2 All these studies are very fine and I know the 3 staff has done a tremendous job, a lot of time and lot of 4 dedication to this effort, but the mere reason we want to 5 see this slowed down a bit is to take another look at what 6 happens in the process of producing ethanol, that is by 7 diverting rice straw from field burning, what benefits are 8 accrued when you count that into having an RVP waiver in 9 place?

10 In other words, we would produce less NOx. Can we 11 subtract that from the extra NOx that would be produced by 12 having the evaporative losses out there? We think that's 13 something which needs to be considered. And I'm sure you 14 all will at some point in the future, if I heard correctly 15 in the staff report.

16 Also if there is not enough offset there in order 17 to make up for those additional evaporations, let's look at 18 a different mitigation. Perhaps we need a better gas cap.

19 I don't know. That might be something to look at.

20 We'd like to see the scope of this study expanded 21 just a bit and delayed until we can have a few better 22 answers as to those points.

23 I think that would conclude our discussion at this 24 point.

25 CHAIRMAN RIORDAN: And I thank you very much.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 96 1 Are there any questions for this witness?

2 Thank you.

3 Dr. Al Jessel, followed by Rick Best, Ms. Megan 4 Smith, and Dawn Forsythe.

5 DR. JESSEL: Thank you, Madam Chairman and the 6 rest of the members of the Board. I won't take up much of 7 your time. I'm going to focus my comments on a very 8 specific issue concerning the peer review.

9 CHAIRMAN RIORDAN: Yes.

10 DR. JESSEL: The copy I have is dated December 11 2nd, 1998. I congratulate the Board for actually getting 12 the peer review conducted, and Dr. Lucas, I think, has done 13 a fine job.

14 I just want to make one point, which I think is 15 going to be important as we move into another process to 16 reconsider fuels regulations and perhaps the RVP spec that 17 are I think that most people in this room are committed to.

18 The peer reviewer concludes, and I'm going to read 19 it directly off my copy of here, it says the conclusion of 20 the ARB staff is that California reformulated gasoline 21 containing ten percent ethanol results in an increased 22 ozone forming potential if the RVP limit is not limited to 23 seven pounds per square inch.

24 Our position is that that is much too narrow a 25 finding, and really is in conflict with the finding as PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 97 1 stated by the staff report, what's sitting before you as a 2 proposal.

3 What this says is that in no way could you find 4 that RVP could be raised above seven, potentially even 5 offset. And I think that may be prejudicial to the process 6 that I think we're all going to come into very shortly.

7 Historically, that statement was found in the 8 original draft proposal that CARB staff had put out for 9 public comment. It's not currently the way it's stated in 10 the draft before you now.

11 But I want to put on the record the fact that I 12 believe that this is a misstatement of the finding, with all 13 due respect to the peer reviewer, and I think it's wise to 14 have that on the record, because otherwise it may very much 15 prejudice the process that we're all going to move into at 16 some point.

17 So that's the extent of my comment.

18 CHAIRMAN RIORDAN: Thank you, Dr. Jessel.

19 I don't know if the staff would like to comment 20 now, or the reviewer, at this point or later. It's up to 21 you.

22 MR. SIMEROTH: My name is Dean Simeroth,

23 California Air Resources Board staff.

24 Our view is that we're trying to make the finding 25 on the complete waiver as it's written in the Health and PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 98 1 Safety Code, not that something is slightly above seven and 2 may be prohibited. Try to preserve some flexibility.

3 CHAIRMAN RIORDAN: Thank you.

4 And thank you, Dr. Jessel.

5 The next witness is Rick Best. If you would come 6 forward and identify yourself for the record and who you 7 represent.

8 MR. DONAHUE: Thank you, Madam Chair. My name is 9 Paul Donahue, appearing for Mr. Best, who is unable to 10 remain for the entire procedure.

11 I'm here today on his behalf, and actually on 12 behalf of six environmental organizations who are as 13 follows: The California Public Interest Research Group,

14 Communities for a Better Environment, Californians Against 15 Waste, the Silicon Valley Toxics Coalition, the National 16 Audubon Society, and Clean Water Action.

17 All of the above organizations urge the Board 18 today to withhold making a final decision on the matter 19 pending in front of you right now concerning RVP gasoline,

20 until all appropriate variables are considered and there are 21 enough testing has been conducted to produce some adequate 22 data.

23 The letter I'm summarizing is in the record, but 24 it is our belief that a yes no determination that you're 25 being asked to make today is  does not and should take PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 99 1 into account the growing contamination of drinking water 2 supplies by MTBE, the nonpersistence, the nonmobility and 3 nontoxicity of ethanol in soil and water, and the 4 availability in California, as was previously mentioned, of 5 vast agricultural and other waste resources that can be 6 converted to ethanol. This step should be a first step, not 7 a final decision, in the effort to take advantage of the 8 benefits of using ethanol in California.

9 The draft report appears to fall short of that 10 standard in a number of ways, because only 12 vehicles have 11 been tested, and those types tested represent only about ten 12 percent of the emissions inventory.

13 Furthermore, high emitter vehicles were not 14 tested, and ARB's reason, the staff report indicated these 15 vehicles were known to have highly variable emissions, but 16 that seems to buttress the argument that a larger number of 17 vehicles should be tested to smooth out and make a more 18 complete result from the variables.

19 Many of the tests cited in the study yields that 20 when averaged they show emission changes that are smaller 21 than the standard deviation. These throw the findings into 22 question and argue for a larger pool of tested vehicles.

23 Until these shortcomings are rectified, we do not 24 see how the ARB can answer this question about ozone forming 25 potential of an ethanol blend compared to the currently used PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 100 1 fuel blends.

2 And we urge the Board to step back and reassess 3 the study until it has a chance to revise to answer these 4 questions.

5 Thank you, Madam Chair and members, for your time.

6 CHAIRMAN RIORDAN: Thank you, Mr. Donahue. And 7 thank you for representing Mr. Best.

8 Ms. Megan Smith.

9 MS. SMITH: Good morning, Madam Chairman and 10 members of the Board. By the way, I like the title Madam 11 Chairman. It has a ring to it.

12 I'm Megan Smith, co director of the American 13 Bioenergy Association located in Washington, D. C.

14 Thank you for allowing me the opportunity to 15 testify before you on behalf of my association regarding 16 gasoline blended with ten percent ethanol.

17 California has a great opportunity to support an 18 emergence in California based industry, that is biomass 19 conversion to ethanol.

20 I came out to California some five years ago while 21 employed at the National Renewable Energy Laboratory to 22 explore the potential for biomass ethanol in the state.

23 Since that time, we've discovered that California 24 has enough biomass waste resource to produce four billion 25 gallons of ethanol per year. This equates to approximately PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 101 1 three times the amount needed to displace the MTBE now being 2 used in California's gasoline.

3 The definition of biomass is any matter composed 4 of cellulose and lignin. Examples in California include 5 agriculture residues such as rice and wheat straw, orchard 6 prunings and pecan shells; forest residues, such as forest 7 thinnings and mill operator's waste; and the paper component 8 of solid waste, of which California has plenty of each.

9 The benefits of biomass ethanol are many and far 10 outweigh the supposed VOC problem for which ethanol is 11 always condemned.

12 But I'm not going to address this issue on a 13 technological level today, as there are others in the 14 ethanol industry that will do this eloquently.

15 Instead, I ask that you consider increasing the 16 oxygen cap while at the same time leaving in place the 17 one pound waiver for ethanol that California had the 18 foresight to put in effect several years ago.

19 If not convinced to do so by my ethanol 20 colleagues, based on their scientific evidence regarding 21 emissions, I ask that you do this based on the potential 22 benefits biomass ethanol may bring to the State of 23 California in the near future, including reduction of air 24 emissions through residue burning abatement.

