BOARD MEETING STATE OF CALIFORNIA AIR RESOURCES BOARD JOE SERNA, JR. BUILDING CALIFORNIA ENVIRONMENTAL PROTECTION AGENCY CENTRAL VALLEY AUDITORIUM 1001 I STREET SACRAMENTO, CALIFORNIA THURSDAY, JULY 24, 2003 9:00 A.M. TIFFANY C. KRAFT, CSR, RPR CERTIFIED SHORTHAND REPORTER LICENSE NUMBER 12277 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 ii APPEARANCES BOARD MEMBERS Dr. Alan Lloyd, Chairperson Dr. William Burke Mr. Joseph Calhoun Ms. Dorene D'Adamo Professor Hugh Friedman Dr. William Friedman Mr. Matthew McKinnon Supervisor Barbara Patrick Supervisor Ron Roberts BOARD MEMBERS EXCUSED Supervisor Mark DeSaulnier Mrs. Barbara Riordan STAFF Ms. Catherine Witherspoon, Executive Officer Mr. Tom Cackette, Chief Deputy Executive Officer Mr. Michael Scheible, Deputy Executive Officer Ms. Lynn Terry, Deputy Executive Officer Ms. Kathleen Tschogl, Ombudsman Ms. Kathleen Walsh, General Counsel Mr. Robert Fletcher, Division Chief, Planning and Technical Support Division PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 iii APPEARANCES CONTINUED STAFF Ms. Barbara Fry, Chief, Measure Assessment Branch, Stationary Source Division Ms. Peggy L. Jenkins, Supervisor, Indoor Exposure Assessment Section Mr. Bob Jenne, Senior Staff Counsel Ms. Gloria Lindner, Staff, Stationary Source Division Ms. Alexa Malik, Board Secretary Mr. Randy Pasek, Chief, Emission Inventory Branch, Planning and Technical Support Division Mr. Thomas J. Phillips, Staff, Air Pollution Specialist Mr. Don Rake, Staff, Stationary Source Division Mr. Jim Ryden, Chief, Enforcement Division Mr. Dean Simeroth, Chief, Criteria Pollutants Branch Ms. Eileen Tutt, Air Pollution Specialist Mr. Peter Venturini, Chief, Stationary Source Division Mr. Dane Westerdahl, Research Division Ms. Michelle Shultz Wood, Staff AP Specialist, Mobile Source Enforcement Section ALSO PRESENT Mr. Chase Ahders, Smiland Khachigian Mr. Larry Allen, San Luis Obispo County APCD Mr. Paul Beemer, Henry Company Mr. KC Bishop, Chevron Texaco, WSPA Ms. Michele Boddy, DAP, Inc. Mr. Tim Castleman, Drive 55 Construction Project PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 iv APPEARANCES CONTINUED ALSO PRESENT Mr. Tim Charmichael, Coalition for Clean Air Assemblyman Diaz Mr. Thomas Donegan, Cosmetic, Toiletry, and Fragrance Association Mr. Mike Eaves, California Natural Gas Vehicle Coalition Mr. Dan Fong, California Energy Commission Ms. Madelyn Harding, Sherwin Williams Ms. Bonnie Holmes, American Lung Association Ms. Pam Jones, Diesel Technology Forum Ms. Gretchen Knudsen, International Truck and Engine Corporation Ms. Audrie Krause, Stop Hidden Gas Taxes Coalition Mr. Joseph Kubsh, MECA Mr. Jay McKeeman, CIOMA Mr. Aron Lowe, ASPA Mr. Scott Matthews, California Energy Commission Ms. Heidi McAuliffe, National Paint & Coatings Association Mr. Jay McKeeman, CIOMA Mr. Wayne Miller, UC Peer Reviewer Ms. Patricia Monahan, Union of Concerned Scientists Ms. Eileen Moyer, Reckitt Benckiser Mr. Graham Noyes, World Energy Ms. Kathryn Phillips, CEERT Mr. John Paliwoda, California Motorcycle Dealers Association PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 v APPEARANCES CONTINUED ALSO PRESENT Mr. Doug Raymond, Sherwin Williams Mr. Mark Riedel, Wella Mr. Gordon Schremp, California Energy Commission Ms. Ellen Shapiro, Alliance of Auto Manufactures Mr. Wayne Smith, WSPA Ms. Cindy Tuck, California Council for Environmental & Economic Balance Mr. Barry Wallerstein, South Coast Air Quality Management District Ms. Stephanie Williams, CTA Mr. Joseph Yost, Consumer Specialty Products Association PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 vi INDEX PAGE Pledge of Allegiance 1 Roll Call 1 Item 03-6-1 Chairperson Lloyd 5 Executive Officer Witherspoon 5 Staff Presentation 6 Item 03-6-2 Chairperson Lloyd 13 Assemblyman Diaz 15 Executive Officer Witherspoon 17 Staff Presentation 20 Ombudsman Tschogl 39 Q&A 40 Mr. Wallerstein 44 Mr. Schremp 54 Ms. Williams 59 Mr. Miller 92 Mr. Smith 101 Mr. Kubsh 116 Mr. McKeeman 119 Ms. Holmes 123 Ms. Shapiro 127 Mr. Carmichael 133 Mr. Noyes 144 Ms. Monahan 147 Motion 168 Vote 172 Item 03-6-5 Chairperson Lloyd 173 Executive Officer Witherspoon 175 Staff Presentation 177 Ombusdman Tschogl 189 Mr. Wallerstein 192 Mr. Allen 194 Mr. Raymond 198 Mr. Donegan 204 Mr. Riedel 213 Ms. Moyer 217 Mr. Lowe 222 Mr. Yost 225 Ms. McAuliffe 236 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 vii INDEX CONTINUED PAGE Item 03-6-5 Mr. Ahders 250 Ms. Harding 257 Mr. Beemer 265 Ms. Boddy 273 Ms. Tuck 275 Ms. Holmes-Gen 278 Motion 280 Vote 281 Item 03-6-6 Chairperson Lloyd 284 Executive Officer Witherspoon 284 Staff Presentation 285 Mr. Eaves 296 Mr. Bishop 298 Ms. Krause 308 Ms. Knudsen 312 Ms. Jones 315 Mr. Castleman 319 Mr. Noyes 325 Ms. Phillips 331 Mr. Paliwoda 334 Q&A 335 Motion 338 Vote 338 Item 03-6-3 Chairperson Lloyd 339 Executive Officer Witherspoon 339 Staff Presentation 339 Mr. Paliwoda 341 Motion 346 Vote 346 Item 03-6-4 Chairperson Lloyd 346 Executive Officer Witherspoon 347 Staff Presentation 348 Q&A 364 Motion 368 Vote 369 Adjournment 369 Reporter's Certificate 370 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 1 1 PROCEEDINGS 2 CHAIRPERSON LLOYD: Good morning. The July 24th, 3 2003, public meeting of the Air Resources Board will now 4 come to order. Will the Clerk of the Board please -- oh, 5 could I ask Mr. D'Adamo to lead us in the pledge of 6 allegiance. 7 (Thereupon the Pledge of Allegiance was 8 Recited in unison.) 9 CHAIRPERSON LLOYD: Thank you. Would the Clerk 10 of the Board please call the roll. 11 SECRETARY MALIK: Dr. Burke? 12 BOARD MEMBER BURKE: Here. 13 SECRETARY MALIK: Mr. Calhoun? 14 BOARD MEMBER CALHOUN: Here. 15 SECRETARY MALIK: Ms. D'Adamo? 16 BOARD MEMBER D'ADAMO: Here. 17 SECRETARY MALIK: Supervisor DeSaulnier? 18 Professor Friedman? 19 BOARD MEMBER HUGH FRIEDMAN: Here. 20 SECRETARY MALIK: Dr. Friedman? 21 BOARD MEMBER WILLIAM FRIEDMAN: Here. 22 SECRETARY MALIK: Mr. McKinnon? 23 BOARD MEMBER McKINNON: Here. 24 SECRETARY MALIK: Supervisor Patrick? 25 SUPERVISOR PATRICK: Here. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 2 1 SECRETARY MALIK: Ms. Riordan? 2 Supervisor Roberts? 3 SUPERVISOR ROBERTS: Here. 4 SECRETARY MALIK: Chairman Lloyd? 5 CHAIRPERSON LLOYD: Here. Thank you. 6 Before we start today, I'd just like to have the 7 pleasure of congratulating Dr. Friedman on his birthday. 8 And -- 9 BOARD MEMBER WILLIAM FRIEDMAN: My pleasure. 10 CHAIRPERSON LLOYD: And courtesy of his good 11 wife, we have some visuals to recount. And then as we go 12 a little bit later, the barmitzvah. Then I think 13 something that Matt will appreciate -- 14 BOARD MEMBER McKINNON: Yes. 15 CHAIRPERSON LLOYD: Playing basketball. 16 BOARD MEMBER McKINNON: I think Wilt 17 Chamberlain appreciated that. 18 BOARD MEMBER WILLIAM FRIEDMAN: I played against 19 him. That was 160 founds ago. 20 CHAIRPERSON LLOYD: Then you can see the NIH 21 days, very serious. And I think I'd like to ask maybe 22 Professor Friedman to make a comment on this next one, the 23 next slide. 24 BOARD MEMBER HUGH FRIEDMAN: Well, that's what he 25 looked like when he played volleyball in South Mission PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 3 1 Beach in San Diego, long flowing blond hair, the mustache. 2 And he set them up pretty good for some of us. 3 CHAIRPERSON LLOYD: And maybe also the next one. 4 BOARD MEMBER HUGH FRIEDMAN: The caption there 5 could be, "You know, I have a cap just like that." So do 6 I. 7 (Laughter) 8 CHAIRPERSON LLOYD: And again brings us to the 9 present day. And again, congratulations. And again, it's 10 a pleasure and honor to work with you, Dr. Friedman. And 11 we hope you enjoy this day and many more. 12 BOARD MEMBER WILLIAM FRIEDMAN: Thank you very 13 much. 14 (Applause) 15 BOARD MEMBER HUGH FRIEDMAN: Bill, let me just 16 add that I think your career thus far has reflected great 17 credit on the administration and the Governor that had the 18 wisdom to appoint you to this Board, among many other 19 services you performed for this state and the community, 20 and to the Governor and the administration who had the 21 wisdom to carry you on and keep you with us. And it's 22 been a great treat to work with you. I also think you 23 reflect a great credit and honor on our name, on the name 24 Friedman. And I'm proud of you. And many, many more and 25 good wishes. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 4 1 BOARD MEMBER WILLIAM FRIEDMAN: Thank you. 2 CHAIRPERSON LLOYD: For those of you that have 3 not looked at Doctor or Professor Friedman's resume, I 4 recommend that you do. And you'll see his major 5 accomplishments and really what a steward we have, an 6 international figure, as Professor Friedman said, that has 7 brought great credit and gives us great comfort as we look 8 at some of the health effects and look at some of the 9 issues related to air pollution. Dr. Friedman, you've 10 done a wonderful job. So it's been a real pleasure, and 11 continuing pleasure. 12 Just a quick word about the schedule today. 13 We're going to start with our regular health update and go 14 on to the diesel fuel regulation and then take the 15 proposed fee regulation out of order since we expect it 16 will take a little bit more time than we originally 17 anticipated. We'll then return to the noticed agenda 18 order, picking up the off-highway recreation vehicle item, 19 portable schools report, and finally the report on the 20 Legislature and the Governor on strategies for reducing 21 California's petroleum. 22 Let me also take a moment to recognize two 23 special occasions last Saturday -- one occasion, I guess, 24 and that is the birthday of our distinguished colleague, 25 Matt McKinnon. So Matt, also happy birthday to you last PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 5 1 week. Unfortunately, we don't have -- 2 BOARD MEMBER HUGH FRIEDMAN: How far back are we 3 going to go on this? 4 CHAIRPERSON LLOYD: So as we move ahead, let's go 5 to the first item, which is the health update. Again, I 6 would like to remind anybody in the audience who wishes to 7 testify on today's items to please sign up with the Clerk 8 of the Board. And if you have written comments, to please 9 provide 30 copies to the clerk of the Board. 10 First item is 03-6-1, the monthly public health 11 update. Today we will be hearing about new research that 12 has found yet another potential adverse health impact from 13 diesel exhaust particulates. This study was brought to 14 staff's attention by, again, our distinguished colleague, 15 Dr. Bill Friedman. Thanks very much again, and 16 commensurate with my earlier comments about having you 17 serve in this capacity. 18 With that, I'd like to turn it over to 19 Ms. Witherspoon to begin the staff presentation. 20 EXECUTIVE OFFICER WITHERSPOON: Good morning, 21 Chairman Lloyd and members of the Board. 22 The study staff will describe today measured the 23 health responses of animals exposed to diesel exhaust 24 particles. It is well known that diesel PM presents a 25 clear cancer risk and may play a role in allergy and PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 6 1 asthma problems. This study addresses a new type of 2 health impact, specifically the findings suggest that 3 these particles may activate biological processes in the 4 blood and lung that are associated with heart and lung 5 disease. 6 These findings provide a further reason to be 7 concerned about diesel PM and helps explain why people 8 exposed to diesel exhaust and other particulate matter in 9 the ambient air are in special risk of adverse 10 cardiovascular events. The findings also reinforce the 11 urgency to reduce emissions of diesel exhaust PM into 12 community air. 13 Dane Westerdahl from the Research Division will 14 update the Board on findings of the study. 15 Mr. Westerdahl. 16 (Thereupon an overhead presentation was 17 presented as follows.) 18 MR. WESTERDAHL: Good morning. I'm here today to 19 discuss the results of the recent research study 20 investigating potential mechanisms for the health impacts 21 of diesel exhaust particles, which I'll also call DEP, and 22 by association to particulate matter in general. 23 --o0o-- 24 MR. WESTERDAHL: We've all heard about the 25 harmful effects of DEP in Board meetings over the past PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 7 1 several years, and regulatory actions have been taken to 2 reduce emissions of DEP to minimize its effects. 3 Additional regulations will be considered at today's Board 4 meeting. 5 In 1998, the Air Resources Board identified 6 diesel exhaust particles as a toxic air contaminant. It 7 poses a serious potential to cause cancer in people 8 exposed to levels in communities -- community air in 9 California. DEP often contributes to a considerable 10 portion of PM2.5 mass in urban areas and may cause some of 11 the various health effects associated with PM exposure. 12 PM effects of concern include mortality and morbidity 13 associations from heart- and lung-related causes. 14 However, finding mechanistic explanations for these 15 effects has remained allusive. 16 DEP have recently been found to play a roll in 17 causing a worsening of allergies and asthma, especially 18 when other allergies are present. The pollutant can also 19 reduce visibility and play a roll in global climate 20 change. 21 --o0o-- 22 MR. WESTERDAHL: The study I'll be discussing 23 today was performed by Dr. Nemmar from a research group in 24 Belgium. The title of the study is "Diesel Exhaust 25 Particles in Lung Acutely Enhance Experimental Peripheral PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 8 1 Thrombosis." The object of the study was to investigate 2 possible mechanisms to explain observations of 3 cardiovascular mortality and morbidity found in 4 epidemiologic studies. Diesel exhaust particles were 5 employed as a surrogate of ambient PM. 6 --o0o-- 7 MR. WESTERDAHL: In the study, hamsters were 8 employed as experimental test animals. They were 9 surgically prepared to accept liquid suspensions of diesel 10 exhaust particles into their trachea, or throat. 11 Particles from a reference material that is available for 12 research on effects, chemistry, and particle physics was 13 used as a source of these particles. 14 Particles were placed in solution and treated to 15 encourage individual particles to be separated from the 16 bulk material and several concentrations of DEP containing 17 fluids were instilled in the animals to allow an 18 evaluation of the roll of dose in producing effects. 19 Following treatment with diesel exhaust 20 particles, the animals were allowed to develop measurable 21 responses. There are basically three types of responses 22 that were considered. First was a thrombosis-related 23 effect measured in terms of coagulation and clotting of 24 the blood was assessed by measuring the intensity of light 25 that passed through an experimental vein or artery. Less PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 9 1 light passed when coagulation processes occurred. 2 Second, lavage fluids were retrieved from the 3 lungs of exposed and control animals, and cellular content 4 of the fluid was separated and evaluated. The remaining 5 non-cellular fluid was also asate. Cells and chemical 6 interests relate to irritation injury processes. Finally, 7 blood was collected and the function of platelets, which 8 is involved in the clotting and coagulation, was assessed 9 outside the animals. 10 The protocols are an extension of previous work 11 by authors where ultra fine particles were administered to 12 the airways of hamsters as a liquid suspension. These 13 particles appeared in circulating blood soon after 14 exposure. This suggested that inhaled PM might also do so 15 and could explain how PM could impact cardiovascular 16 function. 17 --o0o-- 18 MR. WESTERDAHL: The investigators report that 19 for each of the effects, that the effects increased as 20 administered dose increased. The following findings were 21 reported. There was a two-to-seven times more blood 22 coagulation in treated animals than controls as dose went 23 from low to high over concentration range of 100 fold. 24 The graph clearly shows as sort of a dose response 25 observation where, as the dose increases on the lower PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 10 1 margin of the graph, the -- you see a step-wise increase 2 in the response, which is unusual and difficult to 3 describe the response in this case units-wise. But you 4 can see there's a step-wise increase as the exposure 5 increased. 6 This happened -- all these effects I'll be 7 talking about happened quite quickly within an hour's 8 time, which is also an important point in the study. 9 There was an increase in macrophage and neutrophil cells 10 which retrieve lung fluid. The macrophage are markers of 11 airway damage and inflammation. Proteins retrieved from 12 the lungs also increased as the dose increased. The 13 protein indicate airway damage and leakiness, more 14 technically referred to as increased epithelial 15 permeability. 16 Histamines and retrieved lung fluid also 17 increased dramatically by a factor of two to ten above 18 control animals. This indicates a marked allergy asthma 19 health impact potential as well as the initiation of 20 complex physiological responses and processes. Again, all 21 of these effects were seen in less than an hour's time. 22 --o0o-- 23 MR. WESTERDAHL: There are limitations to this 24 study that are important to keep in mind as we look at any 25 piece of science. The diesel exhaust particles employed PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 11 1 were performed -- were put into a liquid suspension with 2 the liquid applied to the lung. And the liquid is fairly 3 concentrated when compared to inhaled diesel exhaust 4 particles in the atmosphere. The diesel exhaust particles 5 also differ from that found in the atmosphere. Exhaust 6 particles in the atmosphere start as finely structured 7 changes of smaller diesel exhaust particles. 8 The sonication and preparation of the referenced 9 material disrupts the structure and may impact the 10 chemistry as well. In the picture we can see the 11 structure and nature of ambient exhaust particles on the 12 left and very finely structured materials. On the right 13 you see what happens if you sonicate them in a fluid. 14 Much of the fine structure is disrupted. 15 It is important also to note that the author used 16 diesel exhaust particles as a surrogate for atmospheric 17 PM, but it's possible that diesel exhaust particles may 18 have their own unique properties. 19 --o0o-- 20 MR. WESTERDAHL: What are the implications of the 21 study? Probably the most important implication is the 22 study identifies a new reason for us to be concerned about 23 health impacts of diesel exhaust particles. That 24 specifically is that they have an acute cardiovascular 25 response and indications of lung injury beyond the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 12 1 potential to cause cancer that we are most concerned about 2 for toxic air contaminant program. Again, the responses 3 we're seeing by the investigator were seen within an 4 hour's time. 5 The study enforces this concern by providing a 6 plausible mechanism to explain how these cardiovascular 7 events might occur -- effects might occur. The findings 8 also provide strong evidence that explain the observations 9 of epidemiologic studies and consistently find increases 10 of deaths and hospitalizations of people when PM levels 11 increase in ambient air. Until recently, there have been 12 very few mechanistic explanations for these findings, even 13 though there's much research focused in this area. 14 Lastly, the findings of the study suggest the 15 need to conduct relevant experimental studies to confirm 16 whether these effects occur in people exposed to PM or 17 diesel exhaust particles. 18 Thank you. 19 CHAIRPERSON LLOYD: Thank you. 20 Question or comments? 21 BOARD MEMBER WILLIAM FRIEDMAN: I just think they 22 hit the nail on the head in the implication slide. This 23 is a very straightforward study in small animals, and it 24 shows that particulates enhance clotting. And as you 25 know, clotting and heart attacks and cardiac events are PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 13 1 distinctly related. 2 What this study really does is it opens the door 3 for some much more sophisticated studies in which 4 particles are not delivered by liquid to the lungs and -- 5 but rather in more physiological conditions and opens the 6 door to human studies to see if this pro-clotting 7 mechanism is instrumental in some of the cardiac deaths 8 that are clearly associated with PM. 9 Very good job. 10 CHAIRPERSON LLOYD: Thank you very much. With 11 that, we will move on to the next item which is 03-6-2, 12 proposed amendments to the specifications for California 13 diesel fuel. 14 One of this Board's highest priorities is to 15 reduce the emissions and the associated public health risk 16 of diesel-powered engines throughout the state. We have 17 multiple rule makings scheduled to achieve that objective, 18 focused on the owners and operators of diesel vehicles and 19 equipment. Just as we've seen on the gasoline side where 20 you get lead out, you're able to get a lot back in 21 treatment. Diesel vehicles, diesel engines, and diesel 22 fuel are integral systems, and we need to regulate all 23 three to achieve those goals. In fact, we need also to 24 get the whole circle. 25 The last major regulation adopted by this Board PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 14 1 for California diesel fuel was approved in 1988 and fully 2 implemented by 1993. At that time, the Board set an 3 aromatic limit of 10 percent and a sulfur limit at 500 4 parts per million. Since 1983, California's diesel fuel 5 specifications have resulted in substantial reductions of 6 sulfur oxides, hydrocarbons, oxides of nitrogen, and 7 particulate matter. 8 California's diesel fuel specifications have also 9 reduced several toxic substances, including diesel PM 10 exhaust, benzene, and polynuclear aromatic hydrocarbons. 11 Today the Board is considering a substantial 12 reduction in California's sulfur content standard for 13 diesel fuel, which would drop the sulfur limit from 500 to 14 15 PPM. To ensure the low sulfur fuel doesn't harm older 15 engines in any way, staff is also proposing a new 16 lubricity standard to complement the 15 PPM cap. All 17 other sulfur properties would remain the same. 18 I want to stress the last sentence, because 19 there's been some confusion about exactly what is before 20 this Board today. We are not reopening our entire diesel 21 fuel rule. This item is primarily about the sulfur limit 22 for California diesel fuel, the implementation date for 23 the new limit, and the imposition of clean fuel 24 requirements on on-road vehicles, off-road diesels, and 25 stationary sources. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 15 1 Before I turn this over to the Executive Officer, 2 I would like to invite Assemblyman Diaz to the podium and 3 to -- he would like to address today on this item. I know 4 how valuable his time is and how busy they are over in the 5 Assembly. 6 Welcome, Assemblyman. 7 ASSEMBLYMAN DIAZ: Mr. Chairman, good morning 8 members of the ARP. 9 Hopefully we'll pass the budget here soon. Who 10 knows. But thank you for this opportunity to speak on 11 this item. 12 I currently chair the Assembly Budget Committee 13 on transportation, and I'm now in my third year in the 14 Assembly. So I'm still learning a lot about this issue 15 dealing with the environment and how the transportation 16 office has an impact on the environment, but -- members, I 17 think it's also important to understand, you know, what 18 direction we're going in our regulation in dealing with 19 reducing air pollution. 20 I commend you for the good work that you've been 21 doing all these years, but I think it's also very 22 important that the Legislature also get more engaged, so I 23 plan to have a hearing this fall. I want to share that 24 with you. I'd like to also invite you to participate, to 25 be part of that process. I think it's very important that PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 16 1 we understand when we're looking at standardizing diesel 2 fuel standards and especially when we're trying to make it 3 in line with the national standards, and I recognize that 4 today you're going to be just looking at the sulfur 5 content portion of this diesel fuel standard, but I think 6 it's very important that we understand economically what 7 it means. 8 But I support efforts to advocate and to promote 9 more cleaner fuels. I think that's pretty obvious that we 10 need to to do that here in California, especially if we 11 want to continue to support economic growth. But we also 12 at the same time need to clean up our air. I did want to 13 share that with you. 14 There's been several industry groups that have 15 also raised concerns with the proposed actions you're 16 taking today, and ones coming from California Trucking 17 Association. But again, I'm not taking any sides today. 18 I'm just here to share with you that I do intend to have a 19 hearing and to again review and look at the best way to go 20 forward as far as developing a diesel fuel standard for 21 all California. 22 And I would like to mention one other thing. 23 Earlier this year I had a bill, AB 1500, that was going to 24 be looking at creating a gate fee of $1 per barrel of oil 25 and it made me very popular with the oil industry, but I PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 17 1 felt that at some point here in California we need to 2 identify some revenue source that we can fund through a 3 Carl Moyer program and other programs that again create 4 incentives for folks out there to replace their old 5 technologies, their old engines and look at cleaner 6 technologies. So I want to be able to work with you and 7 other stakeholders in that effort. Thank you. 8 CHAIRPERSON LLOYD: Thank you very much, 9 Congressman. Certainly we will be delighted to 10 participate in your hearing, a very important issue. And 11 also we're delighted again with your comments on this 12 highly successful Carl Moyer program. 13 We look forward to working with you on that and 14 the various stakeholders. 15 ASSEMBLYMAN DIAZ: Thank you. 16 CHAIRPERSON LLOYD: Thank you very much indeed. 17 With that, I would like to turn this over to our 18 Executive Officer, Ms. Witherspoon, to begin the staff 19 presentation and to introduce the item. 20 EXECUTIVE OFFICER WITHERSPOON: Thank you, 21 Dr. Lloyd. 22 California's fuel programs are an essential 23 component of the state's plan to improve air quality and 24 protect public health. In both qualitative and 25 quantitative terms, the effects are dramatic. The PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 18 1 estimated benefit of our 1993 diesel fuel regulation is 2 100 tons per day of NOx, 85 tons per day of SOx, and 18 3 tons per day of directly emitted particulate. 4 To put that NOx number in perspective, the 5 combined NOx emissions from all of the state's power 6 plants and oil refineries adds up to approximately 108 7 tons per day. So we we're talking about a very large 8 impact and a very effective regulation. And the numbers 9 I'm describing to you are for the year 2000 and they 10 reflect the benefit as compared to the fuel that was in 11 place prior to 1993. 12 Low sulfur fuel is needed to enable the next 13 round of technological advances in emission control. The 14 on-road heavy duty diesel standards adopted by the U.S. 15 EPA and Air Resources Board in 2001 for implementation in 16 2007 require substantial reductions of PM and ozone 17 precursors. These can only be achieved with the 18 combination of cleaner fuel and after-treatment devices. 19 Low sulfur diesel fuel is also needed to support the 20 measures in ARB's diesel risk reduction plan adopted by 21 the Board in 2000, most notably the deployment of 22 catalyzed diesel particulate filters. 23 Staff is proposing that the Board amend the 24 diesel fuel regulations to reduce the maximum allowable 25 sulfur content from 500 to 15 PPM. The U.S. EPA and the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 19 1 South Coast AQMD have already promulgated rules for low 2 sulfur fuel. The proposed sulfur specification would 3 establish a consistent statewide compliance date. It 4 would also extend the required use of low sulfur fuel to 5 off-road and stationary sources, something the federal 6 regulation does not do. 7 As Dr. Lloyd indicated, staff is also proposing a 8 new lubricity standard to ensure adequate lubrication for 9 the fuel systems of existing and future diesel engines. 10 We have a few other minor changes for your 11 consideration today. First, staff is proposing a new 12 option for complying with the 10 percent aromatic 13 hydrocarbon standard to give refiners and importers some 14 additional flexibility. 15 Second, the proposal amends the certification 16 process to reflect the new sulfur limit. Third, we are 17 revising the procedures for certifying alternative diesel 18 fuel formulations. 19 Finally, we have a placeholder amendment as part 20 of our 15-day change package to address an outstanding 21 alternative fuel certification issue that involves just 22 one refiner. That provision will only be activated in the 23 unlikely event that we are unable to reach resolution by 24 the time this regulation is filed with the Office of 25 Administrative Law. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 20 1 I would now ask -- I'd like to ask Ms. Gloria 2 Lindner to make the staff's presentation. 3 (Thereupon an overhead presentation was 4 presented as follows.) 5 MS. LINDNER: Thank you, Ms. Witherspoon. Good 6 morning Mr. Chairman and members of the Board. 7 Today I will present the staff's proposal for 8 amendments to the California diesel fuel regulations, our 9 background information and I will describe the staff 10 proposal as presented in the staff report and the changes 11 we are proposing today. Then I will conclude with the 12 staff recommendation. 13 --o0o-- 14 MS. LINDNER: I will begin with some background 15 information. 16 --o0o-- 17 MS. LINDNER: Vehicles are major contributors to 18 California's air quality problems. As we see on this 19 slide, there are about 24 million gasoline-powered 20 vehicles and approximately 1,250,000 diesel-fueled 21 vehicles and engines in California. California's mobile 22 source and fuels programs have been very effective in 23 improving air quality in the state. However, even with 24 these efforts, over 90 percent of California still breathe 25 unhealthy air. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 21 1 --o0o-- 2 MS. LINDNER: While diesel fuel vehicles are 3 about 5 percent of the vehicle population, they are a 4 significant air quality concern. As we see here, diesel 5 fuel consumption in California is increasing. Between 6 1990 and 2002, diesel fuel consumption increased by about 7 47 percent. 8 --o0o-- 9 MS. LINDNER: Diesel vehicles, both on-road and 10 off-road, are responsible for 58 percent of the NOx and 72 11 percent of the directly emitted PM 10 from mobile sources. 12 But the future significant new emissions reduction must be 13 obtained from on-road and off-road diesel engines if we 14 are to continue to make progress to reduce exposure to 15 toxic air contaminants and obtain air quality standards. 16 --o0o-- 17 MS. LINDNER: Almost all of the diesel particle 18 masses in the fine particle range of ten microns or less 19 in diameter, the PM 10, and approximately 94 percent of 20 the mass is particles less than 2.5 microns in diameter, 21 the PM2.5. Diesel exhaust emissions are a significant 22 course of directly emitted PM2.5 and secondary PM2.5 as we 23 see on this slide. These particles have very large 24 surface area per unit mass which makes an excellent 25 carrier for many of the toxic substances from diesel PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 22 1 exhaust. Any measures to reduce these PM emissions would 2 significantly reduce risk. 3 --o0o-- 4 MS. LINDNER: And diesel particulate matter has 5 been identified as a toxic air contaminant. This chart 6 shows in 2000 the diesel PM cancer risk accounted for 7 approximately 70 percent of the ambient air toxics cancer 8 risk. 9 --o0o-- 10 MS. LINDNER: This table presents estimates of 11 the morbidity and mortality associated with diesel PM and 12 NOx emissions in California in 2000. As can be seen, 13 these effects are significant. From three long-term 14 studies the estimated annual premature deaths with direct 15 and indirect PM exposure was 2900 and 3600. 16 --o0o-- 17 MS. LINDNER: The California diesel fuel 18 regulations were implemented in 1993 statewide to control 19 the sulfur content and aromatic hydrocarbon content of 20 diesel fuel sold in California for on-road and off-road 21 motor vehicle use. The regulation provides flexibility by 22 allowing certification of alternative formulations that 23 maintain emissions benefits. Most refiners have taken 24 advantage of this flexibility to reduce diesel fuel 25 emitting alternative formulations. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 23 1 --o0o-- 2 MS. LINDNER: The current requirements of the 3 current diesel fuel regulations are summarized in this 4 table and compared with the EPA's requirements. Both the 5 EPA standards and the California statewide standards have 6 been in effect since 1993. The EPA regulations differs 7 from the ARBs both in the applicability of the regulation 8 and the specification for fuel properties, whereas, the 9 California diesel fuel regulation applies to all motor 10 vehicles, both on-road and off-road, but excluding marine 11 and locomotive use. 12 The U.S. EPA's regulation applies only to on-road 13 vehicles. California's basic requirements for motor 14 vehicle diesel fuel are sulfur content limit of 500 PPM by 15 weight and maximum allowable aromatic hydrocarbon content 16 limits of 10 percent by volume for large refiners and 20 17 percent for small refiners, or alternative formulation 18 that will provide the equivalent emissions benefits. 19 --o0o-- 20 MS. LINDNER: Since this statewide diesel 21 regulation became effective in 1993, the aromatic 22 hydrocarbon and the sulfur content of California diesels 23 have decreased while the cetane number has increased. 24 Generally, a fuel of superior quality will be low in 25 sulfur and aromatics in other properties which affect fuel PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 24 1 quality, except cetane number which will be high. The 2 California diesel fuel is cleaner than the national 3 average fuel, and as a result, as we will see on the next 4 slide, the emission benefits from the California fuel are 5 greater. 6 --o0o-- 7 MS. LINDNER: The California diesel fuel 8 regulations reduce emissions of PM and NOx because they 9 limit the sulfur and aromatic hydrocarbon content of 10 diesel or require changes to other properties that produce 11 the equivalent emission benefits. Compared to pre-1993 12 diesel fuel, California provides 110 tons per day 13 reduction of NOx emissions and 18 tons per day of directly 14 emitted PM10. California diesel fuel also resulted in 15 reductions of emissions of toxic substances. 16 --o0o-- 17 MS. LINDNER: This slide shows the emission 18 benefit of the California diesel fuel regulations for five 19 air basins. 20 --o0o-- 21 MS. LINDNER: In August of 1998, the ARB 22 identified diesel PM as a toxic air contaminant and in 23 September of 2000 approved California's risk reduction 24 plan to reduce particulate matter emissions from diesel 25 fuel engines and vehicles. This plan seeks to reduce PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 25 1 diesel PM emissions and associated health risks by 85 2 percent by 2020. It identifies appropriate air toxic 3 control measures and regulations for controlling diesel 4 exhaust emissions. 5 It also identifies the need to reduce the sulfur 6 content of California diesel fuel to no more than 15 PPM 7 by weight. With this low sulfur -- without this low 8 sulfur diesel, the objectives of the diesel risk reduction 9 plan could not be achieved. 10 --o0o-- 11 MS. LINDNER: In January 2001, the U.S. EPA 12 adopted new diesel fuel quality standards limiting the 13 sulfur content of on-road diesel to no more than 15 PPM by 14 weight. Refiners are required to produce this on-road 15 diesel fuel beginning June 1st, 2006. Also, all 2007 and 16 later model year diesel fueled vehicles must use this new 17 low sulfur diesel. 18 The U.S. EPA has also proposed that the beginning 19 June 1st, 2007, sulfur levels from on-road diesel fuel 20 reduced from current uncontrolled levels to an interim cap 21 of cap of 500 PPM, and then in 2010 for the 15 PPM on-road 22 diesel limit. 23 The U.S. EPA is also asking for comments in 24 reducing sulfur levels from locomotive and marine fuel to 25 15 PPM in 2010. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 26 1 --o0o-- 2 MS. LINDNER: The South Coast AQMD amended its 3 rule 431.2 in September 2000 to require that low sulfur 4 diesel fuel be used in all stationary engines beginning 5 June 1st, 2004. The regulation also requires that all 6 other diesel engines applications comply with the low 7 sulfur requirement by January 1st, 2005, unless the ARB 8 adopts the low sulfur diesel fuel requirement, in which 9 case the effective date becomes the same as that adopted 10 by the ARB, but no later than June 1st, 2006. 11 --o0o-- 12 MS. LINDNER: The ARB and office are implementing 13 rules to reduce diesel exhaust emissions. With the 14 exception of the school bus idling ATCM, all of the 15 programs shown in this slide require the use of low sulfur 16 diesel fuel. 17 --o0o-- 18 MS. LINDNER: I will now begin my presentation of 19 the staff proposal. Staff is proposing changes to the 20 requirements of the diesel fuel regulations, including 21 amendments to the sulfur content in motor vehicle diesel 22 fuel, the certification requirements and other changes. 23 --o0o-- 24 MS. LINDNER: Staff is also proposing new 25 provisions to increase flexibility and new ATCM for PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 27 1 non-vehicle diesel fuel and a new industry standard. It 2 should be noted that staff is not proposing any changes to 3 the basic aromatic hydrocarbon requirements of the 4 regulation. 5 --o0o-- 6 MS. LINDNER: I will now describe the proposed 7 changes to the requirements of the California diesel fuel 8 regulations. 9 --o0o-- 10 MS. LINDNER: Staff is proposing that the 11 specification for the maximum sulfur content of motor 12 vehicle diesel fuel be reduced from 500 PPM by weight to 13 15 PPM by weight. This fuel sulfur requirement would 14 apply to both on-road and off-road vehicle use. The 15 15 PPM would generally align the California requirements with 16 U.S. EPA standard for on-road diesel fuel, but the ARB 17 requirements would apply to diesel fuel using off-road 18 motor vehicles as well. The proposed sulfur content limit 19 would be phased in during mid-2006, using a schedule 20 substantially the same as the schedule in the federal 21 regulations. 22 --o0o-- 23 MS. LINDNER: The 15 PPM sulfur content limit is 24 being proposed because it is needed to enable new PM and 25 NOx emission control technologies and to enable the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 28 1 implementation of PM retrofit programs under the ARB's 2 diesel risk reduction plan. 3 --o0o-- 4 MS. LINDNER: Staff is proposing to revise the 5 criteria for approving alternative diesel formulations. 6 The current provisions are not sufficient to ensure that 7 commercially reduced alternative formulations are 8 equivalent to the kind of fuel tested in the laboratory. 9 The proposed revisions are needed to provide further 10 assurance that new certified alterative formulations 11 result in equivalent emissions to the 10 percent aromatic 12 hydrocarbon standard. 13 --o0o-- 14 MS. LINDNER: Staff's other proposed changes 15 include the revision of the allowable sulfur levels in 16 diesel fuel used to certify diesel engines. The proposed 17 range of 7 to 15 PPM for the allowable sulfur content is 18 identical to the sulfur content of federal certification 19 fuel. 20 Another proposed change would require a new test 21 method that provides a more suitable detection limit and 22 better precision for testing 15 PPM sulfur diesel. 23 Other proposed changes would clarify the 24 applicability of the diesel fuel regulations to allow more 25 effective enforcement. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 29 1 --o0o-- 2 MS. LINDNER: Next I will describe staff's 3 proposal to improve the flexibility of the regulations. 4 --o0o-- 5 MS. LINDNER: This proposal does not add a new 6 requirement, nor does it change the basic requirement of 7 the regulation. Staff is proposing an amendment that 8 would add a new option for complying with the 10 percent 9 aromatic hydrocarbon standard. This option would allow 10 refiners to meet a set of specified limits without 11 undergoing testing. The limits are generally based on the 12 average properties of certified formulations and end-use 13 fuels. 14 --o0o-- 15 MS. LINDNER: Emission benefits of the California 16 diesel fuel program are preserved, since any fuel produced 17 to meet the proposed equivalent limits will be at least as 18 clean as the average end-use fuel. This proposed new 19 equivalent limits option would provide additional 20 flexibility for refiners to comply with the 10 percent 21 aromatic hydrocarbon standard. This option could also 22 facilitate the importation of diesel fuel into the 23 California market. 24 --o0o-- 25 MS. LINDNER: Now I'll describe the staff's PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 30 1 proposed air toxic control measure for non-vehicular 2 diesel fuel. 3 --o0o-- 4 MS. LINDNER: The proposed ATCM would require 5 that California diesel fuel for stationary sources and 6 other uses meet the same standards as California vehicular 7 diesel fuel. The proposed ATCM is needed to ensure 8 emissions reduction required by the diesel risk reduction 9 plan for stationary engines and other sources. For your 10 information, up to 90 percent of stationary engines now 11 use motor vehicle diesel fuel because of lack of access to 12 other quality diesel. 13 Diesel fuel used in locomotive and marine vessels 14 would be exempt. We have recommended to the EPA that 15 lower sulfur limits be adopted for locomotive and marine 16 diesel fuel. We have also suggested to the EPA that fuel 17 properties other than sulfur content should be controlled 18 for all diesel fuel uses. If the EPA does not perceive 19 that the low sulfur requirement for diesel for locomotive 20 and marine engines, we are prepared to develop appropriate 21 measures. 22 --o0o-- 23 MS. LINDNER: Now I will discuss the proposed 24 diesel fuel lubricity standard. 25 --o0o-- PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 31 1 MS. LINDNER: Diesel fuel lubricity can be 2 defined as the ability of diesel fuel to provide surface 3 contact lubrication. Adequate levels of fuel lubricity 4 are necessary to protect the internal contact points and 5 fuel pumps and injection systems to maintain reliable 6 performance. 7 There is new enforceable lubricity standards 8 currently in place in California. However, California 9 refineries have been adhering to a volunteer lubricity 10 standard that is based on the 1994 Governor's Diesel Task 11 Force recommendation. Advanced fuel injection systems 12 which use extremely high pressures are becoming more 13 prevalent in the California market and may require higher 14 lubricity -- higher levels of lubricity than are currently 15 being considered. 16 --o0o-- 17 MS. LINDNER: The American Society for Testing 18 and Materials, the ASTM, has made significant progress in 19 the past year in their efforts to adopt the lubricity 20 standard. A proposed ASTM lubricity standard is passed at 21 the subcommittee level in June of this year and is to be 22 balloted at the committee level prior to the December ASTM 23 meeting this year. 24 The proposed standard based on the high frequency 25 reciprocating rig or HFRR test method is the maximum risk PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 32 1 guard diameter of 520 microns to be applicable for all 2 grades of diesel fuel. As part of the ASTM ballot a 3 strong commitment was made to conduct a research program 4 to determine the required lubricity level for advanced 5 technology high pressure fuel injection equipment. This 6 program would be part of a new reform lubricity panel 7 within the coordinating research counsel diesel 8 performance group. This work is to be completed in 2004 9 and the ASTM standard updated as required. 10 --o0o-- 11 MS. LINDNER: Staff is proposing that a new 12 Section 2284 titled lubricity of diesel fuel be added to 13 the regulation. This new section contains two main parts. 14 The first part is a lubricity standard to be implemented 15 starting in 2004. The second part is a research section 16 in the regulation for future standard to be developed and 17 then implemented in 2006. 18 --o0o-- 19 MS. LINDNER: The lubricity standard that staff 20 is proposing for 2004 is the same as the ASTM proposed 21 standard. This level has been shown to be at least as 22 protective as the current voluntary level being maintained 23 by California refineries and has been shown to be 24 protective of existing conventional fuel injection 25 equipment in California. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 33 1 Staff will be proposing to sunset this 2004 2 standard in the event that the ASTM passes their current 3 ballot which would then be enforceable by the state 4 division of measurement standard. 5 --o0o-- 6 MS. LINDNER: The research section for lubricity 7 standard starting in 2006 is to ensure protection of new 8 high pressure advanced technology fuel injection 9 equipment. Staff recommends that the staff direct the 10 staff to conduct a technology assessment to be completed 11 by 2005 to determine what lubricity standard is required 12 to protect advanced technology fuel injection equipment, 13 and if appropriate, to propose a new lubricity standard to 14 the Board for 2006 implementation. 15 --o0o-- 16 MS. LINDNER: The proposed lubricity standard is 17 needed to ensure that California diesel fuel has adequate 18 lubricity to protect fuel systems of existing and future 19 diesel engines. These standards are essential as the 20 levels of natural lubricity agents in diesel fuel are 21 expected to be reduced by the more severe hydrotreating 22 needed to lower the sulphur content of diesel fuel to meet 23 the proposed 15 PPM sulphur limit. 24 --o0o-- 25 MS. LINDNER: What I have presented so far has PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 34 1 been the staff proposal as contained in the staff report. 2 Since the release of the report, staff has continued 3 discussions with stakeholders and as a result, we are 4 proposing some modifications to the initial proposal. If 5 approved by the Board, these would be subject to 15-day 6 public comment period. The proposed changes are included 7 in your package and copies are available for the public 8 today. 9 --o0o-- 10 MS. LINDNER: Staff is recommending that the 11 provision be added regarding the phase in of the 15 PPM 12 sulfur limit at low throughput facilities. This proposed 13 revision is to exempt facilities where it can be 14 demonstrated that the fuel in the tank was delivered to 15 the facility prior to the effective dates of the 16 regulation. The revision is needed so that low throughput 17 end users would not be required to drain their tanks or 18 take extraordinary measures to comply with the proposed 19 sulfur limit. 20 --o0o-- 21 MS. LINDNER: Staff is recommending that the 22 proposed definition of diesel fuel be modified such that a 23 product that is more than 50 percent biodiesel would not 24 fall within the definition of diesel fuel. This would be 25 consistent with the U.S. EPA's definitions. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 35 1 Staff is also recommending that the proposed 2 section under the sulfur regulation addressing downstream 3 blending of product vehicular diesel fuel be deleted. 4 Staff concluded that, since diesel fuel would have to meet 5 the same sulfur standards throughout the distribution 6 system, a special downstream provision need not be 7 included in the sulfur regulation. 8 --o0o-- 9 MS. LINDNER: We also recommend that the new 10 subsection be added to address previously certified diesel 11 fuel formulations where the candidate fuel did not meet 12 the newly proposed specification requirements. There 13 could be some formulations which under the new regulations 14 may not be equivalent to the 10 percent aromatic standard, 15 due to qualities of the candidate fuel not addressed in 16 the existing regulation. 17 Under the modification, the certification of a 18 formulation would no longer be effective 90 days after the 19 implementation date of these amendments if the candidate 20 fuel did not meet the new specification requirements and 21 the formulation meets all three of the criteria shown on 22 the slide. 23 If the executive officer determines that this 24 proposed revision is not necessary because the issues 25 concerning the affected formulations have been resolved PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 36 1 and now pending discussions with affected refiners, this 2 change will not be included in the 15-day notice package. 3 --o0o-- 4 MS. LINDNER: Staff is recommending that the 2004 5 lubricity standard paragraph be modified to include a 6 provision to sunset this standard if ASTM successfully 7 adopts its current lubricity proposal. With ASTM 8 adoption, this standard would automatically be enforceable 9 by the State Division of Measurement Standards under their 10 regulations. 11 --o0o-- 12 MS. LINDNER: Staff recommends that the proposed 13 amendment to heavy duty test procedures regarding 14 California certification diesel test fuel be dropped from 15 the proposal. This amendment is unnecessary, since the 16 existing state and federal certification test procedures 17 already specify a sulfur content of 7 to 15 PPM and a 18 limit on aromatics. 19 --o0o-- 20 MS. LINDNER: I will now summarize the expected 21 impacts of today's proposal. The lower sulfur diesel will 22 have its greatest impact on emissions by enabling the use 23 of the new emissions control technologies for diesel 24 engines. The use of these emission control technologies 25 will result in significant additional reductions of diesel PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 37 1 PM and ozone precursors and also reduce exposures to toxic 2 air contaminants. By reducing the sulfur content of 3 diesel fuel from the current average value of 140 PPM to 4 less than 15 PPM, emissions of sulfur oxides will be 5 reduced by about 90 percent or about 6.4 tons per day from 6 2000 levels. The lower sulfur content will also result in 7 reduction of direct diesel PPM emissions of about 4 8 percent or about 0.6 tons per day. 9 --o0o-- 10 MS. LINDNER: There are no known additional 11 impacts on surface water, groundwater, or soil compared to 12 current diesel fuel. The lower sulfur content provides a 13 direct benefit through a reduction of atmospheric 14 deposition of sulfuric acid and sulfates in water bodies. 15 A multimedia environmental impact assessment will be 16 prepared and reviewed by the California environmental 17 policy counsel prior to final adoption of the regulation. 18 --o0o-- 19 MS. LINDNER: Staff's estimates of the cost of 20 reducing the sulfur content of diesel fuel and meeting the 21 minimum lubricity specifications were based on the results 22 of two surveys sent to California diesel refineries and on 23 other studies, including those conducted by the U.S. EPA 24 and the South Coast AQMD. California refineries are 25 expected to incur capital costs of $200 to $300 million. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 38 1 The estimated cost of the lubricity standard is 0.6 -- 2 sorry -- 0.2 to 0.6 cents per gallon of diesel. 3 --o0o-- 4 MS. LINDNER: The likely cost to California 5 refiners to produce low sulfur diesel fuel is estimated to 6 be 2 to 3 cents per gallon, including the cost of the 7 lubricity standard. This estimate is consistent with 8 South Coast estimate of 1 to 3 cents per gallon. It is 9 lower than the U.S. EPA's estimate of a cost of 4 to 5 10 cents per gallon for federal on-road low sulfur diesel 11 fuel. 12 It should be noted that even without any action 13 by the Board, most of the cost to California refineries 14 would be incurred as a result of low sulfur diesel fuel 15 regulations already adopted by the U.S. EPA and the South 16 Coast AQMD. 17 --o0o-- 18 MS. LINDNER: I will now discuss the status of 19 the peer review of the staff proposal. 20 --o0o-- 21 MS. LINDNER: Staff followed Cal EPA's formal 22 process for conducting peer reviews. We requested peer 23 reviews of the proposal, as well as a review of the 24 staff's report and the benefits of the California diesel 25 fuel regulations. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 39 1 We contracted with four reviewers. The lead 2 reviewer is Dr. Wayne Miller of the University of 3 California Riverside. Dr. Miller in the audience today 4 and is available to answer any questions the Board might 5 have. No major issues have been identified to date 6 concerning the proposal or the staff's estimate of the 7 emission benefits of the current regulation. 8 --o0o-- 9 MS. LINDNER: And the staff recommends that the 10 Board approve the proposed amendments. The staff also 11 recommends that the Board direct staff to conduct a 12 technology review and return to the Board in 2005 to 13 address the appropriateness of the lubricity standard. 14 CHAIRPERSON LLOYD: Thank you very much. 15 Madam Ombudsman, would you kindly describe the 16 public participation process during the formulation of the 17 recommendation to staff and also share any concerns, 18 observations you may have. 19 OMBUDSMAN TSCHOGL: Mr. Chairman and members of 20 the Board. 21 The proposed amendments were developed after an 22 extensive public review process. That process included an 23 initial set of public workshops beginning in November of 24 1998. The proposed amendments of the California diesel 25 fuel regulations are just one element of the Board PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 40 1 approved diesel risk reduction plan. 2 As stated, staff has been holding workshops on 3 this item dating back to November of '98. Ten workshops 4 were held in a variety of locations in both Northern and 5 Southern California. These workshops were held between 6 November '98 and May 20th of 2003. Attendance at these 7 workshops ranged from 10 to 44 participants. The workshop 8 notices were sent to over 2,800 people, and staff has 9 developed a web site and a list serve. 10 In addition, stationary source division staff has 11 had daily telephone conference calls with stakeholders 12 over the past couple of years. 13 Thank you. That concludes my remarks. 14 CHAIRPERSON LLOYD: Thank you very much. 15 Questions, comments from my colleagues. 16 I have a few questions. When we talk about this 17 rule would supercede the South Coast rule, we identify 18 that it would be for the motor vehicles. Does that also 19 apply for the 2004, which would be effective for 20 stationary sources? 21 EXECUTIVE OFFICER WITHERSPOON: It does not. 22 CHAIRPERSON LLOYD: Sorry? 23 EXECUTIVE OFFICER WITHERSPOON: It does not 24 override the South Coast rule for stationary source 25 application of a low sulfur limit prior to 2006, only the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 41 1 motor vehicle portion. 2 GENERAL COUNSEL WALSH: For the motor vehicle, 3 not the stationary. 4 OMBUDSMAN TSCHOGL: Although I'd like to clarify 5 that. I don't know that you would say that staff's 6 proposal supercedes or overrides the South Coast rule, it 7 just has an effect on how the South Coast rule is 8 implemented. 9 CHAIRPERSON LLOYD: The other piece, when we talk 10 about the proposal to adopt equivalent limits option, 11 what's a likely impact on economics there? I'm talking 12 about slide 28. 13 STATIONARY SOURCE DIVISION CHIEF VENTURINI: 14 Mr. Chairman, I'm assuming you're referring to the 15 flexibility option that we've provided. Our intent for 16 providing that is to provide yet one further option. The 17 refiners in California, more importantly outside of 18 California, would have to import and provide fuel to 19 California. And particularly with this option, refiners, 20 say, outside of California would no longer have to go 21 through the extensive testing program to certify 22 alternative formulation or make arrangements with another 23 company that has a current formulation. 24 Our view of this is that it should provide more 25 ready access to imported fuel when necessary and hopefully PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 42 1 will minimize the impacts of the fuel. 2 CHAIRPERSON LLOYD: Great. 3 EXECUTIVE OFFICER WITHERSPOON: Dr. Lloyd, just a 4 follow-up. 5 To the anticipated -- the average testing cost to 6 certify a fuel is on the order of $200,000. If they 7 simply apply to limits that we're suggesting, they can 8 avoid that cost altogether. 9 CHAIRPERSON LLOYD: If they want to do something 10 else, then they have to incur that cost? 11 EXECUTIVE OFFICER WITHERSPOON: That's correct. 12 CHAIRPERSON LLOYD: Thank you. 13 And the other one in terms of the impact of the 14 regulation, is this consistent with our policy on 15 environmental justice? 16 EXECUTIVE OFFICER WITHERSPOON: Yes, it is. 17 Environmental justice is analyzed in the staff report in 18 addition to CEQA effects. 19 CHAIRPERSON LLOYD: What about the impact on 20 climate change? 21 DEPUTY EXECUTIVE OFFICER SCHEIBLE: The impact on 22 climate change is also analyzed and there is either no 23 impact or very, very, very small impact at the refinery, 24 because the fuel will have to be refined somewhat more and 25 there maybe a small energy penalty in doing that. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 43 1 CHAIRPERSON LLOYD: Thank you. 2 Any other comments, questions? 3 Mr. Calhoun. 4 BOARD MEMBER CALHOUN: It seems to me as though 5 you are making several major changes here. And I know the 6 process you go through in trying to arrive at the 7 standards. I'm just wondering if everybody is happy with 8 that -- I see Stephanie Williams back there and I suspect 9 that she is very happy. I just want to get a good feel 10 for where you think you are. 11 EXECUTIVE OFFICER WITHERSPOON: I believe the 12 witness list has been circulated, so I think you can see a 13 rough balance of those who have shown up to speak in 14 opposition and those in support. 15 I don't believe that the sulfur provisions are so 16 controversial there's an issue between us and the South 17 Coast about the timing of them. And I also believe that 18 the California Trucking Association's opposition is 19 premised more on this regulation not going far enough in 20 their view to align completely with federal government, 21 but the alignment of sulfur is not controversial. 22 They would like us to align on aromatics as well, 23 and that is not something that we brought to the Board 24 today. It is a far more substantive undertaking. It 25 involves a large relaxation of the regulation, but PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 44 1 Ms. Williams will testify to their concern. 2 BOARD MEMBER CALHOUN: Thank you. 3 CHAIRPERSON LLOYD: Thank you. 4 With that I'd like to call up the first of the 5 witnesses. 6 Dr. Wallerstein, Gordon Schremp and Stephanie 7 Williams. 8 MR. WALLERSTEIN: Good morning, Dr. Lloyd and 9 Members of the Board. 10 Catherine was absolutely correct about our 11 position on the regulation that is before you. Our main 12 concern is the timing of the implementation of the 15 PPM 13 limit. And, in fact, it is our district staff's opinion 14 that the proposal before you today does not adequately 15 address the air properties needs of the South Coast air 16 basin. Adoption of your staff's proposal will actually 17 delay implementation of the 15 PPM sulfur limit by 17 18 months in our air basin by nullifying our rule 431.2 2005 19 implementation date. 20 Moreover, this occurs during that the year 2006, 21 which is our attainment year for PM 10. So we lose the 22 emission reduction benefits from January through June of 23 2006, which is a critical attainment year for us. 24 Such action also, in our view, serves as a 25 disincentive to the use of advanced controls for PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 45 1 particulate NOx at a time when we critically need those 2 controls to move forward as quickly as possible. 3 I want to stress that during the 17-month period 4 we will actually lose roughly 6 tons a day of 5 directly-emitted secondary particulate emission control. 6 We don't think that is acceptable, especially when one 7 looks at our rising ozone levels this summer, the leveling 8 off of our rate of reduction of particulate and our 9 struggling to meet the 2006 attainment date. We think 10 it's critical not only at the local, but at the state and 11 federal levels, that we be moving forward at a fast pace 12 with feasible controls. 13 I would also respectfully disagree with your 14 staff in response to your question, Dr. Lloyd, about 15 environmental justice. Many of the communities that are 16 most severely impacted in an environmental justice context 17 are impacted by diesel-related emission. So having the 18 cleaner fuel earlier will serve to benefit environmental 19 justice. 