BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 2098
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          ASSEMBLY THIRD READING
          AB 2098 (Migden)
          As Amended April 13, 2000
          Majority vote

           TRANSPORTATION      13-4        UTILITIES&COMMERCE  9-1         
           
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          |Ayes:|Torlakson, Corea, Davis,  |Ayes:|Wright, Pescetti,         |
          |     |Dutra, Firebaugh, Havice, |     |Calderon, Maddox,         |
          |     |Leach, Longville,         |     |Mazzoni, Reyes,           |
          |     |Maldonado, Nakano, Scott, |     |Villaraigosa, Vincent,    |
          |     |Strom-Martin, Zettel      |     |Wesson                    |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|McClintock, Bates, House, |Nays:|Campbell                  |
          |     |Margett                   |     |                          |
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           APPROPRIATIONS      14-7                                        
           
           ----------------------------------------------------------------- 
          |Ayes:|Migden, Alquist, Aroner,  |     |                          |
          |     |Cedillo, Corbet, Davis,   |     |                          |
          |     |Kuehl, Papan, Romero,     |     |                          |
          |     |Shelley, Thomson, Wesson, |     |                          |
          |     |Wiggins, Wright           |     |                          |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|Campbell, Ackerman,       |     |                          |
          |     |Ashburn, Brewer,          |     |                          |
          |     |Maldonado, Runner, Zettel |     |                          |
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           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  requires:  

          1)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.








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          2)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)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)The study to be submitted to the Legislature and the Attorney  
            General (AG) 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  :  According to the Assembly Appropriations  
          Committee analysis, one-time costs of about $200,000 to CEC to  
          conduct the study and report to the Legislature and the AG.

           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 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  








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          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 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 $0.08 to $0.10 per gallon,  
          possibly more if a new pipeline is constructed.  On a regular  
          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.

          AB 2076 (Shelley), pending in the Assembly, would require CEC to  
          establish and administer a strategic fuel reserve.

          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  










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