25 But in order for biomass methanol to become a PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 102 1 reality, corn based ethanol must be used in the meantime to 2 guarantee that a market for ethanol exists for biomass 3 ethanol once it's produced in California.

4 The current ethanol industry converts to ethanol 5 only currently available biomass, that is starch inside the 6 corn kernel itself. The rest of the plant is biomass. This 7 is where corn or starch based ethanol and biomass or 8 cellulose based ethanol differ.

9 Aside from absurdly low oil prices, corn based 10 ethanol cannot compete with gasoline without its tax 11 incentives due to the high feedstock price of corn.

12 Biomass, on the other hand, is a less expensive 13 feedstock, much of it regarded as waste.

14 Also, biomass ethanol plants supply their own 15 power through conversion of biomass' lignin component.

16 These two things, cheaper feedstock costs and 17 self supporting energy supply, make biomass ethanol more 18 cost effective than corn based ethanol.

19 Because of this difference, biomass ethanol will 20 be able to directly compete with gasoline in the very near 21 future.

22 Biomass ethanol can help eliminate municipal solid 23 waste ag and forest residues. Many landfills in California 24 are turning away waste, only to find there are few other 25 disposal options.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 103 1 California's committee on alternatives to rice 2 straw burning has determined the conversion of rice straw to 3 ethanol as one of the few viable options.

4 In addition, yard and orchard trimmings, and even 5 pecan shells, may in the future actually acquire value,

6 increasing farm income.

7 Biomass ethanol can also help make forests safer 8 and healthier. Forest fires stemming from immense fuel 9 loading have severely threatened human life and property.

10 Biomass ethanol can therefore help California 11 alleviate air pollution by converting rice straw and forest 12 residues to ethanol that would otherwise burn, emitting 13 great amounts of air pollutants.

14 Also, state money would be saved by preventing 15 imperative fire fighting practices, which are extremely 16 costly to California and the federal government on the 17 upwards of $ 1 billion per year.

18 As another benefit, biomass ethanol can improve 19 biomass power economics.

20 As you know, California has recently lost about 21 one third of its capacity supplied by biomass power plants.

22 Biomass ethanol plant generates enough energy from 23 biomass' lignin component to actually operate the plant,

24 while still having excess electricity left over to sell to 25 the grid.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 104 1 Analytical data has revealed that coupling of 2 biomass power plants  sorry  of biomass ethanol plant to 3 these power plants may actually keep some of them 4 operational through improved economics.

5 Three biomass ethanol plants totalling 50 to 60 6 million gallons per year production are now in the planning 7 stages in California, ready for production in about three to 8 five years. One plant will convert rice straw, one will 9 convert rice straw and wood waste, and one will convert wood 10 waste only.

11 On October 20th of this year, a groundbreaking 12 ceremony took place in Louisiana to retrofit a starch based 13 ethanol plant to use sugarcane waste as its biomass 14 resource.

15 California therefore will have the benefit of 16 expanding on the learning curve of this first of a kind 17 plant, which will make construction and operation of 18 California plants that much easier.

19 In summary, the California State Legislature asked 20 for an evaluation of environmental benefits for MTBE 21 alternatives.

22 I believe I've covered these for biomass ethanol.

23 The recent UC Davis report and the CEC reports 24 support banning MTBE, and demonstrate that there are no 25 unsurmountable cost barriers to using ethanol in California.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 105 1 But to expand this industry quickly to displace 2 MTBE with ethanol is going to require a commitment from 3 California.

4 I believe that if California doesn't use 5 corn based ethanol as a bridge to biomass based ethanol, in 6 the future California may lose its opportunity for this fuel 7 and all of its many benefits, as it will be hard to 8 resurrect the oxygenated fuels program.

9 The corn ethanol industry claims it can rise to 10 the occasion of supplying most of the MTBE replacement 11 within a few years by expanding their existing capacity.

12 If California gave the Midwest this opportunity,

13 biomass ethanol could eventually be phased in to displace 14 Midwest ethanol.

15 The only barrier to using ethanol in California is 16 the current oxygen cap, along with the threat of eliminating 17 the one pound RVP waiver.

18 Biodegradable California based ethanol can provide 19 California with its many benefits, including a reduction of 20 open field burning and its air pollutants if this barrier 21 was taken down.

22 As a closing thought

23 CHAIRMAN RIORDAN: Closing thought.

24 MS. SMITH: As a closing thought, please don't let 25 California throw the biomass ethanol baby out with the MTBE PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 106 1 contaminated bathwater.

2 Thank you.

3 CHAIRMAN RIORDAN: Thank you very much.

4 Appreciate your testimony.

5 Dawn Forsythe, John White, and Necy Sumait, Thomas 6 Toy, if you will queue up, the list of witness.

7 Please introduce yourself and who you represent.

8 MS. FORSYTHE: Madam Chair, members of the Board,

9 my name is Dawn Forsythe. I'm the district information 10 officer from the South Tahoe Public Utility District.

11 I started out early this morning from South Tahoe 12 and my brain wasn't functioning right. If it was I would 13 have brought with me the copy of the Tahoe Daily Tribune.

14 You were the headlines this morning, " State Acts to Protect 15 Water Quality." I hope you're the headlines on Monday, our 16 next edition, that you can act to protect groundwater.

17 As you know, South Tahoe has lost 35 percent of 18 our drinking water wells to MTBE contamination. Because of 19 variable pumping rates, that's 17 percent of our drinking 20 water.

21 We're in dire straits in South Tahoe. As you 22 know, we are a small community, 30,000. We serve 30,000 23 people. But this holiday and next summer our population can 24 triple and at times quadruple. And, frankly, we're on the 25 edge with our water supply.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 107 1 We were hoping to replace it. We got a site that 2 we thought was an upgradient of a gas station, of any gas 3 stations. We were pretty sure that it was MTBE free.

4 Unfortunately it's on Forest Service land and that project 5 has been stopped because US Fish and Wildlife Service wants 6 to investigate eagle habitat.

7 We had another site where hydrogeologists gave us 8 90 percent confidence level that there would be no MTBE in 9 the lower aquifers, in the deeper aquifers. And maybe it's 10 our luck, but MTBE is there. Now, it's at very trace levels 11 .12, .17, .29, .30. It's going up.

12 And people say why are you worried about such 13 small minute traces of MTBE? Ladies and gentlemen, if 14 Godzilla is in your neighborhood, you don't go out and have 15 a barbecue on the front lawn. What you do is you go in the 16 house, you turn off the lights, turn down the stereo and 17 hope that Godzilla goes the other way.

18 We're hoping that Godzilla will go the other way 19 or that someone will come in and kill the creature.

20 Now, we're not air people. We're not gas people.

21 We're water people.

22 And the simple fact is that MTBE is contaminating 23 our groundwater, and ethanol and gasoline would not.

24 When the President wanted to kill Godzilla, he 25 called in the Air Force.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 108 1 You are the Air Force for the State of California.

2 Please help us stop Godzilla's rampage through South Tahoe.

3 Please consider the water considerations when you're looking 4 at the air.

5 This is so important, as if we're all to protect 6 the environment of South Tahoe and other communities 7 throughout California.

8 Thank you.

9 CHAIRMAN RIORDAN: Thank you very much.

10 Remind me, what did that headline say again?

11 MS. SMITH: " State Acts to Protect Water Quality."

12 CHAIRMAN RIORDAN: Good. Good for us.

13 Let me invite Mr. White to come forward. Necy 14 Sumait next, Thomas Toy, Paul Knepprath and finally Loyd 15 Forest.

16 MR. WHITE: Madam Chairman, members, good morning.

17 My name is V. John White. And I'm here today representing 18 Sierra Club California.

19 I apologize on behalf of my colleague, Bonnie 20 Holmes Gen, who has been working on this issue for the club,

21 and who was unable to be here, so I'm trying to fill in.