20 We think it's unfortunate that the staff report 21 and the CEQA analysis before you does not address the 22 issues that I'm bringing to your attention this morning. 23 For example, if you look at the alternatives analysis, it 24 doesn't have an analysis of what is clearly a deserving 25 alternative, which is earlier implementation as indicated PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 46 1 by our adopted rule. And I want to comment also on that 2 the fact that if you look at State Statute Health and 3 Safety Code Section 40447.6, what that statute says is our 4 Board has an ability to adopt a lower sulfur spec, but it 5 has to come before this Board and be blessed by this Board 6 before it can go forward and be implemented. So really 7 your Board is in control. 8 If your Board simply said to us, "Go back and 9 modify your rule to remove the provision that says that 10 the CARB rule supercedes our local district rule," we'd 11 have to submit that to you for approval, at which point 12 we're back at the same spot of whether you approve it or 13 disapprove it. 14 So my request of the Board today is that you, 15 relative to South Coast air basin take 120 days. Go ahead 16 and adopt your package. Go ahead and move forward to 17 implement it elsewhere in the state as you deem 18 appropriate. But relative to the South Coast Air Quality 19 Management District, take another 120 days. Continue the 20 hearing, ask your staff to come back before the Board with 21 a full analysis of the implications of moving forward in 22 South Coast, and then fully consider the item with that 23 information before you and give the public an opportunity 24 to review that analysis. 25 We're simply asking for request for full analysis PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 47 1 and consideration and an opportunity for public comment on 2 it. 3 Thank you. 4 CHAIRPERSON LLOYD: Thank you. Again, I think we 5 all share your great concern. Obviously, the battle we 6 both face together with the feds to address the rising 7 pollution down in the district and that's clearly a 8 concern which will be preoccupying you and us in the next 9 couple of months here. 10 Can I get staff response from comments? 11 EXECUTIVE OFFICER WITHERSPOON: We certainly 12 appreciate that the South Coast district has wanted to 13 move the low sulfur fuel requirement as expeditiously as 14 possible. When they adopted their rule in 2000, they 15 indicated they would like to go in 2005. But we also at 16 that time were pretty clear that we anticipated aligning 17 with the federal rule, which was still under 18 consideration, had not been adopted. And so in the end 19 the South Coast rule, as it was adopted, carried a clause 20 that said it will take effect in 2005 unless the Air 21 Resources Board adopts an equivalent standard no later 22 than June '06. 23 And likewise, our executive order approving the 24 district rule and submitting it to EPA carried the same 25 clause with respect to whether we've analyzed the effect PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 48 1 of that. We believe that we have. 2 The districts clearly identify the emission 3 differential. We don't dispute there's an emission 4 differential, and so it was addressed at the time and 5 staff report. We've been up front about it again today. 6 The -- however the determining issue was what it does to 7 the California fuel market to have a bifurcated system 8 within our state where one region moves ahead of another 9 on sulfur standard. And the Energy Commission testified 10 also at the South Coast hearing of their significant 11 concerns about moving out of step with the statewide limit 12 and Gordon Schremp is here today. 13 They did analyze it at the time. We don't 14 believe it's necessary to take 120 days to conduct yet 15 another analysis. I think the Energy Commission has been 16 historically consistent with their position and technical 17 view that a single statewide fuel is necessary to manage 18 our fuel system and imports from other states. But I 19 think it would be most appropriate to go to Gordon Schremp 20 to speak to those issues, because that's what it turns on. 21 CHAIRPERSON LLOYD: Just one other point. How 22 much low sulfur fuel do you have in the district now and 23 how much do you expect in the next year or so? 24 MR. WALLERSTEIN: Actually, I don't have that 25 figure with me, Dr. Lloyd. I think some of the refineries PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 49 1 are going to come up and testify, but there is 2 availability through several of the refiners. 3 Could I just briefly respond to Catherine's 4 comment? What we're asking is, rather than a two-page 5 letter that we received three years ago, to have an 6 updated analysis with a return of stage one episodes in 7 South Coast -- first time in five years. We have 8 extraordinary circumstances that require a revisiting of 9 this issue and we would just ask you to do that. 10 EXECUTIVE OFFICER WITHERSPOON: Our staff does 11 have an answer to your question about the degree of 12 penetration of low sulfur fuel. If I can ask Dean 13 Simeroth to respond. 14 CRITERIA POLLUTANTS BRANCH CHIEF SIMEROTH: 15 Sorry. I was pushing the wrong place on the microphone. 16 Chairman Lloyd, there are two refiners in the 17 South Coast here currently producing low sulfur. One is 18 producing 100 percent of its diesel output is low sulfur, 19 the other one produces a variable amount somewhat 20 dependant upon demand. That equates to at least 10 21 percent of the supply into the South Coast and 22 substantially higher as demand would go up. There is some 23 low sulfur available in the Bay Area as well and also some 24 in the Pacific Northwest. 25 The problem is the South Coast is not PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 50 1 self-sufficient in diesel production. Historically, they 2 import diesel from the San Francisco Bay Area and to some 3 extent down from the Pacific Northwest. So we would need 4 to balance all that out in order to have assurance of 5 adequate supply. Again, I would defer to the Energy 6 Commission on this. 7 CHAIRPERSON LLOYD: Good segue to Gordon. 8 Gordon Schremp, Stephanie Williams, then -- 9 BOARD MEMBER BURKE: Mr. Chairman, I understand 10 what the staff is saying. I understand the need for 11 public policy as it relates to a standard on a statewide 12 basis. But if 41 percent of the state is choking to 13 death, you know, I'm not sure it's good public policy to 14 say we have to disregard their problems to make a uniform 15 policy for the state. You know, it's just -- it's not 16 common sense to me. So, you know, maybe what we need to 17 do or have to do, but -- and when you say environmental 18 justice, you know, this is -- I've said this 50 times, go 19 down to Riverside and tell me you took an environmental 20 justice survey down there on their particular issue and it 21 came up okay, and I just don't believe that. 22 So, you know, I'm going to listen to all the 23 testimony and I'm going to make my judgment based on what 24 I hear today, but -- we have a problem. And, you know, we 25 can't bury our head in the sand about this problem. We PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 51 1 can't shuffle some papers about this problem. 2 EXECUTIVE OFFICER WITHERSPOON: Dr. Burke, if I 3 might. 4 The ideal solution to this problem would have 5 been if we were able to pull the whole state ahead in 6 2005. We are -- we just are out of time at this juncture 7 to do that. There's not enough modernization time to 8 bring the whole state up and so then you're faced with the 9 bifurcation. We also need the low sulfur diesel fuel in 10 other regions of the state with environmental justice 11 problems and where we've already imposed transit rule 12 cleanup. 13 We've bought school buses that need low sulfur 14 fuel with traps equipped on them, and so we have a 15 balancing act to get through here, but -- 16 BOARD MEMBER BURKE: But the reason that we 17 passed our rule when we passed our rule was we needed help 18 then, and there was not movement here inconsistent with 19 the movement there. So that's not our fault. And then 20 just to say, "I ran out of time," I don't understand that. 21 That means, you know, if a guy's drowning and you can't 22 get to them you say, "Sorry, I can't get to you because I 23 ran out of time." I don't understand that. 24 BOARD MEMBER McKINNON: Mr. Chairman. 25 CHAIRPERSON LLOYD: Yes, Mr. McKinnon. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 52 1 BOARD MEMBER McKINNON: Yeah. I want to make 2 sure that we don't have a misunderstanding about 3 environmental justice. I think that what I heard was the 4 17-month delay was the environmental justice problem. I 5 don't think I heard the rule itself and the impact of the 6 rule other than that 17 months. I think it's a positive 7 for environmental justice, the rule -- it's the 17-month 8 delay, and I think Mr. Wallerstein is shaking his head 9 yes, so I understood that correctly. 10 The other thing I guess I would comment on is 11 that if this was happening in reverse and we were 12 proposing delaying a rule for all of the state except 13 South Coast, there would be real questions about what it 14 is that we're trying to do. There are some merits to 15 having one rule on mobile source for the state. I do have 16 some concerns that we may be stepping into something that 17 is going to cause a problem with their SIP and, you know, 18 you're shaking your head no, so -- 19 EXECUTIVE OFFICER WITHERSPOON: Lynn Terry will 20 respond. 21 DEPUTY EXECUTIVE OFFICER TERRY: In response to 22 the letter from South Coast, we did take a look yesterday 23 at that, because we are obviously very concerned. And in 24 terms of the progress requirements for both ozone and 25 PM10, there are no reductions credited prior to 2006 in PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 53 1 those progress requirements, and the same goes for the 2 attainment demonstration. Obviously, clearly in terms of 3 diesel risk reduction, that's another issue, but that's 4 not a SIP issue. 5 DEPUTY EXECUTIVE OFFICER SCHEIBLE: And for the 6 record, we were very clear with the district that we had 7 concerns with their proposal when it was first adopted. 8 That it was our desire and intent, and we thought it was 9 necessary in order to adopt a rule that was both cost 10 effective and feasible to have a significant lead time and 11 do it all at once and that the approval of their rule was 12 predicated upon us adopting and following the path that we 13 followed, a single rule fuel with a single implementation 14 date. So the signal was very clear worked out in our 15 approval process of the rule and we're implementing that 16 now. 17 From a technical level, I do not think the 18 current South Coast rule is really implementable without 19 grave risk to supply of diesel fuel. Simply not enough 20 time between now and the implementation date for the whole 21 basin to have assurance the refiners would make the 22 necessary changes that fuel will be available and the 23 market demand will be met. 24 We've lived through a lot of fuel crises and we 25 still have our rules because we've been smart enough over PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 54 1 time to arrange for implementations that work relatively 2 smoothly, but they are always difficult. I just feel 3 personally the Board -- that going ahead with an early 4 implementation schedule for 40 percent of the state would 5 put us at grave risk for this particular factor in terms 6 of ensuring the supply that is demanded by the users is 7 actually met on time. 8 CHAIRPERSON LLOYD: I guess the one occasion 9 where we weren't so smart and dire consequences. 10 DEPUTY EXECUTIVE OFFICER SCHEIBLE: We try to 11 learn. And then also, I mean, obviously it impacts the 12 users in a large manner, so it just doesn't work for 13 anyone. It's not a matter of just a policy of a single 14 reduction, it's the practicality that we're faced with 15 trying to ensure what we do gets the emission benefits and 16 works upon implementation, and therefore we can sustain 17 the rule. 18 CHAIRPERSON LLOYD: That was a tough issue, and I 19 think again a good segue to go to the Energy Commissioner. 20 MR. SCHREMP: Thank you, Dr. Lloyd. My name is 21 Gordon Schremp. I'm the senior field specialist for the 22 California Energy Commission. I'd like to thank you and 23 your fellow Board members for giving me an opportunity to 24 speak today specifically about the potential impacts on 25 diesel fuel supplies. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 55 1 I would have to agree the comments made most 2 recently here by Ms. Witherspoon, Mr. Simeroth, and 3 Mr. Scheible. Yes, we at the Energy Commission staff do 4 believe that going early, bifurcating the state's diesel 5 fuel supply regulation 17 months in advance of the 6 statewide and federal rule timing will be problematic for 7 supply. 8 The South Coast does, in fact, receive a 9 significant portion of its diesel fuel supply from outside 10 the basin, both from Northern California, Pacific 11 Northwest and foreign locations as Mr. Simeroth alluded 12 to. 13 It is unlikely these refiners would make 14 modifications to comply 17 months in advance with a market 15 they partially or intermittently supply. This also goes 16 for foreign refiners. Foreign refiners, we understand, 17 are aligning themselves with both California and the 18 federal timing of June 1, 2006, to supply low sulfur 19 diesel fuel for markets in the United States and 20 California. 21 Secondly, with regard to supply. We also agree 22 at the staff that the 34 months being provided suggested 23 by the staff proposal here today is adequate to complete 24 the engineering capital acquirement, permitting, EIR 25 development and complete construction within those 34 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 56 1 months. Advancing that scheduling by 17 months and 2 reducing that period of compliance by 50 percent in our 3 opinion would be inadequate to comply. I have to agree 4 with Mr. Scheible on his comments. 5 That's all I have to say on the adequacy of 6 supply and we would be happy to respond to any questions. 7 CHAIRPERSON LLOYD: I think -- 8 BOARD MEMBER BURKE: I have a question. When you 9 think that if you bifurcate the rule it's problematic 10 about supply, is that your opinion or did you talk to the 11 refiners about that? 12 MR. SCHREMP: Mr. Burke, we have spoken to 13 refiners in the past in advance of our testimony -- 14 BOARD MEMBER BURKE: When was the past? 15 MR. SCHREMP: I'll explain if I may. In the 16 past, in advance of our testimony before the South Coast 17 Air Properties Management District and recently through 18 the proceedings working with the staff at the California 19 Air Resources Board in development of this package that is 20 here before you today. So we have been speaking with 21 refiners very recently, sir, yes. 22 BOARD MEMBER BURKE: And they indicated to you, 23 because even though it's only 41 percent of the population 24 it's 60 percent of the diesel fuel sales in the state of 25 California. They would have a problem -- they would give PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 57 1 up a market which is 60 percent of the market of the state 2 of California, is that what they told you? 3 MR. SCHREMP: Let's put it this way. The 4 refiners -- 5 BOARD MEMBER BURKE: The answer is yes or no. 6 MR. SCHREMP: Well, the answer is in an area 7 outside the market where you do not have to comply to stay 8 in business. The low sulfur rule for both the US and 9 California going June 1, 2006, is a staying in business 10 rule for those that are currently marketing in those 11 regions. If you are marketing a portion of your output or 12 intermittently marketing in another region that will go 13 earlier, then it is a capital investment decision to make 14 by the refiners. 15 BOARD MEMBER BURKE: We all understand that. 16 We're saying we're willing to give up 60 percent of the 17 market. I don't know any other business in the world that 18 gives up 60 percent of a market like California. Just 19 don't know that -- 20 MR. SCHREMP: The estimates on imports -- 21 BOARD MEMBER BURKE: I don't want to be 22 argumentative about it. But I don't understand it. I'm a 23 business guy and, you know, I wouldn't. 24 MR. SCHREMP: I'll explain a it bit more 25 succinctly about the imports. We estimate that a minimum PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 58 1 of 35 percent of the diesel fuel consumed in the L.A. 2 basin is brought in from outside the system. And in some 3 cases that may be a small fraction for some of the 4 suppliers, both foreign and Pacific Northwest, and in some 5 cases for some of the California, Northern California 6 refiners it may be a larger fraction, say upwards of 20 7 percent. We are -- we do not know of any refiner who is 8 60 percent of their output is going down to the L.A. basin 9 from a refiner outside of the area, we are not aware of 10 any refiner that fits that description. 11 BOARD MEMBER BURKE: But if the vacuum is created 12 in the market -- and this is Marketing 101. The vacuum is 13 created in the market and the small guys fall out and the 14 vacuum is created, somebody steps in and fills that 15 vacuum. That amortizes your capital expenditure at a 16 disproportionate rate as it would be if you only had a 17 small fraction of the market. 18 EXECUTIVE OFFICER WITHERSPOON: Dr. Burke, we 19 don't believe the South Coast market would be abandoned, 20 nor would we tolerate having users stranded without fuel. 21 And what would occur we would be thrown into a variance 22 situation where we would have to suspend the regulations 23 in order to allow the fuel that was necessary to flow into 24 the South Coast so that commerce could proceed. 25 We don't think the responses that you're PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 59 1 suggesting that because of that likely shortage you'll get 2 enough investment and enough fuel there on time. We think 3 more likely we'll be forced into the variance, and that's 4 not a good outcome either. 5 CHAIRPERSON LLOYD: Questions? 6 Thank you very much. 7 MR. SCHREMP: Thank you. 8 CHAIRPERSON LLOYD: Stephanie Williams, Wayne 9 Miller, and Dave Smith. 10 (Thereupon an overhead presentation was 11 presented as follows.) 12 MS. WILLIAMS: Good afternoon -- or good morning, 13 I should say. Good morning. It's been a long day. 14 The California Trucking Association is extremely 15 concerned with this regulation and I'd like to make a few 16 comments, before I start my presentation, on Dr. Burke's 17 comments. 18 You're right about the market. There would be 19 less people in the market and those people would be able 20 to amortize their investment very quickly, but it would be 21 on the backs of California truckers. We would pay the 22 higher prices and those who couldn't get out of the 23 district of fuel would not be able to pass their costs on, 24 which would prohibit then from buying new trucks, which is 25 where you really get emission benefits. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 60 1 So it's really unfortunate that we're -- we've 2 been unable to explain the discrepancies in price on 3 limited markets and I think when you see my presentation 4 you're going to realize that what we said in '93 was a 5 fact. What we said in '96 was a fact. What we said in 6 '99 was a fact. And what we'll say today is a fact, 7 because California's trucking industry is shrinking. It's 8 not a fair shrink and it's not helping the South Coast or 9 any other district get emission benefits from the mobile 10 sector. 11 And we not only want to turn that around for our 12 economic viability as an association, because I don't want 13 to be representing the Mexican trucking association 14 someday coming here on behalf of CANCAR, and that's where 15 things are heading. We want to turn it around in a way 16 that California truckers have a clear distinct advantage 17 to haul California freight and we believe we can do that 18 with a few modifications, that I think this Board and the 19 state Legislature might find of interest. 20 Really where our problems lie isn't necessarily 21 with the diesel fuel standard. But it's the process that 22 the standard is utilized in the state. Only a few 23 companies are allowed to sell diesel fuel in California. 24 There is a 10 percent aromatic standard and now we're 25 adding a another standard that's equivalent to the 10 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 61 1 percent aromatic standard, too expensive for fuel makers 2 to produce and compete in a market where there's a cartel 3 and secret formulas. And you pay a half a million dollars 4 to be part of the cartel and the secret formula as part of 5 CARB and those are allowed in the state and it restricts 6 the supply. 7 So if we can break that cartel and allow anyone 8 who produces a formula that's prescriptive to sell here 9 there wouldn't be the problem that we have with supply and 10 the discrepancies between the price in California and 11 outside the state. And that is our goal and our number 12 one objective in next year's legislation is to allow 13 anyone who sells the fuel that is clean to sell the fuel 14 here in California, regardless of where they're from, 15 without administrative procedure. 16 So we've asked numerous times for and this is our 17 specific problem. It's been our specific problem all 18 along and we really want to get it resolved and we have 19 some ideas on how to do that. 20 The Public Records Act allows us to have the 21 information on the alternative formulas. There's two 22 concepts that go the public records or Freedom of 23 Information Act. 24 The first is the prevention of secrecy in 25 government which is weighed against the protection of an PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 62 1 individual privacy. The oil company's secret formulas are 2 not individual privacy. We can go out and test that fuel 3 individually, test it all in the pipeline and find out 4 what it is, which means it's not a trade secret, which 5 means the data we've been asking for the last three years 6 is public information and should be provided the 7 California trucking industry. Because if we can put that 8 data out and other companies, take an average, put it out, 9 other companies, other oil companies that are prohibited 10 in interstate commerce from selling fuel here because they 11 don't know the formulas, the fuel prices would come down. 12 The disparity between South Coast and Phoenix would come 13 down. The disparity in 2005 between Tijuana and Mexicali 14 will come down, because people will know what it takes to 15 sell fuel here. They will be allowed to sell fuel here 16 and the price will come down. 17 We believe that by moving ahead in this 18 proceeding without evaluating the aromatic standard, 19 everyone has seen the letter that California Trucking 20 Association and the ARB signed to federal EPA. We spent 21 two years getting the 30 parts per million and then 22 finally the 15 parts per million sulfur standard with CARB 23 at EPA. 24 We did not do that so we can come back to this 25 proceeding and see another aromatic standard in the rule PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 63 1 and another supply issue. We worked hard to get that 2 done. We supported EPA all the way through the process, 3 testified in three out of the five hearings. 4 We're going back to Chicago to sit on the engine 5 panel to hold down the emission standard in August. We've 6 been committed to the Clinton super clean diesel standard 7 and the super clean fuel and there should be some small 8 reward for that commitment, because we did it because of 9 our economic viability, and possibly had we not gone back 10 to Washington D.C., there would be a 50 parts per million 11 sulfur standard in the U.S. and a 15 parts per million 12 standard here. 13 So there just has to be another chance to look at 14 this and the way this rulemaking goes -- I didn't bring 15 trucks with me. I thought it would be counterproductive, 16 because they're angry. Our members are angry. 17 There were four rallies in the state. This time 18 two of the targets were refineries. We picketed and 19 rallied at the Richmond refinery in Chevron and also at 20 the Arco refinery in Carson, as well as Fresno City 21 Council buildings and the Capital, in protest of what we 22 feel is California truckers becoming an endangered 23 species. 24 We have T-shirts now that have the symbol of the 25 endangered species truck if anyone would like one. I'm PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 64 1 wearing a pin. It's really important that we're allowed 2 to haul freight in our own state. 3 The alternative formula is the underground 4 regulations that impedes intestate commerce, period. We 5 need to know what it is. We need to let other people see 6 it. We need to have our prescriptive standard and we need 7 to let anyone who wants to sell fuel in California sell it 8 here, period, because they know the standard. 9 The price spikes that we see, and we've been 10 meeting with legislators all week. And we've seen the Air 11 Resources Board's data and we're starting to understand 12 that their data is correct and our data is correct, but 13 we're looking at different things. 14 And the way that we look at data is fuel is sold 15 by the week, trucking companies gets a load. Drops it. 16 They pay the price that week. Period. 17 The Air Resources Board takes the quarterly 18 average and then compares it against the seven-year 19 average. Our way of looking at it shows a 25 cent 20 increase overall in prices in California. The Air 21 Resources Board shows a 2 cent increase because it's 22 averaged over seven years. And it's kind of like the 23 stock market. Many people lost a lot of money during the 24 spikes of the stock market, but if you look at it over a 25 ten-year period we're at 5 percent. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 65 1 Explain that to the people who sold their stock 2 on the day that it was down, because these are the 3 truckers, the people that bought their fuel on the day 4 that it was high. 5 That's what's happening to us. It's volatility 6 and price spikes and it's based on not the fuel standard, 7 the secret formulas. That's what we have to change. 8 That's what's keeping California carriers from hauling 9 California freight. 10 That is why Miraloma is now warehouses, because 11 it has become the stopover for truckers to sleep as they 12 come from a from Arizona to haul our freight. Miraloma is 13 unnecessary. Those warehouses are unnecessary. That 14 freight should be moved by California trucks in California 15 up and down California freeways. We should not be 16 prohibited from carrying freight because of our fuel 17 price. 18 When you look at what the market is doing the 19 emission benefits are extremely overstated. To any fuel 20 standard, the Aromatic portion of the fuel standard, 21 because they don't incorporate international. Yes, we did 22 file a lawsuit with the teamsters and public citizens. 23 Yes, we -- the courts did side with us because 24 there was an environmental impact report, but Bush is 25 doing one right now. They are moving ahead with their PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 66 1 environmental impact report and those borders are going to 2 open by 2005. 3 What is the fuel price going to be in Tijuana? 4 What is the fuel price going to be in Mexicali? And NAFTA 5 only provides they be countries that are part of the 6 agreement, abide by the federal fuel standard -- not the 7 California fuel standard, the federal fuel standard. 8 So this further -- this 26 miles into San Diego, 9 26 miles. Some of you on the Board, I realize are from 10 San Diego. What's it going when my members have to go 11 across the border and have completely different trucks? 12 So these things need to be handled in a way that 13 encompasses the environmental benefits and detriments of 14 the program. 15 And that's why we've asked EPA to deny SIP credit 16 for the aromatics portion until they look at the increased 17 vehicle mile traveled for intestate trucks, the fleet 18 turnover. We can't buy trucks if we don't have a profit. 19 If our prices are 25 cents this week more than the guy in 20 Arizona, when we go to our salesperson and say, "Hey, our 21 freight has gone up, we need 6 cents more a mile," they're 22 not going to grant that to us. Because that week that we 23 paid more somebody else didn't. And that is what's so 24 important about not having alternative formulas, not 25 having unprescribed standard and not having underground PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 67 1 regulations. 2 --o0o-- 3 MS. WILLIAMS: This is just to give you the idea. 4 This is OPIS data. This is what ARB uses in their cost 5 estimates, the diesel prices. And right now there isn't 6 much freight moving. The economy is not great right 7 now -- my drivers aren't doing that well. When there's 8 not a lot of freight moving, there's not a lot of fuel 9 sales and the prices aren't spiking. 10 Even when the prices aren't spiking, look at 11 Brisbane. Most of my union carriers, my LTL carriers, are 12 up in Northern California. If you look at Brisbane and 13 San Francisco, you can see why they're dropping like 14 flies. $1.74, $1.75 a gallon. You look at San Francisco, 15 $1.81. And then you look at border states. Here I have 16 Arizona just because it fell within the right alphabet to 17 get it all on one page, but you can see Oregon, Las Vegas 18 $1.38, $1.58, $1.52. That is -- this isn't even a time 19 where there's fuel shortage. This is a time when there is 20 plenty of fuel supply. 21 Why is it that San Diego is the $1.87 and 22 bordering states could be $1.38? We would have to charge 23 8 cents more a mile, 8 cents more a mile. $200,000 more a 24 year to use our trucks, based on buying this fuel. That's 25 volatility. That's unfair. That means that you can drive PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 68 1 200 miles from Arizona, park in Miraloma, let your driver 2 sleep, because the only thing prohibiting them from moving 3 forward is hours of service. And then the next day haul 4 the freight up and down the corridors to San Francisco 5 without ever fueling here and stealing jobs that are 6 California jobs, California workers. 7 And Arizona and Nevada don't have organized 8 labor. So this is unfair to the people that live here. 9 Unfair. 10 People talk about the taxes, owed the taxes. 11 That's not the case. 12 --o0o-- 13 MS. WILLIAMS: California was very considerate in 14 its taxation structure with respect to the bordering 15 states. When the Air Resources Board looks at the 16 California average fuel price against pad five, you know 17 what pad five is? Alaska. There's not a lot of 18 interstate going on in Alaska. They have real high fuel 19 prices. Not a lot of interstate commerce. 20 Hawaii, that's an interesting concept when you 21 talk about interstate commerce, Hawaii. Of course Hawaii 22 has high prices. You have to ship the fuel there. And so 23 you're taking all these states -- Alaska, Hawaii, 24 California included, Oregon, Nevada and Arizona, and 25 comparing that price against California, that's not a fair PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 69 1 comparison. Yes, you'll get 2 cents, but it's not right. 2 It is mathematically incorrect. 3 You compare L.A. to Phoenix. You compare San 4 Diego to Tijuana in 2005. You compare San Francisco to 5 Portland, because those are the competitive routes. 6 People don't buy averages. People do not by averages. 7 They buy fuel at the station, at the time, at the price, 8 and unfortunately the last slide is what we paid last 9 week. 10 The California excise tax, if you look up here, 11 is 18.3 cents, much lower than the surrounding states. 12 And that was for a purpose, because California determined 13 at the time they were going to use the sales tax on top of 14 the federal and the state taxes -- tax the fuel price, the 15 federal tax and the state tax and put that money into mass 16 transit. And that was the value Of California at the 17 time, and still is. 18 So California has money that goes -- 18.3 cents 19 of the excise tax goes straight to the state highway 20 account and then the sales tax, which is about 8 -- it's a 21 difference between 26 and 18.3. So 8, 9 cents a gallon go 22 into mass transit, which is BART and different mass 23 transportation. There's something in L.A., mass 24 transportation system and that was our values. But it 25 doesn't impact the fuel price differential. There's no PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 70 1 difference between 26. and 18.3? Nevada's is more 2 expensive. 3 So the sales price has actually zero impact on 4 why our prices are different. One hundred percent of the 5 price volatility is the alternative formulas and the 6 cartel created by not having prescriptive standards. 7 --o0o-- 8 MS. WILLIAMS: This has been my year. We had a 9 massive flight of trucks this year from the state Of 10 California -- for 2002. It happened in 1999. We all 11 remember in 1999 what happened. We had through the months 12 of August and September extreme price drags and actually 13 shortages in Fresno of diesel fuel, the first time ever. 14 It was the most devastating fuel episode we've had since 15 1993. So this data is from the Department of Motor 16 Vehicles and it's two different graphs that I've 17 transposed onto one, just to give you an idea of what's 18 going on. 19 When you register a truck in California, you 20 have -- you either do one of four things. You're either 21 intrastate truck -- that means I'm a garage truck and I 22 can only go around the state. I don't leave the state. 23 You're a partial year intrastate truck, meaning I'm an ag 24 truck and I'm going to register for just three months. 25 You are a California-based interstate carrier, which means PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 71 1 you're based in California, but you take things from the 2 port to other states. Or you're an out-of-state 3 interstate based carrier, which means you come in here, 4 and you're coming from somewhere else, or you're here a 5 lot but you leave sometimes. 6 So if you look since 1993 at the numbers, the 7 bottom line, the blue bottom line is the California 8 interstate fleet. And it has gone from 96,000 trucks to 9 44,000 trucks. Now it also went from 82 percent full fee, 10 meaning of the $1700 dollar registration fee that we pay 11 into the highway account, we were paying -- 82 percent of 12 that $1700 dollars stayed in California and the rest of it 13 went to whatever state we were operating in. 14 Well now it's down to 62 percent and there's only 15 44,000. So what we did is we took -- there's an estimated 16 line there. Had we had a national fuel standard or a fuel 17 standard that was prescriptive, so lots of people can sell 18 fuel here instead of just the people that have the 19 approval, we would have had 129,000 California based IRP. 20 And that's just assuming that we grew at the same rate 21 national carriers grow into California, which is 22 underestimated, because all the freight's here. 23 The port's here and in Los Angeles and 24 Dr. Burke's region bring in 35 percent of the national 25 freight, but the California trucking fleet has hardly any PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 72 1 of the trucks that are operated based in California. 2 Well, that means something for the state highway account. 3 That means we're not getting the revenue we deserve. 4 The green bars -- that's DMV data. These are the 5 California intrastate trucks. There were 656,000 in 1999. 6 In 2002 there were 423,000. We lost 233,000 trucks, 7 intrastate full fee, $1700 registrations. 8 Now that means that there are $250 million 9 missing from the state highway account, so they had this 10 fabulous idea that they'll just increase our fees by 42 11 percent to make up for the ones that are left, which means 12 eventually the last man out is going to pay $900 million 13 for the registration fee. 14 This system doesn't work very well for trucking 15 in California. If you look at the top lines, the hot pink 16 line shows in California interstate, out of state-based 17 population in 1993 were 720,936. As of DMV's report to 18 the Legislature in May, the figure is now 1.5 -- literally 19 1.5 million. Those vehicles pay a portion of our fee -- 20 $52 dollars instead of 1700 and they self report, the 21 money goes to their state and their state gives it back to 22 us. 23 So we can't even enforce to know if they really 24 should be here, because they're all registered in Arizona, 25 Nevada, Oregon, Oklahoma, anywhere but here. So this PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 73 1 trend is bad. And just looking at if we would have had 2 just our California IRP fleet stay here and we would have 3 just grown at the rate of the national carriers, we would 4 have had $709 million in apportion weight fees into the 5 state highway account. This isn't good. 6 --o0o-- 7 MS. WILLIAMS: This is something DMV should 8 really look into. We went through this -- not DMV, I'm 9 sorry. Air Resources Board. We've went to a new system 10 of classifying vehicles and now they register us by gross 11 vehicle weight, so you no longer have to estimate how many 12 vehicles are in the state by weight class. 13 This is DMV data -- part of my presentation. But 14 this is exactly every truck authorized to be in the state. 15 By weight class. We represent a majority of big rigs. 16 That's our type -- basic type of membership, although we 17 do represent smaller companies that have -- or large 18 companies that have lots of small package cars. But the 19 75,000 to 80,000 pound vehicles are what we call big rigs. 20 If you look at the distribution, the California 21 intrastate which, by the way, when we were regulated in 22 the 80's was 100 percent, we had every truck registered 23 here. The 75 To 80,000 pound is down to 52,521. Those 24 are port trucks and garbage trucks. Anyone who can get 25 out is out. That means they're not paying $1700 to the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 74 1 state highway account. 2 The partial year registration, our ag trucks, are 3 down -- they're up, actually, 14,631. Those vehicles 4 don't have a choice, they can't be interstate registered. 5 The California interstate, California IRP -- 6 36,000 and big rigs that are out of state, 1.1, 1.2 7 million trucks -- that's South Coast. You look at I-10 8 and I-15 and you see those vehicles are coming your way. 9 And you don't need those extra emissions, because we can 10 haul the freight from L.A. to San Francisco without coming 11 from another state. We can do it if our prices are within 12 parity. 13 Below is the percentage, the total number of 14 trucks that have authority to fuel outside the state, 80 15 percent. The total amount of big rigs in California, we 16 are 5.25 percent of the big rigs in California. We need 17 your help. That number is not a good number. It's not a 18 good number for CTA. It's not a good number for 19 California's highway account. It's not a good number for 20 the South Coast SIP. It's just a bad number. 21 --o0o-- 22 In 1999, these are weekly prices. When we saw 23 the flight of trucks. I'd like you to look at the 24 disparity on 3/15, 1999, when diesel prices went 40 cents 25 higher in a week between Arizona and L.A. That same year PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 75 1 Arizona transferred 311,000 gallons of diesel fuel sales. 2 The next year when prices smoothed back down, went 3 immediately back. 4 Arizona keeps track of their diesel fuel sales. 5 There's no industry there. What happened? This kind of 6 price differential is not manageable. We can't pass our 7 costs on. We wouldn't be able to haul paper for the Air 8 Resources Board, because you pick the guy with green line 9 because you have to. You have to pick the most reasonable 10 cost competitor. That's not us. 11 When the Air Resources Board looked at the price 12 difference using quarterly averages, you can see the 13 difference. When you use a quarterly average, you smooth 14 all the spikes. We're here because of the spikes. 15 Sometimes the fuel is the same price, but sometimes it 16 spikes. And we have to pay that spike. And it's like 17 cashing in your stocks at a bad time, because we have to 18 pay then. We can't wait for the stock market to improve. 19 --o0o-- 20 MS. WILLIAMS: This is the diesel prices from '97 21 to 2002. The red line is California. Arizona is the blue 22 line. It's not possible for us to compete on a level 23 playing field with people that can come 200 some odd miles 24 and take our freight at a lower cost. 25 --O0o-- PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 76 1 MS. WILLIAMS: This is a chart that goes through 2 how much money we've actually lost and I've used this in 3 the Legislature on the weight fee, but there are $3 4 million -- that's $3 billion of truck freight out of our 5 state highway account and we're not getting our credited 6 federal funds either, because when you register a truck 7 out of state the $550 federal highway user fee goes to 8 that state. 9 Just the $550 from those vehicles, money is going 10 to other states that should be California's money. It's 11 not just the California trucker that's being hurt, it's 12 the state highway account and the federal trust fund. 13 CHAIRPERSON LLOYD: How many more slides do you 14 have, Stephanie? 15 MS. WILLIAMS: Just two more. So what we're 16 saying is things are declining, people are driving more 17 miles. CARB points out that, guess what a one-state fuel 18 does? It causes regional dislocation. 19 --o0o-- 20 MS. WILLIAMS: We need prices that are reasonable 21 and in parity. We need trucks that are based in 22 California. The oil companies didn't see my barrel fee 23 slide. Hold on. 24 But what we're saying is there's another way to 25 do this. The alternative formula is not prescriptive. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 77 1 It's not fair. There's another way to go about getting 2 these emission reductions, 7 percent reductions, and we 3 are willing -- to remove the aromatic standard we are 4 willing to go to the Legislature and revise a continuous 5 appropriation into Carl Moyer to get these emissions 6 immediately. 7 We're willing to support the barrel fee and 8 support the bill with provisions taken out for mobile 9 source authority and move forward with funding to get real 10 air pollution reduction that don't hurt the trucking 11 industry and unfairly jeopardize the 3,500 people that 12 signed the petitions that we gave you today. And those 13 people are also part of the environmental justice. They 14 live in those areas, and they represent what is truly 15 California's working class. 16 And we would appreciate you not adopting or going 17 back and taking out the aromatic standard, providing us a 18 forum to do it. Having this hearing this way takes away 19 all of our legal remedies other than a lawsuit to go back 20 at the aromatic standard, which we agreed to do in 1999, a 21 national standard so we could have price parity, and we 22 want you to keep your promise. 23 Thank you. 24 CHAIRPERSON LLOYD: Thank you, Stephanie. 25 Could I ask staff to respond to two of the issues PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 78 1 you raised, one the secret formula and the other obviously 2 is the cost issue. 3 OMBUDSMAN TSCHOGL: The issue regarding the trade 4 secret compliance with the public records request, the 5 information that's requested is -- has been determined to 6 be a trade secret. It is protected under the Public 7 Records Act. And we believe we have complied with state 8 law. There's a mechanism in our regulations and in the 9 Public Records Act which allows a party seeking 10 information that is a trade secret to seek the assistance 11 of the courts. 12 We have made the determination the information 13 requested is a trade secret and that would be the remedy 14 at this point in time. It is essentially a dispute 15 between private parties regarding proprietary information. 16 Actually, the California Air Resources Board 17 makes the final determination. And we've been advised 18 we'd have to sue you, not the oil companies, because you 19 accept the formula and you prescribe the standards. 20 MS. WILLIAMS: We don't want to sue you, we want 21 you to open it up. 22 GENERAL COUNSEL WALSH: Let me clarify a little 23 bit what's available and what's not available. 24 Most of the fuel produced in California now is 25 produced under an equivalent formulation that gets the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 79 1 same emission benefits of the ten percent aromatics fuel. 2 Some of those formulations are in the public domain. The 3 people that got the fuel certified put them out and made 4 them available. The majority of the formulations are 5 treated as proprietary information in that the firm that 6 did the testing put significant resources into it judges 7 that it's a competitive advantage to have that formula. 8 What is available is the average fuel properties 9 out there. What is available is when we test fuel if the 10 results of the test in terms of the fuel properties and 11 what's out there is in the public domain. What's not 12 available is the precise formulation that individual 13 manufacturers have held as confidential for business 14 purposes. 15 What's also available is an extensive analysis 16 where we have shown in the subject of the peer review that 17 the average formulation gets the emission reductions we 18 anticipated with 10 percent aromatic standard rule. So 19 there is no hiding of the net effect of the regulation. 20 There is no, at least in our minds, question that the 21 emission benefits of the regulations are being maintained 22 and achieved. And we're quite confident the net effect of 23 the alternative formulation is to increase supply and 24 lower cost on refineries and hopefully that is reflected 25 somewhat in cost. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 80 1 But we do have the policy that we allow the 2 formula to be basically held confidential and as a 3 business advantage to those that chose to invest in it. 4 With proposed regulation we are opening up an 5 additional avenue that says since you all know what the 6 average properties in the fuel are, and we're sure the 7 average property in fuel is to achieve the same emission 8 benefits as the 10 percent, anyone can go ahead and use a 9 formula equal to or better than that. 10 CHAIRPERSON LLOYD: What about the Stephanie's 11 point that basing on a cost issue was comparing apples and 12 oranges? 13 DEPUTY EXECUTIVE OFFICER SCHEIBLE: I think 14 there's more fruit than apples and oranges. 15 MS. WILLIAMS: This is data from OPIS. 16 DEPUTY EXECUTIVE OFFICER SCHEIBLE: There's 17 cherries and walnuts and all kinds of things and how you 18 look at the data. We've looked at the data every way 19 possible. We think that, you know, we have markets that 20 set, establish fuel prices and use price as a way to draw 21 more supply when there's problems. 1999 was a terrible 22 year. The Tosco refinery was closed for a number of 23 months. Other refineries had problems. The whole region 24 saw price increase and California saw greater. 25 On the fuel cost alone it's our estimate that PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 81 1 approximately 3 cents a gallon is added to the cost of 2 making fuel to our standards as opposed to what the 3 California refiners have to spend to make fuel to the 4 federal standards. 5 They make both fuels. They can make -- most of 6 them can make 100 percent fuel to our standards, but the 7 market is not big enough. 8 Over time, since our regulation has been adopted, 9 diesel fuel use has gone up more than 40 percent. The 10 taxes paid by diesel fuel users in California has gone up 11 by more than 50 percent. We clearly do not have this 12 massive flight of users in the state to such an extent 13 that it stops growth and actually reverse the trend. 14 There's a great deal of fuel sold. When you look up and 15 down the interstate, you can see where in some cases it's 16 six cents cheaper to by fuel at the station across the 17 Arizona border than the competitive truck stop on the 18 California border. 19 In Nevada it tends to be a couple cents more 20 expensive at today's prices. The Oregon price that was 21 shown there has a little asterisk next to it. When you 22 look on the Internet for the truck stop and it says "Does 23 not include Oregon PUC permit." Well, another 24 cents is 24 added to that that the user pays to the state of Oregon. 25 The tax is not included in that price. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 82 1 We feel the price differential for this reg is 2 relatively small. There will be price spikes here and 3 there because of the market nature of the commodity. And 4 when you do the cost effectiveness it's one of our cheaper 5 fuel reg, and the emission benefits are absolutely 6 essential to preserve. I wish we could -- in terms of 7 some of the other data presented, we also, after getting 8 the data from the CTA on the registrations, went to DMV 9 and got the data and confirmed that over the last four 10 years, for example, there as been a decrease of about 11 14,631 trucks registered as intrastate, interstate trucks. 12 MS. WILLIAMS: 233,000. It's a report to the 13 Legislature. That's not correct. Some of these 14 numbers -- why can't we agree that this is the OPIS data? 15 We keep getting rolled on this. The price is the price. 16 We bought these data. Why can't we just agree that is the 17 real data? 18 CHAIRPERSON LLOYD: I think we did clearly get to 19 this point, probably not in this hearing. 20 Let me state a couple of things, Stephanie, and I 21 really -- I really feel for you and we agreed on the point 22 that you raised on the national fuel thing. I think that 23 was -- I don't know what happened, maybe an honest 24 misunderstanding, I don't think anything malicious, but 25 unfortunately we can't rewrite that, but I know you went PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 83 1 with us and I went with you to testify on that on a 2 national low sulfur fuel. The reality was, I guess, that 3 we find out we didn't address the aromatic content at that 4 time. 5 MS. WILLIAMS: Or lubricity. 6 CHAIRPERSON LLOYD: Well, we have taken your 7 advice, by the way, and in terms of trying to work more 8 closely with EPA. And as you know, we met with Margo, the 9 head of EPA mobile sources, this week and her staff to 10 discuss this very issue. Because you have a point of 11 working closer together. 12 And when we presented the data to Margo and her 13 staff again I think the agreement there is that there were 14 significant NOx benefits which disappear over time as you 15 get to newer vehicles, but I think she was also willing to 16 drive to what both of us would like, and that is a 17 national fuel standard which would include the aromatics, 18 and I think she -- there's no commitments, but she was 19 receptive and her staff to further investigating this 20 issue to see maybe how those could be captured nationwide, 21 because if that's the case it's a big thing for her. 22 So I'm hoping that we can continue to work 23 together on that very issue, because we agree with you 24 it's extremely important. 25 The issue we're left with now, however, of course PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 84 1 is that to give up those NOx benefits that we see with 2 that is very tough. The issue that you also raise and I 3 think that it was a very generous offer to work with us to 4 try to go to the Legislature to get dollars so we can, in 5 fact, get Carl Moyer-type funds. Again, I think that is 6 something we probably will explore with Assemblyman Diaz, 7 but my understanding from staff on that is that we cannot 8 forego that in terms of the process here for that program. 9 That's an area where our executive officer will be able to 10 comment on that area. 11 MS. WILLIAMS: Can we offer a resolution that you 12 be willing to look towards a hearing this year or next 13 year, or early this year would be better, to remove the 14 aromatic standard in lieu of the barrel fee or container 15 fee tax that goes to Carl Moyer. 16 Would the Board be willing to consider an 17 alternative that would actually bring in more money to 18 districts that have air pollution problems to clean up the 19 air and put California's trucking industry back on the 20 back in lieu of NAFTA? 21 CHAIRPERSON LLOYD: Written that way, of course, 22 how could we refuse. But there's the fine print again, as 23 you know and I know, as we look at that. But I guess some 24 of the legal issues -- 25 EXECUTIVE OFFICER WITHERSPOON: The finer issue PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 85 1 here is that the existing diesel standard is a crucial 2 component of the South Coast and San Joaquin Valley and 3 every other district attainment plan that have been 4 submitted to US EPA and approved in various times since 5 1993. And we would be talking about, if we did not have 6 an equivalent measure in handle with same tonnage, we'd be 7 talking about a SIP relaxation. 8 And as you will hear when the new South Coast SIP 9 comes before the Board in September, we are still 400 tons 10 per day short of identified measures to close the gap, to 11 fully demonstrate attainment by 2010 of the federal 12 one-hour ozone standard. And up until this time we have 13 looked to Carl Moyer-like programs as a way of closing 14 that gap as opposed to substituting for measures we've 15 already adopted. 16 Now it's possible that one could conceive of a 17 world where also enough money thrown at the problem that 18 both could be done. But this is not a simple substitution 19 of one for the other. And Ms. Williams and I have talked 20 a lot about the sequencing of how you can change any 21 measure out of the state implementation plan and the fact 22 that you have to have everything in place. 23 And she asked me point blank, you know, "Can you 24 make that commitment now?" And I said, "No, we cannot, 25 legally cannot." We really have to, if there is to be a PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 86 1 bill, if there is to be an appropriation, if there is to 2 be a substitute, it all must be executed and completed 3 before this Board can contemplate removing an existing 4 control measure relied upon legally in the state 5 implementation plan. 6 So, if we introduce the bill and it passes we can 7 come back here and repeal the aromatic standard. It's a 8 lot more money. 9 EXECUTIVE OFFICER WITHERSPOON: With all the 10 other caveats and conditions in terms of total tonnage 11 necessary to show attainment. 12 CHAIRPERSON LLOYD: What you're saying if 13 Stephanie has a bird in the hand then she can come back 14 with some certainty and then we can reexamine that. 15 EXECUTIVE OFFICER WITHERSPOON: Then we can talk 16 about it. Yes. 17 CHAIRPERSON LLOYD: That's good and again I think 18 you've got our commitment, Stephanie. We clearly need to 19 work more closely together here to resolve some of these 20 issues, such as, for example, the data appeal -- we should 21 be able to refine that. So -- appreciate that. And 22 clearly, we don't want to drive trucks out of the state. 23 We want to create jobs, and that's not our job. 24 So, as you recognize, I give you whatever time 25 you took because it's a very important issue to this Board PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 87 1 and to us personally. 2 MS. WILLIAMS: Thank you. 3 BOARD MEMBER McKINNON: Mr. Chairman? 4 CHAIRPERSON LLOYD: Yes, Mr. McKinnon. 5 BOARD MEMBER McKINNON: A question and then -- 6 well, two questions. First question is -- and Stephanie, 7 you and I couldn't agree my more about the effects of 8 NAFTA. Okay. And I think it's really clear to me the 9 effects of NAFTA go well beyond fuel prices. They go 10 wages. They go to a whole set of circumstances that are 11 going to harm all sorts of industries close to the border. 12 What I need to know, just to be specific here, 13 is, and I think I know the answer to this with respect to 14 gasoline, but when we're talking about the feel sold on 15 the border, or near the border, are they produced in the 16 United States? And this is the US/Mexico border. Are 17 they produced in the United States or are they produced in 18 Mexico with different standards? 19 CRITERIA POLLUTANTS BRANCH CHIEF SIMEROTH: I've 20 been trying to research the answer to that question. A 21 lot of the fuel that is sold on the border is produced in 22 the United States and shipped and supplied into Mexico. 23 I've also been talking with some counterparts in Mexico on 24 their standards for diesel fuel. They're going to have a 25 fuel that is probably between ours and the federal. So PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 88 1 they have a 48 CT minimum requirement. They'll have the 2 same sulfur requirement. And possibly by the time this is 3 all resolved they may have an even cleaner fuel than they 4 presently have. 5 They're currently reexamining their fuel 6 standards to try to achieve additional emission 7 reductions. 8 MS. WILLIAMS: Actually, we've been working with 9 CANCAR on this, and the government is mad at the 10 United States because they didn't tell them about the 2006 11 fuel and they feel that we violated the agreement by 12 moving forward with the Clinton super clean diesel and 13 they're going to be making something not even close to 15, 14 and the interstate companies have already moved down 15 there -- Schneider -- look on the web sites, all these big 16 international companies, they're already coming -- JB 17 Hunt -- they're down. They're in Mexico. They're ready 18 to roll. And they're using fuel that's cheaper, and 19 that's why they're there. 20 BOARD MEMBER McKINNON: I spent a great deal of 21 time near the crossing on the Mexico side and very clear 22 about how much trucking has relocated to the other side. 23 It's clear to me that, at least for a period of 24 time the California Trucking Association and the Air 25 Resources Board worked together hard to try to bring PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 89 1 together the California standard and the federal standard. 2 We're now presented with the difference on aromatics. 3 We're also presented with sort of an international 4 difference that's going to probably be larger than one 5 might want. 6 We know the environmental minister of Mexico came 7 from their equivalent of our green party. I know from 8 other things he's responsive on occasion. And I guess 9 what I would like to ask is if we wanted to push one last 10 try at everybody getting together with the same standard, 11 and I understand for us that would be moving a higher 12 standard for aromatics, what would it take and how much 13 time would it take? What's involved? I mean the federal 14 regulatory process as I understand it takes time. But I 15 think as long as we're talking about this the public 16 that's listening to this debate needs to know what does it 17 take to sort of give it one last try to have the standards 18 attempt to work together. 19 EXECUTIVE OFFICER WITHERSPOON: When we met with 20 Margo this week, she talked about initiating a process 21 where EPA would analyze in greater detail the effect 22 nationwide of adopting a standard comparable to 23 California's and the time it would take to do so and would 24 the benefits escape them before they got the regulation in 25 place. And she a did not have a definitive answer about PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 90 1 how quickly they could move, But you are working against 2 time, because as EGR equipped on-road vehicles phase in, 3 they are less sensitive to aromatics. 4 For us, we still have huge benefits, because our 5 fuel price off-road and on-road and the stationary as 6 well, which is isn't something we were talking about with 7 Margo. But as that process is initiated it seems quite 8 easy to draw in -- maybe I'm speaking too soon -- but easy 9 to draw in the Mexican government into this evaluation 10 about their petroleum industry, the age of their vehicles 11 and how long an aromatics standard would be beneficial to 12 them, because the older your vehicles are and the slower 13 your standards, the more important it is to regulate 14 aromatics now. 15 So it might look better to Mexico than it does to 16 the federal government. And I can't be any more 17 definitive than that about how fast moving those two 18 systems are were we to relax. 19 Rule making itself doesn't takes much time. 20 Coming with up with substitute measures of equivalent 21 tonnage to close that gap is where the problem would be 22 and the SIP revisions and all the effected air districts. 23 MS. WILLIAMS: Can I just stay one thing with his 24 comment? We couldn't adopt the standard federally because 25 they just got sued on the ethel case where they had a PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 91 1 certification-type, non-prescriptive standard and it was 2 overturned. So we wouldn't be able to take our secret 3 formula to DC, because that's already been turned back as 4 not good public policy. 