BILL ANALYSIS
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THIRD READING
Bill No: AB 2076
Author: Shelley (D), et al
Amended: 8/7/00 in Senate
Vote: 21
SENATE ENERGY, U.&C. COMMITTEE : 6-0, 6/27/00
AYES: Bowen, Alarcon, Hughes, Kelley, Mountjoy, Solis
SENATE APPROPRIATIONS COMMITTEE : 9-4, 8/23/00
AYES: Johnston, Alpert, Bowen, Burton, Escutia, Karnette,
McPherson, Perata, Vasconcellos
NOES: Johnson, Kelley, Leslie, Mountjoy
ASSEMBLY FLOOR : 47-31, 5/30/00 - See last page for vote
SUBJECT : California Energy Commission: fuel supply
SOURCE : Attorney General
DIGEST : This bill requires the California Energy
Commission (CEC) to examine the feasibility of operating a
fuel reserve by July 1, 2001.
ANALYSIS : The subject of high California gasoline prices
has been a recurring one over the past several years.
During an October 1996 San Diego hearing of the Senate
Energy, Utilities and Communications Committee, the
Committee established that oil company supply restrictions
prevented branded franchise dealers from seeking out the
least expensive branded supply. These restrictions were
identified as the major reason why significant wholesale
CONTINUED
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price differences between Los Angeles and San Diego
persisted during a time of vigorous competition in Los
Angeles, despite the fact that the two markets are 100
miles apart. At the time, price differences of up to 15
cents per gallon were reported between San Diego and Los
Angeles, with similar disparities in prices between Los
Angeles and the San Francisco Bay Area.
An April 1999 joint hearing held by the Senate Energy and
Utilities Committee and the Senate Transportation Committee
made it clear that the late 1998 and early 1999 dramatic
gasoline price hikes were triggered by a very brief
gasoline shortage and subsequent market speculation. The
testimony at the hearing indicated that the supply of
gasoline is closely matched with the demand for gasoline
and because higher prices don't reduce the demand for
gasoline substantially, any supply disruption causes prices
to rise quickly. The hearing also noted that proposed and
potential oil company mergers will lead to increased market
concentration, reduced competition, and in all likelihood,
higher gasoline prices.
In November 1999, the California Attorney General (AG)
convened a Task Force on Gas Pricing in California. The
purpose of the Task Force, which included representatives
from the oil industry and consumer groups, was to exchange
ideas and assess facts. In May, the Attorney General
issued a report summarizing the Task Force proceedings and
made six recommendations:
1. Increase competition.
2. Consider developing a strategic gasoline reserve.
3. Require the state to purchase imported supplies of fuel
for its own use.
4. Take aggressive steps to increase fuel economy and use
alternative fuels.
5. Free dealers to seek the best price for fuels.
6. Examine barriers to importing gas via pipeline.
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Echoes of the California experience are now reverberating
in other states. While gasoline prices in California have
leveled off recently, gasoline price increases in the
Midwest have raised the per gallon price of gasoline from
about $1.40 in early May to almost $2.50 for premium in
downtown Chicago, making California's cleaner, and, on
average, slightly higher-taxed gasoline look like a
bargain. In Michigan, the average gas prices jumped over
27 cents per gallon in a week.
The high prices are being blamed on a variety factors that
will sound familiar to those who have been following the
rise and fall of California's gas prices -- unplanned
pipeline and refinery shutdowns, higher crude oil prices,
price gouging, and problems in producing and distributing
clean-burning gas. California has, for a number of years,
had its own higher gasoline standard, but on June 1, new
federal regulations took effect requiring all gasoline to
meet higher standards in order to comply with federal clean
air standards. This "new" gasoline being produced to meet
the new federal standards is close to, but not identical
to, the gasoline produced to meet California's reformulated
gasoline rules.
California's gasoline prices are fairly close to the
national average, yet a number of misconceptions exist
relative to what drove the state's prices through the roof
last year. According to the CEC, in January 1999, branded
unleaded cost $1.13 per gallon while in mid-May it cost
$1.61 a gallon. Of that 48-cent difference, 39 cents is
attributable to higher crude oil costs, 4 cents comes from
increased taxes collect as a result of the higher-priced
gas, and 10 cents come from increased refinery costs and
profit margins (5 cents of which was achieved by reducing
the amount paid to retailers).
The preference of many Californian's for bigger, more
powerful vehicles is showing up in the statewide fuel
economy statistics. For the first time in many years, the
average on-road fuel economy for California vehicles as a
fleet declined. Coupled with a 1.5% annual growth in
vehicle miles traveled, the CEC forecasts that gasoline
demand will increase by 1.7% annually.
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The bill requires CEC by January 31, 2002, to examine the
feasibility of establishing a strategic fuel reserve and to
examine and recommend an appropriate level of reserves.
The bill requires that the studies shall be conducted in
conjunction with any other studies required by acts enacted
during the 2000 portion of the 1999-00 session dealing with
gasoline prices.
The bill also requires CEC by January 31, 2002, and the
State Air Resources Board to develop and adopt
recommendations for a California Strategy to Reduce
Petroleum Dependence.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
$200,000 one time cost from the Energy Resources Programs
Account.
SUPPORT : (Unable to verify at time of writing)
Attorney General (source)
ASSEMBLY FLOOR :
AYES: Alquist, Aroner, Bock, Calderon, Cardenas, Cardoza,
Cedillo, Corbett, Correa, Davis, Ducheny, Dutra,
Firebaugh, Florez, Floyd, Gallegos, Havice, Honda,
Jackson, Keeley, Knox, Kuehl, Longville, Lowenthal,
Machado, Mazzoni, Migden, Nakano, Papan, Pescetti, Reyes,
Romero, Scott, Shelley, Steinberg, Strom-Martin, Thomson,
Torlakson, Villaraigosa, Vincent, Washington, Wayne,
Wesson, Wiggins, Wildman, Wright, Hertzberg
NOES: Aanestad, Ackerman, Ashburn, Baldwin, Bates, Battin,
Baugh, Brewer, Briggs, Campbell, Cox, Cunneen, Dickerson,
Frusetta, Granlund, House, Kaloogian, Leach, Leonard,
Maddox, Maldonado, Margett, McClintock, Olberg, Oller,
Robert Pacheco, Rod Pacheco, Runner, Strickland,
Thompson, Zettel
NC:jk 8/25/00 Senate Floor Analyses
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SUPPORT/OPPOSITION: SEE ABOVE
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