BILL ANALYSIS
AB 2076
Page 1
ASSEMBLY THIRD READING
AB 2076 (Shelley)
As Amended May 18, 2000
Majority vote
TRANSPORTATION 10-7 UTILITIES & COMMERCE 9-1
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|Ayes:|Torlakson, Correa, Davis, |Ayes:|Wright, Pescetti, |
| |Dutra, Firebaugh, Havice, | |Calderon, Cardenas, |
| |Longville, Nakano, Scott, | |Papan, Reyes, |
| |Strom-Martin | |Villaraigosa, Vincent, |
| | | |Wesson |
|-----+--------------------------+-----+--------------------------|
|Nays:|McClintock, Bates, House, |Nays:|Campbell |
| |Leach, Maldonado, | | |
| |Margett, Zettel | | |
| | | | |
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APPROPRIATIONS 14-7
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|Ayes:|Migden, Alquist, Aroner, | | |
| |Cedillo, Corbett, Davis, | | |
| |Kuehl, Papan, Romero, | | |
| |Shelley, Thomson, Wesson, | | |
| |Wiggins, Wright | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Campbell, Ackerman, | | |
| |Ashburn, Brewer, | | |
| |Maldonado, Runner, Zettel | | |
| | | | |
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SUMMARY : Requires the State Energy Resources Conservation and
Development Commission (CEC) to examine the feasibility of
operating a strategic fuel reserve and to report its findings to
the Legislature. Specifically, this bill :
2)Requires CEC, no later than July 1, 2001, to examine the
feasibility of operating a strategic gasoline reserve to
insulate California consumers and businesses from substantial,
short-term price increases arising from refinery outages or
other similar supply interruptions.
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3)Requires CEC to consult with other state agencies, including
but not limited to, the State Air Resources Board, when making
its examination.
4)Provides that CEC shall examine and recommend an appropriate
level of reserves of gasoline.
5)Provides that in no event shall the reserve be less than the
amount of refined gasoline that CEC estimates could be
produced by the largest California refiner over a two-week
period.
6)Requires that CEC, when determining the appropriate level of
reserve, take into account all of the following:
a) Inventories of California-quality fuels or fuel
components reasonably available to the California market;
b) Current and historic levels of fuel inventories;
c) Availability and cost of storage of fuels; and,
d) Potential for future supply interruptions, price spikes,
and the costs thereof to California consumers and
businesses.
2)Requires CEC to evaluate a mechanism to release gasoline from
the reserve that permits any customer to contract at any time
for the delivery of gasoline from the reserve in exchange for
a promise to return, within a time period established by CEC
but no longer than six weeks, an equal amount of gasoline that
meets California specifications and is produced from a source
outside of California.
3)Requires CEC to evaluate reserve storage space from existing
facilities.
4)Requires CEC to evaluate a reserve operated by an independent
operator that specializes in purchasing and storing gasoline
and is selected through competitive bidding.
5)Requires CEC, upon finding that it would be feasible to
operate a strategic gas reserve, to report its findings to the
Legislature and request specific statutory authority and
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funding to establish the reserve.
EXISTING LAW requires CEC to develop contingency plans to deal
with possible shortages of electrical energy or fuel supplies.
FISCAL EFFECT : According to the Assembly Appropriations
Committee analysis, costs of about $200,000, to CEC.
COMMENTS : California has experienced a number of gasoline price
spikes since 1996. Usually, these spikes are the result of
problems at California refineries. There are 12 California
refineries (owned by eight companies) producing California's
unique Air Resources Board-approved reformulated gasoline
(CaRFG). These refineries must operate at total capacity in
order to meet California's demand for gasoline. Californians
use approximately 42 million gallons of gasoline per day. If
there is even a 10% shortage in supply of gasoline, that
represents a loss in gasoline supply of 4.2 million gallons per
day. Therefore, when there is a gasoline supply problem, such
as a refinery shutdown, the price of gasoline can rise
dramatically. California refineries do not currently maintain
sufficient inventories to cover gasoline supply shortages.
When there is a supply disruption, short-term reserves become
more valuable, and bidding wars to secure these supplies ensue.
The result can be gasoline prices that are $0.25 higher in
California than in the rest of the United States. During the
last gasoline supply shortage, California imported approximately
10% of its fuel. Out-of-state CaRFG comes from refineries in
the Gulf Coast or in Europe. These supplies take approximately
four to six weeks to reach California.
Last year, Attorney General (AG) Bill Lockyer convened a task
force to discuss the high price of gasoline in California and to
develop possible approaches to solving the problem of high
prices. This bill is a product of those discussions. The AG is
the sponsor of this legislation. According to the sponsor, "[a]
state-owned reserve within California's borders would blunt the
impact of gasoline price spikes driven by short-term operating
disruptions within the capacity-constrained California refining
sector."
How big is the reserve? The strategic reserve must be large
enough to have an impact on price and must be released quickly
if there is supply disruption. In addition, if the supply is
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maintained by the state through an independent operator (rather
than the refineries), it can be filled with supply sources from
outside of the state's existing gasoline supply. There is
concern that if the reserve were simply maintained by the
refineries, the supply of that reserve would come from existing
fuel production, thereby lowering the current supply of gasoline
and increasing the price.
Reserve levels would probably be set at somewhere between 1.5
million and 3 million barrels of gasoline, which is
approximately a one to three days' supply of gasoline. If
California lost the production of one large refinery for one
month, it would equal approximately three million barrels of
gasoline supply.
How would the reserve be stored? CEC would have to arrange
facilities to store gasoline because there is not currently
enough storage space dedicated to storing gasoline to
accommodate the reserve. However, there is some storage space
now used for things such as fuel oil that could be converted to
store gasoline supplies. This would provide enough capacity,
and would eliminate the need to build new storage facilities.
The gasoline could be stored for approximately six months, and
there are some additives that may be able to be added to
gasoline to increase the storage viability of gasoline, which
would allow it to be stored for one year or more. However, more
study needs to be done on these additives and their ability to
increase the length of time gasoline can be stored.
What would trigger the use of the reserves and how will the
reserve be replaced? CEC would have to establish an automatic
release mechanism for the reserve. The gasoline reserve would
be released immediately when there is a supply disruption in
order to prevent large price spikes. It would be a market
trigger. Potentially, the state could provide a California
refinery with supply from its reserve at any time. The refinery
would then have to replenish the reserve with CaRFG produced
from outside of California for the contracted amount. It is the
intent of the author that the reserve be operated by an
independent operator that specializes in purchasing and storing
gasoline. The author believes that the reserve should not be
operated by the state itself.
Opponents to this bill argue that this reserve will be expensive
to maintain and that it provides no assured benefit to
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California's consumers. They are concerned that reserves would
not be provided to refiners in a fair manner and that refiners
would be forced to pay for reserves at a high cost and replace
the reserve at a lower cost. Opponents also argue that CaRFG
cannot be stored for long periods of time and that there could
be potential impacts on air quality if gasoline were stored for
several months. Finally, opponents are concerned that the state
is ill equipped to enter this complex gasoline marketplace.
Related legislation, AB 2098 (Migden), pending in the Assembly,
would require CEC to study the feasibility of financing,
constructing, and maintaining a new pipeline or expanding the
capacity of existing pipelines to transport fuel from the Gulf
Coast to California.
AB 2666 (Battin), pending in the Assembly, would allow for the
import and sale of federal reformulated gasoline, and imposes a
surcharge on this gasoline.
Analysis Prepared by : Jennifer Gibson / TRANS. / (916) 319-2093
FN: 0004868