5 BOARD MEMBER McKINNON: Stephanie, I chose not to 6 take you on on this earlier, but, you know, a secret 7 standard -- just because you can sort of dissect the 8 ingredients of something doesn't mean you have a right to 9 it -- right? I mean -- 10 MS. WILLIAMS: I think you have to weigh it. Is 11 40 -- should four oil companies be more profitable because 12 of a market competition than 40,000 small businesses? And 13 I say 40,000 small businesses, based on environmental and 14 economic justice should overweigh that. I think the small 15 businesses should be taken first and the oil companies can 16 have a barrel fee and they be at a disadvantage. 17 BOARD MEMBER McKINNON: I don't have a problem 18 with us trying to figure out how more people can produce 19 and have a more competitive environment, but I have a real 20 difference with you that, I mean, if I decided to dissect 21 the music on a CD and write down the notes, I wouldn't 22 then have a right to reproduce that music exactly and sell 23 it as mine. 24 MS. WILLIAMS: But the government doesn't 25 sanction the music that you'd be doing. The government PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 92 1 sanctions -- this is fascism, by the way. Four companies 2 get to have fuel that nobody knows what it. Why don't we 3 set a prescriptive standard. This is fascism. 4 CHAIRPERSON LLOYD: I think at the we've got some 5 people coming to testify which may be able to address that 6 issue. 7 BOARD MEMBER McKINNON: Stephanie, thank you. 8 CHAIRPERSON LLOYD: Thank you very much. 9 And now, I guess maybe an expert in secret 10 formulas. We have Dr. Miller, then Dave Smith. 11 DR. MILLER: Good morning, Dr. Lloyd, and members 12 the Board. 13 My name is Wayne Miller. I'm one of the four 14 people that was asked to review the ARB proposed 15 regulations for the members on California diesel fuel. 16 And these arrangements are made under the interagency 17 agreement between the University of California and its 18 members. The other three are Dr. Sawyer, Lucas and 19 Caretto. 20 Just -- because many of you do not know me I'll 21 give you a brief background in that I have a Ph.D from 22 California Institute of Technology and since 2001 have 23 been director of emissions in fuel research at the 24 laboratory associated with the University of California 25 Riverside. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 93 1 My back -- prior to that, I spent over 25 years 2 in the petroleum industry -- I think that's what Allan was 3 alluding to -- and I spent a lot of time working on 4 refining processes and fuels formulation. 5 I've served an as a member the research committee 6 in the auto oil program. Actually was a member of the 7 Philadelphia Air Quality Board. And in 2000 was a member 8 the DOE and National Petroleum Counsel's study that was 9 entitled "Assuring the Adequacy of and Affordability of 10 Cleaner Fuels." 11 My background actually includes firsthand 12 knowledge in the development and implementation of the 13 1998 amendments on sulfur and aromatic content, as I was 14 working in the petroleum industry then. 15 And currently my research focuses on emissions 16 from stationary and mobile sources, but especially those 17 that use diesel fuel. And you'd be happy to hear that, 18 Stephanie. 19 As described in the staff presentation, there are 20 a number of issues to consider today. And I'd like to 21 summarize from my review in each area. 22 I'd first like to complement the staff and the 23 thoughtfulness and thoroughness which they went through in 24 producing such a large document. 25 The first area, reducing the maximum allowable PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 94 1 sulfur content of diesel fuel. The case is made that a 2 very low sulfur content is the key parameter that needs to 3 be implemented in order to enable new emissions control 4 technology. And as stated, a limit of 15 parts per 5 million is essential. 6 The second area was to change the allowable 7 sulfur content of the cert fuel and it's obvious that the 8 cert fuel must be consistent with the maximum permissible 9 level. The third area is new area, and this was to adopt 10 new equivalent regulations for diesel fuel properties. 11 And I think it bears on the discussions we just had about 12 the formulas that are held in proprietary manner. 13 So this is really a new option. And it allows 14 people to comply with the 10 percent aromatic content. 15 The staff approach is well founded as emissions benefits 16 are maintained by allowing more manufacturing flexibility, 17 and while the staff's approach for the rule development 18 was to sound my review has asked for clarification on a 19 couple of points. 20 The next area was to adopt a diesel fuel standard 21 -- lubricity standard, excuse me. I think the staff 22 adequately points out the critical nature of preventing 23 wear to fuel injectors and fuel pumps in order to maintain 24 factory emission levels. For example, if you look in the 25 ARB impact 2000 tables, you'll find that PM emissions for PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 95 1 heavy duty vehicle will increase about 50 percent for a 2 minor injection problem to over 500 percent for a severe 3 injector problem. This was not in the report, but I'll 4 just add that. 5 Given the magnitude of what happens when the fuel 6 systems and the components become compromised, I think 7 it's very important that ARB look at the lubricity 8 standard this time, especially as you introduced the new 9 fuel. And my review agreed with the technical limit if 10 the timing is a policy decision. 11 The next area that we saw this morning in the 12 staff presentation would revise the requirements for 13 certifying alternative diesel formulations. This is an 14 important section because, in fact, most fuels sold in 15 California today are sold under this provision rather than 16 the 10 percent aromatic standard. And I think the staff 17 did a good job and used sound rationale in developing 18 amendments, and the main point of them is to try to make 19 sure the fuel that was certified is the fuel that's sold. 20 That's an important point. 21 The next area was to adopted diesel fuel 22 standards for non-vehicle diesel fuel applications. And 23 to me it looked like the thrust was to assure the supply 24 for the ATCMs that will be forthcoming. However, a lot of 25 the solutions are just being worked and developed for PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 96 1 these ATCMs and so it was my opinion, and it may different 2 from the other peer reviewers, but this should be 3 identified as a technology study area and that staff 4 should make a recommendation in 2005 after further work is 5 completed today. 6 That completes basically the amendments to the 7 rule, but part of the peer review charge is to reconsider 8 rules for limiting sulfur and aromatic contents, the 1988 9 rule and we were asked to look at that rule in perspective 10 to what happened then and what have we learned since then. 11 And that was actually a challenge. 12 If you go back to 1988 there was very little 13 literature on the effect of diesel fuel properties and the 14 emissions from diesel engines. 15 Chairman, it would have made your critical review 16 a lot easier, quite frankly, it would have been quite 17 thin. In fact, there was mainly the study that was done 18 by the coordinating research counsel, the collaborative 19 program between of the automotive industry and the 20 petroleum industries. And it was on that basis that the 21 Air Resources Board implemented rules for aromatic control 22 content and the sulfur content. 23 Since then, as our Chairman will testify with 24 Tom, there's been a lot of literature -- a great amount. 25 But I think that if you look at the preponderance of that PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 97 1 literature there's two things that stand out. One, it's 2 clear that fuel changes can reduce emissions. But two, 3 the interactions are very complicated between the fuel 4 properties and the engine operating conditions. So it's 5 often difficult to point to a key note paper and say 6 there's the critical paper. It just is a very -- a 7 bundled area. 8 Given that, and then looking at all the 9 literature, it was my perspective that the statistical 10 analysis that were completed by the US EPA and by the 11 California Air Resources Board in the this staff report 12 show that there is an effect of aromatics and nitrogen 13 oxide emissions. 14 I thought that the numbers that were generated by 15 both agencies were consistent in the five or six percent 16 range versus 15 or 50 percent with the existing data. And 17 I think they apply to existing engines. New engines or 18 engines with new technology will have to be tested as 19 available. I have one caveat here. And that as I 20 mentioned the data is rather bundled and you need to be a 21 statistician expert to go through this, so I've asked a 22 colleague at the University of California Riverside, who 23 is an expert in that area, to add to my review. So he 24 will look carefully at the statistical processes that 25 were employed by US EPA and by the California Air PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 98 1 Resources Board to reach their decisions. 2 In closing, the benefits that are calculated in 3 the staff report in 2005 of 38 tons per day of NOx and 4 four and half tons per day of PM are reasonable, and I 5 think that they make these amendments an important 6 contribution to improving the air quality in California. 7 That's the synopsis of my peer review. 8 Thank you, Mr. Chairman. 9 CHAIRPERSON LLOYD: Thank you, Wayne. When will 10 the report be completed? 11 DR. MILLER: Should be out next week. 12 Professor Friedman. 13 BOARD MEMBER HUGH FRIEDMAN: Professor or Doctor? 14 DR. MILLER: Wayne Miller, Dr. Miller. Your 15 choice. Wayne's good. 16 BOARD MEMBER HUGH FRIEDMAN: Are you familiar 17 with the upcoming testimony that's been submitted in 18 writing previously? The position of -- one of the 19 positions asserted by the Alliance of Automobile 20 Manufacturers with respect to the new parameter that's 21 being introduced now for lubricity and the proposed regs 22 don't go far enough into the future, that there should be 23 a standard beyond 2004 for 2006 that's comparable to the 24 European standard at 460. 25 DR. MILLER: The way to start the diameter (**). PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 99 1 BOARD MEMBER HUGH FRIEDMAN: So the 2 manufacturers -- so the world knows with some greater 3 certainty what they should be designing to? I've wondered 4 if you had any comment on that. You did mention 5 lubricity, but -- 6 DR. MILLER: I did. 7 BOARD MEMBER HUGH FRIEDMAN: But I didn't hear 8 any comment or suggestion as to whether that's a good idea 9 or bad. 10 DR. MILLER: Well, let me give you my thinking as 11 it developed and I'll try to be brief. But basically in 12 California we've had -- well, first of all, if you don't 13 maintain the -- if you compromise the fuel components, 14 you'll get overfueling and you'll have -- 15 BOARD MEMBER HUGH FRIEDMAN: Sorry. You'll 16 get -- 17 DR. MILLER: If you compromise the fuel injectors 18 or the fuel pumps you can get overfueling in a diesel 19 engine, thereby having 50 to 500 percent more PM according 20 to the impact tables in the ARB documents. So I think the 21 staff is right in bringing up this point. It somehow 22 links it to the air quality, which is the issue. It's 23 better to address than not address is what I'm saying. 24 Now going to the standards themselves. 25 Currently, many people actually use a scuffing BOCLE PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 100 1 instead the one that you referred to and the standard 2 that's been suggested, and the one that I concurred with 3 has the same limits, equivalent limits, but run in a 4 different test. It's not as strict as the European 5 standard. 6 But on the other hand, it is, as the staff report 7 says, a limit that's about to be validated by STM in this 8 country. So there is some validity to the standard. It 9 may not be as severe as some people had hoped or expect in 10 the future. 11 CHAIRPERSON LLOYD: Thank you. So that was a yes 12 or no? 13 DR. MILLER: I'm sorry? 14 CHAIRPERSON LLOYD: Was that a yes or no? Were 15 you supporting staff or not supporting staff. 16 DR. MILLER: Yes, I support the standard, yes, 17 absolutely. 18 CHAIRPERSON LLOYD: But you were conceding the 19 point raised that in 50 future years maybe we need to have 20 a different one? 21 DR. MILLER: Yes. 22 BOARD MEMBER HUGH FRIEDMAN: You're supporting 23 the staff's decision, if I understand it, to postpone a 24 further decision and only go to the 2004. 25 DR. MILLER: Well, they have a proposed limit, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 101 1 which is different than the European or the world fuel 2 charter standard. 3 BOARD MEMBER HUGH FRIEDMAN: The 520. 4 DR. MILLER: Yes. That's the one that I support. 5 BOARD MEMBER HUGH FRIEDMAN: Not specifying a 6 lower standard. 7 DR. MILLER: Not at this time. 8 BOARD MEMBER HUGH FRIEDMAN: Okay. Thank you. 9 CHAIRPERSON LLOYD: Mr. Calhoun. 10 BOARD MEMBER CALHOUN: Doctor, you mentioned the 11 other peer reviewers. I missed one of them. Will you 12 repeat their names, please? 13 DR. MILLER: Certainly. Mr. Calhoun, they were 14 Dr. Sawyer, Dr. Lucas, both of U.C. Berkeley, and then 15 Dr. Caretto from Cal State North Ridge. 16 CHAIRPERSON LLOYD: Thank you. 17 DR. MILLER: Thank you. 18 CHAIRPERSON LLOYD: We have Dave Smith. Joseph 19 Kubsh, and Jay McKeeman. 20 MR. SMITH: Thank you, Dr. Lloyd. I'm Dave 21 Smith. I work for BP, and today I'm representing Western 22 States Petroleum Association. WSPA is pleased to state we 23 support the proposed ARB action to harmonize the 24 California diesel sulfur limits with the EPA's 2006 on 25 road limits and generally support the update of the ARB PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 102 1 diesel rules. 2 WSPA, along with me personally, would like to 3 express our appreciation to your staff for working with us 4 to address a number of important technical issues over the 5 last few days and weeks. 6 There are still, though, two issues that WSPA 7 would like to address with you. And although we've had 8 very constructive comments with your staff, we were unable 9 to come to a resolution prior to this hearing. 10 The three recommendations that I'm going to make 11 are up on the Board and I think you've been given hard 12 copies. The first one has to do with biodiesels and the 13 last two have to do with the designated equivalent fuel 14 limits that you've been discussing here off and on. 15 As I said, the first recommendation has to do 16 with the proposed definition of diesel fuel. As proposed 17 and further amended by staff today, it is the intent of 18 the staff and I say at this time, that the final rule 19 would not apply to biodiesel blends above 50 percent 20 biodiesel up to and including 100 percent biodiesel. As a 21 result, use of biodiesel blends above 50 percent are still 22 unregulated in California by ARB and can be used in diesel 23 engines that are otherwise required to only use regulated 24 and certified CARB diesel. We believe this is a -- 25 unfortunately an unfair regulatory policy that ARB PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 103 1 currently has. 2 We recognize that biodiesel does offer some 3 improvements in lubricity, particulate matter carbon 4 monoxide emissions, but we're also aware that generally 5 it's felt that the use of biodiesel blends, especially 6 B100, may result in increased NOx emissions. I'm also 7 just recently became aware in the last day or two that the 8 California Department of Food and Agriculture are actually 9 proposing new standards for biodiesel and B100 and the 10 comments are due on that at the end of August. 11 Therefore, our first recommendation to you is 12 that we request the Board to direct staff to address both 13 these concerns that we have with biodiesel by returning to 14 the Board within six to the twelve months, some period of 15 time, with a proposal to the ensure that all biodiesels, 16 including B100, used in California diesel engines does 17 not -- they do not increase NOx emissions and that they 18 are regulated consistently with CARB diesel. 19 Our second and third recommendations concern the 20 proposed designated equivalent fuel limits, or DELs, as 21 we've come up that are proposed to provide refiners and 22 importers greater flexibility. We find that in comparison 23 to other recent flexibility proposals by ARB on other fuel 24 regulations, namely CARB Phase Three, the staff report 25 does not contain much, if any, assurances that the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 104 1 increase flexibility will not result in increased 2 emissions. I should preface this by saying that I'm not 3 saying it will result in increased emission, I'm saying 4 it's unclear. 5 In fact, section 17 of the staff report that is 6 to address the environmental impact of the proposed 7 changes doesn't discuss this issue at all. In particular, 8 and this relates to the our two recommendations, we have 9 two concerns with the method by which these limits were 10 determined. 11 First, we understand that the proposed nitrogen 12 limit of 500 PPM was determined using a different 13 methodology than used for other parameters. We had 14 suggested to the your staff that the same methodology 15 should be used for all parameters. We do not understand 16 the justification for using the different methodologies, 17 and as a result doubling of the nitrogen limit that is 18 currently proposed. 19 Secondly, we had recommended to the staff all of 20 the parameters of the DDL be based on, primarily on the 21 real world fuel averages for each parameter in the 22 marketplace. We felt this would help ensure no 23 environmental backsliding while still providing some 24 greater flexibility to the importers and refineries alike. 25 Unfortunately, due to a lack of real world data and what PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 105 1 is in the market today, that couldn't be accomplished 2 before this hearing. 3 Real world fuel parameter data and their 4 estimated emissions was a very big issue. As you recall, 5 when the Board adopted CARB Phase Three gasoline rules 6 some time ago to ensure no emission backsliding when 7 greater flexibility for ethanol blending was provided. 8 The staff and our industry had a significant effort, 9 including obtaining confidential information from us on 10 real world fuel properties, to figure out this question. 11 This similar precaution should be taken here. 12 Therefore, WSPA's second and third 13 recommendations are that before any final action on DELs 14 are taken, the Board should direct staff to determine what 15 are the real world average fuel limits found in the diesel 16 marketplace and to report back to the Board on their 17 findings and the potential for any environmental 18 backsliding from the new DELs. 19 Similarly, the Board should also request a staff 20 report a few years or so after the DELs are implemented to 21 the report on the number of refineries and importers using 22 the DELs, the volume of fuel using them and an estimated 23 impact on emissions. 24 That concludes my comments. 25 I'd like to thank you for your consideration of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 106 1 our recommendations. And I'd be happy to the answer any 2 questions. 3 CHAIRPERSON LLOYD: Thank you very much. 4 Questions? 5 BOARD MEMBER HUGH FRIEDMAN: Does staff have any 6 comments or any -- 7 EXECUTIVE OFFICER WITHERSPOON: A couple. But 8 I'll start and then ask the staff, especially on number 9 two and three, to join me. 10 On number one, biodiesel -- well, biodiesel is so 11 incredibly expensive right now, it's in very limited 12 circulation. We are concerned about all forms of diesel 13 fuel and have scheduled a full day conference with the 14 Energy Commission -- 15 BOARD MEMBER HUGH FRIEDMAN: Two day. 16 EXECUTIVE OFFICER WITHERSPOON: -- in August 18 17 and 19, I think it is, to explore biodiesel, 18 Fischer-Tropsch diesel, emulsified diesel, every kind of 19 formulation that has been out there that are presented to 20 us many times as environmental solutions and we want to be 21 sure that we understand all their properties and agree 22 with the analysis. And I think that the obvious follow-up 23 to that is examining the ways in which our regulations 24 need to accommodate them or ensure that they're 25 sufficiently regulated. So that would be a natural follow PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 107 1 on. 2 BOARD MEMBER HUGH FRIEDMAN: Well, this 3 recommendation or request is that you develop a proposal 4 to regulate biodiesel by whatever name known consistently 5 with CARB diesel. 6 EXECUTIVE OFFICER WITHERSPOON: Well, yeah. I'm 7 reading the words -- 8 BOARD MEMBER HUGH FRIEDMAN: I'm not sure. 9 EXECUTIVE OFFICER WITHERSPOON: I think we'd like 10 to hold our symposium first and examine all of the issues 11 before us on biodiesel and what we need to do and then we 12 would be happy to -- 13 BOARD MEMBER HUGH FRIEDMAN: And what? 14 EXECUTIVE OFFICER WITHERSPOON: -- report back to 15 the Board on what we think. 16 BOARD MEMBER HUGH FRIEDMAN: And the effect on 17 NOx. 18 EXECUTIVE OFFICER WITHERSPOON: Yes. Report back 19 to you. 20 BOARD MEMBER HUGH FRIEDMAN: Is that a problem? 21 MR. SMITH: Not at all. We're aware of the 22 alternative diesel full meeting. I would comment that the 23 Department of Food and Agriculture has said that the 24 biodiesel is a new and growing fuel in California 25 marketplace and went on the say that they were concerned PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 108 1 about several factors and that's why they're taking action 2 now. 3 So I think there's a number of things that are 4 going on here. This is -- we see this -- I mean, 5 obviously my company and other companies sell biodiesel in 6 other parts of the country. We don't oppose it. What we 7 do like to see is uniform policy, regulatory policy as it 8 applies to our fuels and other fuels that are in the same 9 marketplace. So to the extent there is NOx emission 10 increases, then somebody has to deal with those, whether 11 it's stationary sources or mobile sources. So I would 12 still, I would still ask you to, you know, within some 13 reasonable time period that the staff return to you with 14 some kind of a proposal. 15 EXECUTIVE OFFICER WITHERSPOON: I can actually 16 absolutely assure you we don't want any erosion of 17 emission benefits. We are also trying to figure out what 18 that the advantages are of these different fuels and so 19 consistent and equivalent need to be sorted of integrated 20 what these fuels do as they operate in the fleet that we 21 have. 22 Staff wanted to add on to the answer about 23 biodiesel and I'm going to ask them to address number two 24 and three. 25 CHAIRPERSON LLOYD: I think what we're trying to PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 109 1 get from here -- staff has no problem with coming back to 2 the Board, summarizing the findings at the August 18th and 3 19th and then with any recommendation -- 4 EXECUTIVE OFFICER WITHERSPOON: Correct. 5 CHAIRPERSON LLOYD: -- and I think David, you're 6 flexible -- he doesn't mind if it's twelve months, he'd 7 like six months, but maybe -- 8 EXECUTIVE OFFICER WITHERSPOON: As soon as we 9 can, we'll be right back to you. 10 CHAIRPERSON LLOYD: No later than -- 11 EXECUTIVE OFFICER WITHERSPOON: The end of the 12 year. 13 CHAIRPERSON LLOYD: That's great. 14 EXECUTIVE OFFICER WITHERSPOON: In terms of a 15 regulatory proposal, no, that would take longer, but in 16 terms of a full report -- 17 CHAIRPERSON LLOYD: I don't think that's what 18 he's asking. I think he's asking for a report from -- 19 EXECUTIVE OFFICER WITHERSPOON: He's asking for 20 an actual proposal, which is a regulation, I think. 21 MR. SMITH: We'll take pretty much whatever we 22 can get. But, no -- I'm sure that we can develop a form 23 of proposal by the end of the year as well. 24 CHAIRPERSON LLOYD: Any time WSPA comes forward 25 with us and helping us and is concerned with an increase PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 110 1 in NOx emission, they're going to work with you. 2 MR. SMITH: I'm glad to hear that. 3 DEPUTY EXECUTIVE OFFICER SCHEIBLE: I just want 4 to point out that biodiesel is basically zero sulfur, zero 5 aromatic fuel. So you're not going to be in trouble with 6 a mixture of our sulfur aromatic limits. 7 It has other properties and other emission 8 characteristics, so the equivalent regulation would -- 9 it's not a small task to do the assessment. I agree that 10 if the fuel is going to become of a significant fuel in 11 California that we're going to have to deal with the 12 issue. 13 CHAIRPERSON LLOYD: Mr. Calhoun. 14 BOARD MEMBER CALHOUN: Have we, at any time in 15 the past, made a survey to see what is actually out there? 16 CRITERIA POLLUTANTS BRANCH CHIEF SIMEROTH: 17 Mr. Calhoun, there are a number of surveys -- the auto 18 alliance sponsors one that is done annually. Our 19 enforcement division takes samples of the produced fuels 20 before they're released from the refinery occasionally at 21 the terminals and other locations. We look at all that 22 data. And if I was going to criticize anything, I'd 23 criticize the wording in the staff report in how we did 24 our analysis and our ability to explain it. 25 If you look at what's actually in use and look at PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 111 1 the proposed limits they line up pretty well. The end use 2 is right -- it ranges from 19 to 23 percent, depending 3 upon which year you conduct the study, which stations get 4 sampled. 5 We're proposing a 21, which would mean that the 6 actual produced fuel would end up being less than 21. A 7 recent survey said well, that's 20, and that's a fuel that 8 would be produced under our proposal for aromatics. 9 PHs, we're putting it right where the end use 10 survey is and saying you have to be that or less. So it 11 would actually end up being less than that the average for 12 polycytic aromatic hydrocarbons. 13 API gravity, that's not a current specification 14 for the large refiner or smaller refiner alternative 15 formulations. We are adding that as a specification for 16 this case to ensure, again, there's no backsliding, that 17 the fuel they produce will provide all the benefits we 18 want. 19 The one issue that has been of contention is the 20 nitrogen content. It was suggested that we look at what 21 the refiners are actually producing and what standard 22 they're producing to. We surveyed each individual 23 refinery, what volume they're producing, what formula 24 they're producing to -- came up the volume weighted 25 average -- our recommendation for nitrogen content is PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 112 1 slightly less than that volume weighted average. 2 BOARD MEMBER CALHOUN: When you say you surveyed, 3 did you get that the information from that the refiner or 4 did you go out in the field and get it? 5 CRITERIA POLLUTANTS BRANCH CHIEF SIMEROTH: For 6 nitrogen content, we got that information from the 7 refiners based on what formulation they're actually 8 producing to and how much volume they're producing under 9 that formulation. 10 BOARD MEMBER CALHOUN: So that the proposed 11 specification would on average provide the same safety 12 margin as what's currently being used. So we're 13 relatively confident that we're going to have, if 14 anything, that the formula we're proposing is erring on 15 the side of the environment. 16 CHAIRPERSON LLOYD: I understood from Dave that 17 they made a recommendation to come up with a nitrogen 18 content and you did not follow their recommendation. 19 CRITERIA POLLUTANTS BRANCH CHIEF SIMEROTH: We 20 actually looked at -- they requested us to look at what 21 refiners are producing and what formulas are being used 22 for that production to do a volume weighted average. We 23 did that and still supports the 500. There is a 24 difference on other things, but -- 25 CHAIRPERSON LLOYD: Dave. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 113 1 MR. SMITH: Well, Dean is absolutely accurate in 2 everything he's said, but -- and I like Dean a lot. But 3 the volume metric averages he's talking about are the 4 certification limits. In other words, you have a formula 5 and you have a limit, so you went to each of the 6 refineries and said, "Which formula are you using and what 7 are the limits," because he knows what those limits are. 8 So that's what they volumetrically average. What the 9 refinery actually produced is something we don't know. 10 In the case of CARB phase three when you did that 11 work, this group and us spent a lot of time trying to 12 figure out what was being produced in the market and what 13 was going to be produced and so -- as I say, we don't know 14 what the answer is, but I don't think realistically the 15 staff does either. And so that's why we're asking that 16 that would be done or reevaluated. 17 I think WSPA is ready to work with staff to try 18 to get the data and come up with that information. We 19 could probably do that within a few months and then return 20 that to the Board and we could resolve this question once 21 and for all. 22 CRITERIA POLLUTANTS BRANCH CHIEF SIMEROTH: 23 Dr. Lloyd, I might add one thing. 24 We've looked at the difference between 100 parts 25 per million a 500 parts per million and 500 is the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 114 1 recommendation. Slightly over 100 it's what we're finding 2 when we sample out in the field. That difference would 3 not account for any significant increase in NOx emissions 4 in terms of nitrogen emissions, because it's fuel nitrogen 5 and most the NOx nitrogen is coming from the air nitrogen. 6 MR. SMITH: We don't disagree with that. The 7 thing that Dean isn't mentioning is that for any given 8 refiner you may find that one given parameter is the 9 limiting parameter. And so it may be easy for you to meet 10 aromatics or sulfur or whatever, but maybe your nitrogen 11 limit is the one you really have to meet. That's the one 12 you have to watch. And so just by saying, by going to 13 averages or whatever, that it's not going to increase NOx 14 doesn't really do a more comprehensive evaluation like 15 your staff did on CARB Phase Three. 16 So this isn't unusual. This isn't inconsistent 17 with what you did in CARB Phase Three. 18 CHAIRPERSON LLOYD: Ms. Witherspoon. 19 MS. WITHERSPOON: In terms of the two specific 20 recommendations, we would not recommend delaying adoption 21 of the designated equivalent fuel limit as suggested in 22 number two. But it is judicious to do exactly what Dave 23 is recommending in number three, which is to monitor this 24 closely and report back on the performance in the field 25 and how that affects emissions. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 115 1 CHAIRPERSON LLOYD: You'll take two out of three, 2 Dave? 3 MR. SMITH: I'll take two out of three, sir. And 4 I'll just offer, that WSPA may talk with the staff about 5 trying to get some additional information about number 6 two, because these aren't, you know, these are issues that 7 we're concerned about, but we are not going to fall on our 8 sword over them. 9 CHAIRPERSON LLOYD: I appreciate that. I 10 understand that. Does staff have any problem with that -- 11 with working with them? 12 CRITERIA POLLUTANTS BRANCH CHIEF SIMEROTH: Not 13 at all. 14 CHAIRPERSON LLOYD: Any other questions for Dave? 15 One question back, in view the earlier 16 discussion, put on your BP hat. 17 What about the discussion visive, you know, the 18 keeping intact, the implementation date for the South 19 Coast rule? Do you have any comments on that? If you 20 don't, I understand. 21 MR. SMITH: Well, let me make a couple of 22 comments as BP. 23 BP several years ago started producing ultra low 24 sulfur diesel and publicly stated we could produce a 25 million gallons a day, which is around 20, 25,000 barrels PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 116 1 a day, I think. We still have that capability. In fact, 2 we've run some test runs where we think we can produce 3 quite a bit more. 4 Currently we're selling just a fraction of that. 5 We've worked hard to expand that market. We have 100 6 wholesalers, 100 retail sites, many customers, but we're 7 just a fraction of what we can produce. Fortunately for 8 the state there are -- we understand there may be as many 9 as four or five refiners could provide ultra low sulfur 10 diesel to California, so I just -- with all due respect to 11 the South Coast, I question the need for their proposed 12 action at this time. 13 WSPA is very interested in working with the South 14 Coast and ARB in trying to identify ways to either speed 15 up emission reductions or get additional emission 16 reductions. This one is not one that we would 17 necessarily have chosen as being the first thing to come 18 out of the box. 19 CHAIRPERSON LLOYD: Thank you. Thanks very much. 20 Joseph Kubsh, Jay McKeeman, and Bonnie 21 Holmes-Gen. 22 MR. KUBSH: Good morning Dr. Lloyd, members of 23 the Board and staff. My name is Joe Kubsh. I'm the 24 deputy director of the Manufacturers Emission Controls 25 Association. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 117 1 MECA is pleased to speak today in support of the 2 Air Resources Board's proposed amendments to California's 3 diesel fuel regulations. Establishing a 15 PPH cap on 4 sulfur and diesel fuel is absolutely essential for 5 achieving significant emission reduction from diesel 6 engines. As the emission control industry and our 7 customers face the challenges of developing and optimizing 8 advanced technologies to meet the stringent standards that 9 will take effect during this decade and beyond, the 10 availability of low sulfur diesel fuel is absolutely 11 critical to ensuring the ultimate success of these 12 technologies. 13 As indicated in the staff report, the 14 availability of this low sulfur diesel fuel will enable 15 the use of PM and NOx control technologies capable of 16 meeting the California and EPA 2007 on-road diesel 17 heavy-duty engines emission standards. In addition, low 18 sulfur diesel fuel will enable the use of catalyst-based 19 diesel particulate filters on existing on-road and 20 off-road diesel engines, and will facilitate and enhance 21 the use of other PM retrofit control technologies such as 22 diesel oxidation and catalyst and NOx retrofit 23 technologies such as low pressure exhaust gas for 24 circulation systems, lean NOx catalyst and selective 25 catalytic reduction technologies. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 118 1 Low sulfur fuel will enable light duty diesels to 2 utilize advanced PM and NOx emission control technologies 3 to helping meet the LEV-II standards here in California. 4 Finally, as indicated in the presentation given 5 by staff earlier this morning, ARB is working in 6 cooperation with the US EPA to achieve significant 7 emission reductions from new off-road engines. If 15 PPM 8 sulfur fuel is available in this sector, the same types of 9 NOx and PM emission control technologies will be used 10 there as in the on-road case to enable significant 11 reductions. 12 I'd just like to close my brief remarks this 13 morning by commending the Board and staff for its 14 leadership in recognizing the importance of making 15 PPM 15 sulfur fuel available to enable the use of emission 16 control technologies that can and will provide significant 17 emission reductions from diesel engines. Adoption of the 18 proposed amendments to the California diesel fuel 19 regulations will bring about the era of the truly clean 20 diesel engine. 21 Thank you for your time, and I'd be happy to 22 answer any questions that you might have. 23 BOARD MEMBER HUGH FRIEDMAN: Any questions? We 24 have your two-page written statement. 25 Thank you. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 119 1 Mr. McKeeman. 2 MR. McKEEMAN: Good morning. My name is Jay 3 McKeeman. I'm with the California Independent Well 4 Marketers Association. We distribute most of the diesel 5 that gets to the end customer in this state, so we have a 6 direct and vested interest in diesel regulations and we 7 appreciate the opportunity to comment this morning. 8 First of all, I'd like to complement Stephanie in 9 putting the Board on the horns of a dilemma, and that 10 dilemma is the tradeoff of having ever increasing and ever 11 different fuel specifications versus the economic impact 12 that brings to the state. 13 There is no debate. California's unique fuel 14 specifications make California gasoline the most expensive 15 fuel in the continental United States. There have been a 16 number of studies recently that all point to the fact the 17 unique specifications are a significant factor in the 18 premium that Californians pay on their fuel. 19 So I just urge the Board to carefully weigh the 20 economic and environmental benefits of being different. 21 There is a price and a price is yet to put onto the 22 California economy. It gets put onto California consumers 23 and it gets put onto California jobs. Ultimately, 24 environmental justice is an issue of people being employed 25 and having health insurance. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 120 1 And if we run people out of the state, if we run 2 employers out the state -- I would say there is a much 3 greater impact to California public of not having adequate 4 jobs, adequate health insurance and a healthy condition at 5 home than there is in tinkering with small amounts of air 6 pollution. 7 That being said, we do support the adoption of 8 this regulation today, because of the South Coast Air 9 Quality Management District problem. 10 Our members have just recently gone through a 11 spring where they directly encountered the problems of 12 having a bifurcated fuel in this state. We all remember 13 in February and March that gasoline prices hit historic 14 highs here. $2.15 cents on average and up to 2.50, 2.75 15 in some locations. That was largely due to the fact that 16 we were experiencing a problem with two types of gasoline 17 in the state, MTBM and ethanol gasoline. Yes, there was a 18 war premium, but the extra amount that pushed us to the 19 historic highs could directly be linked to the problems 20 that were occurring in terms of trying to deal with a 21 two-flavor gasoline in this state. 22 If we move to a two-flavor diesel, we predict 23 equally dire consequences in terms of the diesel market in 24 this state, because of a lot of reasons that have been 25 discussed previously. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 121 1 So that's why we support the expedient adoption 2 of the regulation today. We need a statewide regulation. 3 It's just the way the state works in terms of fuel supply. 4 It's the way the state works in terms of the fuel economy. 5 There are a couple of issues that I would like to 6 bring up in terms of the technicalities of the regulation. 7 First of all, a lot has been said about the 8 lubricity standard. In our discussions with CARB staff, 9 one of the things going forward when we look at the 2006 10 lubricity standard proposal or whatever is going to be 11 done in 2006, we believe it's important that that 12 lubricity element be something that could be injected at 13 the rack. And the reason we suggest that is that that 14 allows imports to come into the state without having to 15 meet a quote lubricity standard. It also allows them to 16 be distributed in the pipelines and the transportation 17 system with the finishing touch being added at the rack. 18 So we would encourage when staff and the Board 19 look at the 2006 lubricity standard, that that standard 20 apply to something, that could easy applied at the rack. 21 I think that will ultimately help the import of fuels in 22 this state. 23 And we also strongly support the ARB's attempt to 24 develop an import standard, and if we understand it 25 correctly, it's fairly close or identical to the standard PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 122 1 that's being developed in Texas where a lot of petroleum 2 product is produced and is also a very convenient 3 location -- well, not very convenient, but relatively 4 convenient location for alternate supply going forward. 5 Finally, staff has recommended an amendment that 6 is very important amendment to us and that has to do with 7 the ultimate compliance with diesel fuel in the tanks. As 8 we read the original proposal, basically all tanks have to 9 be turned within 90 days after the regulation or after the 10 racks have fuel supply, and that would have been a huge 11 expense to a lot of end consumers and possibly could have 12 even created a artificial shortage, because of the need to 13 drain the tanks and refill them. 14 So the proposal that staff has put forward of 15 basically the end user needs to keep their paperwork, so 16 if they get tested and they haven't turned their tank 17 within the 90 days or whatever period is developed, it is 18 an appropriate regulatory proposal and portion proposal 19 and the tanks are going to turn. The only thing that's 20 going to be available is ultra low sulfur diesel. So 21 that's going to happen, it's just that a matter of how 22 much times it takes. 23 With that, thank you for your time. Any 24 questions? 25 BOARD MEMBER HUGH FRIEDMAN: Thank you. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 123 1 Any questions? 2 Thank you. 3 Bonnie Holmes. 4 MS. HOLMES-GEN: Good morning. Bonnie Holmes-Gen 5 with the American Lung Association of California. And I'm 6 here to testify in support of this regulation. 7 As I think you are well aware, diesel pollution 8 is a top priority for our association, the American Lung 9 Association, and it is certainly critical to meeting our 10 state and federal air quality standard to reduce diesel 11 pollution and adopt this tighter regulations on diesel 12 fuel. It is critical to address a host of other problems 13 that are caused by diesel particulates. 14 You're aware of the associations between diesel 15 particulates and increased asthma attacks, increased cases 16 of bronchitis and lung cancer and other illnesses, and I 17 know you heard a report today about the link between 18 diesel pollution and cardiac illnesses. 19 We strongly support moving forward adopted of the 20 low sulfur diesel rule and we're pleased it includes both 21 on- and off-road vehicles and, as you know, it's vital to 22 ensure that we have that they made a reliable and 23 consistent supplies of low sulfur diesel if we are going 24 to get additional agent upgrades and retrofits on the 25 road, and certainly we need to work hard with you to get PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 124 1 increased funding for Carl Moyer and other programs to 2 fund those kinds of upgrades and retrofits and that's an 3 action item that we need to keep working on very closely 4 together. 5 We are also concerned about the changes that this 6 regulation would bring to the South Coast rules, both low 7 sulfur diesel and the emission reductions that would be 8 lost by the delay in -- that would be imposed in the South 9 Coast rule and would urge you to consider allowing the 10 South Coast to continue with their 2005 time frame for 11 implementation or at least study this issue further. It 12 seems you've heard information even today that refiners 13 potentially do have excess capacity or could have 14 additional capacity available in that time frame, so I 15 think it bears some further study. 16 We would also urge you to consider expanding the 17 regulation to include locomotives and marine vehicles. 18 These are two key areas where further controls are 19 absolutely necessary for making air quality improvements. 20 So those are my comments. We want to continue 21 working with you. We are pleased you are moving ahead on 22 this and we want to, of course, support everything you're 23 could on the diesel risk reduction program. It's 24 absolutely critical. 25 CHAIRPERSON LLOYD: Thank you. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 125 1 Ms. D'Adamo. 2 BOARD MEMBER D'ADAMO: Could staff respond to the 3 suggestion regarding locomotives and marine vessels. 4 EXECUTIVE OFFICER WITHERSPOON: In California, 5 the fact that we require on-road and off-road diesel fuel 6 to be the same means that any locomotive marine vessel 7 that is actually purchasing diesel in our state is going 8 to likely get California diesel unless they're seeking out 9 bunker fuel, heavier weight fuel. 10 EPA is in the middle of rulemaking where they 11 have proposed and we're asking them to accelerate diesel 12 fuel standards for locomotive and marine vessels. They've 13 raised of the question shall we impose it in 2010 with our 14 off-road diesel and we said, "Yes, please." 15 The counter proposal is that they would postpone 16 it until such time as they required after treatment, which 17 would be a few years past that. 18 We don't have clear legal authority over 19 locomotives and marine vessels that we could impose and 20 enforce a California standard. We think by controlling 21 the availability of diesel fuel we get there, but we're 22 willing, if EPA does not move to test those waters and 23 adopt our own standard. We didn't do it today because the 24 rulemaking is pending nationally. But we'll come back to 25 you if we need to to push that agenda. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 126 1 BOARD MEMBER D'ADAMO: What do you think the time 2 frame would be? 3 EXECUTIVE OFFICER WITHERSPOON: To come back to 4 you? 5 BOARD MEMBER D'ADAMO: Well, going through the 6 EPA process. 7 EXECUTIVE OFFICER WITHERSPOON: EPA will be 8 promulgating in April of '04 their final off-road diesel 9 regulation. We'll know at that time what they intend to 10 do on locomotives and marine vessels. 11 BOARD MEMBER D'ADAMO: Again, it would be great 12 if there could be a report made back on this issue once 13 the federal rule is resolved and determine what further 14 steps ARB could take to address marine and locomotives. 15 I don't think the EPA will go as far as we would 16 like them to go, although we are certainly urging them to 17 cover this issue. 18 EXECUTIVE OFFICER WITHERSPOON: We do have a 19 current memorandum of understanding with rail operators in 20 Southern California that they will be using low sulfur 21 California diesel fuel, I should say, for their operation 22 in the basin. It sort of turns on statewide and across 23 our coastline and I was just corrected by Mr. Scheible, 24 that we do maintain regulatory authority over these 25 entities, but not as much practical authority, and that's PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 127 1 why a national rulemaking would be more effective than a 2 stand alone state regulation. 3 BOARD MEMBER D'ADAMO: I would just agree with 4 Ms. Bonnie Holmes-Gen's suggestion that in either event 5 after the April rule comes out to have a report back. 6 CHAIRPERSON LLOYD: Thank you. Thanks. 7 Ellen Shapiro, Tim Carmichael, Graham Noyes. 8 MS. SHAPIRO: I'm not sure what to say, good 9 morning or good afternoon, but good morning/good 10 afternoon. 11 Dr. Lloyd, members of the Board and ARB staff, my 12 name is Ellen Shapiro, and I'm the director of automotive 13 fuels for of the Alliance of Automobile Manufacturers. 14 Our trade association has ten members representing over 90 15 percent of vehicle sales in California, new vehicle sales 16 in California. 17 I'm sure you know that our members are very 18 interested in increasing of the number of light-duty 19 diesel vehicles in California, as well as the U.S., above 20 the very small current levels. 21 CHAIRPERSON LLOYD: Could you repeat that 22 sentence? 23 MS. SHAPIRO: Alliance members are very 24 interested in the possibility of increasing the number of 25 diesel passenger cars in the U.S. above their very small PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 128 1 current levels. 2 Diesel offers enormous advantages in terms of 3 fuel economy and CO2 emissions and the newest technologies 4 are proving very consumer friendly. It is not an 5 overstatement to say that light-duty diesel is taking 6 Europe by storm in recent years, but the 64,000 dollar 7 question now is can light-duty diesel succeed in the U.S. 8 and California markets. 9 And the short answer is it depends. It depends 10 on the technology, of the technology cost, consumer 11 acceptance, fuel quality, among other things. 12 Today we are also talking about fuel quality, so 13 that's where I'll focus my remarks. 14 The most important challenge is whether diesels 15 could be made clean enough to meet the stringent new 16 emission standards. Auto makers are not quite there yet, 17 but are continuing to work very hard to meet that goal, 18 and as a result they are increasingly confident that 19 eventually they will be able to meet the standards here 20 and in the rest of the United States. 21 Lowering the sulfur level sufficiently is key to 22 meeting that challenge, and the proposed amendment moves 23 California in the right direction and so we support it. 24 We especially like that the 15 PPM sulfur limit will apply 25 to off-road as well as on-road, because this will minimize PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 129 1 the risk of misfueling these expensive new vehicles. 2 While we would like to see even lower sulfur 3 limits here and federally, the matched limits will help 4 enhance fuel supply by improving flange ability of the 5 fuel. Contamination during distribution will be minimized 6 and California refiners should also find it easier to 7 obtain fuel from out of state should that prove necessary. 8 The other standards of the rule also help reduce 9 diesel emissions and enable light duty diesels. We fully 10 support, for example, the state's continued regulation of 11 cetane and aromatics. For these parameters, California's 12 alternative formula is a very smart approach, because it 13 provides the emission reductions needed by the public, as 14 well as the flexibility needed by refiners. 15 This approach has led to the best quality diesel 16 fuel available in the United States and that should be a 17 source of pride to the state. We regard California's 18 approach as an excellent model for regulating diesel fuel 19 nationally. 20 Today CARB is proposing to regulate a new 21 parameter lubricity. And we applaud this step, because 22 sufficient lubricity is needed to enable light-duty 23 diesels, a new generation of common rail diesel engines, 24 which help reduce emissions, operate at extremely high 25 pressures, and require sufficient lubricity to avoid PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 130 1 damage, with virtually no lubricity requirement today and 2 the possibility of even lower lubricity due to the 3 impending sulfur reductions, which could affect all diesel 4 engines, by the way, this proposal is another critical 5 step forward. 6 We particularly support the use of the HFRR test 7 method, the high frequency reciprocating rig test method, 8 which is endorsed by the Worldwide Fuel Charter. I'm sure 9 you're familiar with the charter. If not, I'm happy to 10 provide it to you. 11 Not only is this method more precise than the 12 scuffing BOCLE it also is much less expensive to run and 13 this will help the state as well as the regulative 14 community. We are pleased that ASTM is also poised to 15 adopt this method. In fact, we are supporting CARB's 16 proposed 2004 limit mainly because we want to see this 17 method become part of the standard. 18 We are disappointed, however, that CARB is 19 proposing to delay adopting of sufficiently protective 20 lubricity standard. We don't think 520 HFRR goes far 21 enough and leaving the 2006 limit open creates too much 22 uncertainty for auto makers who are now finalizing design 23 plans for 2006 and 2007 model years. 24 We all know how difficult it is to tighten an 25 existing regulatory limit. We need to know whether PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 131 1 California is willing to protect the consumer's investment 2 in diesel technology. 3 Timing is another issue. Staff proposed waiting 4 for results of CRC test program for lubricity before 5 setting the 2006 limit, and this test program I'm told is 6 likely to happen and will receive of the support of our 7 members. But the formal test program has yet to be 8 designed and approved and testing has not yet begun. 9 Twelve months to complete it is a very optimistic 10 schedule in our view. We think 18 months or longer is 11 much more likely. Putting the results out of public reach 12 until sometime in 2005 or later. We already know that 520 13 HFRR is inadequate, because of fuel injection equipment 14 supplies tell us so. 15 With their permission I quote from two of their 16 ASTM ballots, the recent ballots on the issue. 17 CHAIRPERSON LLOYD: Is this the same that we have 18 in our letter? 19 MS. SHAPIRO: Pardon? 20 CHAIRPERSON LLOYD: Is this the same letter we 21 have from you already? 22 MS. SHAPIRO: Yes. If you want I can skip -- 23 CHAIRPERSON LLOYD: I think we read that. 24 MS. SHAPIRO: Okay. And Detroit Diesel support 25 the 460 limit, which is what we would support in this PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 132 1 case. And I would note that the 460 HFRR is a compromise 2 for our members. The Worldwide Fuel Charter's notes 3 recommends 400 HFRR as the limit most certain to protect 4 the expensive new technology. 5 I would also add that the vehicle manufacturers 6 around the world, which are U.S. and foreign-based, 7 light-duty and heavy-duty, endorse the Worldwide Fuel 8 Charter definition for clean diesel fuel. And, simply 9 put, cleaner fuels make cleaner vehicles. The alliance's 10 goal is to see clean fuels implemented nationally and we 11 advocate this every chance we get. And we're happy 12 we're -- we note the discussion here today about cleaner 13 national fuel and we're very happy to work closely with 14 ARB on that as we continue our dialog with EPA. 15 Short of that, we do encourage states and other 16 jurisdictions to adopted cleaner fuels as soon as 17 feasible, and the sooner the better. 18 Just a quick note on biodiesel, which came up 19 earlier and is not in my previously submitted comments. 20 We do support continued dialog. We will be participating 21 in the alternative diesel symposium coming up in August. 22 There are some concerns that are warranted and we will 23 provide information at that time. But our members in 24 general do support the continued use of biodiesel as long 25 as good specifications are in place to ensure the quality PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 133 1 of the fuel. 2 In closing, we hope that the Board will decide 3 today to assure auto makers and consumers that California 4 will have diesel fuel that will sufficiently protect the 5 clean new fuel efficient light-duty diesels. And 6 considering the short time available between now and 2006 7 we urge of the Board to lock in 460 HFRR now. 8 Thank you. 9 CHAIRPERSON LLOYD: Thank you very much. 10 Questions or comments? 11 Thank you. 12 Tim Carmichael, Graham Noyes, Patricia Monahan. 13 And Dr. Burke, you will note that we do have a migration 14 from Southern California to the north. They've moved up 15 north. 16 MR. CARMICHAEL: On some days I think Dr. Burke's 17 happy to be rid of me, and other days I'm sure he misses 18 me. 19 BOARD MEMBER BURKE: I'm never happy to be rid of 20 you. That's why I followed you here. 21 MR. CARMICHAEL: Good to see you, Dr. Lloyd and 22 Dr. Burke and the rest of the Board. 23 Tim Carmichael, I'm the president of the 24 Coalition for Clean Air. Today I'm also speaking on 25 behalf of the Natural Resources Defense Counsel and PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 134 1 Environment California. 2 In general, all of our organizations support the 3 proposal before you, and certainly the move toward doing 4 more to address emissions from diesel. But we do have 5 some specific concerns about the proposal, some of which 6 have been touched on, but I really feel the need to 7 elaborate on some of the points that have been made. 8 I think Bonnie touched on the marine and 9 locomotive issue, and I don't feel that the staff response 10 was adequate. In fact, it was perplexing if, in fact, 11 the -- those industries already are using California 12 diesel, then why shouldn't we, as a natural progression, 13 be requiring them to use low sulfur diesel on the same 14 time frame as the rest of the diesel users in California? 15 Frankly, it's unfair to the trucking industry to have to 16 go to a low sulfur diesel, and arguably a more expensive 17 diesel and not require these two other segments of our 18 transportation system to do the same. 19 The other important point there is, as we reduce 20 emissions from trucks and other sources of pollution in 21 our society, we can see the clear increase, proportional 22 increase in emissions coming from the marine sector and 23 from locomotives, and to punt and wait for EPA, even it's 24 just a year, is not appropriate. It's certainly not 25 appropriate to wait until 2010 or later to harmonize those PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 135 1 standards or require those sectors to do the same, to use 2 the low sulfur. 3 The second issue, of course, is what to do about 4 South Coast. And it won't surprise you that our strong 5 opinion is that ARB should be doing exactly what the South 6 Coast is doing and should have on the same time frame 7 adopted a rule for implementation on the same time frame 8 as the South Coast. But there wasn't the political will 9 to do that. But in light of the exceedance days this 10 summer, in light of the huge hole in the state 11 implementation plan, and in light of all the data that's 12 come forward, especially the data that's been presented in 13 your own staff presentation today about of the health 14 impacts of continuing -- health impacts imposed by 15 continuing our dependance on diesel, it's unconscionable 16 to us that the Air Resources Board would hold back the 17 South Coast from going forward with a earlier 18 implementation of a more protective standard. 19 You know, Dr. Burke's analogy earlier about 20 somebody drowning may have been off-putting to some, but 21 it's not far from -- it's actually a very good analogy in 22 this context. The scenario that's building up right here 23 is ARB is not prepared to do anybody more than walk to 24 help people that have serious impacts from air pollution. 25 South Coast is ready to run and ARB is saying no PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 136 1 you can't run. That may be an oversimplification for 2 some, but that's the bottom line when we're talking 3 protecting public health. 4 I just want to go through a couple of the points 5 that were made by staff, because I really feel strongly 6 that the arguments against letting South Coast go forward 7 were weak at best. 8 Cost to the industry. I'll note that in the 9 first quarter of this year the petroleum industry in the 10 United States made $21 billion in profit. Twenty-one 11 billion. At the top of that list, Exxon Mobile. Chevron 12 is up there as well. You know, to prioritize the cost for 13 the oil industry when we're talking about significant 14 public health impacts for millions of California just 15 doesn't hold water. 16 Disruption to supply. You know, there was a lot 17 information exchanged relative to the disruption of 18 supply, but we think this is the bogeyman. Sixty percent, 19 if the numbers that were shared are correct, 60 percent of 20 the diesel consumption is in the South Coast. But as much 21 as 35 percent of that might be coming from outside of the 22 South Coast. That would mean -- if my math is correct, 20 23 percent of the state diesel consumption, and just to 24 follow on on Dr. Burke's point earlier, are we 25 suggesting -- do we really believe the oil industry will PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 137 1 not meet that demand, that they will not seize the 2 opportunity to provide the fuel that is required in the 3 South Coast. 4 The follow on point to that, of course, is what 5 if one or more refineries can't get up to speed in 17 6 months, as was suggested by some of the witnesses? You 7 know, the suggestion that a variance would cripple the 8 program is laughable. If you track the variance process 9 in any air district in the state or even of the Air 10 Resources Board, with appropriate showing that they made a 11 proof of need, industries get variances all of the time. 12 It's a normal course of business in California relative to 13 pollution control. And to suggest that a variance 14 couldn't be given, or that we should hold back 75 or 80 15 percent of the market in the South Coast fuel supply to 16 wait for 20 percent, that again is just not a sound 17 argument. 18 Another argument that was made was alignment with 19 EPA. And I could almost stop there. The Air Resources 20 Board aligning with EPA as a justification not to do more 21 sooner to protect public health in California. I've only 22 been in this field for eight or nine years, but eight or 23 nine years ago, that would have been a laughable 24 contention, that the Air Resources Board is going to slow 25 down and wait for EPA to catch up, it's not sound public PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 138 1 health policy and it has not been the historical practice 2 of California to do that. 3 And my final point on this, and obviously I'm 4 passionate about it because we feel very strongly that the 5 South Coast showed some courage in adopting that rule in 6 2001, and it is wholly inappropriate for this Board, 7 whether you are a public health advocate or a local 8 control advocate, for this Board to say, "No, you can't go 9 further sooner," or, "You can't go to the standards 10 sooner," is just wrong. 