BILL ANALYSIS AB 2098 Page 1 ASSEMBLY THIRD READING AB 2098 (Migden) As Amended April 13, 2000 Majority vote TRANSPORTATION 13-4 UTILITIES&COMMERCE 9-1 ----------------------------------------------------------------- |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. AB 2098 Page 2 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 AB 2098 Page 3 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 AB 2098 Page 4 FN: 0004893