. Really wanna address the question of market concentration and appreciate you raising it. So one of the things that's happening in this transition is a diversification. So instead of being entirely reliant on a small number of in state refineries, which is how California has been operating for the last decade. Where we've seen price spikes every couple years.

We're shifting to a model where there's a refining core that's most of the supply. But there's now supplemental supply coming in that is 20 or 25% on average. And what that means is less controlled by those few companies here and more competition. And so in the years 2024 and 2025 when we've had more import competition, we've had lower and more stable prices.

So part of this is around opening California up for business both making sure we have in state refiners but also competition that's coming from marine imports also potentially from a pipeline as you've heard in 2029.

So that would be three different sources of supply and that's what the Northeast Of The United States does where they don't have the same kind of price spikes. So that's a real truism and antitrust is if you have less barriers to entry and you have more competitors then you see more competitive prices. And in terms of the distance fuel travels, the vice chair laid out very clearly the total number of imports is actually pretty stable or even declining.

It's a shift from crude oil which may also be coming a long distance to refined products. And so that doesn't necessarily mean more congestion at the ports or longer distances traveled.

It's a shift in the types of products that are coming in.

But how can you say that? If you get more barrels, I mean what is it? How many gallons per barrel? And you're bringing in barrels versus gallons of gas, you're automatically, it's like three to one for ships and more ships coming into the port into California. And I want to go back to what you just said.

I really, I submit to you with all due respect, like all due respect, we're exporting our we're exporting our jobs, we're exporting our fuel supply. When I say exporting, we could produce it here but we're not. We're getting it from foreign countries. And, again, that are not California compliant that we're, we require our people to do California compliant production here. And we're exporting our carbon guilt.

I mean, we really are. If you look at the other countries and how they produce their fuel, whether it's crude or refined fuel, it is at a higher carbon intensity globally than California compliant oil here. It you just look at the numbers. There's just no way. No other country, unless you can tell me, requires allowances to be purchased to buy off the carbon that's produced, by an Air Resources Board or an equivalent, agency in another country.

So I'll let you can get back to me. You can make a comment in closing. A few weeks ago, you guys all testified or maybe not all of you, but I know some of you testified in the assembly. And you talked about the available gasoline that is available to us right now. You said six weeks supply is what we've got.

Has that changed? Where we at? And, are we facing any type of supply shortage, in the state as we speak?

Thank you, Senator. So, I will submit the slides. So one of the slides that we showed is, you know, we said last time when we, we were here that we can credibly look at six weeks of supply, you know, liquidity that is not going beyond the ten year average. So that doesn't, you know, it was a little misconstrued that we mentioned we said that we are going to run out of fuel. So just want to make sure we updated those numbers.

Again, over the next seven to eight weeks, we see good liquidity in California. And we don't expect even under, you know, kind of critical scenarios for our overall days of supply to fall below the ten year average. But, you know, and then the second part is if we continue to dip, it will be a signal for the market to import into California.

And, you know, what we have seen over the last three to four weeks three three to four months is some of the developing economies cannot pay that such high prices. So what's happening is the molecules are being diverted to countries including, like, California where there is willingness to pay and we'll continue to see those molecules come at a higher price.

Okay. And then just a compliment to carb and the new chair, just because I wanna make sure I make this is that I'm I've been here since 2010. And this is the first year I've ever seen the California Air Resources Board take into fact what they call leakage job loss, you know, when making decisions on allowances. And I do appreciate that.

But I guess my question for all of you is is that as we transition in your words or mid transition in your words and we import more fuel and more either molecules, refined fuel or oil, when we could produce it again here, providing California jobs, you know, like, look at the jobs that were lost with Valero.

Look at the jobs in the Crimson Pipeline situation that we're facing. Look at the pipeline jobs. Look at the jobs that were lost in the Central Valley. We were able to get. Thank you, Mr. Vice Chair, for the permits.

Permian that left and chased the Permian and equipment and bringing it in, it's a it's hard to get it restarted, again to produce California fuel here. And then, are we taking into account are any of your agencies, anybody taking into account the job loss, the gas of price, the price gases? Have you looked at the in cap, the issues on the impact on state employment or unemployment? How many people are unemployed?

I know we lost almost 70% of our employees through the last decade of not getting permits.

