2002 ANNUAL REPORT
Fuels

WSPA Engages Full Force on Numerous State Fuels Initiatives

Late in 2001, the California Energy Commission (CEC) and California Air Resources Board (CARB) set aggressive timetables for a series of studies, workshops and hearings on several initiatives proposed to reduce volatility in California's gasoline market.

Legislation passed in 2001 charged the CEC and CARB to develop proposals for the creation of a strategic fuels reserve, a strategy to reduce petroleum dependency and a review of barriers and impediments to the existing refining infrastructure, storage and distribution of gasoline. In addition, the CEC launched two new studies early in 2002 to evaluate the potential role of "forward markets" and the "market power" of California refiners.

Confronted with these significant initiatives, WSPA through the Cleaner Burning Gasoline III (CBG III) Task Force became critically active in conducting its own analysis of the state's studies and proposals, which could lead to ill-conceived remedies and unnecessary government intervention in petroleum markets.

By June, the CEC had held several workshops based on proposals stemming from a report produced by consultants from Stillwater and Associates. The CBG III Task Force became immediately concerned when the first Stillwater report draft was released, believing that the state's effort was moving too fast and that the CEC and their contractor were not gathering sound information. In addition, WSPA did not agree with the Stillwater report's recommendation that a strategic fuels reserve (SFR) should be built in California, or with the CEC analysis that led to the SFR recommendation.

WSPA retained two independent experts to bring better information to the debate and show the CEC that a SFR would neither reduce market volatility nor increase supplies of gasoline. Economic consultant PK Verleger, LLC and refinery consultants Purvin & Gertz performed detailed analysis of the Stillwater report's methodology and conclusions to prove WSPA's assertion.

WSPA also called for the CEC to review built in mechanisms that were working against the addition of new refining capacity, and for the state to review how it is grappling with future demand growth including electricity, natural gas and petroleum products. By summer's end, WSPA was successful in slowing the CEC's efforts on many fronts including their recommendation to build a SFR.

In tandem with the CEC effort, the CBG III Task Force also retained Sierra Research to provide a technical analysis of CARB's proposed Strategy to Reduce Petroleum Dependency (SRPD). Sierra Research critiqued the adequacy of CARB's preliminary support for special taxes for vehicle miles traveled, surcharges on gasoline and proposed subsidies for alternative fuels.

WSPA also successfully worked with the surrounding states to bring to light California's infrastructure review and a proposal to build a new pipeline from the Gulf Coast that could impact product supplies in Arizona and Nevada.

At year's end, WSPA prepared for new policy debates surrounding the development of a multi-agency state "integrated policy report" highlighted during an October CEC workshop. Ensuring that the ongoing CEC and CARB studies and new integrated policy report are based on sound analysis and do not lead to negative market intervention recommendations will be a high priority for WSPA in 2003.

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