11 It's bad public policy and none of the arguments 12 that were made today support the Air Resources Board 13 holding the South Coast back. And honestly, what you 14 should be doing is aligning your program with the South 15 Coast. 16 That summarizes our position. And it's 17 good to be here today. If you have any questions, I'd be 18 happy to respond to them. 19 CHAIRPERSON LLOYD: I think it's fair the way you 20 phrase that, Tim. Again, it's -- in hindsight there's a 21 lot of things you state that would seem obvious now, but 22 not obvious at the time and I think there's a lot of 23 history gone into improve the South Coast rule and the 24 discussions between ARB and South Coast, so I think -- I 25 won't get into those, but I'd like Ms. Witherspoon to PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 139 1 respond to some of the issues you raised. 2 EXECUTIVE OFFICER WITHERSPOON: We need to 3 clarify the record with respect to the air quality impact 4 of the 17-month delay in the South Coast of the low sulfur 5 standard, because it has been stated in the District's 6 letter and also by Mr. Carmichael, that we are harming 7 ozone attainment, that there is a NOx loss here and there 8 absolutely is not. 9 The sulfur limit has no bearing on NOx 10 whatsoever. This is about particulates and the six 11 ton-per-day estimate of the district is a combination of 12 modest decreases from the use of low sulfur fuel in 13 existing vehicles and then half or more of the benefits 14 are attributed to deployment of retrofit devices on 15 vehicles using low sulfur fuel, where you get an 85 16 percent bang for the buck. And as Mr. Smith testified 17 from BP, there is more than enough fuel in the district 18 now to meet of the needs of anyone who is ready to go with 19 retrofitting or has retrofitted their fleet. 20 And so we are not foregoing those reductions. We 21 are meeting step for step where schools buses have been 22 retrofitted, where transit busses have been retrofitted, 23 where anybody else wishes to step ahead and retrofit, the 24 fuel will be available for them to do so. So it all turns 25 on shall we transform the entire South Coast fuel market PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 140 1 to low sulfur fuel and what is the impact of that. And I 2 think the testimony from Energy Commission and from of the 3 staff is that it would cause dislocations, it would cause 4 price volatility, it would cause disruptions in supply. 5 These are not trivial effects. And to say that we can 6 accommodate them through variances -- yes, we could and 7 would, but that's not good public policy either. So we 8 think it's necessary to align with a consistent 9 implementation date. 10 And by now this issue is moot. We no longer have 11 the option of a pull ahead January 2005 for the entire 12 state of California. There is not enough time to do the 13 engineering studies, comply with CEQA, make the changes to 14 the refineries in California and outside in the Pacific 15 Northwest and Houston and other countries supplying our 16 market such that we could reliably provide 15 PPM low 17 sulfur fuel in the South Coast every day, as much as is 18 needed, without causing dislocations elsewhere. 19 And finally, 60 percent of diesel fuel is not 20 consumed within South Coast proper. That is an estimate 21 for all of Southern California, including Ventura, Santa 22 Barbara, San Diego, etc. So it's a small effect. And 23 it's still a significant fraction, but it's smaller than 24 60 percent and not enough to drive an international 25 national response to get enough fuel here on time. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 141 1 And I just take issue with the notion that the 2 Air Resources Board is not prepared to run. We've been 3 running a marathon since the day I came to this Board in 4 1981, and we are going to continue to run a marathon. And 5 wherever we can do the regulations, we will. It's really 6 a matter of practicality and getting them implemented. 7 MR. CARMICHAEL: Couple of brief responses to 8 that. 9 On the last point, I think of the proof is in the 10 plan that is going to be presented to you this summer. I 11 fundamentally disagree with the contention that this 12 agency has done all it could be doing to protect public 13 health and reduce emissions in California over the last 14 five or 15 years. And the proof will be, you know, look 15 at your own plan and what you are the whole and what has 16 been done and what hasn't been done and what could be 17 done. That's going to be another debate coming up very 18 shortly. But I encourage you to read your plan and look 19 at that as proof of this contention or our position. 20 The second point is, I didn't intend to give 21 anybody the impression that the justification for the 22 South Coast move ahead was the ozone SIP. I'm sorry if I 23 gave that impression. I was -- I thought the point had 24 been made clearly that it was six tons of particulate. 25 And I would submit that a six-ton-per-day reduction in PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 142 1 particulate will have far greater benefits for public 2 health than a six-ton-per-day in smog reduction or ozone 3 reduction. 4 So I meant to be clear that I'm talking about 5 particulates, but we see that as far more harmful to 6 public health over that period of time and I want to be 7 clear on that. 8 And then one last point. On the timeline and 9 whether or not the state has time left to push the 10 industry to comply, 17 months, we can debate that. You 11 know, part of my testimony was intended to highlight the 12 fact that this agency failed at some level to push over 13 the last five years on this specific point. And as a 14 result, you should have some level of guilt about that and 15 should not be holding back a region of the state that is 16 prepared to move on this. 17 So I want to be very clear. Even if you believe 18 the state can't do it in 17 months, the South Coast 19 believes we can. And you shouldn't hold us back. 20 Thank you. 21 CHAIRPERSON LLOYD: This is not a debating 22 society, but I would say, Tim, on that issue there, I do 23 agree with Catherine. Clearly we're all concerned about 24 public health. The issue you mentioned about why should 25 we worry about aligning with EPA -- I think there's PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 143 1 good reasons in the past. The person that you were 2 sitting with to encourage you to talk locomotives and that 3 this benefits the truckers also is pushing us to align 4 with EPA. 5 We are going ahead of EPA, because our field also 6 responds also to off-road. So, again, I think this is 7 maybe sets up for a very interesting debate. 8 Where I think we would work with you is very 9 clear. We know how to address the black box, but we need 10 tremendous billions and billions of dollars to address 11 those on-road vehicle emissions and, in fact, clean fuels. 12 So we look forward to working with you, rather than 13 shirking our duty to working with you to get the dollars 14 that are required. 15 But I don't think there is anybody on this Board 16 who are trying to shirk responsibility. We are a 17 statewide Board. And I envy you sometimes the luxury that 18 you have to make very intelligent, very good comments to 19 the Board. We don't that have luxury, but we do have the 20 same commitment that you have to move ahead as 21 aggressively as possible. 22 We are very concerned about of the trends in air 23 quality in South Coast and San Joaquin Valley. So we 24 should definitely be working and continue to work together 25 in a partnership. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 144 1 MR. CARMICHAEL: I assure you the envy goes both 2 ways. 3 CHAIRPERSON LLOYD: Graham Noyes and Patricia 4 Monahan. 5 MR. NOYES: Good afternoon, Dr. Lloyd, members of 6 the Board, members of the staff. 7 My name is Graham Noyes. I work with the World 8 Energy Alternatives. We're the largest supplier of 9 biodiesel in the country. I'm also speaking today on 10 behalf of the National Biodiesel Board. 11 I have some very quick comments. Firstly, 12 general support of the biodiesel industry for the Board's 13 actions in moving toward ultra low sulfur diesel. 14 As was previously mentioned, biodiesel is a, 15 typically a no sulfur, no aromatics, high lubricity fuel 16 that can actually in low quantities provide sufficient 17 lubricity to achieve the lubricity standards this Board is 18 considering. 19 I also -- biodiesels sort up popped up in a 20 couple of conversations here. I wanted to make sure 21 everyone on the Board was aware that we're working very 22 carefully with CARB right now in Southwest Research 23 Institute to verify a B20 blend that is NOx neutral or 24 better, that at is that will deliver at least as 25 good NOx performance as the diesel baseline and likely PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 145 1 will show some reduction and we anticipate having those 2 results within the summer and hopefully that verification 3 later this fall. 4 Specifically, the point I wanted to raise and 5 really request a clarification on was on the definition of 6 diesel fuel. It's referenced there that under the 7 modification a product that is more than 50 percent 8 biodiesel that is a B51 or above would not be within of 9 the definition of diesel fuel and I would request 10 clarification as to the reasoning behind that and the 11 likely impacts of that. 12 CHAIRPERSON LLOYD: Okay. 13 CRITERIA POLLUTANTS BRANCH CHIEF SIMEROTH: We 14 were modifying our definition of diesel fuel to improve 15 its enforceability. And so if someone -- its present 16 definition would exempt someone say using jet fuel in an 17 engines if you only look at the definition because it 18 refers to the STM definition. The STM definitions are 19 very specific and jet fuel would not meet the distillation 20 characteristics. 21 The current definitions would exclude biodiesel 22 as well, because biodiesel does not meet the STM 23 definition for diesel fuel. So we're trying to walk a 24 fine line here. And we're also trying to be consistent 25 with US EPA's approach to biodiesel and its uses. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 146 1 So the definition we're proposing is that diesel 2 fuel be primarily hydrocarbon-based. But that would still 3 allow for oxygenated compounds or other additives that 4 have other compounds of carbon hydrogen attached to them. 5 This makes it makes it very consistent with how 6 US EPA is treating biodiesel. Our division of measurement 7 standards for 100 percent biodiesel was directed by state 8 law to allow that under certain exemption provision. And 9 we're consistent with that as well. 10 We intend to come back and finish the work here 11 we've begun, so to speak, and pick up the part of 12 biodiesel that's not presently covered by this regulation 13 with its own regulation which to argue is a more 14 appropriate way to deal with this. And we are working 15 with them, my staff is working with the biodiesel industry 16 for the testing and we think that's going to help us in 17 resolving all this. 18 But probably the correct way to do it is have its 19 own standard for when it becomes predominantly biodiesel. 20 CHAIRPERSON LLOYD: Hopefully that helps. 21 MR. NOYES: It does help just to bring to 22 everyone's attention there is a distinct ASTM standard for 23 biodiesel, it's D6751-02. It is a permanent specification 24 and it's a -- what they call a blending stock 25 specification for biodiesel before it's blended with PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 147 1 petroleum diesel. So the B100 -- and we would welcome the 2 opportunity to work with staff. 3 I do have some uncertainty level as far as the 4 implications of this and the cutoff at a B50 typically 5 above a B20, a biodiesel blend will not meet the 6 distillation curve standard for D975, so we would welcome 7 the opportunity to work on that. 8 CHAIRPERSON LLOYD: Work with staff, great. 9 Thank you very much. 10 Last witness is Patricia Monahan. 11 Just to alert staff, I am going to come back. I 12 don't think we addressed Tim's question about why we can't 13 move ahead with requiring this to also flip forward for 14 locomotives, why can't we require it? 15 MS. MONAHAN: I'm actually glad to hear that, 16 because that was going to be one of the main points I was 17 going to raise. I understand that the environmental 18 community is starting to sound a little bit like a broken 19 record. I'll try to highlight different points. 20 Again, my name is Patricia Monahan. I'm with the 21 Union of Concerned Scientists. And I'm also representing 22 of the National Resources Defense Council, Diane Bailey, 23 who wasn't able to attend today's hearing. 24 We would first like to register our very strong 25 support for this proposed regulation. We believe that PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 148 1 this is an incredibly important rule for California. But 2 the fact that it has been extended to apply to off highway 3 vehicles is a very important part of this rule that we 4 strongly support. 5 We believe that this rule will help California 6 reduce toxic diesel emissions and implement its diesel 7 risk reduction plan. We've fallen behind on implementing 8 that plan. We feel that this rule can help reinvigorate a 9 campaign to reduce toxic diesel emissions. 10 There is many efforts under way in California to 11 retrofit vehicles, both on- and off-road. For example, 12 thousands of independent trucks roll through West Oakland 13 communities to get to the Port of Oakland. 14 The port, along with various community groups and 15 local officials, would like to institute a program to 16 reduce emissions, but the program needs reliable access to 17 low sulfur diesel. And although the low sulfur diesel has 18 been made available to specific fleets, particularly those 19 that are leaving California's fleet rules of the reliable 20 access to low sulfur fuel is not guaranteed. Other fleet 21 modernization programs, such as Gateway Cities, would be 22 greatly augmented by the assured availability of low 23 sulfur diesel. 24 As mentioned before, we think there are two 25 important ways that this rule should be improved. The PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 149 1 first is to allow that they made a carve out for the South 2 Coast Air Quality Management District. We, as other 3 environmental groups that testified, believe that the 4 South Coast early action should be allowed to continue. 5 That it's imperative for the South Coast, given their air 6 quality problems, to have this earlier implementation. 7 The second area that I want to talk about more 8 extensively, because I also feel this hasn't been 9 addressed appropriately, is the carve out for locomotives 10 and marine vessels. Right now, locomotives and marine 11 vessels contribute about 10 percent of the NOx and PM 12 emissions for mobile sources in California. They are 13 significant sources. They are significantly unregulated. 14 And we feel that the first step towards greater regulation 15 of these engines is to have the accessibility to low 16 sulfur fuel. 17 It's been raised that EPA has issued a proposed 18 rulemaking to address this problem. Unfortunately, EPA's 19 proposal only goes -- only reduces the sulfur level of 20 fuel from these engines to 500 PPM. EPA has asked for 21 comments on lowering it to 15 PPM by 2010, but it's really 22 not clear where EPA is going to go on this. 23 We also heard that these sources are already 24 using CARB diesel, so it's unclear why extending the rule 25 to also address these sources would be at all a matter of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 150 1 conflict. It seems like if these sources are already 2 using low sulfur fuel the rule should be extended to them. 3 Again, I'd like to reiterate that for a few cents 4 a gallon this may be one of the more cost effective 5 measures that ARB could take to improve California's air 6 quality and we strongly support it. 7 CHAIRPERSON LLOYD: Thank you very much. 8 Do we have a response from staff? 9 EXECUTIVE OFFICER WITHERSPOON: We talked about 10 it quite a bit internally and I had the same question some 11 of the witnesses are raising, that you yourself are 12 raising about why it isn't part of this package. 13 There is a notice issue today so that it would 14 have to be that they made a separate rulemaking in any 15 event if we were going to go out with a locomotive and 16 marine regulation, and we certainly did intend to rely 17 upon you as EPA if they are going to step forward and do a 18 national regulation, because the practical implementation 19 problems are enormous. 20 So that's the same answer we provided before. 21 CHAIRPERSON LLOYD: But it's not unusual for us 22 to sort of make sure that EPA moves ahead by -- we would 23 step forward as sort of a -- 24 EXECUTIVE OFFICER WITHERSPOON: Correct. And I 25 testified in New York City and Los Angeles and we're PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 151 1 submitting detailed written comments to EPA about the 2 marine and locomotives and we do already have a memorandum 3 of understanding with rail operations in Southern 4 California that whatever CARB diesel is they will be using 5 it, so as we go to low sulfur, so will they. We initiated 6 conversation with the rail industry about the greater San 7 Joaquin Valley, Sacramento Valley and the I-5 run and 8 looking for ways that we can expand upon what we've 9 accomplished in the South Coast. 10 For marine, our activities have been focused a 11 lot more on port activities at the moment. We sort of 12 haven't initiated with that industry and we need to. 13 CHAIRPERSON LLOYD: What's the typical sulfur 14 content of marine diesel? 15 EXECUTIVE OFFICER WITHERSPOON: Well, they're 16 lowering it to 500, I mean -- I'm not sure if California 17 has different standards. But I think it was 3,000 or more 18 PPM for federal. 19 CRITERIA POLLUTANTS BRANCH CHIEF SIMEROTH: 20 There's no basic restriction on the sulfur content of 21 marine diesel. The high sulfur diesel is typically 3- to 22 5,000 parts per million. In California there's very 23 little of that produced. Some weeks, some months there's 24 no quote high sulfur diesel produced. It's all US EPA and 25 CARB diesel. But it's basically unrestricted. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 152 1 EXECUTIVE OFFICER WITHERSPOON: The International 2 Marine Organization has a standard of 15 PPM that has been 3 embraced, but it carries with it a requirement that the 4 region in which that standard applies be designated as a 5 sulfate-sensitive area, and thus far only two portions of 6 the world have received that designation. 7 CHAIRPERSON LLOYD: So they would go to a -- 8 EXECUTIVE OFFICER WITHERSPOON: Baltic Sea and 9 both in that part of the world. 10 CHAIRPERSON LLOYD: They would go to the same 11 standard, 15 PPM for sulfur? 12 EXECUTIVE OFFICER WITHERSPOON: 1500. 13 What we talked to -- we discussed marine vessels 14 in our meeting with U.S. EPA this week. What we are 15 talking about is how the United States can acquire the 16 same designation and can we obtain it for the entire 17 coastal regions -- Gulf Coast, the Pacific Coast, and the 18 Atlantic Coast or -- what sort of proof do we need to make 19 in this international body to avail ourselves of that 20 standard, which is what's before us at the moment, and 21 EPA's subsequent actions and our own subsequent actions to 22 bring cleaner fuel to the marine environment. 23 CHAIRPERSON LLOYD: D'Adamo. 24 BOARD MEMBER D'ADAMO: The more we talk about 25 this, the more nervous I'm getting. It almost seems if we PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 153 1 wait for EPA we don't have any strong signal they're going 2 to move as aggressively as we would like for them to move, 3 in light of what we're about to adopted today. 4 Question number one. 5 Number two, is there any information about fuel 6 that's used in California? What percentage of that is 7 CARB fuel versus fuel that they -- locomotives, marine 8 vessels obtain elsewhere. 9 EXECUTIVE OFFICER WITHERSPOON: I'll answer the 10 first one and then ask staff to give the percent of fuel. 11 EPA has announced its intent to issue an advanced 12 note of proposed rulemaking on locomotives and the 13 marine -- and the point of the dialogue we're having with 14 them is to set up what that rulemaking would consist of. 15 They also have a possibility of acting in the current 16 non-road diesel rule to establish a standard for one or 17 the other or both. And we're exploring with them how 18 likely it is that they'll be able to take of the action 19 now rather than later. 20 BOARD MEMBER D'ADAMO: Right, but that's not in 21 process, and I guess maybe I made the mistake earlier of 22 assuming if we wait until April and things go well, they 23 choose to include it in their rule and it would be a 24 standard that would be similar to our standard. And it 25 sounds like now we're talking about these huge numbers PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 154 1 that could, even if they adopt a standard could be way off 2 where we are with this rule. 3 EXECUTIVE OFFICER WITHERSPOON: That's true, 4 though it's a substantial improvement over the case that 5 prevails today -- substantial. Then we it would have to 6 look at the cost differential and the ability to enforce 7 going the further increment all the way down to 15 PPM 8 sulfur diesel and how we could accomplish that in the real 9 world. 10 BOARD MEMBER D'ADAMO: How long would it take for 11 staff to prepare a proposal and bring it back to us? 12 Would it be somewhat in the same time as the EPA 13 announcement in April? 14 EXECUTIVE OFFICER WITHERSPOON: About a year. 15 BOARD MEMBER D'ADAMO: I don't see any harm in us 16 directing staff -- 17 CHAIRPERSON LLOYD: I would support that. 18 Professor Friedman. Mr. McKinnon and then Professor 19 Friedman. 20 BOARD MEMBER McKINNON: It's a question. I came 21 here sort of ready to run and as the day's gone on, maybe 22 walk. And I'm sort of interested in sort of the whole 23 discussion about how we get to one standard. And I'm 24 interested also in local control. Now, if we were to turn 25 down this proposal, would the South Coast retain its PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 155 1 ability to have its rule? Could we save their rule by 2 turning this down? 3 EXECUTIVE OFFICER WITHERSPOON: Yes. Our 4 action -- your action is needed to supercede the district 5 rule and the implementation date. But if you don't act, 6 there's other pieces of this that the non-road 7 implementation of low sulfur diesel is not addressed in 8 any way, and the stationary use of low sulfur diesel fuel 9 in regions outside the South Coast is also not addressed. 10 CHAIRPERSON LLOYD: So San Joaquin Valley would 11 not have this low sulfur fuel? 12 EXECUTIVE OFFICER WITHERSPOON: Well, there's a 13 federal requirement for on-road that would prevail in June 14 '06. 15 CHAIRPERSON LLOYD: I'm talking about off-road. 16 EXECUTIVE OFFICER WITHERSPOON: That's right. 17 CHAIRPERSON LLOYD: Professor Friedman. 18 BOARD MEMBER HUGH FRIEDMAN: Picking up on 19 Ms. D'Adamo point, I'm wondering how we can make more 20 speed however deliberate, and I'm wondering what harm 21 there would be not only asking that you come back, but you 22 come back very quickly with some standards for the marine 23 and locomotive fuels and -- I mean -- do you think that 24 would be counterproductive? In terms of -- I don't want 25 to put a curse on your dialog with EPA, but I don't like PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 156 1 us having to wait until EPA does something. 2 Very honestly, I think we dealt with the issue 3 for a couple of years under of the former executive 4 officer. In fact, he personally dealt with it on 5 railroads and fuel. And we got into the big problem area 6 of -- trains have the ultimate ability to fuel out of 7 state and carry fuel long distances and most of the times 8 when they were fueling in this state they were using 9 either CARB or EPA diesel. 10 Ships also have that. So it's a complicated 11 area. In order to say how do we design a program that we 12 not only require them when they buy fuel in California, 13 that they buy good fuel that gets us emission reductions, 14 but that they also use that fuel? 15 I don't think we have solved the issue of going 16 to someplace where we say well we're just going to make 17 these users change their fuel out -- 18 BOARD MEMBER HUGH FRIEDMAN: The larger ones have 19 that. I think about the smaller ones, there's a -- you 20 know, California is a coastline, and there are so many 21 smaller vessels. And many of them -- 22 DEPUTY EXECUTIVE OFFICER SCHEIBLE: That -- it 23 might be possible to accelerate that where you have 24 captive users. 25 BOARD MEMBER HUGH FRIEDMAN: You can see the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 157 1 smoke. They pollute the beaches, I mean, we can go on and 2 on and on. 3 CHAIRPERSON LLOYD: Mike. 4 DEPUTY EXECUTIVE OFFICER SCHEIBLE: I'm not 5 saying it can't be done, I'm just saying it is a sizable 6 difficult undertaking. And if we're trying to do it 7 quickly, may not work at all. 8 CHAIRPERSON LLOYD: Given what you say, there 9 must be fuel. And fuel outside California -- outside of 10 the basin -- 11 DEPUTY EXECUTIVE OFFICER SCHEIBLE: It can't -- 12 CHAIRPERSON LLOYD: And then we're saying we have 13 a voluntary agreement with them that they would use 14 California fuel. They're giving nothing away, because if 15 they don't fuel in here they're not using the fuel. 16 DEPUTY EXECUTIVE OFFICER SCHEIBLE: They 17 currently fuel both out of state and in state. 18 CHAIRPERSON LLOYD: What does the MOU do, then? 19 EXECUTIVE OFFICER WITHERSPOON: The MOU causes 20 them to not come in with large quantities of fuel on 21 board. 22 But we've got no enforcement capabilities. 23 EXECUTIVE OFFICER WITHERSPOON: We do have 24 enforcement capability within the MOU, there's a sizable 25 penalty structure which was developed by joint agreement PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 158 1 and we are monitoring the fuel use of the rail industry 2 and their pull ahead of the cleaner engines. 3 They're also switching out engines at Colton and 4 Barstow, putting the cleanest engines available on the 5 market to complete the haul into the LA basin proper. And 6 when they come back out they switch the engines again. 7 CHAIRPERSON LLOYD: Ms. D'Adamo. 8 BOARD MEMBER D'ADAMO: Why couldn't the 9 regulation complement the MOU? The MOU refers to -- is it 10 CARB fuel? It doesn't say -- 11 EXECUTIVE OFFICER WITHERSPOON: It can compliment 12 it. The question is whether it achieves anything over and 13 above the MOU because of their ability to pick up fuel 14 outside of the state on their way in. 15 BOARD MEMBER D'ADAMO: So they sign the MOU, and 16 there's an enforcement provision within the MOU that they 17 not load up before coming into the state. 18 EXECUTIVE OFFICER WITHERSPOON: The MOU only 19 applies to the South Coast Air Basin. We have no other 20 agreements for the rest of California. And Mr. Cackette 21 wanted to get into this dialog as it relates to smaller 22 diesel-powered boats, because they are running on CARB 23 diesel as well at this point. They can run on CARB 24 diesel, and we think because of fuel availability, they 25 are. It's where people seek out and use, you know, the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 159 1 heavier weight bunker fuels and dirtier fuels and how we 2 would enforce against that choice. 3 BOARD MEMBER D'ADAMO: If we can get back to my 4 earlier question -- roughly, what's the percentage, 5 locomotive and marine vessel, that utilize CARB fuel? 6 CRITERIA POLLUTANTS BRANCH CHIEF SIMEROTH: 7 Sorry. The other fuel that's purchased in California, 8 over 95 percent is either CARB or US EPA. And with both 9 of us going to low sulfur, then they're both going to 10 be -- 95 percent will have a low sulfur fuel in the 11 future. 12 BOARD MEMBER HUGH FRIEDMAN: When will that be? 13 CRITERIA POLLUTANTS BRANCH CHIEF SIMEROTH: That 14 will be June 1st, 2006, starting out. 15 BOARD MEMBER D'ADAMO: But that's of the fuel 16 that's purchased in California. Can you venture to guess 17 on other fuel that's utilized while in California what the 18 percentage will be? 19 CRITERIA POLLUTANTS BRANCH CHIEF SIMEROTH: Now 20 you're getting down to roughly about half of the line 21 haul, and the line haul is considered about 90 percent of 22 the diesel fuel consumed in the state. That half figure I 23 mentioned is heavily influenced by the South Coast MOU 24 where it makes a half go down some to reflect what they're 25 doing for that action. In Northern California they're not PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 160 1 doing that. 2 Of the fuel they purchase in this state, about 95 3 percent of that fuel is consumed -- about 35 percent of 4 that fuel is consumed outside of the state. So they're 5 coming in and fueling and going back out, and they use 6 about 65 percent of fuel they purchase in California in 7 California. The other 35 percent is other states are 8 getting the benefits. 9 The problem is for outside of the South Coast, 10 for MOU's at least, they can adjust those ratios. They 11 can fuel up with more fuel before they come into 12 California and virtually eliminate the purchases in 13 California. And that's one of the reasons we think if we 14 can get this done nationally and uniformly, then that's by 15 far of the better way to go. And if it isn't, we -- then 16 we should move forward. 17 BOARD MEMBER D'ADAMO: My suggestion would just 18 be that we select a date where it would make sense to put 19 pressure, as long as we get it on the agenda, on a future 20 agenda, that will also help to put pressure on EPA and as 21 staff moves forward, perhaps some of these technical 22 issues could be worked out. If not, we haven't made a 23 commitment that it would be taken care of prior to April. 24 Then still put pressure on EPA. 25 CHAIRPERSON LLOYD: I would very much support PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 161 1 that. Maybe what we could do is staff give us a brief, 2 have them reflect on this. It's obviously a complicated 3 issue -- lay out this and what we can do and what it would 4 take in a timely manner. 5 MS. MONAHAN: Can I make just two quick points? 6 The first is that -- 7 CHAIRPERSON LLOYD: Oh, Patricia. 8 MS. MONAHAN: Coming from the commentor. 9 The first is that the argument that we're 10 hearing, that ships and trains can refuel outside of the 11 state, I mean, is exactly the argument that the California 12 Trucking Association is making. And so it does seem that 13 the point that Tim raised in terms of parity, that if 14 opposing these restrictions on the California trucking 15 industry, why are ships and trains being exempted is a 16 fair point. 17 The second is that we do appreciate that this is 18 a complex issues. It will require some study, but by 19 doing something in California in advance of the EPA 20 rulemaking, I think it will provide pressure on EPA to do 21 the right thing and to require 15 PPM for these sources as 22 well. 23 And California has this opportunity once again to 24 lead the nation, and we hope you take that opportunity. 25 CHAIRPERSON LLOYD: I hope you'll work with staff PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 162 1 as we ask them to come back at the next Board meeting with 2 some options, then. 3 MR. NOYES: We definitely will. 4 Thank you. 5 EXECUTIVE OFFICER WITHERSPOON: Could we do that 6 in October? September is the heaviest schedule of the 7 year. 8 CHAIRPERSON LLOYD: We may have to have two 9 meetings in September. 10 EXECUTIVE OFFICER WITHERSPOON: September is 11 probably two days as it stands, with the South Coast plan, 12 the trash truck rule, the small off-road engine rule. 13 CHAIRPERSON LLOYD: I'm not willing to concede 14 that. I think we have to look at what our options are. 15 We may have to clear up the schedule. 16 EXECUTIVE OFFICER WITHERSPOON: The analytical 17 time staff needs -- 18 CHAIRPERSON LLOYD: We don't have a Board meeting 19 in August. 20 EXECUTIVE OFFICER WITHERSPOON: I understand 21 that, but they're working on -- we'll talk about it later. 22 CHAIRPERSON LLOYD: Thank you. 23 Well, I think that's the end of the testimony. 24 I'll get control of my colleagues, I guess we'd better -- 25 spent quite a bit of time on that, as Professor Friedman PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 163 1 reminded me, we've got a two-day meeting in September. 2 We're slower today than we expected, we've got a lot of 3 work ahead of us. 4 So I think comments or questions from the Board. 5 Mr. McKinnon. 6 BOARD MEMBER McKINNON: I'm not sure, but I think 7 we decided a minute ago that we need to equally harm two 8 other industries -- is that what we decided. 9 Mr. Chairman, I really have grown through the day 10 to begin to wonder if we're ready here. I have a 11 difficulty getting to a yes vote and at the beginning of 12 the day I was a yes vote. 13 And I'll tell you, there's sort of -- there's an 14 argument, and part of why I was a yes vote this morning is 15 there's this argument about fairness inside the border and 16 outside the border and there's also a problem here -- and 17 I'm arguing for the rule -- there's a problem here that's 18 old vehicles versus purchase of new vehicles. 19 And I think that if you look at sort of the 20 breadth of what we've done on diesel regulation, most of 21 the burden is going on those that buy new vehicles. And I 22 think the fuel helps us get to evening that burden between 23 those with new vehicles and old vehicles. Because 24 retrofit becomes easier to do. So that's, I mean, when I 25 think about how it's going to impact workers and who's PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 164 1 going to lose their jobs and who's not and that kind of 2 thing. And I think the argument was made earlier today 3 about who is a unionized worker and, you know, God love 4 it, the California Trucking Association likes unionized 5 workers. It took a few years to get there, but that's 6 happening. 7 But I guess what's clear to me is that the 8 tendency is the folks that buy new trucks tend to be the 9 unionized employers. And we have regulation that is 10 weighted heavily on that approach. To the extent the 11 regulation is balanced with retrofit strategies it takes 12 clean fuel to get that done. Albeit sulfur is really the 13 piece of that clean fuel that makes that work. So I'm 14 not -- I'm sort of not horribly impressed by some of those 15 arguments. 16 The arguments around NAFTA -- huge arguments. 17 But we don't get to regulate internationally here. In 18 fact, we get to be overturned, because our country gave 19 away its sovereignty to make its own rules in a trade 20 agreement. And I guess when we get to that discussion is 21 when I think we need to talk and have some sort of forum 22 or a highly visible approach to get all those at the table 23 that ought to be working on standardizing this. 24 And I -- finally I want to reject the argument 25 that this Board doesn't move things. If we stepped back PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 165 1 here and allowed the South Coast to move things, I -- and 2 that may be my vote. I challenge the South Coast to move 3 the federal government, to move the other big states and 4 to move international regulation without the whole state 5 of California. 6 It is grossly unfair and misstating to say that 7 this Board doesn't move things when the context of what 8 this Board has to move is often international. And it is 9 often the federal government. And one piece of this 10 state, even a large piece of this state, would have a 11 difficult time having that impact. 12 That's about all I have to say, Mr. Chairman. 13 I'm going to listen to you all's argument. I'm still 14 really very much on the line here. 15 CHAIRPERSON LLOYD: Well, I hope I can persuade 16 you that you really should be voting in support of this, 17 with the amendments that we talked about. Because, again 18 I think you highlighted the last part there and clearly 19 we're extremely concerned about South Coast, the air 20 quality and what's required there and we'll see that a 21 SIP. But also, we have an obligation in the state. If we 22 don't move ahead here, the other parts of the state will 23 not avail themselves of this fuel, and I think we are 24 representatives from other parts of the state. 25 So as painful as the issue is for me, having PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 166 1 lived in South Coast, sympathetic with the major 2 challenges we've got to address, we will be addressing 3 those in the next couple of months. And it will be a 4 major challenge. I feel that we have to move ahead 5 because of the concern for both of the constituent South 6 Coast, but also all of the other areas -- the 34 other air 7 districts in this state that, in fact, can avail 8 themselves of this fuel, which could be described as, you 9 know, it's a boutique fuel, but on the other hand, it's 10 the cleanest diesel that we can get here and clearly the 11 citizens of California -- all of the citizens of 12 California -- deserve to get that as soon as possible. 13 And I will say that, again, having -- when we 14 looked at the South Coast rule, we had some of the 15 discussions about the appropriateness, I know our 16 executive officer at that time had some discussions with 17 the executive officers at South Coast. And these were -- 18 you know, they were deliberative. And I think we have 19 full expectation that when the time came, when this rule 20 came into align with EPA for obvious reasons, that South 21 Coast would understand that. 22 So -- but I also understand that since that time 23 there's been a significant potential degradation of air 24 quality and we now have to look at that issue as well. 25 But again, I think I'm -- having cleared all this -- and PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 167 1 it's clear that we've given a lot of time to this issue, 2 the complexity -- I like your idea of trying to convene, 3 or asking staff to convene something to address of the 4 issue the trucking association did so that we can look 5 ahead. I think we agreed also that to look at one of 6 WSPA's suggestions. 7 I think to look at getting staff to come back at 8 the time the executive officer and myself will work out, 9 but certainly as quickly as possible. To look at the 10 locomotive issue and the marine so we can respond, and 11 rightly so, to some of the comments made why we're letting 12 that segment off. 13 So with those additions to the resolution, 14 clearly I'm going to be supportive here. But clearly, I 15 would like to hear from my colleagues as well. 16 SUPERVISOR ROBERTS: I'd like to move this along 17 if we can. 18 I'd like to make a couple of comments, though. 19 I'm incredibly surprised that I'm supposed to have guilt 20 feelings because of the last five years of efforts at this 21 Board and I don't have any, none at all. I sort of feel 22 like -- once I was at a baseball game and I saw Tony Gwynn 23 strike out. And the guy sitting in back of me said, "What 24 a bum." I said, "Well, he's hitting 365." He said, 25 "Yeah, but he should be hitting 400." It's a lot easier PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 168 1 to say that sometimes than it is to do it. 2 And I sort of feel like that about some of the 3 comments I've heard today. And I don't think we ought to 4 be embarrassed if we are hitting 365, because it is higher 5 than anybody else is hitting by a long shot. 6 So I'm concerned, though, that the most 7 compelling testimony that I heard today was, I think, 8 Stephanie Williams. And I'm very concerned about that 9 issue. I think we have a limited competition market with 10 respect to fuels, and I don't know if there's any way to 11 change that situation. 12 And it does concern me, and I think it causes 13 extra cost all of the way down the line and it may be one 14 of those factors that is causing a loss of so much of the 15 trucking fleet here and that concerns me. 16 So you mentioned three things. You mentioned 17 that, you mentioned the WSPA concerns, and you mentioned 18 the marine and the locomotive issue and with those three 19 being wrapped into this I'd like to see us approve it with 20 appropriate direction to staff. Sounds like there's some 21 concern about whether they can get it back -- some of 22 those things -- in the time frame that you were concerned 23 with and we'll just leave that, perhaps, for you to work 24 out with staff. 25 CHAIRPERSON LLOYD: And just getting to your PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 169 1 comment that you brought up from Stephanie that I think we 2 were going to take up the issue with Margo and her offer 3 to work with their staff. So, in fact, to look at the 4 national fuel to our standards. 5 And again I would also -- by the way, I would 6 like to compliment Stephanie for what we all agreed was a 7 very thorough and comprehensive and very well presented 8 thing. So I appreciate that. I know she's under a lot of 9 pressure, but it was really very helpful, and you can see 10 it had an impact on the Board. 11 Supervisor Patrick. 12 SUPERVISOR PATRICK: Mr. Chairman, I'll second 13 Supervisor Roberts' motion. I agree with all of the 14 comments you made and, in the interest of brevity, I will 15 just say that, you know, I think it's important we move 16 along with this. This is a tremendous step forward and I 17 certainly support the motion. 18 CHAIRPERSON LLOYD: Any other comments? We have 19 a motion. 20 Professor Friedman. 21 BOARD MEMBER HUGH FRIEDMAN: I don't know if this 22 will tip my good friend, Mr. McKinnon, over the edge 23 either way, but the longer I've been on this Board and 24 served on other boards where you have to make decisions, 25 and the more I realize that as much as I would wish it, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 170 1 there just isn't often a perfect solution or answer, that 2 there are a lot of lose ends, there are doubts. There's 3 more yet to be done. But I do think this advances us, 4 moves us forward, generally. It is far from perfect, but 5 I'm not sure in this case, as in many cases, there is such 6 that as a perfect solution. 7 As the Chairman points out, everybody knows 8 there's just too many factors. California only -- it's 9 too bad we have to go it alone, having a California-only 10 recipe or fuel. But I think by going our way we are 11 moving the federal standards, certainly influencing them. 12 And we can't wait for others, I don't think, on the other 13 hand. And yet we want harmony. 14 It would be perfect if everybody had the same 15 standards and they were our standards. They all led to 16 reduced emission. So, with all that, I think in balance 17 and with the changes we made here today that I guess would 18 be included in the notice, I intend to -- I'm voting for 19 the motion. 20 CHAIRPERSON LLOYD: Dr. Burke. 21 BOARD MEMBER BURKE: I would like to make it 22 quite clear that South Coast is not an adversarial role 23 here. We have disagreements on things all the time, you 24 know, and I've been here for probably close to five years, 25 so I don't feel ashamed of what I've done. Maybe I PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 171 1 should, but I don't. 2 There's some things that trouble me today. And 3 Stephanie's testimony, I felt the staff wasn't 4 appropriately respectful of her numbers versus our 5 numbers. And it always troubles me in my personal 6 business when one of my employees comes in with one set of 7 numbers and 20 minutes somebody else comes in with the 8 same transaction only with different numbers. You know, 9 that's troubling. And I think that this Board should be 10 troubled by that. 11 And the marine and locomotive issue, since the 12 day I was appointed in South Coast, the locomotive issue 13 has been horrific. And it's an industry which is 14 difficult to deal with. And -- so, you know, I'm -- I 15 don't understand how you regulate a tanker that has a 16 40,000 gallon capacity that comes into the L.A. port when 17 it could bypass this port and pick up fuel wherever it 18 wants to. 19 You know, we are having enough trouble trying to 20 get them to hotel their generators. I mean, forget 21 filling up the boat. So, you know, I do not want to 22 support this. I'm going to, you know, I'm going to 23 support this. But I think that some of the people that 24 testified today hit the mark and I'm with Matt, as usual. 25 I'm not sure we're ready for this, you know, but it's kind PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 172 1 of like the professor said, there's no perfect solutions 2 for some of these problems that are this complex. So I'm 3 going to support this. 4 CHAIRPERSON LLOYD: Thank you, Dr. Burke. So 5 with our current resolution, I've got a second. 6 Ex parte communication on this? I hadn't even 7 thought of that, it's been so long. 8 Any of my colleagues have any ex parte 9 communications? 10 Mr. McKinnon. 11 BOARD MEMBER McKINNON: I had a very brief 12 telephone conversation yesterday with Ed Manning, 13 representing, I believe, Contico. And I don't know that 14 he actually even lobbied me. He sort of asked me what I 15 was thinking about. 16 CHAIRPERSON LLOYD: He's so smooth. 17 BOARD MEMBER McKINNON: Yeah. So -- I don't 18 think he took a position other than I think they supported 19 the proposal. 20 CHAIRPERSON LLOYD: Thank you. Thanks for 21 reminding me of that. 22 So, with that I call for a vote on this. All in 23 favor say aye. 24 (Ayes) 25 CHAIRPERSON LLOYD: Anybody against? PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 173 1 Anybody abstain? 2 BOARD MEMBER McKINNON: Aye. 3 CHAIRPERSON LLOYD: One abstention. It will be 4 so shown that all, except Mr. McKinnon abstained, voted in 5 favor. 6 Well, thank you, staff for a long -- and I 7 realize it sounds as though your work is not finished, but 8 I know it is a tough time for all of us also, by the way, 9 when we don't have a budget and when we're losing staff, 10 so I'm sympathetic. So that's why I want to talk about 11 that issue. 12 We're going to take a half an hour break now 13 until 25 while we eat some lunch. 14 (Thereupon a lunch recess was taken.) 15 CHAIRPERSON LLOYD: I'd like to start. Taken out 16 of order from the agenda, it's agenda number 03-6-5, a 17 proposal to amend the California Clean Air Act 18 nonvehicular source fee regulations. 19 As everyone in this room is well aware, the state 20 of California is facing an unprecedented budget shortfall. 21 Recognizing the need to continue funding ARB's efforts to 22 provide Californians with clean air, in January of this 23 year, the Governor's budget proposed to shift $10 million 24 in general fund expenditures to a new fee-based system 25 paid by stationary sources of air pollution. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 174 1 In March, Governor Davis signed implementing 2 legislation Assembly Bill 10X to carry that out. 3 The bill authorized the Board to increase fees on 4 large stationary source facilities in California and for 5 of the first time to impose fees in the manufacturer of 6 consumer products and architectural coatings. 7 AB 10X is a budget balancing measure that is 8 intended to shift more of the ARB's stationary source 9 budget from the general fund to fee-supported programs, 10 and it is a permanent change to ARB's baseline budget. 11 The new fee revenue will offset approximately one 12 quarter of ARB's stationary source program cost. The 13 balance of the stationary program costs will continue to 14 be supported by the general fund and other revenue 15 sources. 16 Pursuant to the Governor's direction and his AB 17 10X signing message, expenditures of these fees must be 18 related to the activities of those paying the fees and 19 should not exceed the reasonable or necessary cost of ARB 20 to implement its programs. The Governor further 21 recognized the potential burden that increased fees could 22 have on fee payers. It was clear in stating that ARB must 23 receive the funds necessary to continue the state's vital 24 air quality protection program. Thus, this regulatory 25 proposal is a critical necessity if we are to continue PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 175 1 making progress in improving California's air quality and 2 protecting public health. 3 Ms. Witherspoon, will you please begin staff 4 presentation on this important issue? 5 EXECUTIVE OFFICER WITHERSPOON: Yes. And thank 6 you, Dr. Lloyd. 7 This is a difficult time for all Californians. 8 The budget shortfall is affecting every facet of state 9 government and the services the state provides. ARB has 10 been hit hard by budget cuts over the past few years, 11 including a 50 percent reduction in research spending, a 12 25 percent contraction in our air monitoring expenditures, 13 and the virtual elimination of all discretionary 14 purchases. 15 At this point, we have trimmed our programs back 16 to the bare minimum necessary to meet legal mandates and 17 protect public health. That is the why the Governor's 18 budget is proposing a fund shift to forestall even deeper 19 cuts to ARB's stationary source program. Although the 20 final budget is uncertain at this point, we are proceeding 21 with the proposed fee regulation now to ensure there's 22 sufficient time to complete the fee collection process in 23 the current fiscal year. 24 We are recommending that the Board vote on the 25 fee mechanism today so we can implement whatever budget is PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 176 1 finally approved by the state Legislature and Governor. 2 Staff will go over in just a minute, the Governor 3 proposed that we collect a total of 13 million dollars in 4 fees this year. However, there are other proposals 5 floating around that might raise or lower this amount. 6 The fee mechanism we are proposing that you act 7 on today is able to accommodate whatever the final fee 8 amount turns out to be. The proposed fees are based on a 9 fixed dollar amount per ton of emissions for all of 10 affected sources that would be paying those fees, 11 including manufacturers of architectural coatings and 12 consumers product. We believe this approach is fair and 13 equitable to the fee payers. It also satisfies the intent 14 of the legislation that fees should not exceed reasonable 15 and necessary costs of ARB to implement its programs, 16 which are in turn based on the emissions contribution of 17 areas source types. 18 The fee collection process allows for industry 19 input to ensure that fee payers have an opportunity to 20 review our accounting of their emissions. With this 21 proposal we will permanently shift a portion of the 22 stationary source budget from the general fund to fee 23 supported programs. This is necessary and appropriate to 24 continue our air quality programs in this area. 25 Mr. Don Rake of the Planning and Technical PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 177 1 Support Division will now make the staff presentation. 2 (Thereupon an overhead presentation was 3 presented as follows.) 4 MR. RAKE: Thank you, Ms. Witherspoon. 5 As Chairman Lloyd stated, the state is 6 experiencing an unprecedented budget shortfall. The 7 Legislature and Governor continue to grapple with the 38 8 billion dollar deficit, and at this juncture we are 9 operating without an approved budget. 10 --o0o-- 11 MR. RAKE: As part the efforts to eliminate the 12 shortfall, the proposed budget directed that a portion of 13 the ARB stationary source program budget should shift from 14 the state's general fund to a fee-based program. To 15 enable the ARB to implement this shift in funds the 16 Legislature passed Assembly Bill 10X. The Governor, in 17 signing the legislation, directed the ARB to ensure the 18 fees collected be related to the activities of those 19 paying the fees. 20 The proposal before you enables the ARB to comply 21 with the direction of both the Governor and the 22 Legislature. 23 --o0o-- 24 MR. RAKE: For the ARB, maintaining core programs 25 with fewer funds is the ongoing challenge. In fiscal year PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 178 1 2000-2001, ARB budget totaled $243 million. Our current 2 budget totals about $161 million. The reduction of $82 3 million consists of $65 million from various grant 4 programs, including Carl Moyer and school buses. Programs 5 which enable cleaner engines to be put into use. And $17 6 million and 27.5 personnel years from the base support 7 budget, including air monitoring research, emission 8 inventory and community health. 9 --o0o-- 10 MR. RAKE: The Governor's proposed budget for 11 fiscal year 2003-2004 reduces the general fund allocation 12 to the ARB stationary source program by $12 million. $10 13 million of the reduction is to be recovered through fees 14 with the ARB absorbing the remaining $2 million. 15 During the budget process, the legislative 16 analyst recommended an additional four point four million 17 dollars shift from the general fund to fees. Over the 18 last three years, the program has been reduced by -- this 19 program has been reduced by 21 percent in ongoing support 20 funds. All discretionary expenditures have been 21 eliminated, leaving only core functions funded. 22 As part of the administration's contingency plan, 23 should targeted savings not materialize state agencies 24 have been instructed to prepare and implement a plan to 25 reduce personnel services by 10 percent. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 179 1 --o0o-- 2 MR. RAKE: As shown in this slide, the proposed 3 stationary source program budget for this fiscal year is 4 39 point six million dollars. The motor vehicle program 5 and local air district assistance accounts for the 6 balance. 7 Also shown on this slide is the $10 million that 8 we have been directed to recover through fees. As you can 9 see, failure to recover these funds would reduce our 10 stationary source program budget by about 25 percent. 11 --o0o-- 12 MR. RAKE: This slide shows the proposed funding 13 sources for this fiscal year. The largest portion of our 14 funding comes from the motor vehicle count and the air 15 pollution control fund. The fees collected under this 16 program would be deposited into the air pollution control 17 fund. With the proposed shift in funds, the general fund 18 would now account for only 6 percent of our total budget. 19 --o0o-- 20 MR. RAKE: Failure to recover the $10 million in 21 fiscal year 2003-2004 would seriously impact California's 22 air quality program. It would jeopardize our ability to 23 reduce air pollution and comply with the Federal Clean Air 24 Act. Possible impacts of not complying with the Federal 25 Clean Air Act include the loss of $2.4 billion in federal PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 180 1 transportation funds, risk of a federal takeover the 2 state's air quality programs, and higher costs to 3 California businesses of offsetting emissions that result 4 from business growth. Most importantly, there would be 5 less public health protection. 6 --o0o-- 7 MR. RAKE: Prior to this fiscal year, the ARB was 8 authorized to collect $3 million each year from large 9 stationary sources, or as we say, facilities. Last year 10 about 65 facilities that emitted 500 tons or more of 11 non-attainment pollutants and precursors were subject to 12 the fees. The fees were used to recover some of our costs 13 of programs developed to mitigate the effects of emissions 14 from those sources. 15 --o0o-- 16 MR. RAKE: The Governor approved Assembly Bill 17 10X last March. The bill lowers the applicable threshold 18 levels for affected facilities. In addition, for the 19 first time, manufacturers of consumers product and 20 architectural coatings would be subject to the fees. 21 In approving AB 10X the governor provided 22 direction that the fees collected must be spent on state 23 programs reasonably related to the activities of those 24 paying the fees. The effect of the proposal on facilities 25 would be to lower the applicable threshold levels from 500 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 181 1 to 250 tons per year, provide for three fee collection 2 options, including the preferred option of allowing the 3 ARB to collect fees directly from facilities and cap the 4 amount to be assessed on facilities at $13 million 5 annually. 6 --o0o-- 7 MR. RAKE: AB 10X also affects manufacturers of 8 consumer products and architectural coatings similarly to 9 how AB 10X applies to continue to guarantee manufacturers 10 of products and architecture whose sales in California 11 result in the emission of 250 tons per year or more of 12 volatile organic compounds would be subject to the fees. 13 AB 10X differs for consumer product and 14 architectural coating manufacturers in that the ARB is 15 required to collect the fees from the manufacturers. 16 Also, AB 10X states that the fees are to be used to 17 support ARB state by sales of consumer products and 18 architectural coatings. 19 --o0o-- 20 MR. RAKE: The staff's proposal would establish a 21 mechanism to recover the amount of funds identified in the 22 final budget for recovery under a fee-based program. It 23 would also establish a fair and equitable fee assessment 24 process. 25 --o0o-- PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 182 1 MR. RAKE: In developing the staff's proposal, we 2 first developed a method for assessing fees based on 3 emissions. We then drafted amendments to the current fee 4 regulations. In developing the regulations, we held two 5 public workshops to which we invited affected local air 6 districts, facilities, manufacturers of consumers products 7 and architectural coatings and the public. 8 In addition, we also held numerous meetings with 9 the various stakeholders that would be affected by this 10 proposal. The proposal before you considers the comments 11 received during this process. 12 --o0o-- 13 MR. RAKE: The most important part of the 14 proposal is the method for establishing fees. The fees 15 must be related to the activities of those paying the fees 16 and should not exceed the reasonable and necessary costs 17 for us to implement those programs. 18 Through our analysis we have determined that the 19 affected sources emissions are the best way to distribute 20 program costs. Furthermore, we have determined that a 21 uniform fee rate for all affected sources is appropriate, 22 as it treats all sources fairly and equitably. This is 23 the same method we have used to collect fees from 24 stationary sources since 1989, and we believe it is the 25 most equitable way to allocate the fee burden. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 183 1 We are using 2001 emission estimates as the basis 2 for the fiscal year 2003-2004 fees, as they are the most 3 recent data available. The proposed regulations also 4 provide affected facilities and manufacturers the 5 opportunity to update their emission that would be subject 6 to the fees. 7 --o0o-- 8 MR. RAKE: This slide shows how the fees would be 9 calculated. It is the same method that has been used in 10 the past for facilities. 11 As you can see, the fee per ton equals the sum of 12 the revenues needed as specified in the state budget, plus 13 a three percent adjustment for potential under collection, 14 minus any carryover from the previous year, divided by the 15 total emission subject to the fees. 16 --o0o-- 17 MR. RAKE: The proposed budget includes $13 18 million in fees from these sources. This amount includes 19 $10 million in additional fees under the proposed budget, 20 plus the three million dollars already included. 21 Assuming this amount, the cost per ton would be 22 about $47 per ton. This breaks down to a total cost for 23 95 facilities of about $8 million and a cost of about $5 24 million for 78 manufacturers of consumer products and 25 architectural coatings. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 184 1 The lowest cost for a facility or manufacturer 2 with 250 tons of emissions would be around $14,000, and 3 the cost for the largest facility or manufacturer with 4 merely 10,000 tons of emission would be around $570,000. 5 I should add the final cost per ton will likely 6 differ slightly from what is shown on the slide, because 7 we are still receiving changes to emissions from companies 8 that would be subject to the fees. 9 The fees will also differ if the Legislature 10 adopts a budget that includes a different dollar amount. 11 --o0o-- 12 MR. RAKE: The operative date of the proposed 13 amendments would be the latter of either the date the 14 office of administrative law files the regulations with 15 the Secretary of State or the 91st the day after the 16 special session on the budget ends. 17 This provision is included because these are the 18 earliest dates for which the regulations can become 19 effective. The proposed amendments also include new 20 provisions implementing the law that allows the ARB to 21 collect fees directly from facilities, while including an 22 option to allow districts to continue to collect the fees. 23 Finally, there are also new definitions included 24 in this proposal that are necessary to implement 25 provisions giving the ARB authority to assess fees on PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 185 1 consumer products and architectural coatings 2 manufacturers. 