22 You have a letter in the record from the Sierra 23 Club on these issues and in respect to the time, I'll be 24 brief.

25 I think that the staff report and the peer review PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 109 1 speaks for itself in terms of the facts that you have before 2 you.

3 We're grateful that the staff successfully 4 completed the 12 car study, which I think for those of us 5 that reflect on Auto/ Oil and other kinds of studies that we 6 have, shouldn't be seen as a small number. It may be that 7 we want more cars, but this is a significant number of cars,

8 and the data is statistically significant.

9 We're particularly pleased, having supported 10 Senator Sher's legislation, to see that ARB be the first 11 agency we believe to utilize the peer review process. We 12 think that that's something that's very healthy for the 13 future.

14 The findings, again, with regard to the 17 percent 15 increase in ozone forming potential, again, I think you 16 recall that it doesn't include NOx. For some reason the 17 Legislature in its wisdom suggested you not take that into 18 consideration, but, regardless, we know that that's a 19 factor.

20 Simply put, the open ended volatility waiver 21 simply can't be allowed. There isn't the basis for doing it 22 on air quality grounds.

23 Also, I think the conservativism of the staff's 24 work on this has to be underscored by the Argon National 25 Laboratory study that found significant increases in PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 110 1 aldehydes, and peroxyacyl nitrates in the atmosphere.

2 These are toxic and highly reactive, therefore 3 since they weren't considered, I would suggest that the 4 staff's conclusions are in fact conservative.

5 Sierra Club is not opposed to the use of ethanol 6 gasoline. We recognize its potential as a sustainable 7 waste producing environmentally beneficial project. We have 8 supported subsidies for rice straw and other forms of 9 biomass ethanol and will do so in the future.

10 However, we have a strong belief that all the 11 gasoline additives need to comply fully with California's 12 air quality regulations.

13 Tosco has met this challenge in the Bay Area and 14 it's currently selling compliant ethanol blends.

15 I think your staff suggested, Dr. Jessel as well,

16 that additional regulatory mechanisms to facilitate the use 17 of methanol may be available and the only thing you're 18 taking off the table today is the RVP exemption.

19 I think as time has shown that the predictive 20 model and inputs that can be put in with everybody's 21 participation can in fact yield some substantial flexibility 22 and opportunities.

23 A lot of folks never thought you all would do the 24 oxygen cap, but when you found a way to do it right, you did 25 it.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 111 1 So I think that I have confidence that the Board 2 as it strives to move forward into the next period will be 3 successful.

4 In that regard, we don't think it's too soon for 5 you to consider the next step toward attainment and look 6 forward to helping CARB define appropriate standards for 7 Phase 3 reformulated gasoline in the very near future.

8 Also, I would mention in response to the issues 9 raised on the water issue, that the Sierra Club has joined 10 with other groups in putting before the State Auditor 11 General some information about the nature of the water 12 contamination failure that we have in the state.

13 I look forward in the future to this Board perhaps 14 taking a more direct interest in involvement, just as 15 Mr. Del Piero was here yesterday, looking at your process 16 with regard to protecting the water quality with respect to 17 his concerns.

18 And I think the Board can no longer sit passive 19 with respect to the regulation of the state's gasoline 20 infrastructure, because there has been a systemic breakdown 21 that jeopardizes far more than the water supply with respect 22 to MTBE contamination.

23 And in fact if the true record of this story is 24 ever told, this Board will have been found to have been 25 aware and conversant with those issues, but did not have PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 112 1 responsibility or authority.

2 One of the things I look forward to in the coming 3 years as we do multi media analysis between any cost 4 regulatory agencies  Ms. Rakow remembers, I think when the 5 Energy Commission played a very significant role with this 6 Board with respect to the launch of this program.

7 I think it's clear now that the fuel 8 infrastructure of the state, the impact of fuels on that 9 fueling infrastructure and the impact on that fueling 10 infrastructure on the groundwater supplies is something that 11 this body has to take

12 CHAIRMAN RIORDAN: Can you speak up? We're 13 getting to  there was a request for you to speak up. What 14 they didn't know was the red light was on and I knew that 15 you were going to conclude soon.

16 MR. WHITE: I'd also like to extend not only best 17 wishes for the holidays, but congratulations to this Board 18 for its service over the last several years and particularly 19 for a stunning bit of achievement in the last quarter of the 20 Board's year. Very substantial body of work has been 21 accomplished and we congratulate you and commend you for you 22 public service.

23 CHAIRMAN RIORDAN: Thank you very much.

24 And I know that extends to the staff too, because 25 they're

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 113 1 MR. WHITE: Absolutely.

2 CHAIRMAN RIORDAN:  very much a part of that 3 incredible record that we have undertaken.

4 Thank you very much, Mr. White.

5 Necy, you're going to have to pronounce your last 6 name correctly.

7 MS. SUMAIT: Good morning. I am Necy Sumait, with 8 Arkenol Inc., a California based company.

9 I'm also here on behalf of the Clean Fuels 10 Development Coalition, CFDC.

11 We're pleased to provide  to have the 12 opportunity to present comments on California Air Resources 13 Board's consideration of the ozone forming potential of 14 ethanol blended fuels.

15 We would like to commend CARB on its efforts to 16 lift the current oxygen cap on gasoline in order to provide 17 more options for the use of clean burning oxygenates, while 18 also providing additional refiner flexibility to meet the 19 environmental goals of California's clean burning gasoline 20 program.

21 However, we do not feel it is prudent at this time 22 to include in the determination a position under 23 ozone forming potential of such blends.

24 CFDC is a nonprofit organization with a diverse 25 membership of more than two dozen member companies PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 114 1 representing a variety of industry interests, but include 2 fuel oxygenate producers, American automobile manufacturers 3 and independent US refiners and others involved in the 4 agriculture and clean fuel business.

5 CFDC supports the continued implementation of the 6 existing federal and California cleaner burning fuel 7 programs, which demonstrated their ability to reduce air 8 pollution.

9 Arkenol, who I'm from, is a member of CFDC.

10 Arkenol is a technology development company with patented 11 technologies to convert a wide range of waste materials such 12 as rice straw and green waste into bio based industrial 13 chemicals, such as fuel grade ethanol.

14 Arkenol's developing project opportunities 15 worldwide, including a rice straw to ethanol plant here in 16 Sacramento County.

17 This project and others like it responds to ARB's 18 search for alternatives to rice straw disposal and 19 improvements in air quality from the avoidance of open field 20 burning.

21 The availability of technology like Arkenol's 22 allows for the conversion of California's abundant biomass 23 resources into home grown fuels, while providing solutions 24 to our issues of waste management, air pollution and 25 economic development.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 115 1 CARB's determination of the ozone forming 2 potential of methanol blends as a result of efforts to 3 increase the oxygen cap from its current level of 2.7 to 4 3.5, which would allow the use of ten percent volume ethanol 5 blends and give refiners more flexibility in developing 6 formulations of gasoline and improve air quality in the 7 State of California.

8 The constantly fluctuating science of fuel 9 formulations and the relationship with automobile emissions 10 has made this a complicated and difficult issue.

11 The proposed determination by the Board that 12 elevated RVP gasoline results in increased ozone forming 13 potential is a serious determination with far reaching 14 ramifications. In fact, this determination could have an 15 impact in the future use of oxygenates in gasoline, and 16 therefore deserves careful scrutiny.

17 The stated objective of giving refiners more 18 flexibility by allowing blends of ten percent ethanol is an 19 admirable goal, but itself will not result in any measurable 20 quantities of ethanol being utilized.

21 At the same time, however, we believe it's 22 premature to make a determination that such ethanol blends 23 increase the potential for ozone formation and urge that 24 this issue be examined further.

