BILL ANALYSIS
AB 2098
Page 1
Date of Hearing: April 24, 2000
ASSEMBLY COMMITTEE ON TRANSPORTATION
Tom Torlakson, Chair
AB 2098 (Midgen) - As Amended: April 13, 2000
SUBJECT : Motor fuel pipeline study
SUMMARY : Requires the State Energy Resources Conservation and
Development Commission (CEC) to study the feasibility of
financing, constructing, and maintaining a new pipeline or using
an existing pipeline to transport motor vehicle fuel.
Specifically, this bill :
1)Requires the CEC, in consultation with the State Fire
Marshall, to study the feasibility of financing,
constructing, and maintaining a new pipeline or using or
expanding the capacity of existing pipelines to transport
motor fuel from the Gulf Coast to California.
2)Requires the study to assess the viability of pipeline
transportation to directly or indirectly increase California's
supply of gasoline that complies with California's fuel
specifications and the potential impact this would have on
gasoline prices and the environment as well as other issues
identified by CEC.
3)Requires the study to include a discussion of ways in which
the state might facilitate the use of a pipeline to transport
motor fuel into California, including any federal or state
funds or tax credits that could be used to assist in
constructing the new pipeline or expanding the capacity of
existing pipelines.
4)Requires the study to be submitted to the Legislature and the
Attorney General by January 1, 2002.
EXISTING LAW requires CEC to develop contingency plans to deal
with possible shortages of electrical energy or fuel supplies.
FISCAL EFFECT : Unknown
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
AB 2098
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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 25 cents 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 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.
There are several potential options for pipeline connection to
California, including the completion of an existing pipeline
that currently runs from El Paso, Texas to Phoenix, Arizona, the
reversal of the flow of an existing pipeline that currently
transports fuel from Los Angeles to Phoenix, the conversion of
existing pipelines intended to bring natural gas into
California, or construction of a new pipeline. All of these
scenarios would be studied under this bill.
In order for a pipeline to be economically viable, there must be
a sufficient demand for the fuel, and the delivered cost of
the fuel must be competitive with in-state sources. According
to the CEC, California's gasoline demand will outpace
California's in-state supply by 2003. This means that
California will need to import additional gasoline every day.
It is estimated that transportation costs for a pipeline from
Texas to California could range from 8 to 10 cents per gallon,
possibly more if a new pipeline is constructed. On a regular
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basis, potential buyers/shippers would probably not find the
pipeline to be economically attractive given the increased cost
of producing California-standard gasoline, tariffs, and
transport costs. However, during periods of supply outages and
in future years when California needs to import additional
gasoline, pipeline-delivered gasoline could become a competitive
option.
Related Legislation : AB 2076 (Shelley) would require CEC to
establish and administer a strategic fuel reserve. The bill is
currently before the Assembly Transportation Committee.
AB 2666 (Battin) would allow for the import and sale of federal
reformulated gasoline, and imposes a surcharge on this gasoline.
The bill is currently before the Assembly Transportation
Committee.
Double Referral : This bill is double-referred to the Assembly
Committee on Utilities and Commerce.
REGISTERED SUPPORT / OPPOSITION :
Support
Office of the Attorney General
Opposition
None received
Analysis Prepared by : Jennifer Gibson / TRANS. / (916)
319-2093