3 --o0o-- 4 MR. RAKE: The following issues have been raised 5 in comment letters to the Board and staff. Some 6 questioned the appropriateness of the ARB adopting the 7 proposed regulations without a state budget enacted. 8 Timely adoption of the proposal is critical to ensure a 9 mechanism exists to recover our costs in a timely manner 10 for this fiscal year. 11 Some have also questioned whether this Board has 12 the authority to adopted regulations before the enable 13 statute becomes legally operative. In this case, AB 10X 14 has been enacted by the Legislature and approved by the 15 Governor. It is fully enacted, but its provisions will 16 not become legally operative until 91 days after 17 adjournment of the current special session of the 18 Legislature. 19 Our proposed regulations address this issue by 20 specifying that they will not become legally operative 21 until after the statute becomes legally operative. This 22 approach is legally permissible according to both the 23 Office of Administrative Law and the California Attorney 24 General's office. 25 Some questioned the use of emissions as a PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 186 1 surrogate for costs. Because the ARB's prime task is to 2 reduce emissions, we believe that emission are a 3 reasonable surrogate for program costs. Other methods 4 could be used, but given the close relationship between 5 emissions and ARB activities to clean the air, staff has 6 determined that using emissions as the basis for fees is 7 the best approach. 8 State implementation plans are our blueprint for 9 achieving clean air and are based on the foundation of 10 research, air quality monitoring, air quality modeling, 11 emission inventory development, control measure 12 development and enforcement. These elements are all part 13 of the program cost for controlling emissions. 14 Finally, there have been questions raised on the 15 use of a uniform dollar per ton fee for all sources. The 16 fees are not being assessed on segments or categories 17 within the regulated industry, but are instead being 18 assessed on individual entities that are large sources of 19 air pollution. The more emissions contributed by an 20 individual entity, the more fees they pay. 21 We think it is appropriate the large sources of 22 air pollution pay a uniform fee amount per ton. We 23 believe that this is fair -- a fair and equitable 24 assessment method consistent with the current program. 25 --o0o-- PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 187 1 MR. RAKE: The staff is proposing several 2 modifications from the original proposal. We believe the 3 members have been getting copies and there are also copies 4 on the table in the back of the room. 5 We are proposing the change the provision that 6 provided for payments by companies within 60 days of 7 receipt of the bill. We propose to change this to 30 days 8 for the first fiscal year of the proposal 2003-2004. We 9 believe that this modification is necessary to ensure that 10 funds are received in fiscal year 2003-2004. 11 To helping companies prepare for this expedited 12 collection of fees, we intend to provide sufficient 13 advance notice to affected facilities and manufacturers of 14 their anticipated fees at least 60 days in advance of the 15 invoices being mailed. 16 We are further proposing to change the definition 17 of a holding company to state that a holding company is 18 responsible for payment of subsidiaries fees if the 19 holding company controls at least 50 percent of the 20 subsidiary stock. This provision was included in this 21 proposed modifications because of concerned by a holding 22 company that it might be liable for fees of subsidiaries 23 if they do not own controlling interest in the subsidiary. 24 We're also proposing a technical amendment that 25 would address how the South Coast Air Quality Management PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 188 1 District reports emissions for its facilities, which is on 2 a fiscal year rather than a calendar year basis. This 3 will not change the way facilities in the South Coast are 4 billed. The proposed amendment is consistent with our 5 practices for billing facilities under the existing 6 program. 7 Finally, we are proposing to increase the time 8 facilities and manufacturers have to review preliminary 9 emission estimates. 10 --o0o-- 11 MR. RAKE: There are no significant adverse 12 environmental impacts resulting from the adoption of this 13 proposal. Because the fees on manufacturers of consumer 14 products and architectural coatings would be based on 15 emissions of volatile organic compounds, the proposed 16 regulations could create an incentive to substitute toxic 17 air contaminants which are exempted from being treated as 18 volatile organic compounds because of their minimal 19 photochemical reactivity. We don't think this is likely 20 happen, however, we will closely monitor product 21 reformulations. 22 In addition, there are no significant impacts on 23 the creation, elimination or expansion of affected 24 businesses or jobs and there are no environmental justice 25 impacts associated with this proposal. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 189 1 --o0o-- 2 MR. RAKE: In summary, the proposed regulations 3 would enable the ARB to implement the Governor's budget 4 directive to recover cost through the imposition of fees. 5 The proposed regulations establish the process to collect 6 fees and the proposed basis for the fees is equitable. 7 Failure to establish a mechanism to assess and collect the 8 fees would seriously impact our air quality program, 9 jeopardize compliance with the Federal Clean Air Act and 10 provide less public health protection. 11 --o0o-- 12 MR. RAKE: We recommend the Board adopt the 13 proposed regulations with staff's suggested modifications. 14 That concludes my presentation, and we will be 15 happy to answer any questions you may have. 16 CHAIRPERSON LLOYD: Thank you very much. 17 Before we get to questions, Madam Ombudsman, do 18 you have any -- could you please describe the public 19 participation process this item underwent before coming 20 before us and share any concerns or observations you may 21 have. 22 OMBUDSMAN TSCHOGL: Mr. Chairman, members the 23 Board. Since last March, staff has worked with the 24 California Air Pollution Control Officers Association, the 25 affected facilities and the manufacturers of consumer PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 190 1 products and architectural coating in developing the 2 proposed regulations before you today. 3 PTSD staff also held two public workshops in 4 Sacramento with approximately 50 participants at each 5 workshop. And many participants via live web broadcast or 6 teleconference. 7 Approximately 500 workshop notice were mailed out 8 to affected facilities, manufacturers of consumer products 9 and architectural coating districts and other interested 10 stakeholders. Staff also formed working groups with 11 manufacturers of consumer products and architectural 12 coating and discussed the proposal with affected industry 13 during conference calls and individual meetings. 14 In addition, staff developed an e-mail list serve 15 and a web page to keep interested parties informed of 16 activities related to this proposal. There are currently 17 about 90 subscribers to this list serve. 18 Thank you. 19 CHAIRPERSON LLOYD: Thank you very much. 20 Colleagues, any questions? 21 Dr. Friedman. 22 BOARD MEMBER WILLIAM FRIEDMAN: I just have two 23 quick questions. 24 Are we doing our own in-house billing and 25 collecting or are we contracting out to do billing and PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 191 1 collecting? 2 And the second question is what will the billing 3 and collection costs be as a percentage of the total fees 4 collected? 5 EXECUTIVE OFFICER WITHERSPOON: We are going to 6 collect these fees ourselves, and we have a small premium 7 to cover the risk of undercollection. We did not apply 8 any additional cost for administrative overhead. It's 9 minimal, the number of companies affected by this fee, 10 absolute number of companies is relatively small. We 11 don't think it will consume a great deal of staff's time 12 unless there's an issue of non-payment by an individual 13 company. 14 DEPUTY EXECUTIVE OFFICER SCHEIBLE: The actual 15 billing and sending out the invoice and collecting is a 16 pretty small task, but we are expending a lot of staff 17 time making sure we get the emission inventory number 18 right and we get the information we need to establish a 19 fair and equitable bill, but we have to do that in-house. 20 But the billing itself is a very, very small fraction. 21 CHAIRPERSON LLOYD: Thank you. 22 What happens -- I know you've shrunk the 23 collection period from 60 to 30 days here. What happens 24 if they don't pay within 30 days? 25 EXECUTIVE OFFICER WITHERSPOON: Well, we have a PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 192 1 cash flow issue, that's why we shrank the period -- there 2 is a pause here because of the way this legislation was 3 passed by a special session, that upon adjournment of the 4 Legislature, there's a 60-day clock in any event before 5 the law takes effect. So there is a 60-day stall and the 6 moment it takes effect we'll issue our notices and ask for 7 payment in 30 days, but we'll send notice to expect a bill 8 as soon as the session adjourns. So they will, in fact, 9 have almost 90 days notice that it's coming. 10 CHAIRPERSON LLOYD: All right. 11 Thank you. 12 See no other questions from my colleagues, I'd 13 like to pass it to the first three witnesses. 14 Doug Quetia, Barry Wallerstein and Larry Allen. 15 MR. WALLERSTEIN: Good afternoon, Dr. Lloyd, 16 Members of the Board. 17 Doug Quetia asked me to provide the testimony for 18 the California Air Pollution Control Officer's 19 Association. In addition to that, I'll provide the 20 testimony for the South Coast Air Quality Management 21 District at the same time. 22 The California Air Pollution Control Officer's 23 Association and the South Coast District are here in 24 support of your staff's recommendations pertaining to the 25 architectural coatings and consumer products. We think it PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 193 1 is very important that you move forward on that front. In 2 fact, we would encourage you to think about increasing 3 amount of fees in that area and hiring additional staff to 4 do analysis and rulemaking. 5 Those two source categories are large VOC source 6 categories that contribute to the state's ozone problem. 7 If we look at South Coast as an example, as I mentioned 8 earlier this morning, for the first time in five years we 9 have stage one episodes. We've also have 40 days of 10 violation in South Coast already this year with the heart 11 of the smog season yet to come in August and September. 12 CHAIRPERSON LLOYD: Can I just ask a question? 13 Typically what I would compare within previous years. 14 MR. WALLERSTEIN: Last year it was 50. The 15 previous three years have all been between 40 and 45 and 16 we're already at 40, so there is no doubt that this is 17 going to be the worst year that we've seen in more than 18 five years. 19 And when we look in South Coast at the upcoming 20 air quality management plan, there is a 230 ton long-range 21 measure black box that falls within this Board's 22 jurisdiction. A significant portion of that is consumer 23 products. 24 We need your help, so we urge you to go forward 25 with establishing these fees, collect the moneys and put PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 194 1 your staff to work preparing the regulations and other 2 programs that are needed to reduce emissions from consumer 3 products and architectural coatings. 4 Thank you. 5 CHAIRPERSON LLOYD: Thank you. 6 Larry Allen, Doug Raymond and Thomas Donegan. 7 MR. ALLEN: Good afternoon, Chairman Lloyd, 8 Members of the Board. I'm Larry Allen, the Air Pollution 9 Control Officer for the San Luis Obispo County Air 10 Pollution Control District, and I'm hear to speak on 11 behalf of our district. 12 I would like to mention that I submitted some 13 written comments and hopefully you've have a chance to 14 read those and I won't to duplicate those comments too 15 much, hopefully. 16 I would like to support what Mr. Wallerstein just 17 said in terms of fees on architectural coatings and 18 consumer products. Those two industrial categories 19 currently are not paying fees. They are a very large 20 source of emissions statewide and they're a very difficult 21 source of emissions to deal with from a regulatory 22 standpoint, just due to their very nature compared to 23 other sources, like stationary sources. So I would echo 24 Barry's recommendations that ARB assign additional staff 25 to looking more closely at those sources in terms of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 195 1 additional rule development and what types of emission 2 reduction strategies we can develop to reduce the impact 3 of those sources on California's air quality. 4 For stationary sources, I'd like to point out 5 that the districts perform, that's a primary regulatory 6 function of a districts. We spend a lot of staff time and 7 resources in regulating those sources. And as a result 8 the districts levy substantial fees in order to cover our 9 costs for our programs. And I attended the June 24th 10 workshop put on by your staff and heard a lot of comments 11 from the architectural and consumer product industry 12 concerning what they feel is inequity in having a uniform 13 fee structure. 14 And I won't provide their argument and rationale 15 for them, I'm sure they'll try to make that themselves, 16 but one of the things that their arguments failed to 17 consider is the fact that stationary sources are already 18 paying substantial fees to the district, more substantial 19 than those charged by ARB. 20 So currently there is a large inequity in terms 21 of dollar per ton that is paid by stationary sources 22 compared to architectural coatings and consumer products 23 industry. And the current proposal would more than double 24 those fees on stationary sources, which would further 25 expand that inequity. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 196 1 Now I'm not here to defend the stationary sources 2 by any means, but I do want to point out that because the 3 districts spend so much of their time and energy in that 4 regulatory process for those sources in order to cover our 5 costs, the revenue that's provided by those sources is a 6 major source of operating revenue for the districts. So 7 that proposed doubling is going to make it more difficult 8 for us in the future if we determine that we have to raise 9 fees in order to cover increasing program costs. 10 I don't oppose the proposed fee increase. I 11 realize that it is necessary, but I do want you to be 12 aware of the implications in your decision making process, 13 especially how that affects district operations and 14 revenue. 15 So I'd just like to reiterate we do support the 16 architectural coatings and the consumer products fees and 17 don't oppose the other fees. 18 CHAIRPERSON LLOYD: Are you in attainment for all 19 pollutants in San Luis Obispo? 20 MR. ALLEN: No, we're not. We're currently 21 designated non-attainment for the state ozone standard and 22 for the state particulate matter standard. We are hoping 23 to be redesignated attainment for the state ozone standard 24 later this year. 25 CHAIRPERSON LLOYD: The federal standards, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 197 1 though? 2 MR. ALLEN: The federal standards were an 3 attainment for all the federal standards. We do have two 4 major sources that are affected by this regulation. 5 CHAIRPERSON LLOYD: Thank you. 6 Mr. Calhoun. 7 BOARD MEMBER CALHOUN: I was going to ask 8 Dr. Wallerstein this question since he's been charging 9 people for a long time. 10 What is the basis for the fee? 11 MR. WALLERSTEIN: I'm sorry, Mr. Calhoun? 12 BOARD MEMBER CALHOUN: Well, thinking about all 13 the industries in the South Coast district and they have 14 permits granted by the district, so I'm wondering how do 15 you go about -- what is the basis for the fee? Is it tons 16 per day or -- 17 MR. WALLERSTEIN: Well, we have several varieties 18 of fees. We have emissions fees that are based on the 19 amount of pollution that's put out from the facilities 20 that pays for some of our general activities as relates to 21 stationary sources. 22 In addition to that, we have permit processing 23 fees as an example, where we recoup the cost of issuing 24 permits or permit modifications to facilities. Those are 25 the two principle categories. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 198 1 BOARD MEMBER CALHOUN: Thank you. 2 CHAIRPERSON LLOYD: Thanks. 3 Doug Raymond, Thomas Donegan, and Mark Riedel. 4 MR. RAYMOND: Good afternoon, Members of the 5 Board. 6 My name is Doug Raymond. I represent the 7 consumer division of the Sherman Williams Company. The 8 consumer division has worked closely with the CARB staff 9 on many innovative product regulations. These regulations 10 include the alternative control plan and more recently the 11 relative reactivity regulation for aerosol coatings. 12 I'm here today to ask the Board to postpone this 13 action on this regulation. There are several issues that 14 are still pending with the staff and we need more time to 15 work it out. 16 The first issue is the Legislature is not done 17 with this budget. Given the severe problem of the state 18 deficit, no one knows what could happen in the near future 19 over the next month. It is fundamentally unfair to expect 20 us to comment until the budget is final. For example, the 21 cost to our company -- under the $13 million scenario, it 22 cost us $477,000. Under the 17.6 million, it's going to 23 cost us $640,000 per year. That's a 35 percent change just 24 in those two numbers and we do not know if that number 25 will go up in a given month. I believe it's unfair to ask PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 199 1 us to comment on something we don't know what the outcome 2 is going to be. 3 Second, the staff needs to refine its accounting 4 for the fee. Only two days ago there was a document 5 released showing only remotely a relationship between 6 emissions and resources. We continued to ask for this 7 document since before the first workshop. Before two days 8 ago we did not get anything from the staff. 9 Industry needs more time to review this document 10 and we need, definitely need more explanation into what is 11 put into it. This accounting is the only means that 12 architectural coatings and consumer products have for a 13 fee cap. A fee cap is not put in by the Legislature, so 14 we definitely need more time to refine this document. 15 Relative reactivity. That is the newest concept 16 in regulations. It was voted in by this Board in June of 17 2000. However, to date it has not been recognized in this 18 regulation at all. This issue has been brought to the 19 staff's attention. It needs a specific section put into 20 this regulation for this concept. 21 Lastly, it is unfair to penalize the very 22 companies that work with this staff and Board to 23 significantly review VOCs. We are successful in this 24 state because we have worked with this staff. We have 25 worked with this Board. We have reformulated our products PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 200 1 and we have reduced VOCs in this state significantly. 2 In conclusion, we respectfully request the Board 3 postpone this regulation, thus allowing the staff time to 4 refine the document. 5 What you have before you is a regulation 6 developed in haste which is fraught with errors. 7 I do have one question. What is the hurry on 8 this regulation? The Board as it appears will not have to 9 be able to enforce this regulation until November. If 10 this was put on the October ballot it would give us 11 significant time to go over the document that we received 12 two days ago and we'd be able to work through all of these 13 issues. 14 CHAIRPERSON LLOYD: What October ballot? 15 MR. RAYMOND: October Board. 16 You will hear more comments from our corporate 17 colleague, Madelyn Harding, on issues that affect us. 18 Thank you for your time and your consideration. 19 CHAIRPERSON LLOYD: Could staff respond to a 20 couple of questions raised there? Why now and also the 21 difficulty of understanding the connection between the fee 22 and the expenditures. 23 MR. RAYMOND: And also the relative reactivity. 24 DEPUTY EXECUTIVE OFFICER SCHEIBLE: Why now is 25 fairly simple. Once this reg is approved by the Board it PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 201 1 still has to go through the full administrative process 2 and get approved by OAL. It then has to have a clock tick 3 until it becomes effective, filed with the Secretary of 4 State. 5 We then have a billing period built in so that 6 people are noticed and they have enough time to plan and 7 pay their bills. And by the time you run all that you are 8 deep into the fiscal year, and the state has a fiscal 9 crisis, because we have to be prepared to collect the 10 money and get it into the state coffers at least some 11 reasonable sometime into the fiscal year. Well into 2004 12 before that could be done. 13 In terms of the state budget, none of us know 14 exactly what it will turn out. We have a reg that is 15 designed to reflect the final decision made by the 16 Legislature and the state and the Governor on the state 17 budget as to what is the right amount for the ARB to 18 collect in fees and replace general funds. We don't know 19 exactly what that number will do. The reg will calculate 20 it. We've given what we think are the plausible ranges, 21 so the industry knows what might happen. It might be less 22 than that. 23 In terms of the overall method that the staff 24 used to determine what is the relative contribution, what 25 burden is placed on us by the emissions of the various PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 202 1 categories and sources. 2 When we put out the staff report, we explained 3 that we use a very simple methodology that said here's the 4 total universe of emissions that cause us to spend what 5 amounts to be 35 point something million dollars in 6 stationary sources and we took a simple proportion and we 7 said consumer products and architectural coatings put out 8 19 percent of that. That's fair to recover from them up 9 to that amount in fees, which works out to be something 10 the range of seven millions. 11 Stationary sources is capped at 13. Their 12 contribution to that amount is far greater than that, but 13 the legislation contains a specific cap. 14 Overall we are only collecting $13 million out of 15 a total $39 million expenditure. The rest is being paid 16 for by a combination of taxpayers and federal funds and 17 other state expenditures. 18 So additional work that we've done is trying to 19 inform the industry on how we expend our resources. But 20 we use what we think is a simple methodology. We have to 21 do planning, we have to monitor the air, we have to do 22 emission control measures, we have to do enforcement. And 23 everything kind of derives from the fact that there are 24 emissions into the air and a burden put on the state to 25 operate its program at the current level is proportional PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 203 1 to the emissions from the various categories. 2 Not everyone is happy with that answer. You 3 could do it different ways. And if you do it different 4 ways you could get somewhat different fee burdens on 5 different industries. 6 This is very similar to the way we've assessed 7 fees for about ten years now on stationary sources. 8 Lastly, we're not really ready to move into 9 reactivity. We charge the same fee for a ton of SOx as a 10 ton of NOx as a ton of PM as a ton of VOC for other 11 categories. Inside we make no distinction for them. 12 Where we get to a point where we have a specific 13 regulation that regulates reactivity of a product, I think 14 we'll have to deal with that, but right now we think if 15 you admit a ton you pay the same amount as someone else 16 who admits a ton is the simplest and fairest way to 17 proceed. We did not, unfortunately, achieve consensus on 18 this viewpoint. 19 CHAIRPERSON LLOYD: Thank you. 20 MR. RAYMOND: Can I respond to the relative 21 reactivity? 22 CHAIRPERSON LLOYD: Very quickly. 23 MR. RAYMOND: There is a regulation in and we are 24 up to have emission reductions next year. And so we're 25 going to reformulate, but we're not going to get any PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 204 1 credit from that the way it stands right now. 2 DEPUTY EXECUTIVE OFFICER SCHEIBLE: Staff has 3 recognized that for the regulation of aerosol coatings 4 will happen and we indicated that we will figure out a 5 mechanism for that particular category to say you've 6 reduced reactivity, you've met our regs the same as if you 7 had reduced mass. We will reflect that benefit in the 8 calculation of fees for that particular category. 9 CHAIRPERSON LLOYD: Thank you. 10 Thomas Donegan, Mark Riedel, Eileen Moyer. 11 MR. DONEGAN: Good afternoon, Mr. Chairman, 12 members the Board. I'm here on behalf of the Cosmetic, 13 Toiletry and Fragrance Association or CTFA. We are the 14 nation trade association representing the personal care 15 product industry. We've been before this Board many times 16 on substantive regulatory matters. 17 About one half of our companies are manufacturers 18 or distributors of finished products. The other half are 19 suppliers of goods and services which frequently come into 20 play doing reformulations, things like packaging, valves, 21 other things like that. 22 Many of our products have been regulated by the 23 ARB some two or three times. Hair care products, nail 24 care, personal fragrance products, antiperspirants 25 deodorants and shaving creams are some of them. We're PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 205 1 told there are more that may be regulated in future years. 2 To us, it's ironic that this fee provision comes 3 at a point at which we think the significant emissions 4 reductions from consumer products and particularly from 5 personal care products have already been obtained, and 6 somewhat ironic now we're being asked to pay at levels to 7 support the activity that's going on over the last 15 8 years. 9 We worked very closely with the ARB staff over 10 the past two decades. We supported their effort to reduce 11 emissions when those regulations were commercially and 12 technology feasible, and typically our arrival at a Board 13 meeting like this is preceded by months of negotiations 14 with the staff in which we are at least close to being of 15 one mind and close to an agreement on a reasonable 16 approach by the time we get here. 17 But, I'm afraid this is one where we have not 18 been able to reach consensus and some of that is because 19 of issues that are totally beyond anyone's control, the 20 fact that this has been passed by the Legislature. 21 We think this is an illegal tax imposed by the 22 Legislature, rather than a regulatory fee. We also think 23 it's fundamentally unfair imposing taxes on larger 24 companies who are exactly the companies that have born the 25 greatest expense and done the greatest amount of work to PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 206 1 develop new technology from which the entire industry has 2 benefited in reducing emissions and improve air quality in 3 California. 4 We know you can't repeal AB 10X, so we're not 5 going to ask you to do that. But we do want to briefly 6 summarize a few issues we think you ought to consider, 7 both the interest of the legality of the fee provision and 8 also in the interest of fundamental fairness to the 9 industry. 10 Launching a new fee program and assuming it will 11 continue and increase for the foreseeable future could in 12 many ways do more harm to the California economy than 13 good. Every additional economic burden that falls on 14 manufacturers trying to sell products in California has a 15 risk. It may cost jobs. Very important from the Board's 16 perspective, it may take dollars away from research and 17 development for new technology that can reduce emissions 18 even further than we've done so far. It may raise prices, 19 but then on the other hand, in some situations, and you'll 20 hear about one today, it may not be possible to raise 21 those prices anymore and still sell your product in 22 California, because the consumers will not pay those 23 prices, in which case the company takes a large hit. 24 So I'd ask you to think about that. I think many 25 times we're too quick to jump to the conclusion that PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 207 1 large companies can absorb any amount of cost and this 2 really is going to be a drop in the bucket in terms of 3 their ultimate bottom line. That's not the case, and a 4 few individual companies will testify to illustrate that. 5 Again, these are companies that have been through one, 6 two, and some case three reformulations for individual 7 product categories. 8 We think that taxing manufacturers for activities 9 that really cannot be expected to achieve continuing 10 environmental benefits or benefits for the consumer really 11 doesn't help anyone. 12 In terms of the specific issues we'd like you to 13 consider, Mr. Raymond referred to one, and that is I think 14 the agency needs to do a far better and more detailed job 15 of linking the fees to the costs of regulating consumer 16 products. 17 The information that we received a few days ago 18 was appreciated. We really haven't have time to analyze 19 it and there's not enough backup data to really allow us 20 to determine whether, for example, the 67 people noted on 21 that document spent all of their time on consumer 22 products, some of their time or exactly what they do. 23 The impressionistic data is not what is called 24 for to substantiate a regulation like this, and I think 25 the imbalance in the regulation is illustrated by one PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 208 1 statement in the initial statement of reasons, where the 2 staff indicates that consumer products and architectural 3 coatings taken together have 19 percent the emissions, but 4 will pay 40 percent the fees under this proposal. That 5 does not seem to be the kind of balance that we ought to 6 be seeking here. And again, this is justified by saying 7 as long as we go after the big emitters this is okay. We 8 think that's inappropriate. 9 There are also several issues related to the 10 collecting of the fees we're using as a basis a 1997 11 survey that was conducted not for the purpose of assessing 12 fees like this, but for the purpose of identifying 13 emissions from various products which may be may or may 14 not be targets for regulation in the future. 15 That survey is too old to really shed much light 16 on 2001, let alone 2003. And I think some of the ways in 17 which the staff has attempted to update that information 18 are flawed. For example, the sort of default assumption 19 is that if population increases, sales increase, and 20 therefore emissions increase. 21 Well, in a highly competitive consumer market, 22 that simply is not the case. Some products do well. Some 23 products do better than population growth. Some products 24 are worse. And so you just can't assume X percent per 25 year and that's what your emissions are. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 209 1 The staff is working with many companies to try 2 to resolve some of those issues, but it takes a great deal 3 of time to do that. We would suggest that because there 4 is another consumer product survey now in the building, 5 but not yet fully analyzed for 2002 that final action on 6 this be deferred until whatever information that is 7 relevant in that more recent survey could be brought to 8 bear on what emissions actually are and therefore what 9 fees should be assessed. 10 CHAIRPERSON LLOYD: Can you bring it to a close? 11 MR. DONEGAN: Excuse me? 12 CHAIRPERSON LLOYD: If you can bring your 13 testimony to a close. 14 MR. DONEGAN: I'm just about to do that, 15 Mr. Chair. 16 Thank you. 17 I think it's important that the process of 18 correcting data be institutionalized and the staff has 19 made a proposal to do that, which we appreciate. 20 We think a period of about 90 days is really 21 necessary to calculate to, assess whether preliminary 22 assessments are, in fact, accurate or not, based on 23 surveys, and we would suggest a little more time than 24 staff has proposed. But that's very important. 25 It's also important that that process be one in PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 210 1 which manufacturers could come in without being put 2 through almost -- an inquisition is too strong of a 3 word -- but being asked to produce all of their emissions 4 data on consumer products that were not even part of the 5 survey in the first place. 6 When you file an amended tax return, you're not 7 automatically subject to an IRS audit. And similarly here 8 I think when manufacturers come in and try to correct data 9 it's important that they be given a hearing and the 10 corrections be made where those are appropriate. 11 So, I mean, that concludes the main points I 12 wanted to make. I'd be happy the answer questions and I 13 think you, in particular, should listen to some of the 14 individual companies who will talk about the problems they 15 face. 16 CHAIRPERSON LLOYD: We always listen to them. 17 Your comment on the letter about the legality of 18 this, could you comment on that, Ms. Walsh? 19 GENERAL COUNSEL WALSH: Yes. 20 The statute establishes the basis for a 21 regulatory fee. The idea that this is a tax that would 22 require some different, that is, a two-thirds vote of the 23 Legislature to pass, we don't believe is correct. 24 Staff has worked diligently with the affected 25 industries to come up with, explain the connection between PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 211 1 the fees and the costs that are being covered by those 2 fees. That certainly meets standard of establishing the 3 clear nexus required under state constitutional and 4 statutory law. That is, it both meets the constitutional 5 standard and the statutory standard established under 10X. 6 There are other legal issues that have been 7 raised by a number of other commentors. I don't know 8 whether you want me to address those now -- 9 CHAIRPERSON LLOYD: That's fine. 10 GENERAL COUNSEL WALSH: I think that should -- 11 CHAIRPERSON LLOYD: Dr. Friedman. 12 BOARD MEMBER WILLIAM FRIEDMAN: Could we some 13 amplification -- there's the 1997 data, massaged in 2001, 14 I think, and reference to 2002 data that is almost ready? 15 I mean, could we have some clarification what that means? 16 DEPUTY EXECUTIVE OFFICER SCHEIBLE: We have 17 different year basis for the stationary sources for the 18 consumer products and for the architectural coating based 19 on when our most recent emission inventory was done. We 20 felt that we needed to come to a common base year as much 21 as possible, so that we were comparing a fee basis on the 22 same year and got everything together. 23 For one category where the information was 1997, 24 we felt we had to adjusted it up to a more current year. 25 That had both benefits and -- it caused both decreases and PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 212 1 increases. For example, if a certain product were subject 2 to emission standard between 1997 and 2001, we calculated 3 an expected reduction and reduced the emission by that 4 much. 5 Overall, we expected product use to grow, and so 6 we adjusted upwards by an expected growth. So it was an 7 attempt to get closer to what the actual emissions were 8 and as fair as we could do to reflect things like a 9 product that clearly reduced its emission because it met a 10 control requirement had lower emissions. 11 It's not -- can't be done perfectly. Even in the 12 stationary source area, where there's refineries and power 13 plants, there's still a sizable delay between the year in 14 which we're collecting money to pay for the program and 15 the information base. We tried to be as fair as possible 16 and do these types of adjustments and do them uniform. 17 BOARD MEMBER WILLIAM FRIEDMAN: What about the 18 2002 reference that Mr. Donegan made? 19 DEPUTY EXECUTIVE OFFICER SCHEIBLE: Staff will 20 have to answer that. I'm not sure where we are at with 21 that. 22 MEASURE ASSESSMENT BRANCH CHIEF FRY: We did 23 indicate to the industry that we would use that 24 information, but unfortunately it did not cover all of the 25 products that they sell. It only covered about 48 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 213 1 categories in consumer products. So we said that yes, we 2 would use that, but we would also need an updated 3 information for the other products they sell, so we'd have 4 the total emissions for that year. 5 CHAIRPERSON LLOYD: Thank you very much. 6 MR. DONEGAN: Thank you. 7 CHAIRPERSON LLOYD: Mark Riedel, Eileen Moyer, 8 Aron Lowe. 9 MR. RIEDEL: Good afternoon, Dr. Lloyd, members 10 the Board, honored Staff. 11 My name is Mark Riedel. I'm the vice president 12 and general counsel of the Wella Corporation. I'm here 13 today to express our opposition to the proposed fees -- 14 the increase, and to give some insight and some real world 15 perspective on how these regulations and how these fees 16 affect real California companies, and I'll give you a 17 little background of that. 18 Wella is a holding company for Wella, Sebastian, 19 and Graham Webb. And Sebastian is a -- well all these 20 companies are based in California. And combined we have 21 about a thousand employees, of which about 500 are here in 22 California. Sebastian is the reason I'm here and the 23 reason we have an objection to this fee. 24 Sebastian has been successful in the hair spray 25 and styling care market to the point it has the top PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 214 1 selling professional hair spray in the United States. And 2 consequently, it bears a disproportionate burden of the 3 VOC taxes in regulation, visive or our competitors who 4 might make shampoos, hair colors and the like. 5 We were founded in 1973 and by the year roughly 6 2000 we had 250 employees. I would guess we're down today 7 to 170 since the end of 2000, and a lot of that has to do 8 with declining sales of hair spray and increased costs of 9 production, some of which are attributable to the burdens 10 of the regulations and the taxes that you seek to impose. 11 Since the end of 2000, and really that's the year 12 the 55 percent VOC had its impact, the sales for our top 13 selling product have declined 25 percent. That's really 14 coincident with the impact of the regulation. 15 There are other reasons this may have occurred. 16 Let me go into how this affects our company. We sell 17 Shaper in California, in 50 states, and in 60 countries. 18 We were forced to reformulate our top selling hair 19 sprays so they had both an 80 percent formula and 55 20 percent formula. 21 While normally making the formulas is not that 22 difficult -- it's a small expense -- making a new formula 23 that matches the performance characteristics of an old 24 formula is very difficult. So these formula -- these 25 reformulations cost tens of thousands of dollars, whereas PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 215 1 making a new formula might cost $10,000. I hope I'm not 2 giving away any important trade secrets here, but the cost 3 to reformulate and keep the performance characteristics 4 were very high, we're talking about a number of formulas 5 we had to make. And to add on that, when we made these 6 new formulas, they were much more expensive to keep them 7 at 55 percent. 8 The cost of that 55 percent VOC hair spray was 30 9 to 40 percent more than the out of state 80 percent 10 formulas. We did not pass that along. We did not raise 11 our prices in California. We did not and we could not. 12 If we did, that $12 can of Shaper hair spray would cost 13 $16 in California and from a marketing -- it simply is 14 unacceptable. It could not happen. 15 I've witness three rounds of layoffs in the last 16 three years, probably 75 employees. If I add up the cost 17 of reformulating and selling 55 percent VOC hair spray in 18 California, it's probably around $800,000 per year. 19 That's the number we absorbed that we did not pass on with 20 a company with declining sales. If you want to think 21 about that, think about $65,000 per year for a typical 22 employee with fully loaded. 23 So the cost of reformulating, the cost of 24 absorbing that could be as much as ten to 15 employees a 25 year, and believe me, we've gone through those layoffs. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 216 1 There's a cumulative trauma that goes with this, 2 and I want to talk about that. Many of our customers when 3 we switched formulas complained bitterly about the new 4 formula. It didn't work. It didn't work as well. 5 Some of our best customers actually went out and 6 had contract fillers make competitive hair sprays to sell 7 against our product. These were our customers. I can't 8 imagine what our competitors did. Our sales declined. 9 We also have the cost now of maintaining twelve 10 new products, so we have twelve -- we have three new hair 11 sprays. We make it in four different sizes, so in some 12 warehouse on some product list or some price list you have 13 twelve new products. All of this has cost. 14 We had to create a computer system that 15 prohibited customers in California from ordering 80 16 percent while prohibiting walk-in customers out of 17 California from ordering the 55. So we had to create a 18 whole computer system to manage this system of formulas. 19 To add insult or just to make it worse, when we 20 did introduce the 55, there was a defect in the valve, and 21 we ended up doing a recall of tens of thousands of 22 products that were on the shelves in California. 23 I don't know what the costs were, but I'm sure it 24 was tens of thousands of dollars to go out and recall, 25 bring back and fix the valve on these cans. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 217 1 Finally, in terms of procedural fairness of this 2 tax, I've gone through the list of who's being assessed 3 and who's not. And I notice a number of my competitors 4 are not, and I presume that's because they haven't met the 5 250 ton threshold. And I question the fairness of that. 6 Certainly it will give those of our competitors who are 7 below that an unfair competitive advantage, so it simply, 8 in practice, distorts the market. They would have a cost 9 advantage over us. 10 In closing, I just want to say we've been a good 11 corporate citizen, we've reformulated twice. Now we're 12 being punished with new fees. 13 I think we've done our fair share. I think we've 14 done enough. I think there are more productive, easier 15 targets. I'd like to say that you should regulate Hummers 16 and not hair spray. 17 Thank you very much. 18 CHAIRPERSON LLOYD: Thank you. And recognize 19 this is also tough for us. We don't like being in this 20 position, either, with the budget, et cetera. So -- but 21 we appreciate your insights. 22 Eileen Moyer, Aron Lowe, Joseph Yost. 23 MS. MOYER: Good afternoon. I'm Eileen Moyer. 24 I'm director of regulatory regulations for Reckitt 25 Benckiser. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 218 1 Reckitt Benckiser is a manufacturer and marketer 2 of consumer and institutional products. We make products 3 such as Air Wick air fresheners, Old English furniture 4 polishes and Lysol disinfectant and cleaning products. 5 Also make another wide variety of products that are 6 regulated by ARB. 7 I'm taking a little bit of an exception to the 8 term "pollution" and "polluter pays" here. I don't 9 consider our products pollution. We make our Lysol 10 products are public health products. Disinfectants are 11 used to interrupt the transmission of infectious diseases. 12 Insecticide products are used to interrupted the 13 transmission of infectious diseases. 14 These are health benefit products and I just have 15 to make that comment, clarify that -- and when you're 16 talking about pollution, these are products that actually 17 could benefit public health, benefit asthma sufferers 18 within the home. Disinfectants help to control mold 19 spores. Cleaning controls allergens in your home. 20 I think there needs to be some balance that's 21 being put in how you're referring to these products. 22 CHAIRPERSON LLOYD: Point well taken. 23 MS. MOYER: Many that Reckitt Benckiser makes 24 have been reformulated two times. We have several that 25 have been reformulated three times. I've been working PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 219 1 with the staff at the Air Resources Board for almost 15 2 years. I think we're all getting old together. 3 CHAIRPERSON LLOYD: At least we're still here. 4 MS. MOYER: At least we're still here. That's 5 right. 6 There's been an assertion that there's not really 7 a significant impact, financial impact, assigned to these 8 fees. And I'd like to dispute that. And I know there's 9 nothing that can be done from the legislative standpoint. 10 But I think you need to understand the impact is 11 significant. 12 The gentleman from San Luis Obispo mentioned the 13 fact that stationary sources, smoke stacks, already pay a 14 fee and they're being double charged. Well, antimicrobial 15 products or disinfectant products will be paying three 16 fees, three charges. 17 We pay the Department of Pesticides registration 18 to register our products so we can sell them in the 19 states. We pay a mill tax on every dollar of sales on 20 those products in this state, and now we will be paying a 21 VOC tax. And to give you some perspective of the dynamics 22 of that, our company pays approximately half a million 23 dollars a year to register our disinfectant products and 24 pay our mill tax. Those costs are also increasing due to 25 the severe economic situation in the state of California. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 220 1 We're going to be facing a 55 to 60 percent increase in 2 the cost for us to market those products in California. 3 Now add on VOC fee. Our total increase to do business in 4 California is going to be approximately another half a 5 million dollars. So you're looking at a total of a 6 million dollars in fees to sell products in California. 7 Add this on to what's happening across the 8 nation. California's not the only state having severe 9 economic problems. All other states are as well, and we 10 are facing significant increases in fees throughout the 11 nation. This is significant. It is not an insignificant 12 cost for us to do business. 13 I'm very sympathetic to the fact that ARB does 14 have to work with less people, with less dollars, because 15 we are all facing that. In industry that has been a 16 common occurrence. Last year we had downsizing and we 17 faced the loss of 8 percent of our work force. 18 So I am very sympathetic and the folks at the 19 staff at the -- for ARB have been very cooperative. They 20 work very hard and they do a very good job. 21 Mention was made of competitive disadvantage and 22 Mark talked about what we're faced from our competitors. 23 The cutoff of 250 tons a day seems to be arbitrarily 24 assigned to consumer products simply because that's what 25 you did for smokestacks. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 221 1 When we look at what we have to pay versus what a 2 competitor who's under that 250, we are at a competitive 3 disadvantage. We do not then have the dollars to put into 4 research, into our marketing efforts. And just because 5 you're below that 250 tons a day doesn't mean you're a 6 small company. You may actually be a very large company. 7 I'll give you an example. I mentioned we make 8 institutional products. And we sell products to 9 hospitals, to janitorial service to service buildings like 10 this. Our company is a very small player the 11 institutional market. The reason our emissions are so 12 high and our tonnage is so high is primarily due to our 13 retail sales. As a small player in the institutional 14 market, we're paying a significant cost on those products. 15 The largest player in the institutional market is below 16 the 250 tons a day. Do they have less VOCs in their 17 institutional product? Not necessarily. They may 18 actually have products levels that have higher levels of 19 EOCs in their product line. It's just a matter of how 20 your products mix is for your company to where you may 21 fall out of that 250 tons a day. 22 You have already mentioned -- it was already 23 mentioned there would be some change to the opportunity to 24 challenge your original invoice, so we are very 25 appreciative that we're going to be given more time to PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 222 1 take a look at working with ARB staff in the event a 2 company determines that their emission numbers are not the 3 same as what staff feels they are. But we do think that 4 as long as a company has notified staff that they feel 5 there is an error and they're working with staff to 6 correct that error, that actually they should be given 7 time up the time that bill is due to be able to work that 8 problem out. 9 It is a very intensive process. I know in 10 looking at our numbers there is a discrepancy with the 11 amount of time and effort it would take for my company to 12 come in and work with staff on that discrepancy just isn't 13 worth it, because the cost is just too high and we don't 14 have the resources at our company to do that, even though 15 we are a large company. 16 And in closing I'd like to echo the comments that 17 have been made by speakers before me by CTFA by Doug 18 Raymond, by Mark and ask that there be a delay in moving 19 this forward from today. 20 Thank you very much. I appreciate your 21 attention. 22 CHAIRPERSON LLOYD: Thank you very much. 23 Aron Lowe, Joseph Yost, Heidi McAuliffe. 24 MR. LOWE: Good afternoon. Thank you very much. 25 My name is Aron Lowe, and I'm with, I'm PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 223 1 representing the Automotive Specialty Products Alliance. 2 We are an alliance of three nonprofit associations. The 3 Automotive After Market Industry Association, Consumer 4 Products Specialty Association and the Motor Equipment 5 Manufacturers Association. And we're representing 6 companies engaged in the manufacture, formulation, 7 distribution of sales automotive specialty products. 8 We have actively participated in this rulemaking 9 and submitted written comments on July 23rd, and you have 10 my written comments. And I don't want to duplicate what's 11 been said already, but I have to take issue -- echo the 12 comments that were made regarding the absence of a clear 13 nexus between the money generated by this fee and specific 14 programs that would be funded by this money. 15 We think the nexus between the fees, NOx emission 16 control has not been reasonably established, and a more 17 detailed assessment of the fees collected and the 18 regulation of consumer products is needed. 19 We also take issue with the use of the 1997 20 consumer products survey data and the use of the 21 population growth. We don't think that properly reflects 22 the true amount of VOCs that are being emitted by these 23 products and we think there needs to be consideration of 24 the real world statistics in that area. 25 I also want to echo the comment about the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 224 1 comments that were made in the documents regarding the 2 impact of the fee on the companies as being 3 inconsequential. These fees are going to impose major -- 4 thousands of dollars in annual costs on our members. 5 Within a specialty, automotive specialty products industry 6 only a minority of companies will be assessed these fees, 7 while many competitors will not be assessed fees. 8 This is going to be a huge competitive impact on 9 a lot of these companies. Therefore, we believe that ARB 10 should consider a more reasonable accurate approach of 11 estimating potential impacts by comparing the fee 12 assessment with the net income achieved from selling these 13 consumer products in California. 14 We believe the assessment Mike demonstrated up 15 there -- some for which a fee approached or even exceeded 16 the net income from selling their products in this 17 state -- the amount is substantial and may result in 18 higher prices for consumers in California, and also 19 severely limit the ability of some companies to do 20 business in this state and actually provide more research 21 in reducing their VOCs in this state. 22 Once again we oppose this tax. We think the ARB 23 should delay consideration of this proposal right now. 24 Thank you. 25 CHAIRPERSON LLOYD: Don't you think it would be a PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 225 1 good idea to invest research to get below the 250 tons, 2 because that's an economic incentive to get beyond that? 3 Because if you fall beyond that, then this doesn't apply. 4 MR. LOWE: Well, in some cases, I mean, all the 5 companies are trying very hard to reduce their VOCs, 6 because they're trying to meet the regulations that are 7 being placed on them by the Air Resources Board. I don't 8 think any the companies are not putting all their efforts 9 into trying to meet the regulations and some of them are 10 coming down the road in the future. 11 So while I agree I'm sure they will be trying to 12 do that, you have a certain dollar amount that you're 13 going to have to reach, and so there's always going to be 14 that problem in trying to raise money -- going after those 15 companies. 16 CHAIRPERSON LLOYD: Thank you. 17 Joseph Yost, Heidi McAuliff, Chase Ahders. 18 MR. YOST: Good afternoon. Dr. Lloyd, 19 distinguished Board members. 20 My name is Joe Yost. I'm director of state 21 affairs with the Consumers Specialty Products Association, 22 or CSPA. I am also joined here today by my colleague, 23 Doug Frontz (***), who's our vice president of scientific 24 and technical affairs. 25 We appreciate the opportunity to present PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 226 1 testimony of CSPA on this very important rulemaking. We 2 represent manufacturers of a broad range of consumer 3 products. These products are packaged in many forms and 4 are generally marketed nationally to consumers, industrial 5 and institutional users. 6 During the past 14 years, CSPA has worked 7 cooperatively with ARB staff to improve California's air 8 quality. The ARB has made tremendous progress in 9 improving the air quality here in California. Recently 10 the ARB stated that "Emissions from regulated categories 11 have been reduced 50 percent. And in total, consumer 12 product emissions have been reduced by over 130 tons ROG 13 by 2005." 14 CSBA applauds this significant accomplishment and 15 we are proud the role our industry has played in working 16 with the ARB towards reaching this. 17 CSBA participated very actively in all phases of 18 this particular rulemaking. We submitted comprehensive 19 written comments on July 22nd, and I'll briefly summarize 20 our major concerns with this proposed rulemaking. 21 As an initial matter, we actively opposed AB 10X 22 when the bill was debated in the Legislature. This 23 hastily developed and fundamentally flawed legislation 24 bypassed normal taxation procedures, and unfortunately the 25 Legislature denied any meaningful opportunities for public PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 227 1 participation in the debate on this bill. 2 In particular, we take offense and exception that 3 the Legislature chose to apply the majority of polluter 4 pays principle to tax the very companies that have spent 5 hundreds of millions of dollars to achieve significant 6 improvement in California's air quality. 7 Although CSBA has significant concerns about the 8 legality of Legislature's action, we want to commend the 9 ARB staff for their efforts to provide interested parties 10 with an opportunity to participate in this rulemaking. In 11 particular, CSBA appreciates the ARB's efforts to allow 12 interested parties to participate in scheduled conference 13 calls and workshops. The staff should also be commended 14 for their use of new technologies, such as web cast, to 15 expand the scope of participation. I only wish the 16 Legislature had exhibited a similar commitment to 17 providing public -- the public with the opportunity for 18 meaningful debate. 19 CSBA remains strongly opposed to the imposition 20 of fees or taxes on consumer products that are based on 21 VOC emissions. We believe the fees authorized by AB 10X 22 could constitute an illegal tax. And we are certain it is 23 not good public policy. CSBA will continue to exhaust all 24 available options to challenge this fundamentally flawed 25 legislation. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 228 1 As was articulated by speakers who preceded me, 2 CSBA believes that the requisite nexus between the 3 proposed fees and consumer product emission has not been 4 adequately established. A clear nexus must be established 5 between the money generated by the assessment of this fee 6 and the specific programs that will be funded. If this is 7 not done, the fee would in reality constitute a tax. And 8 as was noted earlier, the Legislature voted -- passed AB 9 10X by a mere majority vote. 10 Thus, CSBA believes that the ARB must provide 11 more detailed information to afford affected parties a 12 reasonable opportunity to assess the fairness of the fee 13 allocation in all three broad categories of fee payers, 14 and in particular, for the fees collected to finance the 15 regulation of consumer products. 16 We believe that any less rigorous assessment 17 falls short of the standard required by the statute. 18 The ARB's analysis on the fee -- on the emission 19 inventory we do not think provides a requisite or meets 20 the requisite standard for the nexus. But we do think 21 that this analysis clearly demonstrates that the proposed 22 fee on consumer products exceeds the amount that can be 23 considered fair or reasonable based on their share of 24 emissions. 25 As sited by Dr. Donegan earlier, the ARB in the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 229 1 initial statement of reasons states, and I quote, although 2 consumer product and architectural coatings contribute 19 3 percent of stationary source inventory, they account for 4 40 percent of total fees. End quote. 5 California law clearly states the ARB has sole 6 statutory authority to promulgate statewide regulation for 7 consumer products. 8 Therefore, CSDA supports the ARB's decision to 9 definitively and unambiguously state that the districts 10 have no authority to collect fees from consumer product 11 manufacturers. 12 As was stated before, we feel the use of the 1997 13 survey data is problematic. We also continue to question 14 the validity the ARB's assumption that there is a direct 15 causal relationship between the growth in California's 16 population and the use of consumer products. 17 Independently verifiable data shows over the past 18 decade sales of many of the largest categories are not 19 growing at a rate equal to California's population growth. 20 CSBA believes the plain language of AB 10X 21 precludes the ARB from assessing an additional three 22 percent adjustment to cover shortfalls in revenue. AB 23 10X, when it becomes effective, will authorize the ARB to 24 collect administrative costs for collecting the fees. I 25 would submit to you there is a distinct difference between PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 230 1 administrative cost and an assessment to cover additional 2 amounts to address a shortfall, a potential shortfall. 3 CSBA strongly believes the companies should be 4 given sufficient time to review and correct the ARB 5 emission estimates before receiving a written fee 6 determination notice or a bill. Thirty days is 7 insufficient for companies to review the ARB's preliminary 8 assessment or estimate of VOC emissions and to afford 9 these companies an opportunity to correct any 10 inaccuracies. 11 This is especially unreasonable for companies who 12 may be newly identified. We urge the ARB to allow 90 days 13 in the 2004-2005 and subsequent years. CSBA also does not 14 agree with the ARB's inclusion of paint thinners with 15 consumer products instead of architectural coatings. 16 For assessing fees, paint thinners have been 17 included with the admission of consumer products. This 18 decision is at variance with the current ARB emission 19 inventory, which includes paint thinners in the 20 architectural coating emission inventory. These products 21 are also planned for regulation as architectural coatings, 22 not as consumer products. Therefore, tonnage from paint 23 thinners should be removed from consumer products 24 inventory that would be used for the basis of this fee. 25 Thank you again for the opportunity to express PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 231 1 CSPA's position on this important rulemaking process. 2 Although we oppose the imposition of fees on our products 3 and manufacturers, we hope to continue to work in a 4 cooperative manner with the ARB to improve the air quality 5 in California and, just as importantly, we hope to do so 6 while maintaining our industry's ability to provide 7 effective products that consumers can rely on and that 8 contribute positively to the health, safety and quality of 9 life of Californians. 