Comment Log Display

September 2, 2009

Mr. Jon Costantino
Manager, Climate Change 
Planning Section
Air Resources Board
1001 I Street
P.O. Box 2815
Sacramento, CA 95812

SUBJECT:	Proposed AB 32 Cost of Implementation Fee Regulation ¡V
Comments

Dear Mr. Costantino:

Kern Oil & Refining Co. (Kern) is one of only two remaining small
refiners in California producing transportation fuels.  Kern is the
only small refiner in California producing CARB reformulated
gasoline and Ultra Low Sulfur Diesel.  Kern is on record with the
Board, and continues to advocate for consideration for small
refiners.

The two remaining small refiners producing transportation fuels
are ¡§family owned¡¨ and are not owned or operated by publically
traded integrated oil companies and do not have upstream oil and
gas production or downstream marketing and retail stations.  Small
refiners are clearly being disproportionally economically impacted
by the AB 32 regulations.  

In follow up to the information staff presented at the August 25,
2009 public workshop, and for the record, Kern is providing the
following comments relating to the proposed AB 32 Cost of
Implementation Fee Regulation.

CARB estimates $63.1 million dollars is needed for the FY 2009/10
collection to administer the AB 32 Program and for debt repayment. 
Based on CARB¡¦s fee allocation proposal, the refiner sector is
expected to pay $33.8 million or 53.4% of the total $63.1 FY2009/10
program fees.  However, based on CARB¡¦s GHG Scoping Plan emissions
inventory refineries only represent 6% of the total GHG emissions,
yet refineries are being assessed 53.4% of the total annual fees to
fund the program.  This is clearly an unfair, inequitable and
disproportional economic impact to refiners.  Kern recommends the
fees for refineries be assessed in a way that more fairly reflects
the proportionality of refinery emissions as compared to the total
GHG inventory.

Kern is opposed to payment of a fee on gasoline and diesel
production.  Refiners are already required under the Scoping Plan
to implement stationary source controls and in addition, refineries
must also meet the costly challenges of the Low Carbon Fuel
Standard (LCFS).  It is, however, reasonable to assess a fee based
on the actual facility GHG emissions from refineries and other
sectors subject to AB 32.  However, Kern is strongly opposed to
staff¡¦s proposal that refiners also pay additional fees for every
gallon of transportation fuel delivered to the market.  

Kern has recommended the fee ¡§tax¡¨ be placed at the retail sales
pump and full disclosure be made at the pump so the public clearly
understands why each gallon of fuel purchased has increased in
cost.  Unfortunately, CARB has indicated they do not have the
manpower to collect the fees from such a large population of retail
stations throughout the State.

CARB wrongly assumes that refiners can ¡§pass-through¡¨ the fee. 
This is a misconception since the ability to pass-through costs are
controlled by market forces beyond the control of any one
individual refiner.  However, refiners do have the ability to
pass-through costs of fees or taxes if the fees or taxes are known
in advance and are assessed by the governmental agency, and
equitably applied to all refiners.  Currently, it appears the AB 32
fee (cost/gallon) will not be known until the fiscal year ends and
CARB then determines how much was spent during that year, at which
time the fee will then be calculated and communicated to refiners. 
This process will not provide refiners with the ability to pass on
the fee for that prior year.

Kern offers the following suggestion that would help the ability
of refiners to pass-through the fees.  

„X	CARB must create a budget in advance, divide that by the
estimated gallons to be assessed (historical data and information
is available) and publish a rate (cost/gallon) to be in effect for
that fiscal period.  This published rate needs to be provided to
refiners in advance of the annual fiscal cycle.  

„X	Refiners would then include the fee as a line item on the
invoice generated at the fuel transfer rack.  This would be
consistent with the method of pass-through for State Board of
Equalization (BOE) fees and taxes (e.g., Supplier of Motor Vehicle
Fuel Fee, Supplier of Diesel Fuel Fee, and Prepayment of Sales
Tax), all of which are computed as a cost per gallon to facilitate
their inclusion on an invoice.  

„X	Industry payments could be made to CARB monthly, quarterly, or
annually based on sales volumes for the related period.  This would
be consistent with the payment of BOE fees and taxes.

„X	If AB 32 Program costs are more or less than budget estimate,
the differences can then be rolled into the subsequent year¡¦s rate
calculation.

In summary, pass-through costs of the fee can only be accomplished
if CARB estimates a budget for the fiscal year, establishes a fixed
rate, and communicates the rate to refiners in advance of the
fiscal cycle.  This process will allow refiners the ability to
legally include the fee as a line item on the sales invoice to the
customer.  Refiners would then make payments to CARB on a periodic
schedule.

Kern appreciates this opportunity to provide comment and we are
committed to continue working with Staff throughout this regulatory
process.

Sincerely,

COPY

Robert Richards
EHS Manager
Kern Oil & Refining Co.

cc:	Jeannie Blakeslee, CARB
	Bruce Tuter, CARB