25 There are a number of benefits to increased oxygen PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 116 1 content in gasoline and additional environmental gains are 2 available to California refiners using ten percent volume 3 blends, particularly with the availability of technology 4 such as Arkenol's biomass to ethanol will allow for an 5 expanded use of local biomass like rice straw and provide 6 the benefits that Ms. Smith described earlier.

7 Given the constraints that ethanol has faced 8 relative to meeting RVP requirements, this determination by 9 the Board could have the practical effect of eliminating 10 ethanol as an oxygenate and a clean burning gasoline 11 program.

12 If problems associated with other oxygenates 13 result in a limitation on their use, the entire program's 14 use of oxygenates could be in jeopardy.

15 Therefore, the very relief to refiners the rule 16 seeks to provide would be lost, as well as the many air 17 quality benefits that have come from us from the use of 18 oxygenates in gasoline.

19 According to the supply and cost alternatives to 20 MTBE and gasoline study, the CEC, if the scope of replacing 21 MTBE were to be broadened to include the elimination of all 22 oxygenates from gasoline, the cost impact to consumers would 23 be the greatest, regardless of the length of time allowed 24 for the transition. That decision may need to increase 25 gasoline cost to California of over one billion to PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 117 1 consumers.

2 We are in agreement with the California Department 3 of Food and Ag's analysis that there is, and others here,

4 that there is sufficient disagreement among experts 5 regarding the assumptions, the methodology and the modeling 6 protocols that warrant continued vehicle emissions testing 7 work beyond Phase 1.

8 This should also assure that the light duty 9 vehicle fleet relative to the source of emissions is 10 appropriately represented in the test protocol.

11 We believe it's incorrect to focus on the massive 12 emissions without regard to the level of toxicity or 13 reactivity.

14 Not all VOCs are alike in terms of toxicity or 15 reactivity. The loss of oxygenates could result in an 16 increase of more carcinogenic compounds at the expense of 17 less toxic ones.

18 Reducing oxygenates would produce a fuel that is 19 more, rather than less, reactive, because of an increase in 20 the use of aromatics.

21 Furthermore, the CARB test program was not based 22 on a representative fleet of vehicles to make such an 23 important determination. The lack of high emitters among 24 the test vehicles and the overall small amount of vehicles 25 is not sufficient to provide a conclusion, given the PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 118 1 importance of maintaining a viable role for all oxygenates 2 and gasoline.

3 CHAIRMAN RIORDAN: I think I'm going

4 MS. SUMAIT: Even the likelihood of this 5 determination will impact that role.

6 We respectfully urge the Board to refrain from 7 making this determination at this time.

8 Future tests to determine ozone forming potential 9 need to be conducted with more in depth examination and with 10 a much wider vehicle population.

11 In conclusion, California will need all available 12 options during the next three year period to make cleaner 13 burning gasolines. A decision at this time such as is being 14 proposed would virtually eliminate the use of a renewable 15 cleaner burning gasoline component with a multitude of 16 additional benefits for the state.

17 Thank you.

18 CHAIRMAN RIORDAN: Thank you very much.

19 Mr. Toy.

20 Give us your name and who you represent, for the 21 record, please.

22 And you can adjust that microphone up.

23 MR. TOY: Thank you. Good morning, Madam Chair 24 and committee. My name is Thomas Toy and I work for an 25 experiential education school out of Coloma, California,

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 119 1 namely Current Adventures.

2 I work with children, primarily in water, namely 3 Lake Natoma and the lower American River in our adventure 4 camps.

5 After the findings were published about MTBE, I 6 felt that the children in our program were being put at 7 risk. I became interested in  I can't read my own 8 writing  in oxygenate alternative and see ethanol as a 9 viable substitute. Not only is it renewable, it also 10 doesn't harm the children I signed up in our programs.

11 Just briefly, I feel the findings in 98 15 3 are 12 inconclusive and that ethanol is a very green alternative.

13 And I think the kids would agree.

14 So thank you very much and enjoy your day.

15 CHAIRMAN RIORDAN: Thank you for being here to 16 testify.

17 Ms. Edgerton.

18 MS. EDGERTON: Mr. Toy, I think all of us share a 19 concern about a clean environment for the children. We have 20 probably the most important children's health study, an air 21 quality study, ongoing in the nation right now in our 22 research portfolio.

23 My understanding of the findings of the staff on 24 this is that if we go ahead and make the finding that you've 25 recommended, in fact we'll be recognizing that the tests PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 120 1 show more air pollution, not less, if you have the 2 unwaivered ethanol.

3 I mean, I wanted  I'm a little confused by your 4 position, because what the staff report basically says is we 5 need to make this finding because ethanol is more  has 6 higher Reid vapor pressure, and therefore is more reactive 7 and therefore will cause  has more ozone forming 8 potential.

9 Gentlemen, can you

10 MR. SIMEROTH: That's basically correct. Blending 11 ethanol into gasoline results in the result of having a 12 higher Reid vapor pressure of approximately one pound per 13 square inch. The test results would show that that results 14 in a significant increase in emissions of hydrocarbons,

15 which results in a higher ozone forming potential in the 16 atmosphere.

17 MS. EDGERTON: So thank you. I'm not a scientist.

18 MR. TOY: I'm not either.

19 That was one of my problems when I read studies 20 such as this.

21 What I have found, I guess, just reading through 22 98 15 3 and in terms of just a person from the general 23 public that I feel if we did use ethanol now, currently, in 24 the formulated fuels that we have, that the benefits would 25 outweigh the cost of MTBE.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 121 1 And that what I would like to see, again coming 2 from the general public perspective, is that we can use 3 ethanol at the moment, and then down the road reformulate 4 gases so that the ozone increases or the clean air  let me 5 see if I can say that again. So that we can reformulate 6 gases down the road so that it would accommodate the ethanol 7 usage in a much more greener way.

8 MS. EDGERTON: Just, just in  without belaboring 9 this, from my study I think what we're doing here is going 10 to improve the  it's a positive step in terms of 11 protecting the children's health.

12 So you might want to look a little more carefully 13 on that. You may keep your view when you walk out of here,

14 but I just  we have a different view as to what the 15 consequence would be.

16 It's also my understanding that you can spend a 17 little more money and bring down that Reid vapor pressure in 18 the ethanol. It's not spend a little more money, it's spend 19 a lot more money, isn't it. I mean, in the blends.

20 MR. SIMEROTH: We have Tosco in the Bay Area is 21 using ethanol to make cleaner burning gasoline. They also 22 used it last summer and fully complied with our Reid vapor 23 pressure requirements.

24 And I think what you're hearing this staff commit 25 to is to look at how do we correctly credit ethanol's use PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 122 1 for potential adjustments to our standards and still 2 preserve the benefits of the program and have flexibility.

3 MS. EDGERTON: Thank you. So the point is if you 4 bring down the Reid vapor pressure in the ethanol, then it 5 can be competitive in terms of its clean air benefit.

6 CHAIRMAN RIORDAN: Thank you, Mr. Toy, for coming.

7 We appreciate that.

8 Mr. Paul Knepprath and Neil Koehler will be the 9 last speaker on our agenda on this item.

10 MR. KNEPPRATH: Good morning, Madam Chair and 11 members. It's nice to be here today. I will try to keep my 12 comments brief.

13 CHAIRMAN RIORDAN: Good.

14 MR. KNEPPRATH: My name is Paul Knepprath,

15 representing the American Lung Association of California,

16 and our medical arm, the California Thoracic Society.

17 Simply put, the American Lung Association supports 18 the finding and your action on that finding as the staff has 19 recommended it to you.