Now, we're working our way back forty and fifty at a time, but that's gonna take a long time. Are we looking at job loss impacts? I know CARB did on this last go around, but what about the rest of you?

Yeah. Thank you, Senator. And I wanna uplift both your question and Senator Richardson's question earlier, which really is asking the state agencies to look at this more holistically across different lenses, whether it's employment, whether it's revenue, and so on. So we do have a product by statute, the transportation fuels assessment, the second version that we need to submit to you by the end of the year.

And one of the things we are hoping to do is continue to sharpen that analysis from the first transportation fuels assessment, the February assessment, the joint transition plan, and to really provide you with the overall, here are several pathways for transition, including, you know, a potential edge case of having all the refineries continue to stay.

And each one of them, I think you will see pros and cons across a variety of metrics. And I think given, you know, the entire conversation today is really pointing to an industrial transition. This is a huge part of California's economy. Everything we do here will impact economy, environmental and equity considerations. And we wanna put those information in front of you and get you guidance, and that's what we're gonna try and do this year.

Thank you. And just to follow-up one time, I just wanna make sure that in the assembly, you said we had six weeks of fuel left, but we're not in that position anymore.

No. We said we are continuing to monitor six weeks ahead. And as of today, we look, you know, good between six to eight weeks. We're good. That doesn't mean that after six to eight weeks, under a bad scenario, we are running we're gonna run out of fuel.

What we meant to say was we are go you know, under a bad situation, we could dip into, you know, lows that we haven't seen before. And that might attract imports, but it'll come at a cost.

Okay. Thank you. And, my deepest apologies. I had three committees during this whole hearing. And so I apologize for bouncing in and out.

I wanna thank the chair for his leniency and I would have been like much more congenial and applaud each one of you for your successes. The things that the vice chair and I have worked on the California Air Resources Board because you really are taking into consideration job loss, leakage, and a plan moving forward. But I know the chair is like impatient. He's tapping his leg. And so please know that my heart is there and I appreciate you answering my questions.

Thank you, Mr. Chair. Come get your solar panels.

We'll go to Senator Stern.

Yeah. Thank you, Mister chair. Alright. Let's pick up on that thread on market concentration then for a second. So we talked a little bit about the concerns of four companies at the refining level.

But what I've heard so far is that the retail side is actually where we've seen the margins actually increase more so. Maybe I'll start with Mister Milder and then CDTFA if if you don't mind. The area of further analysis around retail outlet ownership concentration statewide in local markets. Do we have the authority right now? Do you all have the authority you need to gather that kind of data between CDTFA and DPMO?

On the local markets issue, I believe we do have the authority. It's more of a resources question. So looking city by city or even within zip codes, we're starting to try and tackle some of those questions looking at hot spots, but it's a question of prioritization. The Iran conflict has created a lot of different demands on both DPMO, CEC, I'm sure CDTFA as well. So I do think we could try and tackle some of those issues in the future.

I can't answer the authority part of it, but you know as we notice these trends and looking at data analytics, that's one area we'd like to explore further. So these are some of the trends we're noticing, analyzing large amounts of data, tens of millions, 100 millions of dollars of of pricing data. We noticed these trends and that's one area I would like to explore further in terms of market concentration and ownership.

Do you have the tools to do that analysis right now?

We have tools. Sometimes we don't have the data and information, but we have the the technical ability to do analysis. We have

But at this point, maybe not the sufficient data to do that analysis. Maybe the tools to do so, but not necessarily.

We are we are very talented data data analysis team and and well versed team that could do that analysis.

Okay. Perspective on that from the CEC, briefly.

Yeah. Senator, I think there is a little bit of a issue here on on the data, which is while the gathered data could be shared by us through interagency agreements, some of the subscriptions are not readily shareable. So for example, we get AAA information, OPUS information, and usually those information comes with a lot of caveats and what can be shared, what can be published.

And so we'll kinda need to work on it, but I think there is there's an issue around resources and how well to share the resources and data and how much latitude we can get from these subscriptions to be able to publish and use. So we'll come back to you with additional information on that as well.

Okay. That'll help. Yeah. Because I was I I I have to say I I reacted, you know, the it was sort of tucked away in there. I think it was in CDTFA's testimony about the software being found to be tacit collusion in the I believe it was the German context we were talking about. So can you describe that a little bit more about the algorithmic pricing?

