96-3-1

SUMMARY OF AGENDA ITEM:

The Board held an informational meeting on the reasons for recent increases in the prices of diesel fuel and gasoline. The purpose of the hearing was to:

     o Hear reports from the ARB staff and the California Energy Commission
        on the factors causing the rapid increase in fuel prices in California and the
        nation.

     o Receive testimony from refiners in California about the causes of price
        increases, including the effect of the CaRFG regulations.

The Board heard testimony from the California Energy Commission; representatives of ten refining companies; trade organizations of producers, marketers, and users of motor fuels; retail marketers; and private citizens.

The Energy Commission presented information on gasoline price increases that had reached 40 cents per gallon at wholesale since the beginning of the year. Portions of this increase could be attributed to an increase in the price of crude oil (about 12.5 cents), to the extra production cost for meeting the CaRFG regulations (five to eight cents), and to increased sales tax due to the increased retail price. However, about 16 cents of the increase (greater than any other portion) did not correspond to identifiable cost elements. This portion was attributed to the upward pressure on price that stems from low production and the consequent reliance on inventories and importation to meet demand. Production was low because of a major accident that disabled a Shell refinery and lesser problems at other refineries.

The Energy Commission cited a reduction in the price margin for retailers, leaving some dealers with apparent negative margins. At the same time, refiners experienced an approximate doubling of their margins.

The Energy Commission also testified that gasoline and diesel fuel were being supplied to the market in adequate amounts, and there were no shortages. The Commission did not advocate any action by to attempt to affect supply or reduce fuel prices. Nevertheless, the Commission has entered the "Verification Phase" of an emergency contingency plan for energy supply. In this phase, the Commission will intensify its monitoring of fuel supplies and prices.

Testifiers from the refining industry explained the dynamics of the wholesale market for vehicular fuels. They discussed how the relative scarcity of product tends to drive up the price until new sources of product are attracted. In general, the refiners did not see the CaRFG regulations as an important impediment to supplying gasoline to California. They recommended that the Board not suspend its rules; such action could introduce uncertainty to the market and thereby thwart the market's natural tendency to correct prices to appropriate lower levels.

Testifiers from the fuel retailing industry reported economic distress from the high wholesale prices and the lesser increases that have been possible at retail. The distress was greatest for non-branded marketers.

The Board directed the ARB staff to analyze, in coordination with the Energy Commission staff, the potential for temporary changes to the Board's gasoline and diesel fuel regulations to improve the supply of fuels to California. Specific questions for analysis are:

1.  How much additional fuel would likely be made available through
     importation or production?

2.  How long would it take to make additional fuel available?

3.  How would the availability of additional fuel affect price?

4.  What would be the short- and long-term environmental consequences
     of temporary changes in the fuel regulations?

The Board also authorized the Executive Officer to take certain actions if the Energy Commission enters the "Pre-Emergency Phase" of its contingency plan. These actions would be:

1.  A temporary waiver of the 15-cent/gallon variance fee for any variance
     granted from the gasoline regulations during the pre-emergency phase;

2.  A temporary allowance of some importation or production of fuels meeting
     only the U.S. EPA standards; the amount would not exceed 10 percent
     of total sales of diesel fuel or gasoline in California.

3.  As feasible, direct any allowed non-complying fuel toward independent
     marketers.

ORAL TESTIMONY:

Ronald Kiracofe                                  ARCO

Lyle Sims                                            Shell

Al Jessel                                              Chevron

Dennis Lamb                                       Unocal

Charles Walz                                       Texaco

Wee Yee                                             Mobil

Duane Bordvick                                   Tosco

Bill Dermott                                          Exxon

Lynn Westfall                                       Ultramar

Tom Eveland                                        Kern Oil and Refining

Doug Henderson                                  WSPA

Barry Berkett                                       Thrifty Oil Company

Jan Speelman                                       Automotive Trade Organization of
                                                            America

Dennis DeCota                                     Calif. Service Station Assoc.

Joel D. Anderson                                  California Trucking Association

Janet Hathaway                                     Natural Resources Defense Council

Jim Austin                                              American Automobile Mfrs. Assoc.

Stephanie Williams                                 California Trucking Association

David Atwater                                       Van de Pol

Tim Carmichael                                      Coalition for Clean Air

Donald R. Brown                                   Oil, Chemical & Atomic Workers

Rich Leimbach                                       California Trucking Association

Norm Covell                                          Sacramento Metro AQMD

Thomas Perardi                                      BAAQMD

David Hylta                                            San Andreas Mini-Mart

Margaret Felts                                        Dames & More

Paul Edison Pulliam                                 Citizen

Bonnie Adario                                         CIOMA

Mary Morgan                                          Santa Fe Pipelines

Mark Anders                                           California Trucking Association

Jim Martens                                             California Dump Truck Owners Assn.

Gary Patton                                             Planning and Conservation League

R.O. Segraves                                         Anglo American Associates

Rev. Reggie Jackson                                Citizen

Hamid Amini                                            Citizen (owns 2 independent gas
                                                                stations in Livermore)

Paul Puech                                               Citizen

FORMAL BOARD ACTION:  None

RESPONSIBLE DIVISION:  SSD

STAFF REPORT:  No

SUMMARY OF AGENDA ITEM:

The California Clean Air Act (Act) authorizes ARB to require districts to collect fees from the holders of permits for sources which are located in nonattainment areas and which emit 500 tons or more per year of any nonattainment pollutant or precursor. The staff proposed amending the fee regulations which help to defray the additional costs to ARB of implementing programs and activities related to nonvehicular sources pursuant to the Act during fiscal year 1996-97.

