West-wide Coordination Among States on Petroleum Reliability, Safety, Environment and Prices

Transcription

1 West-wide Coordination Among States on Petroleum Reliability, Safety, Environment and Prices A Presentation for the Western Interstate Energy Board Washington State Department of Commerce California Energy Commission June, 2013

2 Petroleum Expenditures Almost Double that for Retail Electricity

3 *** WIEB Motor Fuel Pricing Webinar (2/6/13) with presentations is available from WIEB on request 2012 West Coast Gasoline Price Spikes BP Misses Publicized Start Date, Week before Memorial Day Exxon/Mobil Torrance, CA Power Outage, BP Cherry Point, WA Refinery Fire, Chevron Richmond, CA Refinery Fire,

4 Washington Governor s Directive to Department of Commerce May 24, 2012 Washingtonians deserve to know the reasons for [the price discrepancies], and to be assured that their government is doing its job to ensure that the market is performing fairly. Accordingly, I am directing [Commerce] to assume lead responsibility for monitoring and reporting on gasoline and petroleum product prices and supplies, and for providing me with any recommendations on what actions might be taken to mitigate the high prices. Monitor and regularly report on petroleum supplies and prices Provide assistance to other state agencies related to high gasoline and diesel prices. Report any market concerns to the Attorney General s office. Coordinate information and analysis with California and Oregon. Make recommendations on actions State could take under Energy Emergencies statute. Provide additional recommendations that could help reduce petroleum product prices. Once gas prices have returned to normal patterns submit a final report with any longer term recommendations.

5 What can states do to keep petroleum product prices down? If you want to affect prices, there really are only four categories of options, and the fourth does not really address prices, but price impacts. Stimulate Price Reductions (e.g. reduce costs, create incentives, increase competition) Increase Supply (e.g. greater inventories, increased pipeline capacity) Decrease Demand (e.g. improve mileage, encourage ridesharing) Mitigate Impacts (e.g. subsidize transit)

6 Different Problems & Different Solutions Just in Time Actions to Address Short Term Price Spikes Mainly demand reduction, but not overly productive. High prices actually help to end shortage. Just in Time Actions to Address Long Term Average Prices Not useful no meaningful affect on long term prices. Structural Solutions to Address Short Term Price Spikes E.g. Options that increase availability of short term supply or reduce probability of supply disruptions. Structural Solutions to Address Long Term Average Prices Many alternatives, but very long term (e.g. Higher CAFE Standards, penetration of EV into national fleet.)

7 Different Problems & Different Solutions Just in Time Actions to Address Short Term Price Spikes Mainly demand reduction, but not overly productive. High prices actually help to end shortage. Just in Time Actions to Address Long Term Average Prices Not useful no meaningful affect on long term prices. Structural Solutions to Address Short Term Price Spikes E.g. Options that increase availability of short term supply or reduce probability of supply disruptions. Structural Solutions to Address Long Term Average Prices Many alternatives, but very long term (e.g. Higher CAFE Standards, penetration of EV into national fleet.)

8 Structural Options to Address Long Term Average Prices Lower Costs: Reduce taxes, moderate safety and environmental regulations Reduce Demand: Seek improvements in vehicle efficiency, including long haul trucks Lower Costs: Increase certainty in siting and reduce permitting costs Reduce Demand: Mandate or incent increases in substitute fuels Increase Competition: Facilitate greater market penetration for hyper-marketers Reduce Demand: Set carbon fee Reduce Demand: Acquire better data and educate public on fuel pricing to facilitate better decisions

9 Structural Options to Address Long Term Average Prices Lower Costs: Reduce taxes, moderate safety and environmental regulations Reduce Demand: Seek improvements in vehicle efficiency, including long haul trucks Lower Costs: Increase certainty in siting and reduce permitting costs Reduce Demand: Mandate or incent increases in substitute fuels Increase Competition: Facilitate greater market penetration for hyper-marketers Reduce Demand: Set carbon fee Reduce Demand: Acquire better data and educate public on fuel pricing to facilitate better decisions

10 Structural Options to Address Price Spikes Mandate or incent strategic Inventory storage (possibly incent increased marine storage access for third party marketers) Support new refinery and pipeline capacity (response to new Midwest resources). Mandate or incent better refinery and pipeline maintenance

11 Structural Options to Address Price Spikes Mandate or incent strategic inventory storage (possibly incent increased marine storage access for third party marketers) Support new refinery and pipeline capacity (response to new Midwest resources). Mandate or incent better refinery and pipeline maintenance

12 Shared Western States Goals Reduced volatility in energy prices (fewer, shorter and less severe price spikes). Energy supply and distribution reliability High public and worker safety Reduced environmental impacts Improvements in refinery and pipeline maintenance would support all four goals. View Chemical Safety Board Chevron Richmond Refinery Fire Animation

13 Are there insufficient incentives to avoid unplanned outages?

14 California Response: AB Refinery Turnarounds AB 438 would require refiners to report their planned maintenance schedules every September 15 th for the following calendar year. These schedules would be reported to the California Division of Occupational Safety and Health. That agency would then have the discretion to request the refiner to submit detailed information 60 days prior to the planned maintenance that would include: (1) Corrosion reports. (2) Risk-based inspection reports. (3) Boiler permit schedules. (4) Management of change reports since the last turnaround. (5) Unfulfilled work orders since the last turnaround. (6) Temporary repairs since the last turnaround. (7) Design changes or modifications to vessels and piping since the last turnaround. (8) Process changes since the last turnaround.

15 California Response: SB 448 Increased Supply & Price Monitoring SB 448 would require the California Energy Commission to use their existing data resources to identify any potential fuel price manipulation behavior. If any such activity is suspected, the CEC would then report these findings to the appropriate state and federal regulators. Further, the CEC would detail additional types of information that they should collect to better assist with this type of potential price manipulation analysis. In addition, the CEC would also evaluate the following concepts: (1) Increasing fuel storage of fuels produced in the state. (2) Leveraging the state s purchasing power related to the state s fleet. (3) Increasing timely imports of fuels during emergency conditions and rapid price swings volatility. (4) Coordinating the timing of maintenance and shutdown activities at in-state fuel production facilities.

16 How much would it all cost? The penny per barrel concept is one approach to generating additional revenue for state officials that could be used to increase their oversight of the refining industry. Because the refiners process a great deal of crude oil, even this extremely modest fee of a penny per barrel would generate significant revenue each year. Applying this fee to refiners in Washington state could generate $1.9 million per year. This is based on an operable atmospheric distillation capacity of 630,700 barrels per day and an average utilization rate of 83 percent (PADD V utilization rate during 2012 was 82.9 percent). Using the same approach for California s million BPD operable capacity would yield about $5.9 million per year. So a very modest fee of 1/42 nd of a cent per gallon could generate sufficient funds to hire several engineers, inspectors and analysts at relatively no cost to consumers.

17 Issues for Discussion We know infrastructure is aging. Is the Chevron, Richmond incident anomalous? Is it a warning of future trends? Should we find out? How would we find out? Presuming that markets are working and there is no chronic or egregious collusion, is there still a problem because oil companies are lacking sufficient incentives to avoid these kind of outages? What incentives do they have, and are they enough? These kind of incidents involve not just SEOs that are concerned about the reliability of supply and prices, but federal and state agencies that regulate public safety, worker safety, and environmental impacts. Might there be opportunities for intergovernmental and interagency coordination to address infrastructure issues to the benefit of all? Who are these players and are the Energy Offices in communication with them? Is there a role for states to play in raising incentives? What are the options, the benefits, the costs? Should we find out? How would we find out? Based on this discussion, what should we do next?