20 Looking at the science and looking at the studies 21 that have been done, it appears that this has been fairly 22 exhaustive, that it is consistent with other studies that 23 have been done on this issue, and we support that.

24 The American Lung Association is not against 25 ethanol, per se. In fact our position on fuel is that we're PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 123 1 fuel neutral. We want fuels to be used that will give us 2 the most emission reductions and the most public health 3 benefits. So we want to make it clear that we're certainly 4 not up here today to oppose the use of ethanol or the 5 ethanol industry. And in fact as most of you know, we have 6 been supportive of all the efforts to reduce rice straw 7 burning and to use the fuel stock from rice straw for any 8 purpose that might benefit the environment or public health,

9 including the production of ethanol fuels. So I want to be 10 very clear on the record for that issue.

11 We are concerned about the ozone forming impacts 12 that have been found in the ten percent ethanol, and just 13 say that we think that in a time when we're still not 14 meeting our attainment for ozone that it seems unwise for us 15 to move down the road of perhaps creating more barriers for 16 reaching containment based on the results from the studies 17 that have been shown in this area.

18 The other issue that we wanted to note, and we do 19 have this in the letter on record, is that the study showed 20 and found vehicle emissions of toxic air pollutants from ten 21 percent ethanol fuel to increase by about 13 percent. And 22 while this in the staff report the calculated potency 23 increase of only five percent, much of that was in acid 24 aldehydes, which US EPA has classified as a probable 25 carcinogen.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 124 1 These also promote the creation of PAM, the 2 perooxylacyl nitrates, in the atmosphere, which also 3 contribute to smog forming potential. So we want to also 4 make note of that.

5 There's also the issue of commingling ten percent 6 ethanol fuel with non ethanol California RFG and the results 7 of this kind of mixed commingling on ozone forming 8 potential. We think that the multiplier effect should be 9 investigated on the cleaner burning gasoline program before 10 making any decision on the waiver.

11 The ARB's clean burning gasoline program has 12 brought real air quality and public health benefits beyond 13 the levels even predicted from the beginning of this 14 program.

15 We want to urge caution in the adoption of any 16 changes to the program that may risk reducing these 17 benefits.

18 We urge the Board to accommodate the use of 19 ethanol under the existing regulatory regime, so that the 20 benefits of substituting ethanol for MTBE or other 21 oxygenates can be obtained without eroding air quality 22 benefits.

23 Thank you.

24 CHAIRMAN RIORDAN: Thank you, Mr. Knepprath.

25 Mr. Koehler come forward, please. Give us your PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 125 1 name and who you represent, and you can adjust that 2 microphone.

3 MR. KOEHLER: Good morning. I think it's still 4 morning.

5 My name is Neil Koehler. I'm president of 6 Parallel Products. We are a company in Southern California 7 that converts the waste products from the food and beverage 8 industry into ethanol.

9 And I would say that it was because of my very 10 deep seated environmental convictions that I entered this 11 business in the first place, and that I truly believed in 12 the benefits that ethanol in all forms, in gasoline, in 13 straight use, in fuel cells, that it is truly a fuel for the 14 future, is the only renewable fuel, the only liquid fuel 15 commercially produced in the world that is derived from 16 renewable resources.

17 As we move into the next millennium and global 18 climate changes takes on significance as possibly the 19 largest air quality problem we face, ethanol is very much a 20 part of the solution.

21 I'm a bit confused by this whole process today and 22 very frustrated, frankly, because I feel that what we're 23 doing here is engaging in a negative exercise that somehow 24 is suggesting that ethanol is the problem and not part of a 25 solution.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 126 1 We know MTBE is a problem. We know we need to get 2 MTBE out of the gasoline in California. We know that it was 3 probably a lack of looking at the bigger picture that put us 4 in the position where we are today, where we have an MTBE 5 monopoly in this state and that ethanol has been 6 systematically excluded from the program.

7 It was ever since ' 95 when the CBG program went 8 into effect. We've been shipping our ethanol to every state 9 around California that welcomes its use in its clean burning 10 programs, without the MTBE problems that we're having here 11 in the State of California.

12 So we clearly have a problem and we need to have 13 the political will and the technical abilities and the 14 creative thinking to solve this problem, and what we're 15 engaged in here today is so far from that.

16 Just a couple of specifics here.

17 Where I'm very very confused with what we are 18 doing today is that the Legislature has always wanted to 19 make sure that ethanol was given a fair role in gasoline.

20 That's why when the vapor pressure allowance was most 21 recently extended in 1992, I believe it was, that there were 22 the environmental safeguards to make sure that the ozone was 23 protected, because while, Ms. Silva, while it is true that 24 there are increases when you add small amounts of ethanol to 25 gasoline, I'll say one thing, ethanol as a pure compound has PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 127 1 an RVP of two, very very low, so it's not ethanol in and of 2 itself, it's the blending.

3 But there are offsets. We've talked about them.

4 The CARB staff recognizes them. But the models, the 5 regulatory framework we have today does not incorporate the 6 benefits of ethanol.

7 I applaud staff for wanting to engage with all the 8 stakeholders to understand what those are, so that we can 9 establish environmental equivalents.

10 But what the Legislature said was that if you're 11 going to make this finding that's before you today it must 12 be on the basis of a representative sample of the vehicles.

13 We do not have a representative sample of the 14 vehicles in today's finding, and this is where I must appeal 15 to Mr. Dunlap, because he was the one that had the political 16 vision to say we need to do this test in the first place.

17 It was 125 vehicle test. Phase 1 was merely to fine tune 18 the test to go on to Phase 2. There is nothing in the 19 protocols that suggests after 12 vehicles we were going to 20 draw a technical conclusion.

21 And in fact because there was enough concern on 22 our industry's part, and I was on the ethanol working group,

23 that this would become an issue, I said, hey, what's to keep 24 this being a set up that you do Phase 1, that is not 25 representative, and we don't go on to do the full test?

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 128 1 Don't worry, that's not what is intended here. And that's 2 exactly what we have before us today. Very serious problem.

3 The vehicles that were tested are a very narrow 4 slice. I think even in the peer review it was clearly 5 stated that the test was representative of the vehicles 6 tested, but the vehicles tested were not representative of 7 the fleet in California.

8 We've presented technical information today that 9 would suggest it was representative of only ten percent of 10 the total emission inventories, the CARB staff is saying 11 it's closer to 35 percent, but that's when you assume that 12 the 12 vehicle class that was tested was representative even 13 of that class. And we know that it was not, because it was 14 the cleanest burning  we know that cleanest burning 15 vehicles give you the less benefit for the use of oxygen.

16 It helps you in the older vehicles and the vehicles that are 17 not quite operating in tune.

18 So it's a very serious problem.

19 The California Air Resources Board themselves, I 20 have document I have here that defines what is a 21 representative fleet of vehicles for determining alternative 22 specifications in California gasoline.

23 And to just quote a couple of sentences, the test 24 fleet required by subsection shall consist of each vehicle 25 category contributing at least three percent of the sum of PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 129 1 NMOG emissions. This was not done.

2 Within  and then consequently, or a fourth point 3 on this particular section, says that over all categories 4 for the fleet or at least five percent  over all 5 categories tested, the total number of vehicles shall be at 6 least 20. And we have 12. So we have a serious problem.

7 There was no consensus, contrary to some of the 8 statements that are made in the staff report. A majority of 9 the ethanol work group members, which included the broad 10 range of stakeholders, did not agree with the findings, and 11 the majority of those stakeholders, and you've heard from 12 them today, we have a majority of environmental groups 13 represented today, we have the agricultural industry, we 14 have the water agencies, we have the ethanol industry, we 15 have the people that want to build rice to ethanol plants in 16 this state, are saying is premature to make this finding.