These regulations implement Section 39612 for the eighth and final year of the program. Districts would be required to assess each qualifying facility a fee of $18.78 per ton of emissions of nonattainment pollutants and its precursors, and to transmit the fees to ARB for deposit into the Air Pollution Control Fund.

These regulations are not expected to result in any adverse health, safety, or environmental impacts. The cost to individual companies ranges from approximately $10,000 for the smallest facility subject to the regulations to approximately $550,000 for a multi- facility business. No small businesses have been identified that would be subject to the fees. These fees will result in no significant adverse economic impact on businesses.

ORAL TESTIMONY:  None

FORMAL BOARD ACTION:

Approved Resolution 96-14 by a unanimous vote.

RESPONSIBLE DIVISION:  TSD

STAFF REPORT:  Yes (78 pages)

SUMMARY OF AGENDA ITEM:

Ten areas in California are eligible for redesignation from nonattainment to attainment for the eight-hour national CO standard. Federal Clean Air Act (CAA) section 107(d)(3)(E) specifies five conditions that must be met before the U.S. EPA Administrator can redesignate an area to attainment: data must show attainment; area has an approved State Implementation Plan (SIP); air quality improved because of permanent and enforceable measures; area has a maintenance plan; and all CAA requirements are met. Staff described how the areas met these five conditions.

CAA section 187(a)(5) requires states to submit periodic CO emission inventories. The 1990 and 1993 winter season CO emission inventories were submitted previously. Although the emission inventories submittals constitute revisions to the SIP, public hearings were deferred in accordance with U.S. EPA policy to allow inventories to be considered along with attainment or maintenance plan submittals. Therefore, the Board also heard comments on the related 1990 and 1993 CO emission inventories contained in the staff report.

Representatives of Chevron and the Western States Petroleum Association (WSPA) expressed concern over the inclusion of the cleaner-burning gasoline regulation as a contingency measure in the maintenance plan. They believe that the Board could lose its ability to revise the wintertime oxygen content portion of the cleaner-burning gasoline regulation without obtaining U.S. EPA approval. Staff reminded the Board that the regulation had already been approved by U.S. EPA as an ozone SIP measure. Therefore, any future changes to the regulation would require U.S. EPA approval regardless of the Board's action on the CO maintenance plan. Staff acknowledged that there may be opportunities to provide greater flexibility in the wintertime component of the cleaner- burning gasoline regulation and agreed to follow up on this issue. Depending upon the outcome, the CO SIP would be revised accordingly.

The Board approved the Redesignation Request, Maintenance Plan, and related emission inventories, and directed staff to submit them to the U.S. EPA as revisions to the SIP for CO.

ORAL TESTIMONY:

Mike Kulakowski                                       WSPA

Jerry Horn                                                  Chevron/WSPA

FORMAL BOARD ACTION:

Approved Resolution 96-13 by a unanimous vote.

RESPONSIBLE DIVISION:  EO/OAQTP

STAFF REPORT:  Yes (67 pages)

SUMMARY OF AGENDA ITEM:

These guidelines are an extension of the existing on-road mobile source credit guidelines and provide direction on equipment/engine eligibility, engine certification, enforcement, credit calculation procedures, and the definition of credit life for credits generated by low-emission engine configurations.

The emissions impact is expected to be negligible as long as credit generating engines maintain the low-emission configurations.

The Board approved the guidelines and directed staff to forward them to the districts for use in developing rules and regulations governing off-road mobile source emission reduction credit programs.

ORAL TESTIMONY:  None

FORMAL BOARD ACTION:  None

RESPONSIBLE DIVISION:  MSD

STAFF REPORT:  Yes (20 pages)

SUMMARY OF AGENDA ITEM:

The staff reported on the status of the 1994 California State Implementation Plan (SIP) for Ozone, including the progress on approval and implementation.

In a March 18, 1996, Federal Register notice, the U.S. Environmental Protection Agency (U.S. EPA) proposed to approve the comprehensive SIP. The agency expects to complete final rulemaking this summer.

The proposal covers the attainment demonstrations, modeling, and inventories for: the South Coast, Southeast Desert, Ventura, the Sacramento Region, San Joaquin Valley, San Diego, and Santa Barbara. U.S. EPA also intends to approve the rate-of-progress plans for all areas, except Sacramento and the Southeast Desert, which will be dealt with in separate rulemaking. The proposed approval included the improved Smog Check program, as well as all state and local commitments for new measures.

U.S. EPA committed to develop national standards for some types of federal sources and defined a consultative process to work out solutions for the remaining federal sources identified in the SIP. The consultative process, to be completed in mid-1997, will involve U.S. EPA, ARB, the South Coast Air Quality Management District, and other stakeholders.

The staff reviewed California's SIP accomplishments since the last report to the Board in 1995. ARB has adopted five standards to support the SIP and implemented 10 regulations. The ARB, U.S. EPA, and engine manufacturers reached agreement on a new national truck standard, effective in 2004. The Bureau of Automotive Repair adopted the final regulations for the improved Smog Check program and began operating a prototype testing station in Sacramento. The Legislature established a statewide vehicle scrappage program to support the SIP.

The staff identified the new SIP programs to be considered by the Board this year and highlighted some of the activities to develop the rest of the upcoming SIP commitments, due in 1997. Key activities include: incentives for cleaner trucks, the vehicle scrappage program, mid-term consumer products measures, and national standards for SIP areas that must adopt additional local controls for attainment -- South Coast, Ventura, Sacramento, and San Joaquin Valley.

ORAL TESTIMONY:  None

FORMAL BOARD ACTION:  None

RESPONSIBLE DIVISION:  EO/OAQTP

STAFF REPORT:  None

Approved Resolution 96-15, 96-16, 96-17 unanimously.

*Were not present on April 26.