BILL ANALYSIS                                                                                                                                                                                                    



                                                                       


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          |SENATE RULES COMMITTEE            |                  AB 2098|
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                                 THIRD READING
                                        

          Bill No:  AB 2098
          Author:   Migden (D)
          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  :  13-0, 8/23/00
          AYES:  Johnston, Alpert, Bowen, Burton, Escutia, Johnson,  
            Karnette, Kelley, Leslie, McPherson, Mountjoy, Perata,  
            Vasconcellos

           ASSEMBLY FLOOR  :  54-23, 5/30/00 - See last page for vote
           

           SUBJECT  :    State Energy Resources Conservation and  
          Development
                      Commission

           SOURCE  :     Attorney General

           
           DIGEST  :    This bill 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 and its components.

           ANALYSIS  :    Existing law requires CEC to develop  
          contingency plans to deal with possible shortages of  
          electrical energy or fuel supplies.

                                                           CONTINUED





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          This bill requires the CEC, in consultation with the State  
          Fire Marshal, to study and assess the viability of building  
          new or expanding existing pipelines as a means of importing  
          more motor fuel or its components into California from the  
          Gulf Coast.

          This bill also requires the study to include a discussion  
          about how the state can facilitate the use of a pipeline,  
          including the use of federal or state funds, as well as tax  
          credits, that could be used to build or expand a pipeline.

          This bill provides that the study 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, and requires the study to be completed by  
          January 31, 2002.
           
          Comments  :

          California refiners export about 100,000 barrels of  
          gasoline a day to other states, which is approximately 10  
          percent of their overall production.

          Currently, there is a pipeline that transports gasoline  
          from refineries in Los Angeles to Phoenix and another  
          pipeline that transports gasoline from El Paso to Phoenix.   
          A third leg of the connection, which would build a gasoline  
          pipeline from El Paso to Houston, is already under  
          construction.  These three pipelines are owned by three  
          different companies.

           Background  :

          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  
          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  







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          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.

          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  







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          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.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No








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          $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, Cunneen, Davis, Ducheny, Dutra,  
            Firebaugh, Florez, Frusetta, Gallegos, Havice, Honda,  
            Jackson, Keeley, Knox, Kuehl, Leach, Lempert, Longville,  
            Lowenthal, Machado, Maddox, Maldonado, Mazzoni, Migden,  
            Nakano, Rod Pacheco, Papan, Pescetti, Reyes, Romero,  
            Scott, Shelley, Steinberg, Strom-Martin, Thomson,  
            Torlakson, Villaraigosa, Vincent, Washington, Wayne,  
            Wesson, Wiggins, Wildman, Wright, Zettel, Hertzberg
          NOES:  Aanestad, Ackerman, Ashburn, Baldwin, Bates, Battin,  
            Baugh, Brewer, Briggs, Campbell, Cox, Dickerson, House,  
            Kaloogian, Leonard, Margett, McClintock, Olberg, Oller,  
            Robert Pacheco, Runner, Strickland, Thompson


          NC:jk  8/25/00   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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