-FINAL-
PHASE 2 RFG TRANSITION SUBCOMMITTEE
MEETING SUMMARY - AUGUST 17, 1994
Introduction
On August 17, 1994, Transition Subcommittee held the first of a
series of planned meetings. The Transition Subcommittee's
discussion leader, Susan Brown, Deputy Division Chief, Planning
and Forecasting Division of the California Energy Commission,
indicated that the purpose of the Transition Subcommittee is to
evaluate supply, demand, distribution and compliance issues
related to the implementation of Phase 2 Reformulated Gasoline
(RFG). Where appropriate, the subcommittee will discuss with the
Phase 2 RFG Advisory Committee possible measures that can be
taken to better facilitate a smooth transition to the use of
Phase 2 RFG.
Susan Brown began the meeting by briefly introducing herself and
several staff members from the Energy Commission and the Air
Resources Board. As a revised agenda was distributed, Susan
explained the purpose and goals of the subcommittee. It was
noted that one of the lessons learned from the recent
implementation of ARB's diesel regulation was the need for a
phased in compliance schedule. The, Phase 2 RFG compliance
schedule adopted by the Air Resources Board requires that RFG be
produced by the refineries by March 1, 1996, distributed by bulk
terminals by April 15,1996, and sold at the retail pump by June
1, 1996.
Antitrust
There was a great level of concern expressed regarding the
potential for antitrust violations by refiners who participate in
this subcommittee. These concerns were directly related to the
open discussion and exchange of information regarding company
specific production capacity, cost of production, wholesale and
retail pricing, and product distribution. Susan indicated that
both the CEC and ARB are well aware of the concerns and will be
very cautious with the structure and operation of the
subcommittee to avoid questionable activity. Susan also stated
that no company specific data would be discussed by the
subcommittee. All company specific data will be obtained by an
ARB/CEC internal working group. Confidential materials will be
handled as required by the California Code of Regulations. Data
presented to the subcommittee and made available to the public
will be in the form of aggregate or average values.
Susan introduced Dick Light, Deputy Attorney General, California
Department of Justice, who was invited to attend this meeting for
the very purpose of responding to the antitrust concerns. Mr.
Light is an expert in the area of antitrust law and agreed that
these concerns were warranted. However, he also indicated that
understands the worthwhile nature of the subcommittee's goals
and believes that its successful operation is possible if
appropriate precautions are employed.
Mission Statement
A draft mission statement (enclosed) was distributed and
discussed. The only comment offered was the suggestion that the
mission statement be expanded to include the goal of timely
implementation of the regulation as it currently exists and that
contingency planning should not be addressed by this
subcommittee. This comment lead into a brief discussion of
variance procedures and whether it was anticipated that
procedures would be established as they were during the
implementation of the diesel regulation last year. Susan
explained that existing procedures are intended to provide relief
during unforeseen and unavoidable situations such as force
majeure outages. It was further noted that the variance issue
would ultimately be an ARB policy determination although there is
currently no intention of allowing variances beyond what is
provided in existing law.
Presentations
CEC
Tom Glaviano of the CEC presented an overview of the
petroleum industry in California and how it may be effected by
the Phase 2 RFG regulation (presentation material enclosed) .
Tom reviewed all of the various processes and steps necessary to
transform crude oil into gasoline at the retail pump. The
presentation revealed that there are many areas of this industry
which may be affected by the regulation. It also illustrated the
difficult nature of completing a thorough evaluation of the
industries' ability to provide Phase 2 RFG to meet the needs of
California's motorists. Such an evaluation of the adequacy of
supply, inherently must also include an evaluation of demand.
Tom's presentation did not identify specific issues or propose
any solutions, however, this type of overview was fundamental in
the development of the subcommittee's action plan.
Immediately following Tom's presentation the discussion
shifted back to antitrust concerns related to any open discussion
by the subcommittee of supply and demand issues. Dick Light
indicated that even limiting such discussions to dealing with
aggregate numbers would not prevent possible claims of antitrust
activity. If it could be demonstrated that such discussions had
an effect on the market, the subcommittee members may be
subjected to antitrust liability. Dick indicated that obtaining
company specific production data on a confidential basis,
compiling the data and publishing aggregated numbers is
permissible. However, competitors having open discussion of any
such information is not permissible.
U.S. EPA
Al Mannato, a section chief with U.S. EPA in Washington
D.C., gave a presentation regarding the Supply and Distribution
Working Group which has been established as part of the
implementation of Federal RFG. U.S. EPA has hired a private
contractor to perform and publish supply evaluation which will
include specific production data. They do not believe there will
be a supply problem; they are confident that adequate supply will
be available. They are concerned about various distribution
issues and regulation interpretation, implementation, and
compliance demonstration. Outstanding issues/concerns relate to
mixing of off-spec product in the distribution system, trans-mix,
certification of import products, blending and refining at import
facilities, and the status of refiner's baselines. U.S.EPA will
continue to meet and discuss these outstanding issues until
resolution has been reached. Summaries of findings regarding
these issues and their resolution will be posted on U.S.EPA's
electronic bulletin board system as they become available. The
final issue they intend on addressing is how to deal with
emergency situations.
Santa Fe Pacific Pipeline
Mary Morgan, Director of Product Movement for Santa Fe
Pacific Pipeline Partners, gave a presentation detailing the
delivery locations and overall operation of their various
pipelines located in California (presentation materials
enclosed).
ARB
Dean Simeroth, Chief of the Criteria Pollutants Branch,
presented a Proposed Action Plan (enclosed) for the Transition
Subcommittee. Hard copies of the proposed plan were distributed
to everyone present. The action plan delineates the issues to be
addressed at each of a series of five subcommittee meetings to be
held between now and January 1995 (specific dates will be noticed
at a later date). The structure of the plan is such that each
meeting will have a general theme, with each theme being
addressed in the most advantageous timeframe.
The majority of the materials to be presented at future
meetings will be prepared by the ARB/CEC internal working group.
ARB and CEC believe one function of the subcommittee is to review
the presented materials, including any associated proposed
recommendations, for completeness and accuracy. All constructive
comments intended to further the subcommittees progress in
meeting the established mission are encouraged and welcome.
Determination of data needs and its solicitation will also be the
responsibility of the internal working group. The proposed
action plan is quite ambitious and successful completion of many
tasks will rely on the cooperative efforts of the petroleum
industry.
The final presentation of the day was given by Gary Yee,
Manager of the Industrial Section (presentation materials
enclosed). Gary gave a brief overview of the status of the
various California refiners in obtaining the required permits and
making the necessary modifications in order to produce Phase 2
RFG. In summary, 10 of 13 major refineries have met all CEQA
requirements, 9 refineries have obtained full or partial air
permits, and 3 refineries are developing their EIRs. ARB expects
the major refineries will be permitted in time to comply with the
Phase 2 RFG requirements by specified March 1, 1996 deadline.
CBG Program Advisory and Subcommittee Activities