17 This is a negative for one of the most positive alternatives 18 to the use of MTBE in California gasoline today.

19 We're not saying that there are not problems with 20 the vapor pressure issue, but they are mitigated, and that 21 by the benefits and that we have to get our arms around the 22 totality of the impacts and that we enter into a 23 collaborative process to determine that.

24 The only way

25 CHAIRMAN RIORDAN: I think that was an excellent PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 130 1 conclusion.

2 MR. KOEHLER: I have one last statement, because I 3 mean this from the bottom of my heart, based upon the way 4 that I review all of the aspects of this, and I think it's 5 adequately and abundantly made clear by the testimony you 6 heard today, is that you would be shirking your technical 7 and your legal and your public policy responsibilities if 8 you make this finding today.

9 Thank you very much for your consideration.

10 CHAIRMAN RIORDAN: Thank you.

11 We have one person to add to the witness list.

12 Loyd Forest, come forward, please.

13 Ms. Edgerton.

14 MS. EDGERTON: Yes. Can either of you gentlemen,

15 Mr. Venturini or Mr. Simeroth, comment on this assertion 16 that there was no agreement or there was very little 17 agreement in the work group? My impression was that there 18 was, from what I heard, was there was a great deal of 19 agreement with the findings, certainly the peer review is in 20 agreement. I just wanted to give you a chance to reply to 21 that.

22 MR. SIMEROTH: The staff report does not say that 23 there was an agreement.

24 The ethanol industry and the representatives of 25 the industry did not agree with the conclusions.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 131 1 We have other letters from other representatives 2 of the work group who did agree with the conclusions.

3 That's one of the reason why we subjected the 4 findings to the peer review process because we had

5 MR. SCHEIBLE: I think if you look at it as 6 various interest groups with technical expertise, the auto 7 manufacturers clearly looked at the data and found that they 8 supported the staff's analysis. The oil industry that makes 9 the fuel and must live with the rules and must make the 10 decisions on additives, reviewed it and agreed with the 11 staff analysis.

12 We had the peer review and we have other parties 13 that also have looked at it.

14 So in terms of they were quite a few ethanol 15 interest groups or parties that are interested in furthering 16 the use of ethanol, they would like to see additional work 17 done and would like to see the decision delayed.

18 I believe the other parties, generally it's fair 19 to characterize them as they reviewed the technical work,

20 they find it adequate, they find the finding to be 21 sufficiently done by staff.

22 CHAIRMAN RIORDAN: Mr. Koehler, no, no. Thank 23 you.

24 Mr. Forest.

25 MR. FOREST: Thank you, Madam Chairman. I'm Loyd PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 132 1 Forest, TSS Consultants. We're a consulting firm that 2 specializes in biomass technologies, such as biomass to 3 ethanol.

4 We're also involved in the Gridley ethanol 5 project, as many of you know, and a recently announced 6 biomass ethanol project at Collins Pines in Chester,

7 California, that used wood waste.

8 And we previously worked on the Arkenol 9 biomass to ethanol project.

10 But we work on all technologies, biomass power,

11 and it's a narrow niche, but it's our niche in the 12 marketplace.

13 I'd like to make a couple points and I really like 14 to pick up on Mike Scheible's comment.

15 I think the interest from the biomass and ethanol 16 industry is certainly more work in addressing what 17 alternatives there are for, if not a full one pound RVP 18 waiver based upon diverting the material that's open field 19 burning on the ag side or the forest side, where is that 20 equilibrium.

21 And I think it's been probably maybe a disservice 22 from a public benefit standpoint to pose the question only 23 as E10 or one pound per square inch exemption or no ethanol 24 in the marketplace.

25 So I would urge the Board, and I think to PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 133 1 reinforce the letter that Bob Heckert sent to you on this 2 issue and his testimony earlier today, to further 3 investigate the alternatives for using ethanol in the 4 reformulated gasoline and how to mitigate them and where is 5 that optimization point.

6 So I would not want to lose that in the hearing 7 today. I think it's worthy in terms of California's need to 8 solve its open fuel burning problem, as well as its need to 9 reduce the air emissions from an air pollutant standpoint.

10 I'd also suggest the theme is probably among many 11 of the stakeholders here and the reference that was made to 12 not closing the door just with a seven pound per square inch 13 Reid vapor pressure to look at some alternatives in that.

14 In that sense I think if I were in the oil 15 industry and I allowed oil in the ground, that's an illiquid 16 asset, and the only way to make it liquid is to sell it,

17 presently the more I sell this year, the more valuable that 18 asset is from the chief financial officer and CPA would tell 19 me, I would certainly probably be resisting the use of 20 ethanol in gasoline in California.

21 I'm not condemning that. I'm saying from a 22 business standpoint it makes good sense.

23 But looking at it from a public benefit standpoint 24 and the ag industry standpoint, the worst industry in air 25 quality, there's a larger set of public benefits that PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 134 1 certainly the Air Board has a responsibility to address.

2 And I would commend your staff on skillfully 3 juggling all these stakeholders and the addressing this 4 issue, but I would suggest that typically as Americans we 5 have three alternatives, two extremes and a moderate 6 position in between, and all I'm saying here is what the 7 French do is two extreme alternatives, either zero ethanol 8 or ten percent ethanol, and we probably need some compromise 9 in between that addresses something that mitigates the needs 10 and the number of the areas, including air quality and water 11 quality.

12 So I appreciate your time, and I also would 13 appreciate your patience.

14 CHAIRMAN RIORDAN: Mr. Forest, Mr. Dunlap has a 15 question for you.

16 MR. DUNLAP: Jack and I had some questions and 17 you're the perfect one to help us with these.

18 The first part  by the way, I should acknowledge 19 for some of the newer Board members, Mr. Forest had spent a 20 lot of time helping us in the rice straw alternatives areas,

21 and served as chair of committees and what not, and has done 22 an awful lot in state government, and he's been a friend to 23 this organization, so when he shows up, usually I pay 24 particular attention, because it's an issue that merits our 25 attention.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 135 1 The first part of your commentary, Loyd, a moment 2 ago where you suggested some things that we might do, can I 3 get you to maybe specify those and the mechanics of what we 4 have before us today? How would we do this?

5 MR. FOREST: I think your staff has done some work 6 on looking at what the benefits the air pollution reductions 7 would be from diverting things like rice straw, orchard 8 prunings into a product such as ethanol.

9 And all I'm suggesting is that it doesn't look 10 like those benefits have been given any credit in 11 considering a reduction on the one pound per square inch.

12 MR. DUNLAP: Because of what would happen if you 13 burned them in the open field environment?

14 MR. FOREST: Yeah. And I'm not  by the way, I 15 have a lot of respect for your staff. They've dealt with me 16 professionally every time I've asked them really dumb 17 questions. But I also respect some of their conclusions.

18 But I would suggest there is a middle ground here 19 that should be further addressed by the Board and the staff.

20 And then I think beyond that if I were a public 21 official looking at the ARB staff, I probably ask how would 22 you mitigate a full one pound per square inch Reid vapor 23 pressure exemption, in terms of meeting your objectives, not 24 increasing the emission in the air.

25 And that probably gets beyond just the question of PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 136 1 open field burning, but I think it would be a service to the 2 Board and possibly the public to have some of the 3 alternatives addressed by the staff and brought back.

4 MR. DUNLAP: Now, let me come back to Mike, you 5 and I had some conversations in this regard.

6 One of the things Mr. Parnell and I were chatting 7 about was how to incentivize or give credit for some things 8 like energy considerations or for not having open field 9 burning and some efficiencies that we realize as a society 10 and some benefits that we realize, which are things that 11 this Board unfortunately has a lot of power as people would 12 assert, but it's limited primarily to one area. I mean, the 13 air quality impacts. And that's frustrating.