Was I mentioned that it was a study that recently, maybe a couple years ago came from Germany and that's one area that, like I mentioned, we noticed that and, you know, hearing and and doing some more research, we noticed in other industries that are using algorithmic pricing, surveillance pricing, dynamic pricing. So that's the thing we thought that is in our area that we'd like to explore further into the future.

If if what those studies are finding the increased margins due to adoption of this pricing, there's something worth for us exploring further and trying to find more information.

I I would certainly welcome that. Do you mister Milder, do you know if the Aguiar-Curry legislation applies in the fuels in the retail fuel space from last year?

Yes, Senator. So we have notified market participants that I believe AB 325. Yes, so so using a common pricing algorithm if companies do that and it has the effect of of fixing prices, that is certainly something that that's actionable.

I really also wanna lift up, you know, your questions about retail pricing and Professor Borenstein's work on the mystery gasoline surcharge. I think Californians and policy makers really notice when we have these crazy price spikes that go through the roof. And then sometimes the tension fades as prices come back down, and we've been missing a little bit that the branded prices have been going up and up over time.

And that's what professor Borenstein has been pointing to a lot is that even after the price spikes are over, this unexplained gap remains. And I think there's a lot of analytical work, that we've done so far to identify Eagle Tank wagon pricing, branded pricing, but there's a lot more to do.

Yeah. May I just see the the margins between retail and wholesale be triple, for a Chevron versus a hypermarket or Costco essentially. I mean, about 3 ton 3x is is pretty wild. So I I do concur with the governor's pro tip on shopping for gasoline without, you know, as at least as a first step. Do you you currently at DPMO I mean, I know you've published that enforcement bulletin and consumer advisory recently.

But in terms of I think Senator Strickland was pressing on it. In terms of the the actual enforcement authority, your your your authority is only as good as what DOJ currently does with that information. Is that right? You don't sort of have your own independent enforcement authority because you're separate right now from DOJ. Am I getting that right?

That's correct. We have the ability to require companies to provide information through subpoena and we have the mandate to look beyond just violations of a law to market structure problems, market power abuses, other things to raise it up for policy makers. So we're continuing to try and shine a light on on why these high prices are there. Not necessarily having new statutes that we can enforce, however.

Understood. Have you used that subpoena power since we gave you it?

We sure have.

Recently? This year even?

Oh, absolutely. I do not comment publicly absent, I think, different circumstances around what we do. But in in that arena because we have to keep a lot of it confidential. But our team is is small but I think very effective in terms of the number of market participants we've engaged with both in the first instance collaboratively or voluntarily, but then also using subpoena power if we need to.

Okay. Alright. Well, that's a threat I wanna keep pulling going into the future is just how to better integrate your both publishing and data access abilities with with the sort of the DOJ side of things and make sure, I don't know. That we're not missing opportunities to better integrate that especially given some of the staffing and resource challenges you all have. It's a very lean team as I understand it over at DPMO doing this work.

So we're looking at that further. We can follow-up. The in the in the broader fuels assessment and the sort of strategies are twelve twelve options. I did want to inquire with you vice chair Gunda. Is is there currently I mean, we've told you to study a lot of different options, but we haven't from my understanding, we haven't really given you a clear directive to start pursuing any of these options.

Is that correct? It's sort of explore it all but not a lot of of, you know, say on this point about diversifying our fuel our fuel sources. We haven't said to you go maximize that or go go figure that out. Is that correct?

Yeah. I think the current statute requests us to bring back to you both in case of carbon as, a menu of options or what we're trying to, this time around, Senator, as we go into fall, really bring to you some credible pathways from point a to point b, that uses the work that CARB has done and put in front of you the pros and cons so we can get the directive and the tools.

I appreciate it. My my my concern with our timeline and I I I'm I'm happy it's a deliberative process and I think you've earned a lot of respect by being that way. But if if we wait until the end of this year when we're gone, we have to go then into next year and then we're looking at things like decisions, say, by 2029 about flow reversals and probably sooner than that from a regulatory perspective.