10 Thus, CSPA would urge the Board to return the 11 proposed regulation to the ARB staff with directions to 12 address these issues that I just articulated. 13 Thank you very much again for this opportunity. 14 CHAIRPERSON LLOYD: Thank you. 15 Ms. D'Adamo. 16 BOARD MEMBER D'ADAMO: Mr. Chairman, I just have 17 a suggestion to make for this -- I'm seeing here that we 18 have several additional witnesses that are opposed to the 19 proposal. 20 I don't have a specific question for you, I was 21 just going to make a suggestion for future witnesses. I 22 think we all totally sympathize with the position that 23 you're taking in opposition of this, but we're not the 24 Legislature. The legislature adopted this and we have a 25 mandate that we've got to follow and I will say this: PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 232 1 It's refreshing to see the Legislature at least agreed on 2 one thing that has to do with the budget, so we have a job 3 to do and I would make a recommendation, just in this 4 interest of time, if future witnesses could come up here 5 and make suggestions as to how this could be improved. 6 Of course, you're going to want to say it on the 7 record, and I understand that, that you're opposed to it, 8 but then maybe if your comments would be focused on ways 9 this would be improved, I would appreciate that. 10 CHAIRPERSON LLOYD: And I think this is really 11 addressed to the chair to be tougher, so I take it so I 12 can be tougher. 13 The good news is from Mr. Yost, as I understand 14 his testimony was, since he thinks that staff is 15 overestimating the correlation between growth and consumer 16 products growth, there's clearly room for growth. So 17 there's clearly an untapped piece of the market. So I'm 18 pleased to see that. 19 Before we move ahead, I think Supervisor Roberts 20 wants to -- 21 SUPERVISOR ROBERTS: I'm going to have to leave 22 shortly, and I want to make a comment on this, because for 23 me this is an important issue. 24 Recently we had the Speaker of the Assembly in 25 San Diego, and he gave a speech how California -- we've PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 233 1 got to be more friendly to business, because of what we've 2 seen and some major problems have been created by 3 activities at the state level. We're here today and we're 4 talking about levying a fee -- forget whether you call it 5 a fee or tax, because if you pay it, it doesn't make a 6 whole lot of difference. 7 An average of $75,000 per each of these 173 8 business, that should be a wake up call to all of them. 9 I'm a surprised that all 173 of them aren't here. What 10 bothers me is that there's something incredibly wrong 11 about this whole process. 12 Somebody came up with an equation that says 13 whatever the State cuts, we throw this into the equation, 14 we spread it out over these companies and you pay. It's 15 real simple. And there's all sorts of justifications, but 16 the whole thing is wrong in my mind. 17 We're faced with cuts and we're faced with 18 shortages in revenues at the county level, at the transit 19 boards I serve on, at the air districts I serve on, right 20 across the board. And I can't think of any instance where 21 we said, "Let's just take what we're missing, divide it up 22 amongst whoever we can dump it on and dump it on them." 23 If the State's going to cut this Air Board, it 24 seems to me significant that we should go back and revisit 25 our budget and take a look at how that cut should be PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 234 1 handled within the budget. It should be looked at, not 2 just in this narrow bending you're seeing here, but 3 priorities all the way through that should be established. 4 It shouldn't be we got caught, so we're going to 5 raise the fees. It should be a balance between cuts and 6 priorities and then raising fees. And what is being done 7 here, I think, is -- I don't think I've all the years I've 8 been in here finding myself so remote from the staff 9 position because I think this is -- the entire thing is 10 backwards and these people should be fighting amongst one 11 another to see who to dump this -- we have, it seems to me 12 a basic responsibility. Government has a basic 13 responsibility, when your revenues are down, you visit 14 your whole game plan. You set your priorities. You make 15 cuts and you raise some fees. But here -- this is 16 painless. 17 So all we've got to do is whatever the State 18 comes in, we fill in the X. We add an adjustment for 19 under collections, and then we divide it by the total 20 number of people who are out there. 21 That's not the right way to do this, and I'm not 22 going to be here, maybe just as well. But this is not the 23 way we would do it in my county and it's not the way we 24 have done it on any of the boards in which I serve, and I 25 would not be supporting it if I was here when you get PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 235 1 around to voting for it. 2 CHAIRPERSON LLOYD: Thank you. I do think that, 3 as explained earlier on, there have been cuts, there will 4 be cuts, and I don't know whether Ms. Witherspoon wants to 5 comment on that. 6 EXECUTIVE OFFICER WITHERSPOON: Just briefly. 7 Over the last two fiscal years the Air Resources 8 Board's actual operating budget -- leaving all big grants 9 aside -- the ZEV program, the Carl Warner program, school 10 bus -- our base budget has been cut by about 17 million, 11 and the coming fiscal year proposed budget cuts it by an 12 additional two million. And those are substantial cuts to 13 our operation. And so it was in lieu of deeper cuts the 14 fund shift proposal came forward in the Governor's budget, 15 so the environmental programs could be protected, and 16 whether you think that's reasonable to sort of average 17 one's perspective over three concurrent fiscal years, or 18 you would, you know, once again say in this fiscal year we 19 have to take a very far down, these are fair difference of 20 opinion and it was the administration's decision in the 21 case of the Air Board, the Water Board, and the Department 22 of Pesticides Regulation to shift a portion of their 23 general fund support to fees in this budget year. 24 SUPERVISOR ROBERTS: I guess I'm in disagreement 25 with that approach. I think the entire budget should have PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 236 1 been brought back before us and we should have looked at 2 that and said, "What are the priorities," instead of just 3 saying, "There's 73 companies here, we can put them on the 4 hook at an average of $75,000 apiece, so let's do it." 5 I think it's wrong. 6 CHAIRPERSON LLOYD: Thank you for that comment. 7 Thanks, Supervisor. 8 We have Heidi McAuliffe, Chase Ahders, and 9 Madelyn Harding. 10 Again, if you could also help out in responding 11 to Ms. D'Adamo's suggestion. 12 MS. McAULIFFE: Members of the Board, 13 Mr. Chairman, members the Air Resources Board staff. 14 Good afternoon. My name is Heidi McAuliffe. I'm 15 counsel for government affairs and National Paint and 16 Coating Association. We represent companies who 17 manufacture paint coatings, caulk sealants and adhesives. 18 Sixteen the 24 architectural coatings companies 19 that will be billed for their emissions shortly after this 20 regulation takes effect are members of National Paint and 21 Coating, along with ten companies on the consumer products 22 list. 23 The products that our companies manufacture 24 protect and beautify your homes and increase the quality 25 of life of the citizens in California. These products and PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 237 1 their manufacturers have undertaken Herculean efforts in 2 the last 15 years to lower not only the amount of solvents 3 in these products, but the relative reactivity of the 4 solvents in these products. And they have contributed 5 greatly to the improvement in air quality in the state of 6 California and many successes of the Air Resources Board. 7 We oppose this regulation. We urge this Board to 8 strongly reject the regulation with very specific 9 instructions to the staff to continue the outreach efforts 10 to the stakeholders and begin to address some of the many 11 issues that all of my predecessors who have just spoken in 12 opposition to the regulation, to address many of these 13 issues that we have brought up. 14 I think that we have just really started the 15 process with regard to hammering out what the issues are. 16 The legislation is, I believe, a fairly small package that 17 was handed to the Air Resources Board and it instructs the 18 Air Resources Board to take certain actions and I believe 19 the Air Resources staff has attempted to do that. 20 I disagree with many the decisions that they have 21 made and many of the assumptions that they have made in 22 attempting to create this regulatory program, but again 23 the situation is that they have been handed this 24 legislation. 25 Commissioner D'Adamo, I'm not sure that I can PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 238 1 address your question or your comments with regard to how 2 could we make the legislation a little bit better. 3 What I'm prepared to talk about today are some 4 suggestions for the Air Resources Board staff to address 5 the regulatory program that they've created. And -- 6 BOARD MEMBER D'ADAMO: If I could just interrupt 7 for a second, I wasn't asking for ways the legislation 8 could be improved. It's already been signed into law. I 9 was asking for suggestions as to how we could improve the 10 staff proposal. 11 MS. McAULIFFE: Perfect. That's where I'm going. 12 First of all, I would just like to comment that 13 the ARB really has no authority to proceed at this point 14 in creating this regulatory program. I know this issue 15 has been addressed already by many the speakers before me. 16 But I do want to make just a few comments. 17 AB 10X is not a finished product yet. We all 18 know the number that's indicated in that bill could go up 19 from 13 million dollars to $17.4 million. We've already 20 heard testimony about the impact on specific companies 21 about what that increase is going to do to their bottom 22 line. 23 That's a very substantive issue. There's no 24 telling what could happen to this statute over the next 25 couple of weeks and, in fact, the next couple of months. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 239 1 So I know the Air Resources Board is relying on a 1955 2 Attorney General's opinion to justify the fact that 3 they're going forward at this moment. That's a very old 4 opinion. I don't believe that it's on point and I think 5 it's very bad public policy to proceed at this point. 6 Other California agencies in the same financial 7 crises that the Air Resources Board is in, and faced with 8 the same situation of imposing fees on other industry or 9 new fees on industries are waiting until AB 10X is 10 finished before they begin the rulemaking process. And I 11 would encourage the Air Resources Board to do that. 12 The next point I'd like to make is the speed at 13 which this regulation has proceeded to this point. The 14 very first workshop or teleconference phone call, formal 15 or informal activity, I'm not sure how that's listed on 16 your website. But the very first activity we had as 17 stakeholders involved in this process was an April 28th 18 teleconference, and in that teleconference we discussed 19 general regulatory concepts implementing this program. We 20 didn't even draft proposed language that was in front of 21 us to respond to these draft concepts. 22 That was less than 90 days ago. And here we are 23 standing in front of the Board members and you're getting 24 ready to vote on this proposal. That's a lightning fast 25 expedited process pretty much in anybody's experience. I PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 240 1 mean, I've been working with the Air Resources Board for 2 ten years now, and I can't think of a regulation that took 3 less than two years. 4 CHAIRPERSON LLOYD: I think we all recognize 5 these are unusual times, so it's clearly not typical of 6 operations, so I think there's extenuating circumstances. 7 MS. McAULIFFE: I agree, these are unusual times. 8 But I don't think it's any excuse for not paying attention 9 to the issues that we brought forward. And the issues 10 that we have brought forward during this very brief 11 stakeholder process are very important issues. 12 For instance, something that hasn't been 13 mentioned up until now is the fact -- the way this statute 14 is written. This statute actually creates two separate 15 fee programs. If you look at the statute, it had an 16 existing provision which increased fees on stationary 17 source facilities. There's a whole other provision in the 18 statute that provides for fees on architectural coatings 19 and consumer products. 20 I know the ARB staff made an assumption that a 21 uniform fee and one single fee program was the most fair 22 and equitable way to proceed. I disagree with that 23 decision. I disagree with their assumption. There are 24 different considerations for the large stationary source 25 facility, very, very different from architectural coatings PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 241 1 and consumer products. And these difference actually are 2 articulated in the statutory language. It's beyond my 3 comprehension that this fee program is all lumped into one 4 program. 5 What needs to happen is a very tailored fee 6 program for the architectural coatings industry and a very 7 tailored fee program for the consumer products industry. 8 That issue alone would take us more than 90 days to even 9 discuss and ferret out all the issues that are corollary 10 to that and peripheral to that. But again, here we are 90 11 days after the very first teleconference voting on 12 adoption of this rulemaking. 13 Another issue that's been addressed somewhat by 14 the other speakers is this nexus issue. I don't want to 15 spend a lot of time on it, because you've already heard a 16 lot of vocalizing on it, but it's very specific in the 17 statutes, the specific language in the statute limits what 18 the Air Resources Board could do with this money. 19 There's also case law in California which 20 establishes a very high standard for what that nexus ought 21 to be. And I'll tell you, my industry knows that case 22 law. We were the industry that litigated that case. It's 23 Sinclaire Paint case. And what the Sinclaire Paint case 24 says is there has to be a very clear nexus between fees 25 and the reasonable cost of ARB programs. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 242 1 It also says you may not -- that fees may not be 2 levied for unrelated purposes. As it stands right now, we 3 don't really know, you know, where the fees are going at 4 the Air Resources Board, because they're unable to tell 5 us. We have been asking since the very beginning of this 6 dialogue and we've gotten some information. 7 We got some information two days ago with regard 8 to allocation of resources for architectural coatings and 9 consumer products. We barely had two days to digest that 10 information and in just a cursory examination, the 11 information tells us there's no breakout for architectural 12 coatings and consumer products in that information. I 13 think that's required under Sinclair Paint. And what you 14 don't see in the regulation is a provision requiring the 15 ARB to give us more information on their allegation 16 resources, or any kind of a provision, you know, requiring 17 the Air Resources Board to institute, you know, other 18 generally accepted-type accounting practices so that we 19 can oversee those, so we can check that, or we can 20 determine whether or not in our own minds they're 21 complying with Sinclair Paint and the language of the 22 statute. That's not in there anywhere. 23 CHAIRPERSON LLOYD: Can you bring this to a 24 close, since we do have your written statement here. 25 MS. McAULIFFE: I have just two more comments, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 243 1 very quickly. 2 With regard to the nexus for architectural 3 coatings, that nexus is very suspicious in our mind, this 4 industry's mind, because the Air Resources Board doesn't 5 directly regulate architectural coatings. We do know from 6 our conversation two days ago with the Air Resources Board 7 staff that they do expend some in enforcement activities 8 relative to architectural coatings and they do institute, 9 or they do the SEM for architectural coating, but we don't 10 know specifically what their allocation of resources is 11 for architectural coatings. And the impact on 12 architectural coating is extremely disproportionate to 13 their own emissions. 14 The billable emissions in this universe of 15 emissions that are being billed is about 773,000 tons per 16 year. Of that number, only 37,000 can be assigned 17 architectural coatings, but yet the impact on 18 profitability for architectural coatings is 10 times that 19 is on consumer products industry and the stationary source 20 facilities. There's a whole lot of fairness problems with 21 that. 22 And my last point, the economic impact analysis 23 in the staff report looks to me like it only evaluates the 24 economic impact for businesses as a whole. Their business 25 from coast to coast, their business on a global PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 244 1 enterprise. 2 What wasn't analyzed in the staff report was the 3 impact on these companies' businesses in California. How 4 much of their profit from their business in California is 5 going to be wiped out by this regulatory fee? That 6 wasn't evaluated at all. 7 And I will close by asking the Board to vote no 8 on this regulation. Give us more time to complete the 9 stakeholder process, to pay, to give, you know, the due 10 process concerns that we have, you know, with all of these 11 issues out there. 12 We need more time to work this out and make sure 13 that these programs are tailored for architectural 14 coatings and consumer products. 15 CHAIRPERSON LLOYD: Thank you. Any questions? 16 Mr. McKinnon. 17 BOARD MEMBER McKINNON: Yeah. I'd like to ask 18 staff if there is a breakout for the different categories 19 in terms of program and what the programs costs are 20 vis-a-vis the fee. 21 DEPUTY EXECUTIVE OFFICER SCHEIBLE: Like I said 22 earlier, we did the assessment of program costs against 23 the total stationary source budget and that's what we 24 expend on stationary programs. It's largely staff and 25 related costs, very low end contracts. Then we base the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 245 1 allocation or what would be permissible under the law 2 according to the emissions allocations to address the 3 issue, the selection of the 250 tons per year cutoff is 4 the issue that ends up leading to certain categories 5 paying -- having more fee payers relative to their 6 emissions than other categories. 7 They're not really subsidizing the other 8 categories of sources. What's happening is the 13 million 9 isn't being paid by fee payers and then the remaining 26 10 million in the stationary source budget is being paid by 11 other funds that cover that amount. We have not done a -- 12 we provide the industry with additional all information on 13 what a different method of looking at expenses would be, 14 one in which we went in and said here's what we spend in 15 terms of PY's and then with those person years cost for 16 direct regulation and then an assessment of here's air 17 quality monitoring, planning and other activities 18 according to your relative emission impact. 19 It came out to be about the same number for the 20 categories overall. So we think that we have done an 21 assessment that clearly shows that we are not over 22 collecting from either the combination of consumer 23 products and architectural coatings or from the stationary 24 sources. 25 There are some issues that come out when you PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 246 1 select 250 tons a year, which the Legislature did, as the 2 cutoff for the fee payers. And continue to believe that 3 the best way to assess fees, once we have to do that, is 4 based on relative emissions contribution. 5 And in terms economic impacts, collectively the 6 fees are significant. In terms of how much would a fee 7 add to the price of an individual product, it's quite low. 8 It's a penny or two pennies or maybe ten cents if it's a 9 gallon of something with a lot of VOC in it. So it's 10 relatively small per unit of product. It is a significant 11 dollar figure on the companies. 12 We also didn't do a detailed economic assessment. 13 But in general, we have a hard time seeing how something 14 that comes down to a cent or two a product is going to 15 have a big impact on the marketability of a product 16 relative to a competitor, compared to the other types of 17 costs this Board has imposed upon -- the regulating the 18 product in terms of reducing air pollution, we've had much 19 greater impacts. 20 And obviously, it's not something we choose to do 21 as a staff in terms of developing a fee regulation and 22 spend time instituting new policy direction here, and we 23 empathize with the sources in terms of what we are asking 24 them to do. We don't know don't like it. They probably 25 empathize with us knowing this is not the regulation we PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 247 1 would have chose to develop in terms of spending our time 2 and activity on. 3 BOARD MEMBER McKINNON: So the 250 cutoff is 4 determined by the Legislature. 5 DEPUTY EXECUTIVE OFFICER SCHEIBLE: That's 6 correct. And I believe that was an attempted to ensure by 7 and large it was larger entities paying the fee and also 8 to get around the problem of -- at that level, most of 9 the -- a large percentage of emissions in the 10 architectural coatings and consumer products category is 11 included, and most of the big sources are included. So 12 you don't get into having a fee structure that collects 13 $500 from thousands and thousands of entities. 14 CHAIRPERSON LLOYD: Ms. D'Adamo. 15 BOARD MEMBER McKINNON: Just to wrap up on that, 16 I -- the thing that worries me about environmental 17 regulation often times is it does pick on the big guys. 18 And sometimes that causes problems for the work force for 19 others. But to the extent this Board isn't given that 20 choice, I guess -- I don't have a way of debating that 21 here. I mean, it doesn't matter, so I'll leave it with 22 that, Mr. Chairman. 23 CHAIRPERSON LLOYD: Ms. D'Adamo. 24 BOARD MEMBER D'ADAMO: Just a follow-up on the 25 issue of the nexus and I guess the Sinclair Paint case. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 248 1 Mr. Scheible, you went through the analysis. It sounded 2 like it was just for stationary sources or did that 3 include stationary sources consumer products and 4 architectural coatings? 5 DEPUTY EXECUTIVE OFFICER SCHEIBLE: We went 6 through the general analysis for both based on relative 7 emissions and those aspects of our programs that we 8 thought related to emissions. For example, for an air 9 quality monitoring station or the development of a 10 standard, those are all costs we incur because there's 11 pollution out there that has to be monitored, or there's 12 health effects. 13 You almost have to use a surrogate, such as 14 emissions to say what's -- what part of that cost did you 15 incur because a certain industry has emissions. And then 16 for the consumer products and architectural coatings 17 industry, since we have people working directly on 18 regulations and we have people working directly on 19 enforcement, we took a different look at that and said 20 well, if we had used another method, where does it lead 21 us. And it led us to the same amount, about $7 million in 22 fees could be collected and we still felt we would meet 23 the requirement that it's a fee, not a tax, and that it 24 would meet the requirement it is being used on programs 25 that mitigate and reduce air pollution associated with the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 249 1 source paying the fee. 2 I think the industry would like a level of detail 3 that's far greater than that. We have a budget process 4 that's different. It's something we would have to create 5 and it would cause a significant amount of effort, and I 6 think in the end it would not change the final answer 7 about do you have a legally defensible fee with a sound 8 policy basis? 9 BOARD MEMBER D'ADAMO: With regard to 10 architectural coatings, it seems it is a little different 11 from the other consumer products, because our role is by 12 way of the SEM and do we have enforcement? 13 DEPUTY EXECUTIVE OFFICER SCHEIBLE: We do testing 14 and we do some other things with that. It's probably not 15 as intense as it is, but that situation is also true on 16 the other side, which is the permit and stationary 17 sources. And refineries we probably end of spending a lot 18 of effort on because of current efforts of helping -- 19 assisting districts assess their emissions and their fuels 20 programs. 21 Power plants -- this summer we're not doing very 22 much. Two summers ago we were doing a lot. There's other 23 categories in there where it's not, so it's -- it's not 24 designed to be a we incur direct costs from your source 25 and we are charging a fee in proportion to that. It's PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 250 1 more like the portion of the district program. They have 2 very large fees, some of the district do. They say we 3 have general costs that need to be recovered and we use a 4 fee proportionality and they use the same mechanism where 5 they have cutoffs and their, in some districts the fee is 6 an order of magnitude greater than the fee that we are 7 charging. 8 That's part of, I think, what the districts were 9 expressing and others, I think, in making the policy 10 choice to include consumer products and architectural 11 coatings. Yes, they've been regulated, and they've 12 participated, and we have a long relationship, but they 13 haven't had the same fiscal burden as most other large 14 sources of pollution have in California. Also 15 contributing to revenues to either the districts or the 16 state to pay for the programs that we use to figure out 17 how we get from air the way it is today to clean air. 18 CHAIRPERSON LLOYD: Thank you. Thank you. 19 We've got Chase Ahders, Madelyn Harding, and Paul 20 Beemer. 21 I'm going to enforce here, because the next -- 22 unless somebody has something new, please keep it very, 23 very short. Otherwise, we're not -- I'll cut you off. 24 MR. AHDERS: I will try to do that. 25 Good afternoon, Chase Ahders, representing PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 251 1 Smiland Paint Company, manufacturer of architectural 2 coatings, and a small manufacturer at that. Now we are 3 above the 250, so that puts us in this regulation. 4 We have submitted to the Board a letter dated 5 July 14th, where we addressed in great detail the things 6 that I'll touch on today. So in light of Ms. D'Adamo's 7 recommendations, I will skip to providing -- say first we 8 object to the regulations, but I'll skip to trying to 9 provide some alternatives that, while accomplishing the 10 same goals the Board and the staff has, which is to pay 11 the bills is what it boils down to, I sympathize with 12 that. It will do so at lesser expense to business and 13 particularly small businesses like us. 14 First, I think and I know this has been addressed 15 before, so I'll address it really quickly. We're talking 16 about 24 paint companies identified -- why don't we just 17 charge those paint companies for the program costs 18 incurred by the ARB. 19 And I know we've addressed the fact that we want 20 more specific analysis of what those costs are and I don't 21 feel those are that complicated to get to. Whatever your 22 program costs are, whether they're the survey that's 23 conducted every three years, whatever the costs are, let 24 us know. And if they're necessary costs and you have to 25 pass those fees along, pass them along that way, not in PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 252 1 just a blanket form. 2 We are not asking for a free ride in that 3 respect. We are just objecting to the more -- to paying 4 more than our fair share and we think the 40 percent, I 5 know we've been through that before, so I won't go through 6 it again, because that's much more than our fair share 7 here. 8 Another way of accomplishing the goals, a more 9 accurate cost of business is to require ARB to use more 10 accurate sales data. The data for 2002 is available. I 11 don't believe -- it's hard to say, given the hastiness in 12 which this has been developed, I don't believe it would be 13 too difficult -- maybe I'll be corrected -- to use that 14 sales data and comes up with a more accurate system for 15 billing the companies. 16 When you're talking about small businesses, that 17 makes a huge difference. What we did in 2000 doesn't 18 equate to what we did in 2002. It's definitely not going 19 to equate to what we do in 2003. It makes a big 20 difference when you're talking about small businesses. 21 Another alternative might be to finally conduct a 22 study. Let's take a break and conduct a study on whether 23 these paints and architectural coatings that we're 24 regulating actually pollute and to what extent they 25 pollute. There are significant doubts in the scientific PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 253 1 community as to whether water born paints are sufficiently 2 volatile to be regulated here, and the same respect 3 whether mineral spirits in solvent paints are sufficiently 4 reactive. 5 So I would suggest maybe taking a break and 6 taking a look at it more specifically to see that what 7 we're doing is actually going to help reduce the ozone. 8 Fourth alternative, let's protect small 9 businesses whose profitability -- we talk about costs, but 10 whose profitability and net worth will be 11 disproportionately affected by these fees. I'm talking 12 about maybe an exemption for the 14 -- or excuse me -- 13 13 small businesses that are included within these companies. 14 These businesses are going to be disproportionately 15 affected because even those small fees, whatever they are, 16 we don't think they're small, but we have a larger effect 17 when you're talking about a small business. And I know 18 nobody wants to put small businesses out of California, 19 but I think this is a way to take an exemption and still 20 accomplish a goal. It's not going to have a drastic 21 effect on the overall outcome. 22 Finally, in an effort to promote national 23 uniformity EPA started regulating paint manufacturing 24 since 1998 and the state regulation should be limited to 25 consumer use of the products. I suggest possibly imposing PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 254 1 the fee for the manufacturers. Imposing it at the 2 consumer retail level. That way I think we'll, number 3 one, get a more accurate picture of what the actual sales 4 are, and number two, I think that will help to protect 5 small businesses against the large manufacturers. 6 I know we have long faces here, so I will 7 conclude to just say there are several viable 8 alternatives, and I think that this has been passed 9 through rather hastily and without a chance to look at 10 those viable alternatives. And if we can do that, I think 11 we can come up with something that has a much lesser 12 devastating effect on small businesses and on business in 13 general. I don't want to exclude the big guys out there. 14 Thank you very much for your time. 15 CHAIRPERSON LLOYD: Thank you. 16 BOARD MEMBER McKINNON: Mr. Chairman. 17 CHAIRPERSON LLOYD: Mr. McKinnon. 18 BOARD MEMBER McKINNON: I have a question for 19 you. This is unrelated to your arguments. I understood 20 your arguments. I bought paint and fence stain in the 21 last few months. I hate to say it, because I hate to 22 paint, but I did. 23 MR. AHDERS: You did it yourself? 24 BOARD MEMBER McKINNON: Yeah. 25 What would this do the price of a can of gallon PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 255 1 can of fence stain or indoor house paint? 2 MR. AHDERS: I think that greatly depends. It 3 depends on the company that's involved. Some companies 4 are going to be able to absorb this cost and hold out, 5 while other companies, and I think mainly the smaller 6 companies, are going to have to pass this along, or else 7 our profits are going to be depleted so that we eventually 8 lose our investors. 9 BOARD MEMBER McKINNON: Give me your worst case. 10 CHAIRPERSON LLOYD: You speak an behalf of 11 Smiland. 12 MR. AHDERS: On behalf of Smiland Paint, I think 13 worst case scenario, over a few years Smiland Paint would 14 eventually have to declare bankruptcy if the fees were 15 imposed at the level they are. 16 Now there some discrepancies in the fees that 17 have been imposed. There were some miscalculations, so 18 originally we based them on the miscalculated fees. I 19 appreciate staff is working with us to recalculate those. 20 But I think over a period of timed to our company it 21 amounts to a very significant cost that will chip away at 22 our ability to be profitable in the state of California. 23 Now as to you, the consumer buying our paint, I 24 think, and I don't know for sure, but I think it may have 25 to be passed on in some way and may increase the cost of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 256 1 paint to you -- 2 BOARD MEMBER McKINNON: That's my question. 3 MR. AHDERS: It may lead to go buy some other 4 paint. Why would you buy ours at a little bit more when 5 you could buy paint somewhere else? 6 BOARD MEMBER McKINNON: You haven't told me how 7 much more I'd have to pay. 8 MR. AHDERS: I don't have the numbers 9 specifically. I can get them for you, though. 10 BOARD MEMBER McKINNON: I mean, I'm intrigued. 11 If it's pennies, that means something to me. If it's not 12 pennies, that means something different to me. You 13 know -- does that make sense? 14 MR. AHDERS: Yes, I understand. 15 BOARD MEMBER McKINNON: Anyway, I'm sorry I 16 picked on you individually, because your arguments were a 17 different set of arguments, and I did get them -- thanks. 18 Thanks for bearing with me. 19 MR. AHDERS: Thank you. 20 CHAIRPERSON LLOYD: And again, just to confirm 21 what I heard from staff earlier, we're going to go the 22 round here, but if we adjust these fees or come up with 23 other numbers or whatnot we're going to adjust them, is 24 that correct? 25 EXECUTIVE OFFICER WITHERSPOON: That's correct PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 257 1 for emission calculations, some of this testimony that has 2 been about alternate ways of arriving at calculations that 3 aren't purely emissions based. 4 CHAIRPERSON LLOYD: Thank you. 5 So Madelyn Harding, Paul Beemer, and Michele 6 Boddy. 7 Second go for Sherman Williams? You realize your 8 colleague used all your time. 9 MS. HARDING: That's not fair. 10 My name is Madelyn Harding. I'm corporate 11 manager of product compliance and registrations for the 12 Sherman Williams Company. I'm here to address two 13 remaining issues we have, but I want to stress that we're 14 not against the fee per se, just with the way the fee has 15 been proposed here today. 16 First is the movement of the fee due date. No 17 one has yet addressed this, apparently, but to us this is 18 a significant problem. Changing the due date from 19 30 days, from 60 days to 30 days. This allows 30 days 20 from the time you receive an invoice to accomplish 21 payment, which for my company is an incredible burden. 22 The prenotification that has been mentioned by 23 staff that we will be warned how much it will be doesn't 24 get the check getting cut. Until we have an official 25 invoice, I can't process anything. It needs to be the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 258 1 invoice and it needs to be official. And the number of 2 signatures we need are somewhat significant because the 3 amount of money is somewhat significant for the company. 4 So I would like to ask the Board not to agree with the 5 staff's change from the 60 days to 30 days, but to leave 6 it to the original 60-day due date. 7 This is somewhat minor, but it is somewhat 8 significant, because getting it paid in 30 days is a 9 miracle. 10 The second issue we have is with the uniform fee 11 rate. AB 10X clearly separates the fees and stationary 12 sources on facilities from the fees on architectural 13 coatings and consumer product manufacturers. Thus, the 14 statute provides the discretion to the Board in how to 15 allocate these fees. 16 The proposal sets a uniform fee per ton emitted 17 from all categories. The result is that in consumer 18 products and architectural coatings we'll be paying 13 to 19 18 percent the entire stationary source budget, with 20 emissions of 19 percent. On the other hand, the 21 facilities will pay only 20 to 27 percent of the 22 stationary source budget, but will contribute 68 percent 23 of the emissions. 24 We consider this very unfair. Staff's own impact 25 analysis showed that architectural coating payers will PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 259 1 have a 10 X greater impact than the impact it will have on 2 other payers. This is not fair. This is not equitable. 3 And we recommend the rule be amended so that the fees are 4 levied in an equitable manner. 5 Earlier staff specifically said there is a close 6 relationship between emissions and program costs. The 7 emissions from architectural coatings and consumer 8 products do not contribute the 40 percent that we are 9 going to be getting billed. And that's not fair. 10 Those are all my comments. I sincerely hope you 11 will ask staff to continue working with industry on this 12 proposal. 13 CHAIRPERSON LLOYD: Thank you. 14 Mr. McKinnon. 15 BOARD MEMBER McKINNON: I have the same question 16 for you about what it's going to do to change the cost of 17 a can of paint. 18 And I have a question for staff and the question 19 for staff is what is the state's rules when the state has 20 money that it's due? How long -- there's a period of time 21 in which folks have to -- the state has to reimburse 22 people for contracts and that kind of thing. 60 days -- 23 MS. HARDING: 90 days -- but 60 90 is getting 24 into reality. 25 BOARD MEMBER McKINNON: -- there's a state law PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 260 1 because of problems in the past. 2 CHAIRPERSON LLOYD: Yes, Supervisor Patrick. 3 SUPERVISOR PATRICK: If I could comment as a 4 person who works for a county. They take forever to pay 5 bills. 6 BOARD MEMBER McKINNON: Okay. That was the 7 answer -- 8 MS. HARDING: You know, I'm really sorry. I 9 didn't prepare -- I think the way we would probably 10 evaluate that wouldn't necessarily be on a uniform basis, 11 but in relationship to a per product basis. Some products 12 because the way the fee is getting levied it is on an 13 emission basis. The products that emit the most, we were 14 most likely if we were to raise prices, we would raise 15 those prices more than those that emit less. That's a 16 ballpark. 17 BOARD MEMBER McKINNON: Again, are we talking 18 pennies, dimes, quarters, dollars per can of paint, gallon 19 of paint? 20 MS. HARDING: Let me do a quick thing. You're 21 charging how much per ton? About $50 a ton, right. 22 I'll do a quick piece of arithmetic here for you, 23 then I can at least give you an idea. 24 BOARD MEMBER McKINNON: Anybody else? When you 25 testify just tell me that and I won't ask you. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 261 1 CRITERIA POLLUTANTS BRANCH CHIEF SIMEROTH: 2 Actually, we did do an analysis for architectural 3 coatings. We looked at the individual manufacturers, the 4 number of gallons that was sold and was typically about 2 5 to 5 cents per gallon if they pass on all the cost to 6 their consumers, and do not absorb any of the costs. 7 BOARD MEMBER McKINNON: Does anybody dispute 8 that? 9 MS. HARDING: The way the number works out about 10 two and a half cents per pound, and the way that will work 11 out is, for example, a pound of product that is straight 12 solvent born, if it have 300 grams per liter is about two 13 and a half pounds of solvent -- 14 BOARD MEMBER McKINNON: So it might be 6 cents? 15 MS. HARDING: On that, just to give you some way 16 of doing it in your head. 17 BOARD MEMBER McKINNON: You gave me a ballpark. 18 Thank you very much. 19 DEPUTY EXECUTIVE OFFICER SCHEIBLE: That would be 20 a product when it's used has three pounds emissions, and 21 typically a consumer product, if you bought a twelve-ounce 22 container and it was a relatively high product VOC of 23 50 percent, you're talking six ounces, so you're talking 24 in the neighborhood of a penny. 25 MS. HARDING: Architectural coatings are sold -- PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 262 1 CHAIRPERSON LLOYD: Thank you. 2 MS. HARDING: It's just that way you can at least 3 play games with it in your head. 4 BOARD MEMBER McKINNON: Thanks a lot. 5 MS. HARDING: But that was on scratch paper, so I 6 don't swear it's correct. Everyone has to check it. 7 BOARD MEMBER McKINNON: Nobody's under oath here. 8 CHAIRPERSON LLOYD: Mr. Scheible. 9 DEPUTY EXECUTIVE OFFICER SCHEIBLE: Can I make a 10 clarification in that architectural coatings or consumer 11 products put together with 19 percent of the emissions are 12 not paying 40 percent of the program costs, they're paying 13 40 percent of the fees. The program cost is 39 million, 14 and again it's this exclusion of under 250 ton per year 15 sources and the fact the revenue basically to cover those 16 program costs doesn't come from the larger emitters, it 17 comes from other revenue sources. 18 EXECUTIVE OFFICER WITHERSPOON: And the follow-up 19 comment on the timing. The law itself has a 90-day stall 20 period from the time special session ends, when the budget 21 is completed and the law will not take effect for 90 days. 22 And then after that is when we would send invoices, so 23 they will, in fact be 120 days noticed of what is coming, 24 even if it's not in the form of our bill to them. We will 25 have sent out the earlier notice that you could expect a PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 263 1 bill from us in this amount and then send the actual 2 invoice later. 3 BOARD MEMBER McKINNON: I think what -- I think 4 what was made clear and I've paid bills before. I mean, 5 you have to get them approved. And the bill isn't real 6 until it's real. You know, you can't say that you might 7 have a bill and it might be this much. And go through 8 your internal processes and say we might have to write a 9 check for this amount. 10 You get the bill or the invoice. You say it's X 11 number of dollars. You start the process, the approval 12 process. So I don't think you want to count warning time 13 as process time. 14 EXECUTIVE OFFICER WITHERSPOON: Ordinarily we 15 won't, but because we're in this extraordinary situation 16 in this particular fiscal year, the regulation for this 17 year has a 30-day clock. We can extend that longer in 18 subsequent fiscal years, but we are trying to be sure the 19 revenues are received and counted in the state's budget 20 before June 30th of next year. 21 SENIOR STAFF COUNSEL JENNE: I wanted to clarify 22 that the 30-day clock is only for the first fiscal year 23 because of the situation that Ms. Witherspoon mentioned -- 24 that for subsequent fiscal years the regulation right now 25 gives 60 days to pay the bill each year. It's only the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 264 1 first year that we're proposing to change it to 30 days. 2 MS. HARDING: That's part of the problem. This 3 year we also don't know if you're collecting 13 million or 4 17 million, and the difference is a 35-percent difference. 5 So it makes it awkward. 6 CHAIRPERSON LLOYD: That's out of our control. 7 MS. HARDING: I know -- well, yes and no. 8 EXECUTIVE OFFICER WITHERSPOON: Everyone will 9 know when the budget is adopted what the ultimate amount 10 is and they can plug it right into the formula. 11 BOARD MEMBER McKINNON: There will be lots of 12 notice of that. There's plenty of time. Hopefully -- I 13 mean, I guess we don't know that -- 14 MS. HARDING: You don't know when the budget is 15 going to pass. I hate to tell you that -- 16 CHAIRPERSON LLOYD: We need to move ahead. 17 MS. HARDING: I had one comment, though, in 18 correction of the correction, my calculations show that 19 architectural and consumer products will be paying 13 to 20 18 percent of the stationary source budget. And they 21 contribute 19 percent of the emissions, which would be 22 okay if the other sources likewise were paying their 23 share, which is 68 percent. That's where the difference 24 is. So apparently all the other funds that are coming in 25 are going towards the stationary source programs and not PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 265 1 towards the architectural coating and consumer products, 2 so that seems unfair. 3 CHAIRPERSON LLOYD: Thank you. 4 Paul Beemer, Michele Boddy, and Cindy Tuck. 5 MR. BEEMER: Mr. Chairman, ladies and gentlemen, 6 Good afternoon. My name is Paul Beemer. I'm 7 with the Henry Company in Los Angeles. And I'm not that 8 short. 9 To address the specific questions of how to 10 improve and change the proposed regulation, AB 10X 11 specifically required setup, created or modified three 12 different fee systems. They have different payers. They 13 have different pollutants or precursors to be looked at. 14 They have different collection systems. They have 15 different specific tasks the revenues must be spent on. 16 There needs to be two separate programs for the different 17 classes of payers and products. 18 In terms of allocation, if it's true that the ARB 19 is not capable of actually accounting for what they spend 20 on different things, then I suppose we could do an 21 allocation. I would take the ARB's current stationary 22 source division budget, which is 396, take off the 13 23 million from the stationary sources, because by definition 24 that cannot be used for things related to consumer 25 products and architectural coatings. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 266 1 Take off the million dollars that's used in 2 enforcement, because as far as architectural coatings are 3 concerned, enforcement is not one of the ARB's activities, 4 and then divide that by all the emissions. And I mean all 5 the emissions. 6 ARB staff has proposed ignoring 70 percent of the 7 total emissions because we don't spend a lot of effort on 8 that. Well, you can't have it both ways. Either you can 9 account for what you do spend, in which case you could 10 give a specific accounting, or you can't account, in which 11 case you have no basis for ignoring those. You have to 12 put those into the denominator. 13 To address your specific question, we have 14 products -- we do roofing, not typical architectural 15 coatings. We have products that are zero. We have 16 products that are 500. We have products in the middle, 17 depending what the product category is. 18 The zeros aren't going to be affected very much. 19 The 500 gram per liter of products, our cost will go up on 20 the order of a dime, I would say, taking Madelyn's number. 21 Retail price -- we don't sell retail. I don't 22 know what retail price would do, double that probably. So 23 you're talking a quarter per gallon kind of numbers for 24 those. I have -- I submitted written comments on those 25 first two points. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 267 1 I'd like to address the economic effects 2 analysis. We think it was extremely cursory. In 3 particular, it looks at the amount of the fee divided by 4 the total net income of the company. I don't think there 5 are any companies that can't adopt a regional response to 6 a regional change, and the right basis would be the effect 7 of the fee on the income from the specific properties 8 involved, products involved in the state. 9 Henry Company is a privately held California 10 corporation. We've been making adhesives and sealants and 11 coatings and speciality products for the last 70 years. 12 We employed about 150 people in the state. 13 Depending on the numbers that are batting around, 14 the number of our fee would be somewhere between 50 and 15 $70,000 a year. 16 In 2000, Henry lost money. In 2001, Henry lost 17 money. Last year we got our act together, and before 18 special charges caused by the change in IRS code, we 19 earned one point three million dollars nationwide sales, 20 net bottom line. So the amount of these fees are three to 21 five percent of our total return on owner's equity. 22 If you look at sales of the products being 23 assessed fees, those constitute about 7 percent of our 24 gallons. 7 percent of 1.3 million is $100,000. These 25 fees are 50 to 70 percent of our total net margin on these PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 268 1 products. That's a little out of line. We don't think 2 that is appropriate. We don't think that is -- that 3 certainly will have business consequences. 4 CHAIRPERSON LLOYD: Thank you very much. Is it 5 possible here, given the time frame, for staff to continue 6 working with the industry while we're still waiting for 7 10X to be finalized or -- 8 EXECUTIVE OFFICER WITHERSPOON: AB 10X is final. 9 The only question that is not is the budgeted amount and 10 final proceeding. 11 We will be continuing to work with the industry 12 as we complete the filing of the regulatory package. 13 We'll continue to work on emission inventory issues in 14 particular, but if you're asking does staff think we 15 should delay and consider other formulas, other 16 approaches, I don't think we'll get any closer to 17 resolution in the next, you know, couple of months, say, 18 and that we will put our backs even more firmly against 19 the wall in terms of bringing the revenues in. 20 CHAIRPERSON LLOYD: What happens if we grow 21 through having a year's experience under our belts, will 22 we then reexamine that, see how we did? 23 EXECUTIVE OFFICER WITHERSPOON: We certainly can, 24 and within the parameters of the statute itself, we can 25 tinker with the way we collect the fee. The constraints PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 269 1 here are that it's to come from three source categories 2 and may not be applied below the sources of 250 tons per 3 year total emissions, but, you know, there's room -- 4 CHAIRPERSON LLOYD: But we could say after this 5 different time constraints, so -- 6 EXECUTIVE OFFICER WITHERSPOON: We could. 7 CHAIRPERSON LLOYD: Ms. D'Adamo. 8 BOARD MEMBER D'ADAMO: I'm just wondering, there 9 were so many comments from witnesses that seem to have a 10 quite a long history in dealing with ARB, and we kept 11 hearing the same thing, that this is a very different 12 experience for them. Of course, there's a reason for it. 13 But that in previous experiences they were able to at 14 least come to a meeting the minds with staff. 15 I'm wondering if there's a way we can structure 16 the resolution to give staff the authority or some 17 additional flexibility in the final development of the 18 regulation beyond the inventory issue. For example, on 19 formula issues, the 30-day, the 30-day versus 60-day 20 issue, we could say somewhere in that range, so that as 21 you get closer, if you think you've got a little more 22 time, go ahead and give the them 45 days instead of 30. 23 And then additionally on the issue of the 24 accounting, as you go through, perhaps there's a way that 25 with additional stakeholder meetings you determine to give PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 270 1 some additional information that would ease their minds a 2 bit. 3 EXECUTIVE OFFICER WITHERSPOON: I think that 4 would be appropriate. 5 BOARD MEMBER D'ADAMO: Is it structured in such a 6 way that you'd have that flexibility? 7 EXECUTIVE OFFICER WITHERSPOON: Well, we could 8 structure it that way within the 15-day change process so 9 that we could. 10 CHAIRPERSON LLOYD: Good suggestion. 11 Thank you. 12 MS. HARDING: Thank you. 13 CHAIRPERSON LLOYD: Michele Boddy and Cindy Tuck. 14 MS. BODDY: Good afternoon, Board. My name is 15 Michele Boddy. I'm representing DAP. DAP incorporated is 16 a manufacturer of adhesives, cocking, and other types of 17 consumer products. We're opposed to the proposed fee 18 regulation, and we'll keep it limited to four comments. 19 First, the proposed fee will have a significant 20 adverse impact on small manufacturers. For small 21 manufacturers like DAP, the amount of the proposed fee 22 will be high compared to the amount of the profit 23 generated. In addition, the cost to the company to 24 administer this fee will be significant. 25 We are concerned that the economic impact study PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 271 1 for the proposed fee did not adequately reflect the cost 2 of the company to administer this fee, such as figuring 3 out not only their sales to the state but distributors and 4 realtors. Worse still, particular to DAP, simply by a 5 change of ownership and not increased emission, DAP is now 6 liable for the proposed fee. To illustrate, the proposed 7 regulatory scheme assesses fee based on 1997 emissions. 8 In that year, DAP was owned by British company that owned 9 no other ACMs or consumer product manufacturers in the 10 U.S. 11 In 1997, DAP's emission were lower than 250 tons 12 per year. Thus, DAP should not be liable for the proposed 13 fee. However, DAP had the misfortune of being bought by 14 an American company that holds other ACMs and consumer 15 product manufacturers. Thus, under the current 16 aggregation scheme, DAP will now be liable for the 17 proposed fee merely because of its change in ownership. 18 DAP requests that the proposed fee regulation 19 include provisions on how to withdraw its products from 20 the California market. For manufacturers like DAP, 21 operating in the competitive California consumer market 22 during these harsh economic times, the fee and the cost to 23 administer this fee make doing business in California 24 market cost prohibitive. DAP management may consider 25 withdrawing some or all of its products from the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 272 1 California market. However, they are concerned with the 2 continuing liability for products shipped into California 3 from sources other than the manufacturer. For example, 4 shipments by distributors and retailers into California 5 after the manufacturer has withdrawn from the market. 6 Thus, DAP requests clear instructions on how to 7 withdraw from the California market without the risk of 8 continuing liability for the proposed fee if their 9 products appear incidentally in the California market 10 after they have declared withdrawal from the market. 11 Finally, due to the state's rush to implement the 12 proposed fee, DAP is concerned that the issue of double 13 counting has not been addressed. Specifically, the 14 proposed -- under proposed regulations, stationary sources 15 must pay a fee for emissions over 250 tons per year. Some 16 of these emissions are attributable to the use of consumer 17 products and architectural coating. However, under the 18 proposed reg, the manufacturers of these same products are 19 also assessed a fee on their emissions. Thus, the state 20 will be collecting an emissions fee for the same product 21 from both the manufacturer and the stationary sources that 22 use the product. 23 DAP requests that a mechanism be developed to 24 eliminate this double counting and stationary sources made 25 aware they can omit the emissions from these products from PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 273 1 their fee calculations. 2 That concludes my comments. Thank you. 3 CHAIRPERSON LLOYD: Thank you very much. 4 Do we have a response from staff? 5 DEPUTY EXECUTIVE OFFICER SCHEIBLE: For the last 6 concern, I'm trying to figure out whether or not a 7 refinery that happens to use some consumer products or 8 other large -- generally, the emissions estimate for the 9 permitted source are permitted emissions under the 10 district, and they don't include their application of 11 paint and things like that. So I don't think those 12 sources are having the emissions included in them. 13 MEASURE ASSESSMENT BRANCH CHIEF FRY: Actually, 14 when this issue was raised, we did check our inventory and 15 checked with the districts and did confirm that there was 16 no duplication of emissions. And also when DAP reported 17 to us, prior to them being bought by this other company, 18 their emissions were 677 tons per year, not below the 250 19 tons per year they're indicating. 20 DEPUTY EXECUTIVE OFFICER SCHEIBLE: And we've 21 encountered a similar issue with who has the liability 22 previously. Virtually every power plant in the state has 23 been sold to another party. Most refiners have joined 24 forces and renamed themselves and other things. And 25 basically, if you own it in the year the fees are due, the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 274 1 fees for that year are determined upon the facility's 2 emissions in the previous year, even though it was owned 3 by somebody else. So there's a fair precedent for that in 4 the stationary source program, and I believe the districts 5 do it the same way because they're always figuring out how 6 much is your current year obligation from some past year. 7 There's no other way to do it. 8 CHAIRPERSON LLOYD: But how come Ms. Boddy was 9 saying it's lower than 250 and staff is saying it's 670? 10 I mean, that should be -- 11 DEPUTY EXECUTIVE OFFICER SCHEIBLE: That's an 12 issue to work out. We'll find the correct answer. Either 13 they're in or they're out. 14 CHAIRPERSON LLOYD: But that was before they were 15 bought. 16 DEPUTY EXECUTIVE OFFICER SCHEIBLE: It may be a 17 base year issue, what happened in 2001. I don't know. 18 EXECUTIVE OFFICER WITHERSPOON: It can also go 19 both ways. The people escape the fees because they sold 20 part of their company off that were prevalent with high 21 VOC coatings, for example. We saw that happen with garden 22 products, and I think it was Ortho's reorganization of who 23 owned what. So in any given year, it will move around 24 both in and out. We did have the holding company 25 definition to help clarify what the rules of the game were PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 275 1 going to be. 2 MS. BODDY: But it's -- if I can comment. It's 3 that exact definition of a holding company which is a 4 problem for DAP in that it now -- because it is owned by a 5 holding company has this fee, and it is competing with 6 similar-sized manufacturers who are not owned by holding 7 companies. And they do not have a fee assessed by them. 8 So there's a competitive disadvantage there. 9 CHAIRPERSON LLOYD: Thank you. Good point. 10 Last is Cindy Tuck. 11 MS. TUCK: Good afternoon, Chairman Lloyd, and 12 members of the Board. Cindy Tuck with the California 13 Council for Environmental and Economic Balance. I have a 14 different perspective to share today than many of the past 15 speakers. 16 CEEB is a coalition with business members, labor 17 members, and public members. And our business members, 18 many of them have paid California Clean Air Act fees for 19 years, over ten years. Their owners and operators have 20 stationary sources. They also pay district fees, 21 permitting fees to the air districts. And of course, the 22 air districts have primary regulatory authority over the 23 stationary sources. And they will pay increased fees 24 under this proposed regulation. They also pay all kinds 25 of other fees, including what will be increased water fees PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 276 1 under AB 10X. 2 Given that, I think it's significant today that 3 CEEB is neutral on staff's recommendation, this fee 4 regulation. CEEB participated in this staff's workshop 5 process. We offered -- suggested very specific changes to 6 the language and reached accommodations on those -- our 7 concerns on the language. 8 I'd like to share just three quick comments this 9 afternoon. CEEB didn't like 10X at the Legislature. I 10 participated in that process. There were hearings where 11 the public was not allowed to testify. I had never seen 12 anything like it in my history of advocacy at the state 13 Capitol. We tried to raise concerns that the 250 ton per 14 year limit -- we were pleased it was going down from 500 15 to 250, but we thought it would be more fair to go down to 16 100. But comments like that -- they really didn't want to 17 hear that, and often you weren't allowed to say anything. 18 With that said, 10X is the law. And ARB has to 19 implement it now. At the time of signing, we didn't ask 20 for a veto. We said that it was going to be critical to 21 have fair implementation of this program. And I think so 22 far nobody has mentioned there's a signing message that 23 the Governor wrote along with the legislation when he 24 signed it. And he referenced there he wanted staff to 25 implement this in a fair way and that the $13 million cap PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 277 1 would not just be applied to stationary sources. It would 2 be applied to stationary consumer and architectural 3 coatings. It would be looked at together. And I'd 4 suggest that the signing message be included in the record 5 for this regulation. 