14 But, Mike, maybe the two Mikes, is there something 15 we're missing or is there something more we can do here?

16 How do we give credit or incentivize in some way this other 17 good, positive activities relative to burning, relative to 18 energy, et cetera? What can do? What do we need to change?

19 How do we get through this?

20 MR. SCHEIBLE: I think we're sensitive, and 21 acknowledge that the biomass industry can have air quality 22 benefits, that reducing burning can have air quality 23 benefits, in output of forest management and other things.

24 It's very  technically, I'd say our assessment 25 is that those benefits aren't going to be great enough to PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 137 1 even on a statewide basis offset the kind of benefit you see 2 from the cleaner burning gasoline. It's something like the 3 vapor pressure, which is extremely important.

4 Also, the cleaner burning gasoline program has 5 most of its benefits in Los Angeles and San Diego and the 6 Bay Area and the Valley, areas in the high ozone days where 7 burning is basically not an issue, and has toxics 8 reductions. It adds to PM.

9 So it's very hard to go in and create a here's a 10 credit that you now, when you make a fuel, get that credit.

11 It's much easier to say there are reasons why we want to do 12 things that make this industry have a higher chance of 13 success and I think we're open to that.

14 I just also want to address the issue, since I 15 have the microphone, of what's next.

16 We don't see this finding today as biasing the 17 staff or anything we would bring to the Board in terms of 18 our next step, which is to go into the cleaner burning 19 gasoline regulations, say how do we amend those regulations 20 so that it's far easier to produce non oxygenated fuel, and 21 that that becomes more of a choice, because that's the 22 safest choice, that it's easier to use oxygen in a way that 23 is  it recognizes the emission benefits and takes into 24 account any emissions benefits.

25 What we're saying I think is the science is clear,

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 138 1 the studies have been done, we've put tremendous resources 2 into this. The answer is not going to change.

3 The RVP waiver when you use ten percent ethanol is 4 not the way to do it.

5 We'll have to come back with regulations that 6 should provide for greater emphasis for using ethanol as an 7 oxygenate.

8 I don't know whether we're going to march away 9 from MTBE, be forced to phase out MTBE or exactly what the 10 answer is going to be, but I know we're going to do things 11 to make its use far less needed in the state.

12 And I guess we pledged to you to do that in a way 13 that recognizes the benefits of adding oxygen, will probably 14 give vastly improved opportunity towards ethanol and the 15 biomass industry.

16 On the other hand, the one RVP waiver, we've done 17 more than an adequate job of defining technically and 18 scientifically what the law requires of us, and it's clear,

19 it's not the way to go to do it.

20 MR. DUNLAP: And that's the question relative to 21 legislation. You know what I mean?

22 And maybe, Jack, I probably muddled this for you.

23 CHAIRMAN RIORDAN: Mr. Parnell.

24 MR. PARNELL: No, you did not.

25 We had the discussion. And certainly while Loyd PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 139 1 is at the microphone I, for one, think and I think people 2 from the Lung Association and others who are here would 3 grant that there are other factors out there that we simply 4 don't understand well enough and we would be enormously in 5 error today if we in any way prejudice against ethanol and 6 its ultimate use in whatever formulation, or in whatever 7 market opportunity there is for it.

8 And it just seems to me that that isn't what we're 9 doing. I agree that isn't what we're doing. In fact we're 10 trying to gain some flexibility to do what we need to do to 11 go on to the next step.

12 I have great sensitivity to what both Bob Heckert 13 said, not only because of my roots in agriculture, but 14 because of my sincere desire to want to clean up this 15 environment.

16 And so every time you take a step it is subject to 17 all kinds of misunderstanding.

18 But in fact here what we're trying to do is take a 19 step that will allow us some flexibility to move on to the 20 next step.

21 And I would, for one, like to ask the staff to do 22 just exactly what Mr. Dunlap suggested, that we make a 23 sincere effort to work with those around us to quantify 24 those other factors to really fully understand what it is 25 we're dealing with in a larger sense.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 140 1 CHAIRMAN RIORDAN: I think we can very comfortably 2 give that kind of direction.

3 MR. PARNELL: Make sense?

4 CHAIRMAN RIORDAN: If you don't take an action 5 today, because it's not quite there, but let me as the 6 chairman just say we'd like the staff to respond to what 7 you've heard in terms of some concerns or

8 MR. KENNY: We will look at that and we will look 9 at ways of trying to quantify these other benefits, because 10 we do acknowledge that there are other benefits from the use 11 of ethanol.

12 To some extent, what's been happening today is 13 that there's a little bit of a polarization occurring, and 14 we do not want to see that happen.

15 What we'd really like to do is see the 16 environmental benefits from ethanol recognized and actually 17 incorporated into society, but at the same time what we want 18 to do is maintain the benefits that we've gotten from the 19 air quality program in the state.

20 CHAIRMAN RIORDAN: And Mrs. Rakow, and then I'll 21 come back to you, Mr. Dunlap.

22 MRS. RAKOW: Just very quickly.

23 On quantifying benefits, I know it's a very 24 difficult task to actually come up with a formula of the 25 criteria to get a number, equivalency number. Dick Bilas,

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 141 1 who is now head of the PUC, president of PUC, worked on this 2 a great deal when he was commissioner at the Energy 3 Commission, and the Energy Commission has, over the years,

4 tried to get a handle on quantifying benefits. I don't know 5 at what stage they might be, but that might be a source that 6 you might converse with too and see what they have  if 7 they've ever come up with anything definitively.

8 MR. KENNY: We'd be happy to coordinate with them.

9 Actually we have a very good relationship with the staff 10 over there and we will take advantage of it.

11 MRS. RAKOW: I don't know whether it's ever had a 12 result.

13 And the other thing I'm just curious about,

14 several years ago there was an interagency biomass 15 committee. Is that still going or do you know?

16 MR. FOREST: I don't think it's still going. In 17 fact, I think the state, and this is probably what's 18 happening to the symptom of it, lacks a biomass policy as a 19 state policy. It's coordinated in one of the agencies and 20 it probably needs to be resurrected.

21 And relative to your other comment, in recent 22 discussion with some of  you came from the Energy 23 Commission, Sally, and I know you're very familiar with 24 it  but recent discussion with some of the staff, they 25 want to go back and address the benefits formally in a PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 142 1 project. So I think there's an opportunity for the

2 MRS. RAKOW: There is an opportunity for this 3 agency, I think, to be taking an aggressive role in 4 promoting an interagency action.

5 CHAIRMAN RIORDAN: Mr. Parnell has a question.

6 MR. PARNELL: It's, I guess, it is a question.

7 Does that give you any sense of warm fuzzy feeling that 8 there is a light at the end of this tunnel, Loyd?

9 MR. FOREST: I think it's appropriate on the 10 Board's part, and I heard the staff willing to do that, to 11 look at some alternatives and putting ethanol into the 12 reformulated gasoline market.

13 And I would also suggest that at least from our 14 standpoint, we're very concerned that that not increase the 15 air pollution in the state. We live here, our kids live 16 here, our grandkids live here. So we're supporting of 17 finding a win win win among these stakeholders.

18 And as far as warm fuzzy feeling, as you know,

19 Jack, you and I have both been in the livestock business, I 20 believe I have a sold a horse when I've seen money in hand.

21 MR. PARNELL: I understand that.

22 But let me say this, so it's on the record. So 23 many times in the area of fuel we have a lot of air quality 24 issues and I understand those we deal with them every day,

25 they're difficult to deal with, but there is another issue PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 143 1 that we don't often talk about, and we float over this.

2 This is a renewable source. We plant the seed, it 3 grows, we have some stuff to deal with, we call it biomass,

4 we process it, we put into a use and then we can do it over 5 again next year and the next year and the next year and the 6 next year without using up, we have all that we started 7 with.