I would imagine either at a federal or state level regulatory decisions about those, you know, PIMSA or PUC. So I'm just a I'm a little concerned that if we wait that long and we actually know what we need to do now that we're gonna miss that opportunity.

I you know, I'm obviously I'm not thrilled about a a import driven strategy, especially one that relies on foreign sources. I am you do have data though on say, if we opened ourselves up and made more terminal capacity, more storage capacity, say to receive things from the West, from the Koreans or from the Indians and their refining, and from the East. Say we we sort of maxed out and really beefed up that capacity.

We we had the flow reversal from Western Gateway and we had beefed up, at a more diversified import market, say, from Asia and not just Reliance South America. What kind of longer term price impacts could that have?

I mean, do you have that model? Have you been able to work through those kind of scenarios?

Yeah. And I think I I I wanna take a two part answer to that, Senator. I think the first part on, you know, kind of the timeliness of the conversations, I just wanna put it, put a pin in that, you know, the the conversations we are having are ongoing, so welcome those discussions on an ongoing basis. And to the extent that, the legislature is able to do incrementally work towards that longer path, absolutely willing to be there and accessible for those conversations.

On the second part on just imports, as you noted, we are right now tracking about 10 to 12 refineries, maybe more, because we don't have refinery by refinery.

Refineries in the world, both in the US, globally, that are producing both CARBOB and the blendstocks. And so what that has been doing and the reason why it has slightly started growing up is there is a very credible signal that California is short now because structurally, we are short 200,000. That means 20% of fuel has to come. So there are two elements that we need to think through, and and we are modeling that and happy to share that with you.

How do we make sure that the import barrel coming in does not make the California refineries uncompetitive?

And I think that's been a huge question for CARB, and I know your leadership on that. And the other side is while we make them competitive, how do we increase the supply liquidity so that there's more competition? So to your point, we are tracking, you know, again, in in interest of confidential conversations, we're tracking at least three conversations, you know, that are really interested in increasing the presence in California. And what we are beginning to really see is we need to think about the vessels.

So a lot of the Jones Act vessels that we have today are coming to end of life. So we need to figure out how to make sure that we have enough Jones Act vessels. Second, the storage access, and this is something that DPMO raised as well. The importance of having the infrastructure accessibility for these people who can compete in California. But the last one, the third one that is really important for us to proactively solve is how do we debottleneck the infrastructure? For example, the Concord Station.

If you think about Northern California supply, there's a lot of tightness in the distribution network of the pipelines. So what we're actively looking at with collaboration with other state agencies is to think about whether they are idle pipelines that are useful. So we're gonna circle back with you. I think if we did it right, there is a huge opportunity and and we have several scenarios on what the price impact could could look and we'll share with you.

I would, yeah, very much welcome that feedback. Hopefully, the the chair would as well just to know what those options are and what the impacts could be. I mean, we we we you talked a little bit about that storage capacity. We had in X21 and X12. We did talk about resupply and storage regs, but we still haven't adopted regulations there. Why?

Yeah. Absolutely. And I wanna just take it as a linear thing, Senator. So as as we think about, you know, what happened since the passage of the second special session, we had two closure notices that came our way, both p 66 Wilmington and Valera Benicia.

And one of the most important thing, again, we're all resource constrained, and and we noted that earlier, CEC has limited resources on the the overall resources for CEC have not significantly increased, and we didn't ask ask for it during the special sessions.

And I wanna note it and I and I know that nods from the dais. We needed to move them towards really understanding whether the assertions that were made by the industry during the special session were accurate or not. And then for that, we convened a task force. 13 agencies sat together and we went through assertion by assertion to understand, you know, which are true, which are not, and what we have taken from all those conversations.

And again, from CEC's perspective, we are taking each agency's expertise into our process.

But ultimately, we have, as a commission, the delegated authority to put these regulations to maximize the benefit. So what we've kind of talked through is the most important thing to do at the moment is make sure we understand the data better. So as a part of resupply, it's not that we did not do anything on the resupply. We had the maintenance regs where the industry has to provide us what they resupply plan. And and without breaking the confidence of pariré, I wanna note this.

CEC has visibility on which refineries has a planned outage twelve months ahead. So we were able to, in 2025 see, whether they were planned outages or no. And so the importance of regulations, for us meant, you know, try to do it voluntarily, try to figure out a a relationship with the industry where we can collaboratively work with them to bring in, the necessary imports.

