BILL ANALYSIS �
SB 448
Page 1
Date of Hearing: July 1, 2013
ASSEMBLY COMMITTEE ON TRANSPORTATION
Bonnie Lowenthal, Chair
SB 448 (Leno) - As Amended: May 24, 2013
SENATE VOTE : 25-12
SUBJECT : Motor vehicle fuel price reporting
SUMMARY : Requires, upon legislative appropriation of funds for
this purpose, the California Energy Commission (CEC) to
investigate suspected gasoline and diesel price manipulation and
make recommendations to the Legislature on how to limit price
volatility. Specifically, this bill :
1)Makes findings and declarations relative to gas and diesel
fuel price market manipulation. States the intentions of the
Legislature that include, among others as mentioned, that CEC
work with other state and federal agencies to identify
activities that may indicate market manipulation and
investigate those activities.
2)Directs CEC to consult with other state and federal agencies
in developing its biennial assessment as required under
California's Petroleum Industry Information Reporting Act of
1980 (PIIRA) and to include information into that assessment
that:
a) Identify CEC data currently collected or developed that
is important to determine whether improper fuel price
manipulation has occurred or is occurring.
b) Establish an analytical methodology for use in
evaluating data to inform whether fuel price manipulation
has occurred or is occurring.
c) Analyze the data and investigate for suspected fuel
price manipulation at both the individual business level
and marketwide producer level.
d) Identify data that is not in CEC's possession and is
considered important to determine whether fuel pricing
manipulation has occurred or is occurring. Requires CEC to
furnish the list of the data to the Legislature upon
SB 448
Page 2
request.
1)Requires CEC, in consultation with the State Air Resources
Board (ARB) and other relevant state agencies, to include in
the first biennial assessment upon the enactment of the
section, a report on further legislative recommendations to
limit the amount of price volatility and comparative price
increase in the California fuel market, as specified.
2)Defines "fuel" to mean finished gasoline and diesel and their
refining feedstocks derived from petroleum.
3)Requires CEC to implement the bill's provisions upon
appropriation by the Legislature from moneys collected as
royalty payments from specified oil and gas leases on public
lands under the jurisdiction of the State Lands Commission.
4)Requires CEC, if supported by collected information, to notify
appropriate state or federal agencies if a probable market
manipulation has occurred or is occurring.
5)States that CEC is not required to make final findings or
determinations that market manipulation has occurred or is
occurring.
EXISTING LAW :
1)Requires CEC, pursuant to PIIRA, to monitor gasoline pricing
and report on price volatility. Requires CEC to gather,
analyze, and interpret data from refiners, major marketers,
oil transporters, major oil storagers, and major oil producers
for issues including: (1) the nature, cause, and extent of any
petroleum products shortage; (2) significant changes in prices
for petroleum products and the reason for those changes; (3)
the profits of the industry as a whole; and (4) the emerging
trends related to supply, demand, and conservation of
petroleum and petroleum products.
2)Existing federal law prohibits market manipulation of crude
oil gasoline, petroleum, or natural gas.
3)Authorizes the State Lands Commission to enter into oil and
gas leases for the extraction and removal of oil and gas
deposits on state lands. Requires the leases to include a
royalty provision with revenues accruing to the state.
SB 448
Page 3
FISCAL EFFECT : Unknown
COMMENTS : This bill requires CEC to expand their information
data collection relative to the biennial petroleum production
reports (PIIRA) to the Legislature. Further, in order to allay
concerns regarding conflicts with federal law and monitoring of
the gasoline market where the federal government has primacy,
the bill requires CEC to consult with federal agencies before
undertaking the additional data collection provisions.
Background : In 2012, two gasoline price spikes were blamed in
media reports on oil refinery issues that occurred prior to
these spikes. The British Petroleum Cherry Point refinery near
Bellingham, Washington, had a fire on February 17, 2012.
Subsequently, in May 2012, gasoline prices rose by about $0.15
per gallon. Another refinery fire, this time at the Chevron
facility at Richmond, California, occurred on August 6, 2012.