6 I would just like to take one second to say the 7 Legislature currently -- CEEB is opposing the additional 8 4.4 million in additional stationary source fees across 9 the board. We think that 10X with an over 300 percent 10 increase this year in stationary source program fees is -- 11 that's enough for now, and a further increase is not 12 appropriate. 13 But in closing, I just want to reiterate that as 14 far as the proposal that's before you today, CEEB is 15 neutral. 16 CHAIRPERSON LLOYD: Thank you, Cindy. 17 Any questions or comments? 18 Thank you. 19 With that I guess I don't see any other -- Mr. 20 Fletcher wants to say something. 21 PLANNING AND TECHNICAL SUPPORT CHIEF FLETCHER: I 22 think there was Bonnie Holmes. 23 CHAIRPERSON LLOYD: No. She decided -- she took 24 our -- she decided not to testify. 25 MS. HOLMES-GEN: We supported the regulation. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 278 1 CHAIRPERSON LLOYD: Before we had the discussion, 2 I was just going to ask if there are any ex parte 3 communications on this one. 4 Now we'll throw it over to discussion. 5 Mr. McKinnon. 6 BOARD MEMBER McKINNON: I was going to ask staff, 7 is there a sunset for this whole thing? 8 EXECUTIVE OFFICER WITHERSPOON: No. There is 9 not. And the administration expressly rejected that 10 because they didn't want the implication that they'd have 11 to turn around next year, it would still be a deficit and 12 restore general funds that won't be there. So it is to 13 remain in place until the Legislature decides to remove it 14 and budget air programs in a different way. 15 BOARDMEMBER McKINNON: Are we able to review it 16 mid-term and make changes? 17 EXECUTIVE OFFICER WITHERSPOON: Yes. We're able 18 to review the way in which we construct the formula. 19 CHAIRPERSON LLOYD: I think I was suggesting 20 early on we, in fact, report back to the Board after the 21 first year or at an appropriate time when we can see how 22 things are working out. 23 BOARD MEMBER McKINNON: I'll offer to the other 24 Board members that I'm real, real serious that I would 25 need an amendment to deal with the 60 to 30 day piece of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 279 1 it. I don't -- I'm not particularly happy with it as I 2 just heard it all. But I can live with it. But I think 3 it's just like a poke in the eye not to deal with that 4 problem. It's a huge thing to be doing and to not fix 5 that. 6 EXECUTIVE OFFICER WITHERSPOON: We'll do it. 7 CHAIRPERSON LLOYD: So in that you would support 8 it? 9 BOARD MEMBER WILLIAM FRIEDMAN: I think that's 10 right. I think that's the right thing also, Matt. 11 I feel like I've been in a continuous boxing 12 match. I've just been through a somewhat analogous 13 circumstance with -- I'm the dean of one of the University 14 of California schools and, again, faced with triconian 15 cuts that really do detract from the mission of the 16 entity. And I really believe that's what's happening 17 here, cuts that authentically threaten our ability to 18 carry out our mission, which, for me, is to preserve the 19 health of people in the state of California. 20 You've got to do certain things that are damn 21 unpleasant. And I can't think of anything more unpleasant 22 than raising student fees across the board, but there was 23 no selective way to not gore everybody's eyes. And you 24 know, I just -- it's like deja vu all over again for me 25 listening to this discussion. And I can certainly PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 280 1 understand the viewpoint of folks who feel they're being 2 selectively hit upon. But you know, everybody shares some 3 pain. And none of us wanted to be in this position in the 4 first place. And one of these days we better be out of 5 it. And we better be smart enough when we get out of it 6 to change what we've done. But right now I don't really 7 see a viable alternative but to go forward and do what is 8 being suggested. So I'm going to vote for this. 9 CHAIRPERSON LLOYD: Its there a motion? 10 BOARD MEMBER D'ADAMO: I'd like to make a motion 11 with Mr. McKinnon's proposed change, and in addition to 12 the ones that I had suggested earlier providing staff 13 maximum flexibility on more equitable formulas, the 14 accounting, and other issues that were raised. I don't 15 know if anyone wants to jump in on the laundry list or if 16 it's good enough. 17 CHAIRPERSON LLOYD: I think we have to do that. 18 BOARD MEMBER D'ADAMO: Plenty of leeway and with 19 a report back, when? 20 EXECUTIVE OFFICER WITHERSPOON: When the budget 21 is approved. 22 BOARD MEMBER D'ADAMO: Report back for 23 implementation for next fiscal year. 24 DEPUTY EXECUTIVE OFFICER SCHEIBLE: I think we 25 need to get the bills out and find out how the process PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 281 1 works and then come back. 2 CHAIRPERSON LLOYD: Maybe it's a year. Maybe 3 it's nine months. Whatever it is. 4 And Supervisor Patrick. 5 SUPERVISOR PATRICK: Thank you, Mr. Chairman. I 6 would just like to say I will vote in favor of this. We 7 have been put in this position by the Legislature. I 8 think it's very unfortunate. Obviously many of these 9 costs will be passed on to consumers. I don't think any 10 of us take that lightly. And I see this really as another 11 assault on California's businesses. It just keeps coming. 12 And I just think that's very unfortunate because the 13 businesses are going to be the ones that turn the state 14 around in terms of our economy. 15 So with that, I will vote in favor of it, but not 16 happily. 17 CHAIRPERSON LLOYD: Right. I think that's the 18 sentiment we have here. And we've got a proposal and a 19 second. All in favor say aye. 20 (Aye) 21 CHAIRPERSON LLOYD: Anybody against? Any 22 abstentions? So all voted accordingly. 23 Before we break, I'd just like to say that I'd 24 like to recognize Dr. Randy Pasek who after 18 years -- 25 and this is -- please hold up your hand, Randy. After 18 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 282 1 years he's leaving the Board and will be remiss for us not 2 to recognize his outstanding efforts. And before we get 3 too sorry for his future, he and his wife had a 4 simultaneous midlife crisis, his wife Adrian, and they've 5 decided -- a mutual decision to move to the south of 6 France -- south of France. So he will be attending 7 language school and pursue other interests. 8 Again, I think while we hate to lose this 9 talented individual, I think we can only wish he and his 10 wife the very best in their pursuit and congratulate them 11 on the courage they have to embark on this new exciting 12 adventure. And I will say personally, having worked with 13 Randy when I was on the Research Screening Committee and 14 seeing him here, I think's he's made outstanding 15 contributions to the Stationary Resource Division, 16 Research Division and Planning and Technical Services 17 Division. I think his contributions to the Board's diesel 18 risk reduction plan are particularly appreciated and his 19 innovative and supportive management approach will serve 20 as templates for others to follow. 21 So, again, on behalf of the Board, Randy, I wish 22 you and your wife the very best. And thank you for your 23 outstanding service to the Board, and you made a 24 significant mark here. We will miss you, but we wish you 25 all the best. We hope you keep in contact, and you may PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 283 1 have some visitors. 2 (Applause) 3 CHAIRPERSON LLOYD: If you want to say a couple 4 words, feel free. 5 EMISSION INVENTORY BRANCH CHIEF PASEK: I'd like 6 to -- thank you very much for the kind words, and it's 7 truly, for 15 or 18 years being here, it's like leaving a 8 family. And I've enjoyed all the challenges that have 9 been thrown my way and am proud of the fact and the work 10 that the Air Resources Board does and will continue to do, 11 even in these tough times. So I look forward to reading 12 more about the great programs that come out of this 13 agency. And I fully expected visitors to show up on the 14 doorstep. So we'll be a local, but we'll show you around. 15 CHAIRPERSON LLOYD: Thanks very much, Randy. 16 Good luck. 17 We will take a 10 minute break. And I apologize 18 to the court reporter to keep going so long. So at 25 of 19 we will get back and we will continue the item on the 20 amendments to the off-highway recreational vehicles and 21 engine regulations. 22 (Thereupon a recess was taken.) 23 CHAIRPERSON LLOYD: I would first like to 24 acknowledge and welcome Scott Matthews and Mr. Dan Fong 25 from the California Energy Commission. I appreciate your PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 284 1 willingness to participate in our hearing today. As I 2 understand, our staff participated in your commission 3 hearing today. And this is clearly a joint CEC and ARB 4 effort, a fact that I value most highly. And I would like 5 to congratulate CEC on your Commission approval of the 6 report unanimously yesterday. In my capacity of an 7 honorary member of the CEC Transportation Committee which 8 oversaw the staff effort, it has become more clear to me 9 that California faces a future of increasing petroleum 10 dependence, supply disruptions, price volatility and 11 adverse impacts on the environment, unless the rate at 12 which we consume petroleum itself dramatically reduced. 13 In light of the late hour, I think I will curtail 14 my further comments on this issue and add further comments 15 maybe at the end, as appropriate. 16 But I would like at this stage to turn it over to 17 Ms. Witherspoon to introduce this item. 18 EXECUTIVE OFFICER WITHERSPOON: I'm going to do 19 the same thing, skip my opening remarks. But I would like 20 to welcome Scott Matthews and Dan Fong, who is on his way 21 over and will be joining us shortly. And the staff 22 presentation will be made by Ms. Eileen Tutt. 23 CHAIRPERSON LLOYD: Well, just for my colleagues, 24 I'll remind them that this item was brought before the 25 commissioners of the Energy Commission yesterday and was PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 285 1 debated for, I think, three to four hours and quite a bit 2 of testimony. And it was approved unanimously by the 3 Commission. But it really was a joint effort with a lot 4 of help from other people including early on Mike Jackson 5 who's out in the audience as well and significant public 6 participation. 7 (Thereupon an overhead presentation was 8 presented as follows.) 9 AIR POLLUTION SPECIALIST TUTT: AB 276 was 10 approved by Governor Davis in September of 2000. The 11 author of the bill was then Assembly Member, now Secretary 12 of State, Kevin Shelly. The bill requires the CEC in 13 cooperation with the ARB to develop and adopt 14 recommendations for the Governor and the Legislature on a 15 California strategy to reduce petroleum dependency. 16 The CEC is required to include a base case 17 forecast for gasoline, diesel, and petroleum. Both 18 agencies must include recommended statewide goals for 19 reducing the rate of growth of gasoline and diesel. The 20 agencies must consider increased vehicle efficiency, 21 utilization of non-petroleum, fuels and advanced 22 transportation technologies. 23 --o0o-- 24 AIR POLLUTION SPECIALIST TUTT: As can be seen 25 from the next three slides, there was an extensive public PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 286 1 process, including seven public workshops. The final item 2 listed on these tables is the CEC and ARB joint agency 3 hearing on the goals and recommendations to reduce 4 California's petroleum dependence that was held earlier 5 last month. This hearing was held by Commissioners Boyd 6 and Geesman and Chairman Lloyd. Based on testimony at 7 that hearing and as directed by the Commissioners and 8 Chairman Lloyd, additional clarification language was 9 included in the report, in part to make it very clear that 10 this report in no way recommends or requires increases in 11 taxes. 12 --o0o-- 13 AIR POLLUTION SPECIALIST TUTT: In addition to 14 the workshops, staff met with many stakeholders 15 individually, including those listed here. 16 --o0o-- 17 AIR POLLUTION SPECIALIST TUTT: As a final 18 process note, I'll just second Dr. Lloyd in saying the 19 Energy Commission did vote unanimously to adopt the goals 20 and recommendation. 21 --o0o-- 22 AIR POLLUTION SPECIALIST TUTT: This graph 23 illustrates clearly the 2 percent historic growth per year 24 in on-road demand for petroleum in California. The top 25 line is the projected demand of current trends continue PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 287 1 while the bottom line is the refinery capacity in 2 California. According to the CEC, there are no new 3 refineries planned for anywhere in the entire 4 United States. This means demand for petroleum in 5 California must be reduced or we must begin importing 6 increasing quantities of refined product. This scenario 7 where we do nothing to decrease our dependence on 8 petroleum and begin importing increasing quantities of our 9 refined product has three significant implications. 10 --o0o-- 11 AIR POLLUTION SPECIALIST TUTT: First, I will 12 discuss the implications for climate change as they are of 13 particular concern to our joint agencies. California is 14 particularly vulnerable to the impacts of climate change 15 for reasons including increasing temperatures that 16 adversely impact air quality and public health, effects on 17 our valuable water supplies, damage to our rich 18 agricultural industry, and our beautiful and very valuable 19 forest and coastal areas. This is not an exhaustive list 20 of the implications of climate change, but it provides 21 some indication of the concerns associated with the 22 phenomena. 23 --o0o-- 24 AIR POLLUTION SPECIALIST TUTT: There are also 25 significant criteria and toxic emissions impacts. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 288 1 Upstream emissions associated with petroleum usage will 2 increase as petroleum usage increases. These upstream 3 emissions including refinery, transport, storage and 4 refueling emissions. Of particular concern is the fact 5 that the upstream consequences would be disproportionately 6 felt in low income and minority communities where many of 7 the upstream facilities are located. The third main 8 implication of California's increasing dependence on 9 petroleum is economic. 10 --o0o-- 11 AIR POLLUTION SPECIALIST TUTT: It should be 12 noted here that oil reserves in California and Alaska are 13 declining at a combined rate of 10 percent per year. This 14 means that the need to import foreign oil to refineries in 15 California as well as the need to import refined product 16 is increasing. This leaves California more vulnerable to 17 external supply disruption and geopolitical instability. 18 Unfortunately, we are not the only state in the nation or 19 the world experiencing increase in demand for petroleum. 20 Demand is growing nationally and internationally, thereby 21 increasing the competition for oil and refined product. 22 The CEC held a workshop on April 28th this year 23 to look at supply issues associated with the petroleum. 24 There were arguments on both sides, with the petroleum 25 industry and their representatives providing arguments PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 289 1 that supply was virtually unlimited, while other experts 2 expressed concern for a potential peak of oil supply and 3 environmental impacts from obtaining oil from 4 non-traditional sources. 5 In the face of this uncertainty, staff believes 6 it makes sense to provide some assurance both the economic 7 impacts of increasing demand for a limited resource and 8 the environmental impacts of obtaining petroleum from 9 non-traditional sources. 10 --o0o-- 11 AIR POLLUTION SPECIALIST TUTT: Staff evaluated 12 three general approaches to reduce California's dependence 13 on petroleum. Efficiency options such as approved fuel 14 economy and hybrids, fuel displacement options such as 15 ethanol and hydrogen, and pricing and other options such 16 as fee bates and public transit options. For technical 17 and political reasons, petroleum reduction strategies were 18 derived only from the first two approaches. 19 --o0o-- 20 AIR POLLUTION SPECIALIST TUTT: In evaluating the 21 fuel efficiency and displacement options, we relied on a 22 metric called net societal benefit. The net societal 23 benefit is defined as a summation of the costs and cost 24 savings associated with each option evaluated. This 25 metric along with an evaluation of the effectiveness of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 290 1 each option in terms of its ability to reduce petroleum 2 usage was used to evaluate and rank each of the fuel 3 efficiency and displacement options. 4 Net societal benefit is made up of increased 5 costs associated with new technologies, loss of government 6 revenue, savings associated with avoided damages to public 7 health and the environment, and savings from external 8 costs associated with petroleum. 9 --o0o-- 10 AIR POLLUTION SPECIALIST TUTT: In determining a 11 petroleum reduction goal, there were a number of 12 considerations staff took into account. Our primary 13 objective was to identify those options that provide the 14 greatest reduction in petroleum usage and a net societal 15 benefit. In this way, we can develop a goal that would be 16 effective, yet still provide net societal benefits. We 17 then set about determining a possible pathway that could 18 meet the goal. Finally, as part of our goal-setting 19 exercise, we identified a portfolio of options that could 20 meet the goal. It is important to note this portfolio of 21 options is not exhaustive. These are sample options that 22 the staff determined best met the objectives to be 23 considered. Should other options prove to be more 24 favorable in the future, those options could be used to 25 meet the goal. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 291 1 --o0o-- 2 AIR POLLUTION SPECIALIST TUTT: Now for the 3 bottom line, the goal, which is represented as the red 4 bottom line in this graph. The goal will result in a 5 reduction in petroleum demand to 15 percent below current 6 levels of demand. This goal can be met in the near and 7 midterm with existing technologies and would require some 8 of the emerging technologies to prove out in the long 9 term. This goal can be met while providing overall net 10 societal benefits. 11 The portfolio of options shown here to meet the 12 goal were selected just as explained. The near-term 13 options, efficient tires, efficient government fleets, and 14 improved vehicle maintenance represented by the purple 15 line provide limited petroleum reduction benefits but have 16 the advantage of being easily implemented in the near term 17 and demonstrate California's leadership in this effort. 18 The green line adds in Fischer-Tropsch diesel to 19 the near-term options. The brown line, or line number 20 three, adds in a 40 mile per gallon requirement. Any 21 number of efficiency options can be used to achieve the 40 22 mile per gallon requirement, including hybrids and 23 advanced technology gasoline and diesel vehicles. 24 Line number four, the blue line, includes the 25 hydrogen fuel cell vehicle option that introduces fuel PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 292 1 cell vehicles in 2012, increasing the 10 percent of new 2 vehicles sales in 2020 and 20 percent in 2030. This blue 3 line represents staffs' estimates of those options best 4 suited to meet the goal given today's information. 5 Because technologies are advancing at such a rapid rate, 6 it should be noted that it is vital to continue efforts to 7 increase vehicles' efficiency and introduce non-petroleum 8 fuels on all fronts. 9 --o0o-- 10 AIR POLLUTION SPECIALIST TUTT: Based on CEC and 11 ARB analyses, the recommendations to the Governor and the 12 Legislature that are contained in this report before 13 you -- in the report before you are as follows. 14 Recommendation one states that the Governor and the 15 Legislature should adopt the recommended statewide goal of 16 reducing demand for on-road gasoline and diesel to 15 17 percent below the 2003 demand level by 2020 and 18 maintaining that level for the foreseeable future. ARB 19 staff and the Energy Commission recommend a 15 below the 20 2003 demand level because that goal can be achieve by 21 using a set of options that provide an overall net 22 societal benefit. If the Governor and Legislature adopt 23 this goal, it will provide a framework to guide California 24 down the path to significantly reduced petroleum 25 consumption. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 293 1 Recommendation two states that the Governor and 2 the Legislature should work together with the California 3 delegation and other states to establish national fuel 4 economy standards that double the fuel efficiency of new 5 cars, light trucks, and SUVs. The most effective way to 6 improve vehicle fuel economy is to revise the federal CAFE 7 standards. In cooperation with other states, California 8 should press the Congress to adopt new standards which 9 double the fuel economy of new vehicles. If the federal 10 government fails to implement a CAFE standard that doubles 11 the fuel efficiencies of new cars, it would be necessary 12 to reassess the goal in recommendation one. 13 Recommendation three states that the Governor and 14 the Legislature should establish a goal to increase the 15 use of non-petroleum fuels to 20 percent of the on-road 16 consumption by 2020 and 30 percent by 2030. California 17 should act to increase the use of non-petroleum fuels as a 18 strategy to reduce petroleum demand and to provide some 19 insurance against the costs and risks of a growing 20 dependence on petroleum fuels. 21 In conclusion, I would ask this Board to consider 22 adopting this report and the goals and recommendations to 23 the Governor and the Legislature as presented here. 24 --o0o-- 25 AIR POLLUTION SPECIALIST TUTT: Yesterday the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 294 1 California Energy Commission concurred with the 2 conclusions drawn by the staff and unanimously adopted 3 these goals and recommendations and the report. 4 Thank you for your consideration. Staff would 5 now be pleased to answer any questions you have. 6 CHAIRPERSON LLOYD: Thank you very much. I'm 7 glad you clarified the comment visive the 15 percent. If 8 it's not met, if we were unable to get Congress to double 9 the fuel efficiency, how long are we giving Congress to 10 double fuel efficiency? 11 MR. FONG: The analysis that we used, Dr. Lloyd, 12 assumed that a phase-in of these technologies would begin 13 in 2008. And so we believe that if the standard is 14 revised, let's say, by 2005, it would provide a three-year 15 lead time to begin phasing in more fuel efficient 16 vehicles. The actual period of phase in would run from 17 2008 to 2014, essentially a seven to eight -- six to seven 18 year period to get full phase in across the entire 19 light-duty vehicle fleet. 20 EXECUTIVE OFFICER WITHERSPOON: For the Board's 21 information, this is Dan Fong with the California Energy 22 Commission. 23 CHAIRPERSON LLOYD: Thanks. 24 So by 2014 we'll assume new cars will meet a 25 fleet average of double the current fuel economy. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 295 1 Again, I could like to compliment staff on the 2 joint work they've done here together. And also recognize 3 obviously what Chuck has done and Scott. I don't know 4 whether at this time, Scott, you might want to say 5 something about deliberations at the Commission yesterday. 6 Anything briefly you want to say. And then I'll ask my 7 colleagues if they've got any questions of staff before we 8 open it up to the public. 9 MR. MATTHEWS: Thank you, Chairman Lloyd. I'm 10 Scott Matthews. I'm the Deputy Director for 11 Transportation Energy at the Energy Commission. And I 12 want to express the Energy Commission's sincere gratitude 13 and appreciation for the cooperation and challenging 14 experience that we've had working together to develop this 15 report. And I've worked for the state for some 31 years. 16 There's lots of different agency efforts. And by far this 17 has been the most successful. Even though we have 18 somewhat different cultures and look at the world 19 differently, we were able to work together and reach a 20 common agreement about where we ought to be going. 21 The Energy Commission had a three-hour, perhaps, 22 hearing yesterday on this report and unanimously agreed 23 with the Committee's recommendation to adopt this report 24 without any changes, had a good dialogue with all the 25 stakeholders who came. And I think you see several of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 296 1 them here today, but not as many as we had yesterday. And 2 we would recommend that you adopt this report as well. 3 CHAIRPERSON LLOYD: Thank you, Scott. 4 So with that I would like to call up the first 5 three of the witnesses. And I don't see Norma Glover, the 6 ex-chair of South Coast. Mike, I see you waving. You're 7 not Norma. You can cover that. I see Chung is gone. 8 Mike Eaves, KC Kishop, Audrie Krause. 9 MR. EAVES: Thank you, Mr. Chairman and Board 10 members. My name is Mike Eaves, and I'm the President of 11 the California Natural Gas Vehicle Coalition. I'd also 12 like to speak for Ms. Norma Glover, Chairman of the 13 California Natural Gas Vehicle Partnership. 14 The California NGV Coalition represents the 15 engine vehicle manufacturers and also fuel providers that 16 are trying to build a sustainable natural gas vehicle 17 industry in California and in the United States. The 18 California Natural Gas Vehicle Partnership is a 19 public/private partnership of federal, state agencies, 20 municipalities and members of my coalition also trying to 21 achieve the same goals and objective for California. 22 We've been very impressed with the breadth and 23 depth of a report that's been provided by the Air 24 Resources Board and Energy Commission. We applaud the 25 goals that are in that report, specifically the 15 percent PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 297 1 reduction in petroleum and 30 percent penetration of 2 non-petroleum fuels in the marketplace. We believe those 3 goals are realistic and achievable. We believe also that 4 this report is necessary as a guidance document to the 5 Governor and to the Legislature in California to provide 6 the needed policies and legislation for the future that 7 will make these goals a reality. 8 I'd like to point out that while the natural gas 9 transportation fuels marketplace in California has grown 10 over 800 percent in the last seven years, it still 11 represents less than 1 percent -- one half of 1 percent of 12 the total transportation fuels market in California. We 13 believe that more consistent policies and regulations on a 14 federal basis, on a state basis and everything could 15 achieve much greater result over that same time period. 16 But you can see that given the goal of 30 percent 17 penetration of non-petroleum fuels in the marketplace over 18 the next 30 years is obviously going to have to be a -- 19 very good policies put in place to achieve that. 20 There has been a lot of concern voiced regarding 21 how much of the goals depend on action by the federal 22 government and increase the CAFE standards. But I'd like 23 to point out that achieving the alternative fuel goals are 24 largely dependent upon the state initiatives and not 25 necessarily federal initiative. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 298 1 So the California NGV Coalition and the 2 California NGV Partnership enthusiastically support the 3 report and recommend adoption. Thank you. 4 CHAIRPERSON LLOYD: Thank you very much, Mike. 5 Questions? 6 Thank you. 7 KC Bishop, Audrie Krause, and Gretchen Knudsen. 8 MR. BISHOP: Chairman Lloyd, members, I'm KC 9 Bishop. I'm a senior consultant for Chevron Texaco 10 Corporation, and I'm here representing the Western States 11 Petroleum Association. I was hoping I'd be able to say 12 good afternoon, but I thank you for being able to say good 13 early evening. We submitted detailed comments yesterday 14 at the California Energy Commission hearing, and we've 15 given those to the Board secretary. So I won't repeat 16 them. I'll try to be short. 17 As you know, the Western States Petroleum 18 Association doesn't support your recommendation because we 19 think it seriously flawed, and I think the June 6th 20 submittal from the Reason Foundation has a good summary of 21 that that you've had for a good six weeks. And we also 22 submitted as part of our testimony analysis of the 23 economic analysis that was performed by both staff. And 24 that's submitted as an addendum to our testimony. 25 Basically, what your staff concluded was that PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 299 1 this strategy will dampen the demand and moderate the 2 pricing impacts on the California economy. There's 3 nowhere in your report that you really demonstrate that. 4 The underlying data for what the effect is going to be on 5 the market is more of an act of faith than a bunch of 6 supporting documentation. And in fact, yesterday when the 7 CEC adopted the strategic fuel reserve, they went ahead 8 and said you have to recognize that volatility is one of 9 the things that's, in fact, endemic to most functioning 10 markets, and I think that's important to keep in mind. 11 I think in summary, the three things that we 12 really would like to summarize for you that are important 13 are probably air quality -- how you did the benefits and 14 how you did the costs, sort of the ABCs of the report. 15 The first is California has, as you know, the cleanest 16 fuels in the world, gasoline and diesel. We have the 17 cleanest refineries, and we have the cleanest distribution 18 systems, and that's going to continue, no matter what we 19 do. 20 Now, I know you've made the assumption that the 21 cars will get cleaner. Maybe not fully, but you've made 22 that assumption. And it's inconceivable to me that you 23 wouldn't also acknowledge that all of the other 24 infrastructure as it has for the past 25 years is going to 25 improve just like the cars. Maybe not 90 percent at a PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 300 1 time, but they may continue to improve. And for those of 2 you that read Joel Schwartz' comments from the Reason 3 Foundation, in 10 or 20 years air quality will be far 4 better than is it today, regardless of California's policy 5 on petroleum consumption. 6 Furthermore, virtually none of the purported 7 benefits reduced -- of the reduced petroleum 8 consumption -- excuse me -- are due to air quality 9 improvements. Thus, it is at best -- and this were his 10 words -- terribly misleading for the report to raise alarm 11 about air quality or to suggest that air quality 12 consumption is a sensible polity for air quality 13 improvement. And I think he hit the nail on head. You 14 guys should be celebrating the success of your fuels and 15 the success you've had in cleaning up the refineries and 16 the associated distribution of our fuels and not punishing 17 them. 18 The second thing is benefits. One of the glaring 19 omission in the report is that there are huge benefits 20 derived to society and individuals from mobility and the 21 ability to transport goods and services throughout our 22 economy. Your analysis doesn't take any of that into 23 account. There's no listing of the impacts of what it's 24 worth to be able to drive your child to school for day 25 care or to be able to send a package across town cheaply. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 301 1 That's not in the report. In fact, your report today -- 2 and yesterday Commissioner Boyd made a pretty dramatic 3 point about the world's yearning -- in fact, Commissioner 4 Boyd described it as one of the basic needs of mankind, 5 that of mobility. And yet, your report doesn't put a 6 dollar figure on it or quantify it or, in fact, give any 7 credit for it. 8 The consumers aren't stupid. They make choices 9 on more issues than just fuel economy. Contrary to as 10 some of the -- as both the Reason Foundation -- in fact, 11 David Montgomery pointed out, the consumers do understand 12 what's good for them and they make their choices right now 13 based on that and, in fact, have the ability to buy the 14 very vehicles you're talking about right now. So 15 something's obviously wrong in the analysis or they'd all 16 be buying them. 17 It, furthermore, assumes that the auto companies 18 don't really understand what their customers want, and I 19 think that's clearly wrong too. If they make a mistake, 20 unlike you, they go out of business. And at a gut level 21 it's clear that customers actually understand that it's 22 likely that government intervention to choose winners or 23 losers will actually result in more costs to them to drive 24 around. And it really doesn't matter whether it's overt, 25 like gas taxes, which you made a big effort to say you're PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 302 1 not going to do, or whether it's hidden in a regulatory 2 morass that just makes mandates on one particular 3 individual or class of individuals. It's going to cost 4 society, and it's going to make it more expensive to be 5 mobile, and it's going to make it more expensive to move 6 around goods and services. 7 In fact, in the strategic fuel reserve report 8 yesterday, which was adopted at exactly the same time, the 9 CEC pointed out that many well-intended government actions 10 had unintended consequences, which were ultimately harmful 11 to consumers and in some cases subverted the goal that the 12 action was designed to achieve. And typically -- to 13 shorten it -- it was because they didn't understand the 14 market that they were trying to intervene in. 15 The third, and probably most disappointing to me, 16 was the way you calculated the costs. The real costs of 17 gasoline have actually decreased over the last 50 years. 18 And to read the report, it would -- one would have to step 19 back and assume that the price of gasoline and real costs 20 has overwhelmed the spending hours of consumers. That is 21 just not the case. And so much of the presentation the 22 CEC made and is in the report right up front that talks 23 about the growing gap between refineries and demand -- 24 while the CEC in their still water consultants 25 presentations talked about that need and admitted that the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 303 1 best thing you can do was somehow provide an ability for 2 the refineries to increase. 3 Nothing in there actually demonstrates how this 4 mandate is going to provide a lower cost mobility or a 5 lower cost way to move goods and services for our economy. 6 It's simply not in there. Instead, it guesses on the 7 impact on the market, and then it turns around, after no 8 analysis on that, and makes predictions about the effect 9 of what OPEC will do, what our national defense policies 10 will do, and which have been critiqued -- well, ad nauseam 11 by at least two people, and then finally what the impact 12 on global climate change is going to be on California, 13 whether or not it exists. 14 So as David Montgomery said, there are a number 15 of problems with the underlying cost benefit analysis in 16 the report. When the problematic assumptions are removed 17 from the cost benefit analysis, it is far from clear that 18 there is any economic rationale for the petroleum 19 reduction or non-petroleum fuel goals. Moreover, there 20 are more cost-effective options for addressing all the 21 problems, and none of them are even sited in the report. 22 That was Mr. David Montgomery, an economist. 23 And those kind of critiques of the Reason 24 Foundation and now from Charles Rivers Associates and 25 David Montgomery, who are pretty noted economists -- David PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 304 1 Montgomery in particular -- really haven't been answered 2 by your staff. 3 In conclusion, and in looking forward -- I don't 4 want to sound -- I am totally negative on the report, in 5 case that wasn't clear. 6 CHAIRPERSON LLOYD: No. You've done a good job. 7 MR. EAVES: But I'm actually pretty optimistic 8 about transportation fuels in California. Those of you 9 that you were at the hearing yesterday, and a number of 10 people were from this room, there's a lot going on in 11 transportation fuels right now, from research on advanced 12 technologies to P-LEVs, real cars people can buy, people 13 are buying. And instead of trying to choose or suggest 14 what the answers ought to be, it strikes me in the middle 15 of a recession instead of trying to intercede, we should 16 be going out and looking what we can do to actually help 17 those fuels and the diversity of fuels get into the market 18 in as low a cost way as possible, rather than trying to 19 say certain ways of doing this are better, whatever they 20 are. 21 And just a lot of people are standing out there 22 saying, "Well, of course WSPA would say that." We make 23 diesel, and we make gasoline. And we do. We're proud of 24 it. We're proud of the good job we've done making the 25 cleanest fuels for California. But we're also involved in PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 305 1 liquefied natural gas. Many of the companies in WSPA, 2 mine included, want to bring it into the west coast. Many 3 of us are involved in Fischer-Tropsch technology, gas to 4 liquids. My company has had a big interest in that, in 5 fact, in Africa. Many of us are exploring the technology 6 of hydrogen fuel cells. Chevron Texaco is in the fuel 7 cell partnership. 8 We're not trying to say these technologies 9 shouldn't be allowed to compete. We want them to compete. 10 We see them in our future, but what we're trying to do is 11 to be out there and find out which ones actually provide 12 the low-cost solution so California can move ahead. And 13 that's the kind of solution we want. 14 So what would I recommend? Well, the first thing 15 to do would be to reopen the report instead of adopting it 16 today and take a more thorough look at the economics, look 17 at the benefits, and look for the things that you can do 18 as a group to actually help bring all of the other fuels 19 into the market to compete. So on an even keel they have 20 or -- even level playing field -- I almost hate to say 21 that nowadays -- so they can come into the marketplace 22 with a chance to compete and see who can provide that 23 mobility and that ability to move goods and services as 24 cheaply as they can. For instance, for helping the 25 refinery systems -- PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 306 1 CHAIRPERSON LLOYD: KC, I thought you were going 2 to be brief. 3 MR. BISHOP: I did too. I just get all wound up 4 on this topic. One more minute if I may. The refinery 5 distribution system and distribution system, which would 6 be the cheapest way to do it, we could certainly help with 7 NOx credits -- I mean, this Board can -- infrastructure 8 port facilities, and hydrogen, probably one of the best 9 things you could do is to help with siting, whether it's 10 new hydrogen parks which are going to be expensive, or 11 even hydrogen service stations, which are going to be 12 tough to put where people are; and LNG infrastructure 13 which has a number of problems, all of those things could 14 use your help. And I'd encourage you to look and see what 15 you could do in that regard, rather than recommending any 16 particular percentage reduction. 17 So I'd thank you, and I'd be happy to answer any 18 questions. And I'm sorry I went so long. 19 CHAIRPERSON LLOYD: Thank you very much. 20 Ms. D'Adamo. 21 Thank you, KC. 22 Audrie Krause, Gretchen Knudsen, Pam Jones. 23 I'm sorry, Mr. Calhoun. I didn't see you. 24 BOARD MEMBER CALHOUN: KC, come back up. 25 CHAIRPERSON LLOYD: Sorry. I didn't see you. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 307 1 MR. BISHOP: And I thought I had a chance to get 2 away. Yes, sir. 3 BOARD MEMBER CALHOUN: Did you attend the 4 hearings at the Joint Commission held -- 5 MR. BISHOP: Yes, I did. 6 BOARD MEMBER CALHOUN: Did you or WSPA submit 7 some recommendations to the Joint Committee? 8 MR. BISHOP: Yes, we did. And in fact, roughly 9 similar -- they're similar, although I've elaborated and 10 what we should be doing is looking for the market to help 11 in finding things that we could do to actually bring the 12 diversity of fuels into the market to compete. 13 I'd like to say I think the big difference -- you 14 know, it was pointed out we had this huge open process. 15 We did. We had the open process, but we had no idea what 16 the recommendations were until six weeks ago. And then we 17 had approximately 20 days to put together comments which 18 we presented at the Joint Conference. And now we're today 19 adopting them for the final adoption. I mean, I think 20 having more time to go back and really sort out what the 21 real impact on the market would be, what the real impact 22 on global climate change, defense of the United States, 23 the cost to consumers to move themselves and their goods 24 around, I think a real good description of that should be 25 in your report. And until we knew what the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 308 1 recommendations were going to be, we really haven't had a 2 chance to get in and talk about it. So, yes, we were 3 there. We provided comments, and we've now provided more 4 extensive comments. 5 CHAIRPERSON LLOYD: What response did you get 6 from the Commission when you raised that point? 7 MR. BISHOP: That it was a living document 8 because of the IEPR which is their integrated energy 9 policy report they're presenting. Unfortunately, we 10 believe when this report goes forward, it becomes the 11 policy of the state of California, and I think they should 12 take a more thorough look before they call it their 13 recommendation. 14 CHAIRPERSON LLOYD: Thanks. 15 Audrie Krause, Gretchen Knudsen, Pam Jones. 16 MS. KRAUSE: Good afternoon, and thank you for 17 allowing me this opportunity. My name is Audrie Krause. 18 I'm here representing a coalition that includes consumer 19 taxpayer and business interest, the Stop Hidden Gas Taxes 20 Coalition. 21 Before I give you my comments, I would like to 22 submit for your record a letter from Jim Conrad of 23 Consumers First. He was not able to be here today, but he 24 did submit his comments in writing. I'm not sure who 25 I'd -- thank you. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 309 1 As you know from the comments I made last month, 2 we do think that the ultimate goal of this effort is 3 laudable and we support energy conservation in a 4 competitive marketplace, but we are opposed to this staff 5 recommendation to arbitrarily cut consumer demand for 6 gasoline by 15 percent because it may mean increasing gas 7 taxes or vehicle fees and implementing other costly 8 proposals. And it's apparent from the revised language in 9 recommendation number two since the last meeting that you 10 did hear our objections, and I want to thank you for 11 attempting to address the concerns that we raised. 12 Unfortunately, we don't feel that this small 13 change that was made in the final report adequately 14 addresses our concerns because as long as that goal is in 15 place, the possibility of increased taxes and fees is 16 going to be on the table and that puts California 17 consumers and drivers at risk. 18 We believe that the Board should be honest with 19 California taxpayers about the potential costs of pursuing 20 this goal and spell out those costs. According to the 21 California Energy Commission's reports, the refineries in 22 California are already having difficulty meeting the 23 demand for gasoline because of regulatory hurdles that 24 exist now. If the proposed goals cannot be met and demand 25 for gasoline continues to grow, then the resulting gap PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 310 1 between the supply and demand is likely to send gasoline 2 prices even higher. 3 We also see some problems with the recommended 20 4 percent increase in alternative fuel vehicles. While we 5 have nothing against these vehicles and technology, we do 6 feel that, here again, taxpayers aren't really being told 7 what the costs will be. In the past, it's been suggested 8 that billions of dollars in subsidies could be necessary 9 to encourage people to buy these sorts of cars. So before 10 we go forward, whatever these costs are should be clearly 11 spelled out so consumers who are already facing the 12 possibility of a lot of new taxes because of the state's 13 budget deficit would also understand what they're facing 14 here. 15 And just to conclude, we have pointed before, and 16 I will say it again, driving a car in California is not a 17 luxury that people can abandon when the price of gas goes 18 up because Californians mostly need their cars for things 19 like getting to work and taking their children to school 20 and shopping for groceries. And these aren't optional 21 activities for most people. And most people aren't in a 22 position to take care of those things without a car. So 23 we continue to wonder how a study that was initially 24 undertaken in response to public concerns about gasoline 25 price increases could wind up recommending a strategy for PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 311 1 reducing the demand for gasoline that we feel will 2 inevitable lead to gasoline price increases. 3 I want to thank you for the opportunity to speak, 4 and I'd be happy to answer any questions. 5 CHAIRPERSON LLOYD: Thank you very much. 6 Mr. McKinnon. 7 BOARD MEMBER McKINNON: For a few decades, this 8 country regulated fuel efficiency very effectively, and 9 public dollars went into that. And I look at sort of how 10 well that's been done in recent times, and I look at the 11 fact that there's no refineries being built in California 12 and price spikes that result because of us being actually 13 under capacity during certain summer months. And I'm sort 14 of wondering what your group's position is on sort of the 15 public dollars in investment in fuel efficiency. 16 MS. KRAUSE: Well, let me say first of all we 17 don't quarrel with the recommendations regarding improving 18 the federal fuel efficiency standards that are part of 19 this document. We don't have a problem with that. 20 BOARD MEMBER McKINNON: I see. 21 MS. KRAUSE: In terms of spending public dollars 22 on it, I would say that the same concern we have applies 23 that if there are going to be costs, they should be 24 spelled out up front so people know what they're going to 25 be. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 312 1 BOARD MEMBER McKINNON: And I guess the other 2 piece of the question is the lack of any planning of a 3 future refinery, it's analogous to me to what happened to 4 us with electricity. I'm a taxpayer. I mean, I'm one 5 too, right. I'm thinking about this and thinking we're 6 not building refineries. Isn't this what happened to us 7 with electricity? 8 MS. KRAUSE: I don't know if it's an exact 9 analogy, but it's -- certainly what was expected with 10 electricity deregulation is nothing like what we've got. 11 And we'd hate to see additional costs on Californians 12 right now with all the other burdens we're facing. 13 BOARD MEMBER McKINNON: Thank you. 14 MS. KRAUSE: Thank you. 15 CHAIRPERSON LLOYD: Thank you. 16 Gretchen Knudsen, Pam Jones, Tim Castleman. 17 MS. KNUDSEN: Good afternoon, members of the 18 Board. In the interest of time, I'm going to keep my 19 comments brief. 20 First off, I would like to make the point that 21 while International Truck and Engine Corporation -- sorry. 22 I'm Gretchen Knudsen with the International Truck and 23 Engine Corporation. While International does not agree 24 with all of the conclusions and calculations contained 25 within the report, we do think that the inherent strength PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 313 1 of the report is that it recognizes that there needs to be 2 a portfolio of broad-based solutions. Petroleum reduction 3 is not simply a simple solution, one-answer issue. 4 Secondly, we are pleased that the light-duty 5 diesel option was included in the report and was included 6 in the positive net benefit options. We think that it can 7 play a significant role. Unfortunately, we do think that 8 the report did downplay the significance of light-duty 9 diesel, and we would like to see future efforts to examine 10 the full impact that light-duty diesel could play in 11 California as far as not only reducing the fuel economy -- 12 or fuel, but also improving green house gas emission 13 reductions. 14 Light-duty diesel not only can deliver 15 significant fuel economy benefits, but it certainly does 16 meet consumers' needs for power and performance, and we 17 think that's always going to be an important consideration 18 to take into account when looking at various strategies. 19 Thirdly, I'd like to say that diesel and diesel 20 fuels have made and will continue to make significant 21 progress in reducing emission. Oftentimes, I think when 22 we discuss diesel, it's sort of set in the past, and I 23 think that report provided an opportunity to look forward 24 and to see where the technology was advancing and where 25 the technology will take us. And I just encourage more PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 314 1 conversations like that. I think it was a very positive 2 exercise, and one I'd like to see more of. 3 Lastly, I just think it's really important to 4 recognize the efforts of the ARB staff and the California 5 Energy Commission staff. This was a tremendous 6 undertaking with multiple stakeholders, most who are not 7 in the room today. And it was a long process, and I 8 really think the staffs handled this issue with tremendous 9 professionalism and patience with dealing with all of the 10 stakeholders. And I know as a stakeholder we certainly 11 appreciate the multiple opportunities to comment and the 12 multiple opportunities to try to understand staff's 13 opinions. 14 So with that in conclusion, we look forward to 15 going through these types of exercises more as we sort of 16 look into the future, and we do appreciate the efforts and 17 the results. Thank you. 18 CHAIRPERSON LLOYD: I think we can commit that 19 once you've certified the first light-duty diesel vehicle 20 in California, we'd be happy to go back and see whether we 21 were realistic, optimistic or pessimistic. 22 MS. KNUDSEN: Certainly. 23 CHAIRPERSON LLOYD: Okay. 24 Pam Jones, Tim Castleman, Graham Noyes. 25 MS. JONES: Thank you very much. Pam Jones, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 315 1 Diesel Technology Forum. Our members make the engines, 2 the fuel, and the emission components that go into making 3 clean diesel technology. We've worked on this for 4 two years with the staff. And I'll cut my responses 5 having followed Gretchen, but I did want to reiterate a 6 couple of things. 7 Number one, it's actually a pleasure to be able 8 to stand up here with diesel being part of the solution. 9 Very often it is not painted as part of the solution, but 10 here is a case where we actually think it can be part of a 11 solution to petroleum reduction. The question is how much 12 of a solution, and that's where we differ with the staff's 13 calculations and assumptions. We think with a fuel 14 efficiency that is 30 to 50 percent greater than gasoline 15 that is on the market today that's affordable, that this 16 has much greater potential than even recognized to be a 17 contributor to petroleum reduction. Why? Because it can 18 give actual reductions. It can do it in a cost-effective 19 manner. 20 Some of the assumptions we have -- I'm just going 21 to give you an example of why we think it can be a bigger 22 contributor. In the report it assumed, for instance, in 23 the calculations that diesel would have a 10 percent 24 penetration report over the course of the report. And it 25 was done for consistency. I understand that. However, if PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 316 1 you were to look at Europe and what is happening in Europe 2 where 40 percent of the vehicles now are light-duty 3 diesels going towards 50 percent, with 70 percent of the 4 luxury vehicles in diesel, it gives some indication of the 5 potential. Granted, the tax structure is such that it 6 favors diesel over gasoline. Tax structure aside, you 7 still have greater fuel efficiency and the performance 8 that consumers want and are willing to buy. 9 We did do a study. We commissioned MCube of 10 Davis, which is an economics consulting firm used by many 11 of the state agencies including the Energy Commission, to 12 take a look at, you know, what would happen if you had a 13 similar penetration rate here in California as you did in 14 Europe. The determination of that report was that if you 15 had a 25 percent penetration rate of light-duty diesel in 16 the state of California, that California alone could save 17 530 million gallons of equivalent fuel per year. If it 18 went up higher, if it went to 32, it would be in the order 19 of about 840 million gallons a year saved. That's not 20 insignificant. This has been confirmed by other studies 21 CO2 emission reductions as well. 22 The report says, you know, we would like to aim 23 towards a 40 mile a gallon CAFE standard. Many of these 24 diesel vehicles are already there. 35 to 45 miles a 25 gallon, which means you can go from San Diego almost to PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 317 1 the Oregon border on a 26 gallon tank. Volkswagon has 2 diesel models out there right now. In California they're 3 going off the showroom floors as fast as they can get them 4 in, mostly on the smaller vehicle. They are going to 5 introduce luxury. Daimlyer-Chrysler, Jeep Liberty will be 6 introduced in 2004. So there is interest. 7 Bottom line, two questions. Can it meet the air 8 quality standards? And will the consumers buy it? Well, 9 fortunately, we are pleased that the report acknowledges 10 that it is likely or at least expected that they will meet 11 the air standards. And given the term of the report, 2020 12 to 2030, that's probably realistic. 13 Will consumers buy it? We don't really know. 14 But some of the companies are, you know, putting 15 significant R&D dollars on it. JD Powers study said, 16 "Yeah, they are interested." When asked about diesel 17 hybrids and gas, 27 percent said they would consider 18 diesel cars, trucks. About 22 percent said they'd 19 consider hybrids. 51 percent they were going to stick 20 with gas. 21 The bottom line is if this report is going to be 22 successful in actually getting a significant reduction, 23 it's going to mean that there's going to have to be 24 really, really significant adoption by the public. And 25 that's going to depend on a number of factors. Number one PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 318 1 is the availability. Is it there? And yes, we are 2 working on that -- you know, on that first registration 3 there. Is it affordable? Can they afford to buy it? Is 4 it appealing? Do they like the attributes? Small? 5 Large? Power? 6 CHAIRPERSON LLOYD: Pam, are you -- 7 MS. JONES: I'm almost done. 8 CHAIRPERSON LLOYD: You're supporting the report, 9 are you not? 10 MS. JONES: And the fourth one was air quality. 11 And that's what we're working on. That's an indication of 12 why there is some optimism and why we think there will be 13 more of a contribution to petroleum reduction from 14 light-duty diesel. 15 The reason I'm bothering to say this is it will 16 go to the Legislature. Ultimately it will come back to 17 you and the Energy Commission to develop some specific 18 strategies. We'd like for you to keep that in mind. 19 Lastly, an invitation. In September there will 20 be an international auto high technology confab here in 21 California. Among the technologies that will be there 22 will be diesel. It will have a higher profile this time 23 than ever before. It will be in Sonoma. It will be in 24 Sacramento. And I'd like to encourage you when you get 25 the invitation to come. Come check it out and see why PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 319 1 there is this buzz, not just in Car and Driver but 2 elsewhere for the potential of light-duty diesel both for 3 consumers and to reduce petroleum consumption. 4 CHAIRPERSON LLOYD: This is the Michelin event? 5 MS. JONES: Yes. Yes. 6 CHAIRPERSON LLOYD: Thank you. 7 MS. JONES: Thank you. 8 CHAIRPERSON LLOYD: Thank you very much. 9 Tim Castleman, Graham Noyes, Russell Teal. 10 MR. CASTLEMAN: Okay. Thank you, Chairman Lloyd, 11 and members of the Board. I know it's been a long day, 12 and I'm sure you guys don't want to hear a long drawn-out 13 thing, but I have to tell you I've been here all day too, 14 and I'm not getting paid to be here. I'm here because I 15 care. 16 CHAIRPERSON LLOYD: I'm not getting paid either. 17 MR. CASTLEMAN: Glad you're here. And I'm glad 18 you care. Thank you for allowing me to contribute my 19 comments regarding this important issue. I would like to 20 recognize and thank all the hard-working public servants, 21 industry representatives and special interest groupings 22 that have contributed to this monumental task, the goal of 23 which is to reduce petroleum consumption in California. 24 The recommendations that come out of this process will 25 have far-reaching effects and should be given careful PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 320 1 consideration. 2 So far we've heard a lot about the natural gas 3 solution. I would like to first comment on the portion of 4 the recommendation that offers compressed natural gas, 5 liquefied petroleum gas, and liquefied natural gas as a 6 significant part of the overall solution. I have some 7 major concerns about the approach that has been 8 formulated. The reliance on CNG as an alternative fuel to 9 displace gasoline consumption fails to take into account 10 the reality of actual supplies, especially considering 11 recent testimony before Congress by Allen Greenspan and 12 the following current statement from the American 13 Petroleum Institute. 14 "As of June 2003 supply and demand for 15 natural gas are delicately balanced. However, 16 natural gas prices are significantly higher than 17 this time last year. Some prices have doubled 18 for gas purchased by the companies that supply it 19 to consumers. Storage levels are at near record 20 lows while demand for natural gas is growing. In 21 the short term, increase in demands due to 22 weather, hot summer and/or cold winter stress the 23 supply and demand balance. Also hurricanes in 24 the gulf of Mexico could disrupt off-shore 25 natural gas production and reduce supply. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 321 1 "In the long-term supply outlook, the factors 2 shaping the long-term demand for natural gas is 3 that 80 percent of new electric generating 4 capacity is natural gas fired. Demand is growing 5 because clean burning natural gas is a preferred 6 fuel due to its environmental benefits. The U.S. 7 Department of Energy Information Administration 8 forecasts that natural gas demand will grow by 9 more than 50 percent by 2025. 10 "The new domestic fuels be found -- the new 11 domestic fields are being found are smaller and 12 have shorter lives. The short-term supply 13 potential is limited. In the short-term, there 14 is not much additional supply to be had. Some 15 additional volumes of liquefied natural gas might 16 be imported in Canada and may be able to provide 17 a bit more supply. 18 Our nation is suffering from the legacy of 19 government policies that discouraged the 20 development of domestic natural gas supplies 21 while at the same time encouraging consumption. 22 Substantial increases in supply cannot be 23 expected in the short term, as it takes a number 24 of years to develop and produce new supplies and 25 to build the pipelines needed to get the gas to PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 322 1 consumers. What can be done in the short term is 2 to emphasize energy efficiency and to conserve 3 our energy use," from the American Petroleum 4 Institute website. 5 We know from prior testimony in this body that 6 the industry will be relying on Qatar, which is in the 7 middle east, to just two facilities here in California to 8 meet the growing demand, thus, increasing our reliance on 9 imported fossil fuel rather than refusing it, as AB 2076 10 requires. The recommendations also strongly suggest 11 extensive use of Fischer-Tropsch blended diesel, which is 12 made from the fossil fuels that AB 2076 at least in spirit 13 seeks to reduce our reliance on rather than increase our 14 reliance on an imported fossil fuel. 15 Further, there has been testimony that the 16 process of making Fischer-Tropsch will actually result in 17 increased CO2 emissions. This leads me to my next 18 objection to this heavy reliance on CNG, LPG, and LNG to 19 reduce petroleum use, which is the lack of reduction in 20 pollution using these fuels. While it is true they all 21 will burn cleaner, they do all still contribute 22 significant amounts of CO2 and in some cases actually 23 increase overall emissions. We have better options, which 24 I will discusses in just a moment. 