And if you look at the events in spring and fall, especially fall, when we had two all you know, two refineries in the North out at the same time, our prices didn't really go up. And and I would say it's a testimony to the coordination and the long run visibility and long run planning on voluntary planning on resupply.

And also want to note that some of the refineries currently do resupply on their own for, for long term contracts that they have. What we were able to do is have conversation to bring in more imports. And that's what we were trying to do, and I think that's a point that DPMO raised in in our conversations about the importance of having resupply through imports rather than in state cannibalization. And we have done that in a collaborative fashion.

And wanted to say finally, us kind of taking a little bit of a detour on thinking about the midterm, mid transition, and holistic framework does not mean what we are not gonna move forward with the regulations that are important.

We have a June June 8, workshop coming, where we're restarting the conversation and then resupply based on all the, information we had a lot to users.

Okay. Thank you. Very helpful. We didn't talk too much about CARBOB in this hearing yet, but I I know that is a sort of open question about our unique blend between CARB and CEC, some some views on that. There's an assertion by some stakeholders that we could see some some more price stabilization and better competition and get better results if we weren't so, so strict about, non CARBOB imports.

Do you do you find that, mister vice chair, is that do you think getting away from CARBOB can actually help help us meet some of these challenges? Or you think there's a, you know, a sort of better way to be doing that from your other parts of your strategy?

So as with any of these strategies, Senator, I think it's it's the implementation. Right? Ultimately, what we're talking about is does any of the bills legislation regulation that we do ultimately increase the overall competition and liquidity into the state? So if we, relaxed the CARBOB, let's say, and we said, we we would not we would put the surcharge, which is contemplated in some of the bills, too high. What is the motivation for an importer to bring in fuel?

So it has to be in a way that, you know, it should make a meaningful sense for an importer to bring in fuel. And then the other side is we we've talked about today, we don't think we can afford to lose another refinery in the near term until we have clarity on the long term strategy and an agreement. And that means whatever we do should not impact the in state refineries.

So I think that balancing point of having the right, correct level of, pricing could both help and then could be meaningful.

From a CARB perspective, I mean, that part of that pricing was designed to I don't use the word offset, to to compensate for the emissions that we'd be, we'd be receiving in state and that, you know, we have clean air act goals that obviously you have a statutory mandate both federally and in state to hit. So the the theory was, okay, you have to put some kind of fee on all this because we've gotta make up the gap.

But if let's say assuming say it was a $400,000,000 revenue stream or something annually from a fee like that, and that that was actually too high and had bad effects on on competition or on in state refining as mister vice chair just pointed out.

If we, in theory, had an ongoing or robust revenue stream funding, say, our mobile source sector at the same, you know, to the same tune, say $400,000,000 ongoing for both light, medium, and heavy, and you felt confident enough that the gap left on the mobile source side from an emissions perspective would be would be met.

I mean, do you are you gonna do you need that same kind of CARBOB fee or, are there can we, you know, sort of provide solid enough clean air act guarantees to make sure you all we're not taking, you know, tying one hand behind your back while we're trying to solve the the fuel strategy and find ourselves in an air problem.

Yeah. No. Thanks, Senator. I really appreciate the question. And and for for us at at CARB, I think this all centers on what are the health and emissions impacts of potentially changing the fuel blend in California.

Certainly, we have CARBOP here in California in our fuel specs, and that's existed for the better part of a few decades. And that is, you know, specifically designed to reduce the incidence of non attainment days of ozone emissions, which lead to asthma and other adverse health impacts. And so if we're, you know, interested in looking at, like, what would it take to change California's fuel specifications, which I I I've said publicly before that I think there's merit in evaluating that question.

For us, it's a scientific one. What would the emissions changes be if we were to change the fuel spec?

And this is something that we've discussed with CEC. It's reflected in the TFTP and the two thirty seven analysis work that CARB is now undertaking to understand, you know, if we run different fuel specs in California through California vehicles, what could the emissions changes be? So we're undertaking that analysis now. That'll take a little bit of time. That's a scientific analysis that requires laboratory testing.

And once we have some of the outcomes from that analysis, we'll be able to to answer that question

What do you think in timing?

More directly.

This session?