It, along with an electrical outage at Exxon's refinery in
Torrance, California on October 1 2012, was reportedly linked to
a $0.50 per gallon price spike in October 2012. The October
spike sent gas prices to near record levels. To alleviate
costs, Governor Brown issued an order allowing the winter-blend
gasoline to be sold early in the state.
A report by the University of California Energy Institute from
2004 examined fuel price volatility and market power. The
report examined the importation, refinement, and storage of fuel
and the potential for firms to exercise market power. Results
of the study showed that the exercise of market power could be
used to explain price volatility, but that volatility was also
consistent with competitive markets. The report highlighted the
difficulty in determining if fluctuations in the market are a
result of competitive forces or market manipulation.
Another report by McCullough Research on June 5, 2012, showed
that the price spikes occurred while crude oil prices were
declining, and inventories were increasing. This report raised
suspicions about market manipulation by oil companies.
A May 15, 2013, Bloomberg report indicates that three of
Europe's biggest oil explorers are among companies being
questioned by European antitrust regulators about potential
manipulation of prices in the $3.4 trillion-a-year global crude
market. According to the report, Royal Dutch Shell, British
SB 448
Page 4
Petroleum, and Statoil, indicated that they are "being
investigated after the European Commission conducted raids in
three countries to ferret out evidence of collusion. Price
fixing in energy markets has the potential to inflate production
costs and consumer prices for everything from gasoline to
airline tickets to cosmetics."
Purpose of the bill : The author has introduced this bill as
recent spikes in gasoline and diesel prices have renewed
concerns regarding potential market manipulation by gas
companies. His intention is to give California the tools to
ensure that major oil companies are not violating the law
through concentration of market power and fuel market price
manipulation. In addition, the bill provides the California
Legislature a detailed accounting of strategies that can be
pursued to limit market power consolidation, price volatility,
and price increases in the California fuel market.
The author contends that although it is illegal to monopolize
and manipulate the market for gasoline, sufficient standards or
definitions do not exist by which to evaluate a particular
company's behavior for conformance with the law. Also, the
author asserts that California has a number of measures in place
that will reduce fuel price volatility over time, but no current
measure that is focused on long-term fuel price reduction. The
author introduced this bill to take on both of these issues.
Support and Opposition : Writing in support of the bill,
supporters stress the importance of providing on-going,
California-specific monitoring of the motor vehicle fuel market
within the state, which receives a vast majority of these fuels
from just a handful of producers and importers. They note that
rather than relying on the federal government, this bill directs
the state to take an independent look at its fuel market to
protect its consumers and note in particular that gasoline
prices here are both more variable and on average higher than
the rest of the country.
In opposition to the bill, the Western States Petroleum
Association indicates that the bill is duplicative of existing
authority of the California Attorney General (AG), U.S.
Department of Justice and the Federal Trade Commission. These
entities can investigate and monitor anti-competitive
activities, especially the office within the California AG that
is specifically tasked with this investigatory responsibility.
SB 448
Page 5
Further, it contends that if the bill contemplates additional
oversight, it should consider all transportation fuels and
markets, not just those that are petroleum based.
Suggested committee amendments : The bill needs to correct a
technical flaw relative to the information to be submitted as a
part of the biennial report rather than the quarterly report and
to clarify that the bill's provisions are to be implemented upon
appropriation of funds by the Legislature from moneys collected
as royalty payments from specified oil and gas leases.
Accordingly, the committee suggests the following:
On page 4, line 7, delete "25358" and replace with: 25302,
On page 4, line 8, delete: following enactment of this section.
REGISTERED SUPPORT / OPPOSITION :
Support
Asian Pacific Environmental Network
California Interfaith Power & Light
Communities for a Better Environment
Consumer Action
Consumer Federation of California
Consumers Union
Environmental Defense Fund
Green California
Greenlining Institute
Sierra Club California
United Steelworkers District 12
Opposition
Western States Petroleum Association
Analysis Prepared by : Ed Imai / TRANS. / (916) 319-2093