25 CHAIRPERSON LLOYD: Mr. Castleman, you've given PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 323 1 us this and you're reading this. I think it would be 2 helpful if you can just highlight because we can read this 3 pretty well. 4 MR. CASTLEMAN: Okay. I'll even do better. I'll 5 skip right to the biggest issue I take with -- I've 6 already stated I think we need to focus less on natural 7 gas and I think we need to focus on biofuels as part of 8 the solution. And frankly, the recommendations as they 9 will go to the Legislature today -- when he, 10 Mr. Legislature, reads that amongst his hundreds of bills, 11 he's not going to have time to look at the appendix and 12 look deeply. He's going to see what's been put on the 13 charts and what's mentioned. That's natural gas, natural 14 gas, natural gas. Biofuels play a remote second. 15 And then finally, if you would, the idea that 16 reducing speed limits is impractical has been presented as 17 politically unacceptable and difficult. And it was also 18 stated at the hearing yesterday that it would only allow a 19 2 percent improvement for reduction. Now, I've been 20 looking into this for a couple months now and I've looked 21 at EPA reports and several reports that indicate something 22 more on the order of 20 to 50 percent reductions in 23 consumption. And I think this one page is the extent of 24 the investigation that was done by the staff into this 25 whole idea. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 324 1 Here it is. This is it. And even this one page 2 refutes the idea in that it only looks at 55 to 65 miles 3 an hour, and we're talking .9 -- .9 percent on that. And 4 everybody knows what we actually do out here on these 5 highways is 70 to 80 miles an hour. So this is -- it's 6 just really -- to just discount it as politically 7 unacceptable based -- and here they say okay. And then 8 finally -- and I know nobody wants to hear this but -- I 9 know I feel the same way as that. 10 EXECUTIVE OFFICER WITHERSPOON: Stop. We can see 11 it. Stop. 12 MR. CASTLEMAN: Here it talks about 1.2 percent 13 savings. Okay. We did include in the recommendations the 14 tire business because it's 1.8 percent. So you know, come 15 on. Why isn't it something in there? Why isn't it at 16 least said, "Look, politically uncomfortable or not, this 17 is something that could have a significant effect, 150 18 percent reduction in CO, 10 to 30 percent reduction in 19 NOx." Cars that are on the road today that are getting 20 20 miles to the gallon would get 30 miles the gallon if they 21 would just drive the speed limit. And if we would 22 initiate the 55. We did it for two decades. All we need 23 is the political will. And I fail to find a single 24 downside. I challenge anybody in this room to show me the 25 single downside to this idea. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 325 1 CHAIRPERSON LLOYD: Thank you very much. 2 MR. CASTLEMAN: Thanks for listening. 3 CHAIRPERSON LLOYD: Thank you. 4 Graham Noyes, Russell Teal, Catherine Phillips. 5 MR. NOYES: Good evening, Chairman Lloyd, and 6 members of the Board. I'd like to say at the outset I'm 7 extremely impressed by the way the Board conducts business 8 here in terms of taking in comments and providing such 9 full opportunity for public participation and such 10 significant feedback from the Board on that. 11 CHAIRPERSON LLOYD: That doesn't mean to say you 12 can take ten minutes. 13 MR. NOYES: My next point is that I'm wearing 14 several hats here. I have prepared my comments in written 15 form so I can provide them in abbreviated fashion to you. 16 Russell Teal has also provided his comments to me in 17 written form so I can provide -- 18 CHAIRPERSON LLOYD: So he will not be testifying? 19 MR. NOYES: So he will not be testifying, and 20 that will take ten seconds. 21 CHAIRPERSON LLOYD: And I would reiterate what I 22 said this morning that I think we have set up a very nice 23 joint forum to discuss all aspects of diesel fuels on 24 August 18th and 19th with the joint meeting. So I think 25 this issue and the benefits of diesel will receive a PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 326 1 thorough airing. 2 EXECUTIVE OFFICER WITHERSPOON: It's actually the 3 19th and 20th. Correction on the date. 4 CHAIRPERSON LLOYD: Okay. Correction on the 5 date. 6 MR. NOYES: Thank you, Chairman Lloyd. I will be 7 participating that process. And I do appreciate the 8 comments of the Energy Commission yesterday that the IEPR 9 was going to provide a continuing opportunity to determine 10 which fuels and which options were going to be most 11 effective in meeting these goals. We do support the 12 recommendations of the report. However, there were 13 some -- specific to biodiesel and within the overall 14 picture some significant issues with the report that I 15 wanted to bring to the Board's attention. 16 Firstly, in the direct environmental net benefit 17 analysis, biodiesel was assigned a negative value for all 18 criteria pollutants. That is, that it increased all 19 criteria pollutants. That contradicts what the EPA has 20 found in the comprehensive analysis of biodiesel 21 emissions, what the federal verification process has 22 found, and frankly, was very surprising and I think very 23 much incorrect based on a somewhat novel theory that the 24 industry had no opportunity to interact upon. 25 Even in spite of that negative emissions number, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 327 1 the biodiesel still outperformed all the medium and heavy 2 duty options in the direct environmental net benefit. 3 That was driven by the very positive global warming 4 benefits that it provides. In spite of that, biodiesel 5 was not mentioned as one of the options, whether you call 6 them a sample option or a recommended option, and we are 7 specifically requesting inclusion just in the sort of 8 cursory way that CNG, LNC, and ethanol are mentioned in 9 there, given the very positive performance on the 10 environmental net benefit and also given some other 11 factors that were not taken into consideration in the 12 report steps from the recommendation to the highlighted 13 options. 14 In particular, the emphasis on Fischer-Tropsch as 15 a midterm option overlooked the fact -- and this was 16 specifically stated in a report and I won't read the 17 entire quote -- but essentially that Fischer-Tropsch was 18 going to be imported from the same regions of the world 19 where petroleum is being in reported presently, therefore, 20 shifting petroleum dependence to another form of fossil 21 fuel dependence from politically unstable regions of the 22 world. 23 The factors of renewability, sustainability, the 24 fact biodiesel can be made in the United States and, 25 indeed, is also being made and produced in California. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 328 1 None of those factors inform the step in the 2 recommendation to the highlighted options. 3 In closing, I would reference the U.S. Marines 4 who faced a similar challenge to the Air Resources Board 5 and the Energy Commission in reaching a 20 percent 6 reduction of their petroleum use. They were driven to do 7 under Executive Order 13149. They have already achieved 8 that petroleum reduction primarily by switching over their 9 facilities, including Camp Pendelton and 29 Palms to beat 10 20 in increasing their efficiency. They did this because 11 biodiesel is available today. It goes within the 12 infrastructure that exists. It has real world pricing, 13 not speculative pricing, and it has reached wide market 14 acceptance. I appreciate the opportunity for the time and 15 I'm available for any questions. 16 CHAIRPERSON LLOYD: Thank you. 17 A question about including any reference. 18 There's no reference to biodiesel in your report. 19 CHIEF DEPUTY EXECUTIVE OFFICER CACKETTE: No, 20 there is -- 21 MR. FONG: Tom, go ahead. 22 CHIEF DEPUTY EXECUTIVE OFFICER CACKETTE: I would 23 say there is reference to biodiesel. In fact, it's 24 analyzed as one of the petroleum substitution strategies. 25 It did -- it performed as well as some of the natural gas PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 329 1 options, but in terms of using a strategy to develop the 2 goal, we came up -- we chose Fischer-Tropsch because it 3 performed much better than any of the others from a net 4 societal cost benefit in the diesel sector. 5 But we acknowledge that what I think number of 6 the testifiers are not quite grasping is that this report 7 does not attempt to recommend what is the fuel of the 8 future. The report tends -- tries to look at what our -- 9 the three or four options that could reduce petroleum 10 dependency, and then based on that, establish a goal as to 11 where the state could go, sort of an analogue to an air 12 quality standard. And it does acknowledge that other 13 fuels may turn out to be the winners or may play a smaller 14 or large role compared to the ones we picked. But based 15 on our analysis today, there were four things that could 16 be done that would support a turn around from a 17 growth-only scenario in a petroleum demand to one which 18 can be kept constant and sustained at that level for a 19 long period of time. 20 We may not be right on what the right strategies 21 are, but -- and I think the marketplace will help, other 22 than CAFE being non-marketplace, but we'll work those out 23 in the end. What we think is important is establishing 24 the goal so we have somewhere to point towards in the 25 future. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 330 1 CHAIRPERSON LLOYD: Thank you. Thank you very 2 much. 3 MR. NOYES: We would agree with that, but -- and 4 we, again, support the goals of this report. But I think 5 what we as an industry see is to give the staff, the 6 Energy Commission, and the Air Resources Board more credit 7 in terms of their role and their place in the process. 8 The Legislature is not going to read the 800 pages, which 9 I didn't even get through, which went into this thing. 10 They're going to look at the bottom line. On the bottom 11 line, biodiesel didn't make the cut, and it should have 12 made the cut because it met all the same objective 13 criteria that ethanol, CNG, and LNG did. We're not asking 14 Fischer-Tropsch, while I think there may be good reasons 15 for us to be included in that same category. We would 16 like an also mention in the report. 17 CHAIRPERSON LLOYD: Sounds as though the Energy 18 Commission made a very wise comment yesterday when they 19 said it's a living document. So I think we can assume 20 that all those issues are going to be included as we move 21 along here. 22 MR. NOYES: Thank you. 23 CHAIRPERSON LLOYD: Katheryn Phillips and John 24 Paliwoda. 25 MS. PHILLIPS: I'm Katheryn Phillips with the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 331 1 Center Energy Efficiency and Renewable Technologies. 2 Among our membership -- we are a coalition of 3 environmental organizations, public interest organization, 4 and renewable technology companies. Among our members who 5 have been actively following this process from the 6 beginning are the Natural Resources Defense Counsel, the 7 Union of Concerned Scientists, and the Sierra Club. Also 8 here today are -- I'm sort of representing Bonnie 9 Holmes-Gen from the American Lung Association. She had to 10 leave, but she concurs with what I'm saying. 11 First of all, we would like to thank the staffs 12 both the ARB and CEC for their tremendous work on this 13 project. It's been a very long project, but they've been 14 very diligent. And as other speakers have said earlier, 15 we've had plenty of opportunity to comment. All of our 16 comments haven't always been -- they've also been reviewed 17 and considered, they haven't always been adopted. But 18 that's the way the process goes. But we appreciate the 19 attention that was given to them. 20 We've participated in numerous workshops, and 21 we've also -- the staff has been willing at times to 22 arrange meetings where we can get our coalition together 23 to talk to them. So I think there's no question that this 24 has been an open process that just about any interest 25 group has been able to participate in to the fullest. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 332 1 We believe that the goal in the report is 2 achievable and it's necessary. We think the 3 recommendations are also achievable and necessary. 4 They're not exhaustive. We can think of other 5 recommendations. The options that -- as Tom Cackette was 6 just noting, there's an appendix with lots of options and 7 strategies. We think there's probably even more options 8 and strategies. We think as the technology changes, those 9 options and strategies may change their positions. Some 10 may look more favorable than others. And reasonable 11 people may disagree on which ones are more favorable today 12 and which ones are more favorable tomorrow, but we think 13 that the staff has come up with a good combination and 14 recommendations to show that the goal is reasonable. 15 And finally, California -- there was some mention 16 earlier about mobility. I think one of the underlying 17 understandings of this report is that we want to keep 18 California mobile. And in order to do that, we need to do 19 something that maybe we didn't do early enough in the 20 electricity sector, and that is we need to diversify the 21 fuel supply. And we also need to understand that in order 22 to have stable prices, you need to reduce demand. Great 23 demand increases prices. If we can reduce demand for a 24 single fuel and be less dependent on a single fuel, we're 25 more likely to maintain a mobile society. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 333 1 Finally, I know that ARB is most concerned about 2 improving air quality. I think there's probably a few 3 single things that we could do in this state, other than 4 reducing our dependence on oil that would have as large an 5 effect on improving air quality. And when we talk about 6 the air impacts of our petroleum dependence, it doesn't 7 just have to do with tailpipe emissions. It also has to 8 do with upstream emissions. 9 Again, this is a laudable goal. The report is -- 10 we're pleased with it, and we encourage you to vote to 11 adopt it. Thank you. 12 CHAIRPERSON LLOYD: Thank you. 13 And lastly, John Paliwoda. I apologize. I have 14 not pronounced it correctly. 15 MR. PALIWODA: I'll straighten that out. 16 CHAIRPERSON LLOYD: Thank you. 17 MR. PALIWODA: Good evening, Chairman Lloyd, and 18 Board members. My name is John Paliwoda. I'm the 19 Executive Director of the California Motorcycle Dealers 20 Association. I didn't really come here for this issue. I 21 was here for something else. But something occurred to me 22 that one element in this report is really missing. And 23 although -- it is a living document, and I'd like the 24 Board and the staff to think about this in the future as 25 this thing evolves. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 334 1 You basically have an element that exists today 2 that doesn't depend on new technology or really anything 3 that will happen in the future. And basically it's the 4 promotion of the use of motorcycles. Basically, you have 5 a legitimate transportation element here, highway 6 motorcycles, that now number about 500,000 out of 22 7 million motor vehicles here in California or so. That's a 8 little less than 2 percent. You promote the use and the 9 sale and use of motorcycles, and what you're going to do 10 is -- it can't be used for everything, but for short 11 trips. Every motorcycle has two seats. Don't laugh, 12 really. Every motorcycle has two seats. For short trips 13 you could impact to some extent the reduction in the need 14 for petroleum-based fuels. And that's based on the 15 average motorcycle today gets over 70 miles per gallon. 16 And you folks are wondering how you're going to 17 encourage Congress to double the 20.6 miles per gallon 18 average on automobile to 40 something. You'll get 70 19 something miles per gallon. So I would like to see that 20 more interjected into the mix, and I think you 21 basically -- it should be part of the element here. Thank 22 you very much. 23 CHAIRPERSON LLOYD: It's too bad you didn't 24 participate in some of the earlier workshops. 25 MR. PALIWODA: I regret that. Thank you. Any PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 335 1 questions? 2 CHAIRPERSON LLOYD: No. Thank you very much. 3 I know that KC said he would take one minute to 4 respond to something that Mr. McKinnon asked earlier. 5 BOARD MEMBER McKINNON: I think it was just 6 responded to a minute ago actually. 7 MR. BISHOP: Well, basically in California we 8 have invested in refineries dramatically, in fact, more 9 than probably anywhere in the U.S. and to build cleaner 10 burning fuels. Our industry's shameless. If there's a 11 market there, we'll build what the people want and we'll 12 sell it. 13 And finally, I think the question about shouldn't 14 that idea of providing expanded refinery capacity which 15 can provide, we think, cheaper competing fuels, shouldn't 16 that be part of this report? And even probably more 17 importantly, even though it's just a goal, saying that the 18 goal of the state of California is not to allow you to 19 sell as much as you do now is hardly a formula to 20 encourage you people to invest to build more refinery 21 capacity in the state of California. 22 BOARD MEMBER McKINNON: KC, I might agree with 23 you. But we're stuck with the problem that there are no 24 new refineries. 25 MR. BISHOP: Historically, in California what PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 336 1 they used to call refinery creep would go up at a valid 1, 2 2, 3 percent a year. Most of the investment that would 3 have gone into that in California, in fact, went into 4 building all of the new clean fuels that we have. 5 BOARD MEMBER McKINNON: And there's no dispute 6 about that. 7 MR. BISHOP: In fact, we're terribly efficient. 8 And assuming that we're basically -- you know, that we 9 have the fuels for the next few years, I mean I would 10 guess that what you'll see is sort of a natural expansion 11 of refineries that used to take place before we built CBG 12 3 and had to modify the entire distribution system for it. 13 My time is up. 14 CHAIRPERSON LLOYD: I didn't cut you off, 15 although I was tempted. Thanks very much. 16 BOARD MEMBER McKINNON: Don't get me wrong. I 17 think I've said it several times publicly, you all have 18 stepped to the plate on cleaning up diesel and gasoline. 19 And you know, you stepped to the plate, stepped to the 20 plate, stepped to the plate. But we also have the 21 capacity problem in California that persists. And dealing 22 with the capacity problem has lots of solutions. One is 23 increasing capacity. The other is decreasing demand. I 24 mean, when we had the energy crisis, we had to do all of 25 these things. Right? PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 337 1 MR. BISHOP: You're absolutely right. And your 2 report is only lacking one of those, increasing -- 3 BOARD MEMBER McKINNON: Well, some other things 4 too. 5 MR. BISHOP: I mean supply. 6 CHAIRPERSON LLOYD: Again, I think as we look at 7 diversification, clearly the energy industry is going to 8 be providing that very strongly. And maybe this is some 9 encouragement there too. 10 With that, any comments from my colleagues? 11 BOARD MEMBER D'ADAMO: I just have a brief 12 comment to make. I recognize our role may not have been 13 as major as the Energy Commission yesterday and just think 14 this process is only the beginning. There's a long way to 15 go. We've had other goals that, for example, the ZEV 16 program we didn't end up meeting, but there was no harm in 17 setting that goal out and continuing to make adjustments 18 along the way. I think that there have been a lot of 19 strategies outlined here tonight, that if they didn't find 20 their way into this document, as I understand it from 21 Mr. Cackette's comments, it's just an example of -- what's 22 contained in the document is just an example of how to 23 meet that strategy, as has been commented, so many 24 documents. So we just encourage you all to continue 25 pursuing this before the Legislature and various bodies. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 338 1 Thank you. 2 CHAIRPERSON LLOYD: Mr. Paliwoda, I was not 3 laughing at your comment. I was looking at D.D. and 4 imagining her on a motorcycle with a helmet and goggles 5 on. So I was not -- 6 MR. PALIWODA: There's no reason why that 7 couldn't happen. 8 BOARD MEMBER D'ADAMO: I doubt that. You don't 9 want to see that. 10 CHAIRPERSON LLOYD: Again, I think we have a 11 motion here to approve this report. And -- 12 BOARD MEMBER CALHOUN: So moved. 13 SUPERVISOR PATRICK: Second. 14 CHAIRPERSON LLOYD: Seconded. All in favor say 15 aye. 16 (Ayes) 17 CHAIRPERSON LLOYD: Unanimous again. 18 Thank you, staff, tremendously for this. Thank 19 the Energy Commission and our staff, Mr. Cackette and 20 Mr. Shulock and Ms. Tutt. So thank you all very much 21 indeed. I think, again, it really is a continuing process 22 here because I think it's going to be an interesting 23 program. And I will encourage any of my colleagues to 24 attend the other meeting also on the 19th and 20th on 25 diesel alternatives. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 339 1 I would look to staff in terms of the next item. 2 The next item is going to be -- 3 EXECUTIVE OFFICER WITHERSPOON: Motorcycles. 4 CHAIRMAN LLOYD: Motorcycles. So this should be 5 a short item. 6 EXECUTIVE OFFICER WITHERSPOON: Should be. 7 CHAIRPERSON LLOYD: The next agenda item is 8 03-6-3, proposed amendment to the California regulations 9 for new 1997 and later off-highway recreational vehicles 10 and engines. I understand this is a very short item, 11 which is good because we still have one major report to 12 look at. 13 Ms. Witherspoon, would you please begin the staff 14 presentation? 15 EXECUTIVE OFFICER WITHERSPOON: I'll just 16 introduce Ms. Michelle Shultz-Wood of the Enforcement 17 Division to provide the staff report. 18 ENFORCEMENT DIVISION CHIEF RYDEN: Hi, I'm Jim 19 Ryden, Division Chief. And we've had a request to move it 20 along because this is an item where we are really mainly 21 only moving up the date which enforcement's effective on 22 the regulation. The only change here that's regulatory is 23 the change in the regulation that changes the effective 24 date from 1998 to 2003. 25 CHAIRPERSON LLOYD: That's all. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 340 1 ENFORCEMENT DIVISION CHIEF RYDEN: And we do have 2 a ten-minute presentation explaining the program. And if 3 the Board wishes to do that, we'd be more than happy to do 4 it. But the fundamental thing we're trying to do is bring 5 the regulation in line with what, in fact, is reality. It 6 took us a few years to get through it with DMV so we could 7 have a consistent stickering process so we could issue red 8 and green stickers to off-road motorcycles so they could 9 ride at different times of the year. 10 DMV ran into a number of glitches. We worked 11 with them over a period of time. We weren't actually able 12 to go in and enforce the item until the stickers were 13 issued in an equitable and fair manner. There was some 14 problems where the green stickered bikes got red stickers 15 and vice versa. And so basically the only thing we're 16 asking the Board to consider today is, in fact, we're 17 changing the date of the enforcement from 1998 to 2003, 18 which comports with reality, which our friends in parks 19 and rec are now doing. And we're doing this at the 20 request of DMV. And I understand we have one speaker 21 who'd like to come up, Mr. Paliwoda, who has been waiting 22 with us all day long and chiming in on other items, if in 23 fact that pleases the Board. 24 CHAIRPERSON LLOYD: I think would be helpful. 25 ENFORCEMENT DIVISION CHIEF RYDEN: In terms of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 341 1 the presentation -- 2 CHAIRPERSON LLOYD: Given the late hour, 3 appreciate that, Mr. Ryden, very much. 4 With that, I think we will move to public 5 testimony for people who want to testify on this item. 6 And who do we have signed up? Oh, Mr. Paliwoda again. 7 BOARD MEMBER D'ADAMO: Mr. Chairman, as the 8 witness is coming up, does the proposal address these 9 concerns raised by the many in these letters? 10 ENFORCEMENT DIVISION CHIEF RYDEN: We can address 11 those specific issues if, in fact, you'd like to after 12 Mr. Paliwoda's testimony. 13 MR. PALIWODA: Yes. Good evening again, again. 14 I'm Executive Director of the California Motorcycle 15 Dealers Association. We're the trade association for 16 motorcycle dealers in this state, which most motorcycle 17 dealers belong to. I did some have some written 18 testimony, and you probably have it there. But in the 19 interest of brevity, I'll only confine my remarks to the 20 one issue here. 21 I had hoped that I could possibly use this as a 22 platform to suggest changes in some of the specifications 23 and also on taking another look at the riding areas, but 24 that's for another day. 25 Following up on what Mr. Ryden had mentioned, the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 342 1 enforcement date basically has just been moved to the 2 model year 2003 and later. My suggestion was, can we 3 delay it even somewhat further to the 2004/2005 model 4 year? Because consumers have already bought model year 5 2003, and now, of course, we're into the 2004 model year. 6 Consumers have bought these in some cases -- not in all 7 cases, but in some cases, relying on the fact that they 8 would be able to be used in areas that now they won't be. 9 So they bought this machine or this vehicle and basically 10 they won't be able to use it where they thought they 11 would. 12 Now, this seems kind of strange -- and I see some 13 wrinkles up there -- but I get calls almost -- oh, two or 14 three times a week from consumers asking what areas can 15 they use these motorcycles in because they're badged by 16 red or green stickers. Depending on the sticker is where 17 you use them and what times of the year you can use them. 18 But because of the mix up and the delay and the confusion 19 in the issuance of these stickers, because the DMV 20 basically couldn't identify which machines, which 21 conforming and nonconforming machines, should get 22 stickers, it's been kind of a mess. 23 We certainly support the staff's efforts and the 24 staff recommendation for this. This does straighten out a 25 lingering problem. My only recommendation and question PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 343 1 would be is if we can delay this enforcement another 2 couple of years. You have one more element coming in here 3 in 2006. The federal EPA regulations for these 4 motorcycles is going to come into effect also. So their 5 certifications, their specifications, their regulation 6 basically is somewhat similar to what the Air Resources 7 Board promulgated in 1997, and that's another element that 8 should be thrown in there too. 9 So at any rate, that's my testimony, and I thank 10 you for this opportunity. 11 CHAIRPERSON LLOYD: Thank you very much. 12 Do you have a response from staff? 13 CHIEF DEPUTY EXECUTIVE OFFICER CACKETTE: I think 14 there's something in the staff presentation that's missing 15 that might provide some context for the Board members. 16 The Board adopted standards for off-road 17 motorcycles and ATVs sometime in the mid 90s. There was 18 no opposition at that time from the motorcycle 19 manufacturers. The assumption was they were going to 20 build complying bikes. When enforcement was to begin -- I 21 don't remember the precise date -- '98, something like 22 that, the bikes didn't show up. The manufacturers decided 23 there wasn't a big enough market to go ahead and market, 24 to go ahead and switch from the high-emitting two strokes 25 to the four strokes. And we found an inadequate supply of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 344 1 motorcycles available to the consumers. These were 2 off-road motorcycles, sort of dirt-bike type. 3 The Board then -- the staff went back and said is 4 there any other way of getting the emission reductions? 5 And what we came up with was a situation where you could 6 buy the dirty bikes, the ones that don't comply, but you 7 couldn't ride them in the smog season. Then we came up -- 8 with the help of CMDA, the Motorcycle Dealer Association, 9 we came up with Park and Recs a map of where you could 10 ride and at what times of the year, these noncompliant 11 bikes. And if you bought a compliant bike, which there 12 were some but not a full supply, you could ride at any 13 time. And it depended on a labeling system for these 14 bikes, was it complying or not. 15 And what happened was they didn't get labeled 16 right. For many years they didn't get labeled right. So 17 you had people who had a bike that said they couldn't ride 18 that they should have been able to ride and vice versa. 19 So what we did in 2002 -- late 2002 was we grandfathered 20 everybody in and said, "You all get the green sticker. 21 You can ride any time you want." But we need to start 22 enforcement of it now. 23 What happens is since the -- emission reductions 24 that we're getting from this program depend on this riding 25 season issue and proper enforcement of it, if we delay PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 345 1 until '06, it's the same thing as vacating the standard 2 for another two or three years. So we think since -- 3 we're convinced that since late in '02 that the stickers 4 have been issued correctly in almost all cases. It is now 5 automated so we know it's being done correctly. And Parks 6 and Rec people have been very brave and cooperative and 7 are out there enforcing the rules right now starting in 8 June. And so we think we've got the program together. 9 There is information out there of where these 10 riding areas are. It's been out there for years. There's 11 fact sheets and things that are handed out to people at 12 the DMV so they understand this. I'm not claiming 13 everybody understands. But I think there's a reasonable 14 effort to explain to people when you buy a red sticker 15 bike what a red sticker means. It means you can't ride in 16 an L.A. off-road riding park during the summertime because 17 of the emissions. If you buy a green one, you can ride 18 all you want any time of the year. So it's getting this 19 going. If we delay, we lose a big chunk of the emission 20 reductions each year we delay. We don't think there's any 21 reason to delay any more. We've forgone quite a bit of 22 emissions because of this problem with the registration 23 and we didn't want to see that continue. 24 CHAIRPERSON LLOYD: Thank you for that summary. 25 Appreciate it. Puts things into context. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 346 1 Any comments? 2 BOARD MEMBER D'ADAMO: I'd like to make a motion 3 we adopt the resolution. 4 BOARD MEMBER McKINNON: Second. 5 CHAIRPERSON LLOYD: All in favor say aye. 6 (Aye) 7 CHAIRPERSON LLOYD: Anybody against? 8 Thank you very much. And appreciate you 9 shortening that up. 10 We've got the last presentation on the portable 11 classrooms. The next agenda item is 03-6-4, a report to 12 the state Legislature on the environmental health 13 conditions in portable classrooms throughout the state. 14 Again, this study was conducted jointly with the 15 Department of Health Services and includes a series of 16 recommendations to address the identified issues. And the 17 staff has already been working with relevant state 18 agencies and others to take actions to begin to address 19 some of the conditions that need improvement, rather than 20 waiting until this works through. 21 With that, I would like to turn it over to Ms. 22 Witherspoon to introduce the item. 23 EXECUTIVE OFFICER WITHERSPOON: Thank you, 24 Chairman Lloyd. 25 In 1999, concerns were raised by environmental PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 347 1 groups, parents, teachers, and others regarding 2 potentially serious environmental problems in California's 3 portable classrooms. 4 In response, Governor Davis approved a $1 million 5 study to determine whether the problems were real and 6 widespread, and in so, to identify approaches for 7 resolving them. Funding was approved in the fiscal year 8 2000-01 budget for a study to be conducted jointly by ARB 9 and the Department of Health Services. Research Triangle 10 Institute, a not-for-profit research organization, 11 performed the major field work of the study. 12 The results show there are a number of 13 unhealthful conditions that are sufficiently prevalent in 14 some of California's classrooms to warrant actions to 15 remedy them and prevent future problems. These include 16 inadequate outdoor air ventilation, excessive noise, and 17 elevated formaldehyde levels. ARB and DHS staff have 18 developed a list of recommendations to address these 19 problems and conducted workshops for the public and other 20 interested stakeholders. 21 Before the staff begins its presentation, I'd 22 like to introduce Dr. Jed Waldman from the Department of 23 Health Services. Dr. Waldman and his staff worked closely 24 with ours on this project. We're very glad he could be 25 with us at this late hour. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 348 1 On that, I'd ask Tom Phillips in ARB's research 2 division to present the study's result and recommendation. 3 (Thereupon an overhead presentation was 4 presented as follows.) 5 AIR POLLUTION SPECIALIST PHILLIPS: Good 6 afternoon, Mr. Chairman, and members of the Board. I'm 7 pleased to present of the results of the California 8 portable classrooms study today. 9 About one-third of all portable classrooms for 10 kindergarten through 12th grade in California are portable 11 classrooms. That totals about 80 to 85,000 portable 12 classes rooms statewide. 13 --o0o-- 14 AIR POLLUTION SPECIALIST PHILLIPS: First, I will 15 review the background, purpose, and design of the study. 16 Then I will present the results and finally the 17 recommendations and our next steps. 18 --o0o-- 19 AIR POLLUTION SPECIALIST PHILLIPS: As you may 20 recall, the study was proposed by Governor Davis and 21 required by our Legislature in fiscal year 2000-2001 22 budget. This legislation was enacted in response to a 23 number of concerns raised by the public, researchers, and 24 various interest groups. The main concerns include 25 inadequate ventilation, formaldehyde, and the presence of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 349 1 mold growth. The study was conducted jointly by the ARB 2 and the Department of Health Services. Research Triangle 3 Institute, a not-for-profit research consulting 4 organization, conducted the major field work of the study 5 under the contract to ARB. 6 --o0o-- 7 AIR POLLUTION SPECIALIST PHILLIPS: To inform and 8 receive input from the public, we set up a website and 9 list serve at the beginning of the study. We also held 10 four public workshops both before the study and after the 11 report was drafted. There was a 30 day public comment 12 period on the draft report. We have received a number of 13 helpful comments which are reflected in the current draft 14 report. We also met individually with school districts, 15 manufacturers, and state agencies. 16 --o0o-- 17 AIR POLLUTION SPECIALIST PHILLIPS: The purpose 18 of the study was two-fold, to identify the extent of any 19 potentially unhealthful environmental conditions in 20 portable classrooms in California's public schools and to 21 recommend in consultation with stakeholders actions that 22 can be taken to prevent or remedy the problems we found. 23 --o0o-- 24 AIR POLLUTION SPECIALIST PHILLIPS: The study was 25 conducted in two phases. Phase one was a mail survey of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 350 1 1,181 classrooms in 426 schools. It was conducted in the 2 spring and summer of 2001. Extensive questionnaires were 3 sent to teachers and facilities' managers and formaldehyde 4 samplers were sent to some schools for deployment in 5 several classrooms. 6 Phase two the field study involved intensive 7 environmental monitoring and inspection of 201 classrooms 8 in 67 schools. Field technician conducted one-day visits 9 over the fall and winter 2001 and -2. In both phases one 10 and two, two portables and one traditional classroom in 11 each school were studied. The classrooms and schools were 12 selected randomly and the results were weighed to adjust 13 for selection probabilities. Thus, both phase one and 14 phase two provided representative statewide samples. 15 --o0o-- 16 AIR POLLUTION SPECIALIST PHILLIPS: So what were 17 the results of this study? We found that the 18 environmental health conditions in many of California's 19 classrooms did not meet relevant guidelines and standards. 20 The most serious problems occurred only in a small 21 percentage of the schools. We found problems in the 22 following areas: Ventilation, temperature, and humidity, 23 noise, air pollutants, floor dust contaminants, moisture 24 mold, and finally lighting. All of these factors can 25 effect the health, safety, and performance of the students PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 351 1 and teachers. 2 --o0o-- 3 AIR POLLUTION SPECIALIST PHILLIPS: In the area 4 of ventilation, we found that ventilation with outdoor air 5 was inadequate for more than 40 percent of the classroom 6 hours on average. It was seriously deficient during 10 7 percent of the classroom hours. One of the reasons for 8 inadequate ventilation was the teachers often turned off 9 the ventilation system because it was too noisy. 60 10 percent of the teachers in portables acknowledged doing 11 this, compared to 23 percent of those in traditionals. 12 Inspectors also frequently found problems with 13 the operation and maintenance of ventilation systems. 14 Outdoor air dampers were sometimes closed. Candescent 15 drains did not always drain, and air filters and heat 16 exchanger coils were often dirty. 17 --o0o-- 18 AIR POLLUTION SPECIALIST PHILLIPS: Dirty filters 19 like the one in this photo indicate inadequate maintenance 20 and possible contamination of the air distribution system. 21 Temperature and humidity were measured indoors and 22 outdoors and compared to building design standards 23 developed by the American Society of Heating, 24 Refrigerating, Air Conditioning Engineers. 25 --o0o-- PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 352 1 AIR POLLUTION SPECIALIST PHILLIPS: The results 2 indicated the temperature and humidity were often outside 3 of the acceptable rages. The classrooms are cool or too 4 warm for about 20 or 25 percent of the time, and extreme 5 temperatures were reached about 5 percent of the time. 6 --o0o-- 7 AIR POLLUTION SPECIALIST PHILLIPS: Noise was 8 measured in classroom during student recess with the 9 ventilation system on. All rooms exceeded the acoustics 10 guidelines of 35 decibels for unoccupied classrooms. This 11 guideline was developed by the American National Standards 12 Institute and the World Health Organization. 13 Many rooms also exceeded the community nuisance 14 standard of 55 decibels. Specifically 50 percent of the 15 portables exceeded the level, and 38 percent of the 16 traditionals exceeded this level. 17 The best practices goal is 45 decibels. This 18 level is used as a design guideline in the best practices 19 manual developed by the collaborative for high performance 20 schools. This collaborative is comprised of California 21 state agencies, public utilities, and others. 22 --o0o-- 23 AIR POLLUTION SPECIALIST PHILLIPS: As in other 24 indoor environments, formaldehyde levers were on average 25 several times higher than outdoor levels. Indoor PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 353 1 formaldehyde levels were higher in warmer months in 2 classrooms with high humidity and in newer portables. 3 Portables on average had significantly higher formaldehyde 4 levels than the traditional classrooms even after 5 adjusting for classroom age and ventilation. 6 Formaldehyde levels were assessed by comparing 7 indoor levels to health-based guidelines from the Office 8 of Environmental Health Hazard Assessment. The results 9 showed more than 4 percent of the classrooms exceeded 27 10 parts per billion of formaldehyde, the guideline for 11 avoiding acute irritant effects and that all classrooms 12 exceeded the formaldehyde level equivalent to a ten in a 13 million risk of excess cancer for lifetime exposure. For 14 other aldehydes, the levels were also higher indoors, 15 including those for acid aldehyde, a known carcinogen and 16 toxic air contaminant. 17 --o0o-- 18 AIR POLLUTION SPECIALIST PHILLIPS: Indoor 19 formaldehyde levels were also significantly higher in 20 classrooms with building materials known to off gas 21 formaldehyde, including new cabinets and bookcases made 22 with pressed wood. This paragraph shows some of these 23 building materials. Substitute materials that emit little 24 or no formaldehyde are currently available. 25 --o0o-- PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 354 1 AIR POLLUTION SPECIALIST PHILLIPS: Some volatile 2 organic compounds, or VOCs, were found at higher levels 3 indoor than outdoors, but no higher than levels measured 4 in homes and offices. The indoor levels of VOCs did not 5 exceed the available health guidelines for acute or 6 immediate effects. 7 In terms of excess cancer risk, nearly all 8 classrooms had levels of Benzene that exceeded a ten in a 9 million risk. And most classrooms had chloroform levels 10 that exceeded a one in a million risk. However, outdoor 11 air was a major source of benzene and chloroform. 12 --o0o-- 13 AIR POLLUTION SPECIALIST PHILLIPS: Particle 14 counts for different size ranges were measured 15 continuously indoors and outdoors during the day. The 16 results indicate that the highest particle counts were 17 founds in portables, especially for the 2.5 micron size 18 range. A major source of particles was nearby vehicle 19 traffic. Over half the rooms were within 50 feet of a 20 roadway or parking lot. Another likely source of 21 particles was resuspension of dust from carpets and rugs, 22 which are found more frequently in portables. Here is an 23 example of a common location for portable, near vehicle 24 traffic with the outdoor air intakes facing the road. 25 --o0o-- PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 355 1 AIR POLLUTION SPECIALIST PHILLIPS: Dust 2 contaminants are mainly a health concern for younger 3 children. They spend more time in contact with the floor, 4 and they experience higher exposures. Floor dust was 5 vacuumed from carpets or from hard floors and other 6 surfaces in classrooms without carpet. 7 Several metals were analyzed in the floor dust. 8 The results show that levels of lead in floor dust were 9 elevated over typical soil levels. The soil most likely 10 came from track-in of contaminated soil or from lead paint 11 chips. In addition, levels of arsenic in floor dust were 12 elevated over typical soil levels. Some California soils 13 can contain high levels of arsenic. Other possible 14 sources include fertilizer contaminants and wood 15 preservatives. 16 --o0o-- 17 AIR POLLUTION SPECIALIST PHILLIPS: Here's a 18 photograph of an older portable classroom with peeling 19 paint, which can result in exposure to lead. 20 --o0o-- 21 AIR POLLUTION SPECIALIST PHILLIPS: Numerous 22 pesticides were found in all floor dusts samples. Six 23 pesticides were found in over 80 percent of the samples, 24 including chlorophyllous, a banned pesticide. Four more 25 pesticides were found in over 50 percent of the samples. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 356 1 The sources of pesticides appear to be recent in 2 historical applications indoors and transportation from 3 outdoors on shoes and clothes. Further assessment of the 4 results is underway. 5 Polycyclic aromatic hydrocarbons, PAHs, were 6 measured in the floor dust. Most of them were found in 7 over 80 percent of the rooms. The pH levels were 8 relatively low. They were highest in the portables. 9 Because allergens are a trigger for asthma symptoms, 10 common allergens were measured in the floor dust. Cat and 11 dog allergens were found in over 50 percent of the rooms, 12 but nearly all were below sensitive levels. The main 13 source of these allergens was transport from the home via 14 clothing. Cockroach and dust mite allergens were found 15 only in frequently and low levels. 16 --o0o-- 17 AIR POLLUTION SPECIALIST PHILLIPS: The phase one 18 mail survey indicated widespread problems related to 19 moisture, which is a precursor mold growth. 63 percent of 20 the teachers reported musty or mold odors, a sign of mold 21 presence. And 43 percent of the teachers reported current 22 or previous floods or leaks. 9 percent of the teachers 23 reported visible mold in the classroom. 24 The field observations in phase two indicated 25 that 30 percent of all rooms had water stains on the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 357 1 ceiling, and 17 percent of all rooms had excesses moisture 2 measured in the walls, floor, or ceiling. In addition, 3 3 percent of the portables had visible mold on the ceiling. 4 None was found in traditionals. 5 --o0o-- 6 AIR POLLUTION SPECIALIST PHILLIPS: Here are two 7 examples of common moisture sources. The top photograph 8 shows poor drainage around the building foundation. Note 9 the water draining in a low spot near the building and 10 perhaps a drain underneath the building. In the bottom 11 photograph, note the water stains on the ceiling. These 12 are probably from a roof leak and/or a leak around the 13 rooftop heating and cooling system. 14 --o0o-- 15 AIR POLLUTION SPECIALIST PHILLIPS: Here's an 16 example of mold growth hidden in a wall board of the 17 classroom. Note the dark areas on the wall board. 18 --o0o-- 19 AIR POLLUTION SPECIALIST PHILLIPS: Lighting was 20 measured at the center of the room and compared to current 21 professional design standards. About one-third of all 22 classrooms did not meet the standard of 50-foot candles 23 for viewing low-contrast materials. In addition, a small 24 percentage of rooms did not meet the standard of 30-foot 25 candles for viewing high contrast materials. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 358 1 --o0o-- 2 AIR POLLUTION SPECIALIST PHILLIPS: In 3 conclusion, these results show that the majority of 4 California's K through 12 classrooms need improvement in 5 one or more areas of indoor environmental quality. These 6 include fresh air, ventilation and noise, sources of 7 contaminants, moisture intrusion, and maintenance, repair, 8 and clean practices. 9 There are solutions available for these problems. 10 However, these solutions will require collaborative 11 efforts among the state agencies, school districts, 12 facility managers, teachers, parents, and the 13 manufacturers of portable classroom and ventilation 14 systems. Most importantly we must shift the emphasis from 15 remediation after the fact to prevention. 16 --o0o-- 17 AIR POLLUTION SPECIALIST PHILLIPS: We developed 18 a number of recommendations to address these various 19 problems we found. We broke them into two groups. Group 20 one recommendations are actions that are high priority, 21 high benefit, and relatively low cost. Group two 22 recommendations are priority actions that will require 23 longer term effort or higher cost to implement. 24 --o0o-- 25 AIR POLLUTION SPECIALIST PHILLIPS: Group one, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 359 1 the first recommendation is the school districts and state 2 assure all school buildings meet all state regulations. 3 They especially need to meet the Cal-OSHA regulations for 4 operation and maintenance of ventilation systems for 5 sanitation and for prevention and remediation of moisture 6 intrusion. 7 Recommendation 2 is that schools conduct 8 self-assessment of basic health and safety conditions. 9 For example, the Los Angeles Unified School District has 10 developed a simple checklist for self-inspection that can 11 be used by other school districts. The Los Angeles 12 Unified School District found that the majority of health 13 and safety problems they identified could be fixed at 14 little or no cost. 15 Recommendation 3 is the state should require 16 districts and schools to develop and implement an indoor 17 environmental quality management plan. This would help 18 make preventative maintenance more routine. The U.S. 19 EPA's indoor air quality Tools for Schools provided 20 guidance for developing such a plan and is free to the 21 public. School districts in Visalia and San Francisco, 22 among others, have successfully and cost-effectively 23 implemented Tools for Schools program. 24 --o0o-- 25 AIR POLLUTION SPECIALIST PHILLIPS: Continuing PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 360 1 with the Group 1 recommendations, we recommend the state 2 establish a policy to incorporate best practices into the 3 design, construction, operation, and maintenance of 4 schools. In particular, the best practices measures 5 developed by the Collaborative For High Performance 6 Schools must be followed. Some districts in California 7 have already adopted these best practices, including the 8 Los Angeles Unified School District. 9 We also recommend expanding the state's review 10 for design and major renovations to include ventilation 11 systems and building materials. The state architect is 12 proposing to add trained staff to meet this need, and we 13 support this proposal. 14 In recommendation 6, we recommend the portable 15 classrooms should be sited properly away from highways and 16 busy roads and with proper grading and drainage. 17 Recommendation 7 is that the state implement an 18 interim limit of 45 decibels from heating, ventilating and 19 air conditioning systems, or HVAC systems. It should also 20 encourage other sound reduction measures, such as 21 reduction of noise from lights. 22 --o0o-- 23 AIR POLLUTION SPECIALIST PHILLIPS: Moving on to 24 Group 2 recommendation, these actions should start now but 25 will take more time and more resources to implement. Most PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 361 1 importantly, we recommend that the state districts assure 2 stable and long-term funding for both school construction 3 and preventative maintenance. Funding levels for 4 maintaining school facilities have been inadequate and 5 inconsistent for some time. 6 Next, the state should develop and offer 7 coordinated training programs and materials for facility 8 managers, custodial staff, and teachers. Those who are 9 closest to the classroom often are not aware of current 10 best practices for operation and maintenance of the 11 classrooms. 12 Recommendation 10 is that all schools implement 13 integrated best management, which is a program of 14 preventative housekeeping and use of least toxic 15 pesticides. 16 Recommendation 11 is that older portable 17 classrooms should be removed and replaced when they become 18 unserviceable or do not provide an adequate learning 19 environment for children. 20 Next, building commissioning specification for 21 new buildings should be developed and implemented by the 22 state school districts. Building commissioning involves 23 testing of ventilation, lighting, the other building 24 systems under normal and high capacity operational 25 conditions. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 362 1 --o0o-- 2 AIR POLLUTION SPECIALIST PHILLIPS: Now for the 3 last four recommendations for longer-term and higher-cost 4 efforts. 5 Recommendation 13 is that the state improve its 6 inventory database of the public school facilities. The 7 school facilities represent one of the state's greatest 8 financial assets. 9 Recommendation 14, the state should convene a 10 task force of experts in audiology, medicine, education, 11 and related fields to develop an indoor noise guideline or 12 standard for California's public schools. 13 Recommendation 15 is the state should develop 14 chemical exposure guidelines or standards for all 15 classrooms. There's a lack of benchmarks for fully 16 assessing and assuring the full environmental conditions 17 for children and teachers in classrooms. 18 Last, but not least, we recommend that portable 19 classrooms be redesigned from the ground up. Southern 20 California Edison, Lawrence Berkeley National Laboratory 21 and several manufacturers have begun to develop advanced 22 designs of relocateable classrooms. Such advanced designs 23 should be fully developed and demonstrated to determine if 24 they might better meet future classroom needs. 25 --o0o-- PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 363 1 AIR POLLUTION SPECIALIST PHILLIPS: ARB can take 2 certain steps to help implement these recommendations. 3 First, the Board can approve the report for submittal to 4 the Governor and the Legislature. Next, staff will 5 continue to work with the stakeholders to facilitate the 6 implementation of these recommendations. In particular, 7 staff will continue to participate in state relocateables 8 working group. This interagency group is currently 9 working to improve the state's design specification for 10 leased portable classrooms and plans to develop training 11 programs and other action as well. 12 Finally, staff are currently developing a 13 formaldehyde airborne toxic control measure for composite 14 wood products. We expect this to be ready for the Board's 15 consideration in the first half of 2004. 16 This ends my presentation. Thank very much for 17 your attention. 18 CHAIRPERSON LLOYD: Thank you very much. 19 Is this report on time? 20 EXECUTIVE OFFICER WITHERSPOON: No, Dr. Lloyd, it 21 is not. I think it's about a year late. 22 INDOOR EXPOSURE ASSESSMENT SECTION SUPERVISOR 23 JENKINS: Yes. Is this on? Peggy Jenkins. It is a year 24 late. We had a number of setbacks. There's a long list 25 of them. One is just a big cumbersome study. But also PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 364 1 the 9/11 situation set us back several months, and so on. 2 CHAIRPERSON LLOYD: I wasn't -- I was just 3 interested because I know it's a very comprehensive study 4 there, so I was pleased to see that. 5 Any questions or comments? 6 Ms. D'Adamo. 7 BOARD MEMBER D'ADAMO: Well, I really need to get 8 going, but I feel pretty strongly about this. I was 9 briefed on it and appreciate staff's spending some extra 10 time with me on this. And after I got off the phone last 11 week, I've been, you know, thinking about it and getting 12 more and more worried because -- especially on the 13 pesticide and dust issue on the floor. 14 The report highlights that especially for younger 15 children who happen to sit on the floor, that can be a 16 particular problem. But my experience in a classroom, 17 because I've got school-age children, is that all kids 18 throw their backpacks on the floor. There's not enough 19 room. They don't have -- a lot of schools don't have 20 lockers anymore so they just toss the backpacks and books 21 on the floor. They pick them up, and then these kids 22 don't wash their hands before they eat lunch and their 23 hands end up in the mouth. 24 So I remember even there had been some findings 25 of DDT in some of the samples. So I'm just wondering if PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 365 1 there's a way that maybe these recommendations would 2 already allow for this. But I think that there's a public 3 education and outreach component perhaps that's under EPA 4 Tools for Schools. And is there a way to specifically 5 bring in parents, that if parents had a little checklist, 6 it would be helpful to have the doors open, remind the 7 school administration about the filters being replaced. I 8 think that's pretty low cost if you can get information 9 out there to parent groups and teachers that they think 10 they're doing the students a good service by closing the 11 door and turning the air conditioning off so they can 12 focus on their studies. They may not realized the damage 13 they could be causing. So if there's a way to expand on 14 any of these to make sure we have that public outreach and 15 education component. 16 INDOOR EXPOSURE ASSESSMENT SECTION SUPERVISOR 17 JENKINS: They do include it, but not in a direct sense. 18 So we'll certainly add that to it. 19 BOARD MEMBER D'ADAMO: And then the other one is 20 on recommendations longer term developed focused training. 21 I would think that should be -- is that really the higher 22 cost? If janitors and school professionals could be 23 better educated as to what they need to be doing with 24 these ventilation systems, that seems to me to be a lower 25 cost, maybe a higher priority. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 366 1 INDOOR EXPOSURE ASSESSMENT SECTION SUPERVISOR 2 JENKINS: I think it's in that group because it's more of 3 a long-term implementation. Particularly the 4 certification of the facility managers would require 5 development of a training program and a certification 6 program. A lot of that training, you're right, it can be 7 done right away. The Tools for Schools program actually 8 serves as a really excellent training tool. It's just 9 getting the schools to realize that it's actually easier 10 than it looks to implement that kind of a program. 11 There's -- schools, as you know, have a lot on 12 their plate right now. They always do. And once they're 13 aware of these tools and it's shown to them actually how 14 easy it is and quick and inexpensive, then the schools do 15 grab on to them. So that's a good training tool, the 16 CHIPS manual has some information. There's a lot of 17 information out there. I think that one recommendation is 18 primarily for the certification issue. 19 CHAIRPERSON LLOYD: Mr. McKinnon and Supervisor 20 Patrick. 21 SUPERVISOR PATRICK: Thank you, Mr. Chairman. 22 I'm sorry. I just heard the last part. I just heard the 23 "Supervisor Patrick" part of it. Go ahead. 24 BOARD MEMBER McKINNON: I was going to comment 25 that there is an existing system through Cal OSHA where PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 367 1 there is supposed to be hazard assessments happening in 2 every place of employment. Schools are places of 3 employment. And it may be so simple as -- and this isn't 4 simple. But it may be just making folks aware of sort of 5 the high points here, have a shortened version of the 6 report and making sure that it makes it to teachers, 7 unions, school districts, classified employees, unions, 8 some of the other folks that are engaged in the process 9 that's supposed to ensure that the school site is a safe 10 place for the people that work there. And I think if that 11 happens, you get to many of these issues pretty quickly, 12 probably quicker than starting something new. 13 CHAIRPERSON LLOYD: Thank you. 14 Supervisor Patrick. 15 SUPERVISOR PATRICK: Thank you, Mr. Chairman. 16 Now I'll speak. I apologize, Matt. I didn't hear the 17 first part of that. Our Chairman is soft spoken. I don't 18 have that problem. 19 I did want to compliment staff. I, too, was 20 briefed on this. I think it's a very important report, 21 and I particularly like the way that you have a hierarchy 22 of things that can be done. And as someone who spent lots 23 of time in the classroom, I was always grateful I was not 24 in a portable. They just -- the floor was kind of 25 strange, the way it moved like that and so forth. But PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 368 1 nonetheless, you have approached it very realistically, 2 and I think that certainly the counties' superintendents 3 of schools and large districts and so forth are going to 4 be eager to hear what you have to say in this, especially 5 because you approached it very practically talking about 6 other school districts that have been successful at having 7 a checklist and just being more aware of what needs to be 8 done. So I think this is a very important first step, and 9 I really have to compliment staff on the great way that 10 you approached this. 11 You know, schools don't need one more thing to 12 do. They truly don't. They're mother, father, 13 grandmother, grandfather, and everything else to the 14 children who walk through the door. But, of course, there 15 are some things in there that are very, very disturbing. 16 So I know they will want to step forward, and we will 17 obviously have the tools to be able to give them so they 18 can be successful in this effort. So kudos to the staff. 19 Good job. And I'll move the resolution. 20 INDOOR EXPOSURE ASSESSMENT SECTION SUPERVISOR 21 JENKINS: Thank you very much. 22 CHAIRPERSON LLOYD: Thank you. 23 We have a resolution and proposal and second. 24 All in favor say aye. 25 (Aye) PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 369 1 CHAIRPERSON LLOYD: Nobody against. Unanimous. 2 Thank you, staff. Good job. 3 And I guess now there's no other items so I 4 officially bring the July 24th Air Resources Board meeting 5 to a close. Thank for your patience. It's been a long 6 day. Thank you. 7 (Thereupon the California Air Resources Board 8 adjourned at 6:30 p.m.) 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 370 1 CERTIFICATE OF REPORTER 2 I, TIFFANY C. KRAFT, a Certified Shorthand 3 Reporter of the State of California, and Registered 4 Professional Reporter, do hereby certify: 5 That I am a disinterested person herein; that the 6 foregoing hearing was reported in shorthand by me, 7 Tiffany C. Kraft, a Certified Shorthand Reporter of the 8 State of California, and thereafter transcribed into 9 typewriting. 10 I further certify that I am not of counsel or 11 attorney for any of the parties to said hearing nor in any 12 way interested in the outcome of said hearing. 13 IN WITNESS WHEREOF, I have hereunto set my hand 14 this 7th day of August, 2003. 15 16 17 18 19 20 21 22 TIFFANY C. KRAFT, CSR, RPR 23 Certified Shorthand Reporter 24 License No. 12277 25 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345