8 And so long as we pay careful attention that we 9 don't degrade the environment in the process, this is a 10 win win. This is a win win. And we need to really spend a 11 lot of time focusing on how we can do this and do it 12 effectively.

13 CHAIRMAN RIORDAN: Okay.

14 MR. PARNELL: That's the end of my sermon.

15 CHAIRMAN RIORDAN: Thank you, Mr. Forest. You've 16 been a good witness to kind of take all of the discussion 17 and we appreciate that and we appreciate your being here.

18 Let's move on.

19 MR. DUNLAP: Whatever we do, for the audience,

20 blame Loyd.

21 CHAIRMAN RIORDAN: Let's move on.

22 This item is not a regulatory item, but I do need 23 to ask staff to read the letters of people who were unable 24 to be here.

25 MR. VENTURINI: Madam Chair, we do have a few PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 144 1 letters that we would like to read into the record.

2 Mr. Simeroth will do that.

3 CHAIRMAN RIORDAN: Thank you, Mr. Simeroth.

4 MR. SIMEROTH: We did receive a letter from the 5 Department of Food and Agriculture that asks  they had 6 expressed concern also about the adequacy of the test fleet.

7 We believe we've addressed that already, reiterate that we 8 still feel the fleet is representative. It represents 12 9 model years of vehicles, it goes back 12 years, 70 percent 10 of the vehicle miles traveled representative. And I think 11 we've agreed to agree with the ethanol industry on whether 12 it's 10 or 30 percent of hydrocarbons.

13 In terms of, they also brought up the urban 14 airshed modeling issue. Staff has looked at that 15 extensively. We've reviewed the models that the Renewable 16 Fuels Association has asked us to review. We find that 17 there's not appropriate for one or more reasons for use in 18 California.

19 We have also ran our own urban airshed models 20 looking at the one psi increase when you do not include NOx 21 that shows ozone goes up.

22 I think that's the response to Food and Ag.

23 CHAIRMAN RIORDAN: Mr. Simeroth.

24 MR. SIMEROTH: They also asked for a delay.

25 CHAIRMAN RIORDAN: Let me just indicate something PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 145 1 that I would appreciate your doing. I think that we ought 2 to send over the peer review to that department. It might 3 be interesting to them.

4 MR. SIMEROTH: We have sent it to them.

5 CHAIRMAN RIORDAN: Have you sent it to them?

6 Well, they didn't read it, did they.

7 MR. SIMEROTH: Apparently not.

8 CHAIRMAN RIORDAN: Apparently not.

9 MR. SIMEROTH: We've also received a number of 10 other letters. Start with the American Association of 11 Automobile  American Automobile Manufacturers'

12 Association. They support the staff's finding. They concur 13 that the recently developed data and test program would 14 suggest a one psi RVP waiver, call it waiver now, would 15 adversely impact California air quality. They concur that 16 test vehicles and test program represent a significant 17 portion of the current on road fleet and number of units.

18 They see no additional benefit in testing additional 19 vehicles. Despite critical comments from some people, the 20 AAMA sees nothing in the data that would change the 21 significant conclusions of the test program. One psi 22 waiver, now the full waiver, would not only increase 23 emissions, but would  let me skip that one. Increase 24 emissions.

25 Recommends the ARB to deny the waiver, encourages PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 146 1 the staff and industry to explore additional flexibility 2 within the existing program to accommodate ethanol without 3 degrading air quality.

4 Association of International Automobile 5 Manufacturers concurs that a one psi waiver for ethanol 6 would increase oxides of nitrogen and CO emissions. One psi 7 waiver would degrade fuel quality, which would impact 8 industry efforts, auto industry's efforts, to comply with 9 the recently adopted LEV 2 standards. Urges the Board to 10 deny the waiver.

11 Daimler Chrysler basically reiterated the 12 Association of International Automobile Manufacturers'

13 findings, and urges the Board to reject the full waiver.

14 American Methanol Institute states the test 15 program was properly designed and productive. The test 16 program results confirm long standing engineering judgment 17 held by the auto industry and oil refiners and regulators.

18 Results are consistent with prior studies. Recognizes that 19 additional flexibility should be developed, recommends the 20 waiver not be granted.

21 Oxygenated Fuel Association basically said the 22 same thing as the American Methanol Institute. Supports the 23 staff's findings and again recommends we pursue additional 24 flexibility.

25 Western States Petroleum Association letter PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 147 1 concurs with the staff's finding, which is sound and 2 supported by compelling, verifiable scientific data. States 3 that other data on record supports staff's finding.

4 Encourages staff to further evaluate flexibility in the 5 gasoline program to accommodate ethanol, while preserving 6 the benefits of the program. Recommends that the Board 7 adopt staff's finding.

8 The other letters were addressed by commenters.

9 CHAIRMAN RIORDAN: Mr. Kenny, any final comments?

10 Board members, there is a resolution before you 11 and we're going to assume you have had a chance to look at 12 that resolution, and I'd entertain a motion.

13 SUPERVISOR ROBERTS: Madam Chairman, I'm not one 14 to draw this out any further. I'll make a motion in support 15 of, if I have the correct resolution, I think it's 98 78.

16 CHAIRMAN RIORDAN: That is correct, Supervisor 17 Roberts.

18 Is there a second to the motion?

19 SUPERVISOR ROBERTS: Do we need to also  I think 20 we're all in the same position, we feel this appropriate to 21 approve this, at the same time to be encouraging staff to 22 continue to work with those in the industry to see if there 23 are ways to utilize this product that we'd very much like to 24 see put into use. So if that can be a separate direction.

25 CHAIRMAN RIORDAN: Yes.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 148 1 SUPERVISOR ROBERTS: As part of the motion, I 2 would like that to be the case.

3 CHAIRMAN RIORDAN: I'd like to do that and 4 I'd entertain a second to that.

5 MRS. RAKOW: Second.

6 CHAIRMAN RIORDAN: Second, Ms. Rakow.

7 Thank you very much further.

8 Further discussion on this?

9 Seeing or hearing none, let's vote on motion and 10 the addition to that beyond the resolution.

11 All those in favor of the motion signify by saying 12 aye.

13 ( Ayes.)

14 CHAIRMAN RIORDAN: Opposed, no.

15 ( No response.)

16 CHAIRMAN RIORDAN: The motion carries.

17 And thank you very much, staff. Appreciate that.

18 Between this item and the next item, is there much 19 of a staff change that we need go through? I'd like to kind 20 of move right along.

21 //

22 //

23 //

24 //

25 //

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 149 1 CHAIRPERSON RIORDAN: Do you need a couple minutes 2 there?

3 All right. Good.

4 Let me indicate to the audience while staff is 5 changing places that this next Item is 98 9 2.

6 It is a continuation of a public hearing to 7 consider an amendment to the California Cleaner Burning 8 Gasoline Regulations increasing the Cap Limit from Oxygen 9 from 2.7 to 3.5 percent by weight.

10 If I might, Mr. Kenny, may I ask you to introduce 11 this particular Item.

12 MR. KENNY: Yes. Thank you, Madam Chairman and 13 Members of the Board.

14 We will now continue a hearing that began last 15 August. At that meeting the staff made two regulatory 16 proposals concerning oxygen and gasoline. The proposals were 17 part of a continuing effort to provide requirements with more 18 flexibility in managing their use of the oxygen and 19 maintaining gasoline.

20 One proposal, which the Board adopted partially,

21 the minimum oxygen content required for gasoline in the 22 winter and the other proposal raises the cap limit on oxygen 23 to 3 1/ 2 weight percent, and we are taking that proposal up 24 again today.

25 Proposed new oxygen cap will make it legal to PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 150 1 produce gasoline with 10 percent ethanol with no other action 2 by this Board, the RVP exception in Section 43830( g) would 3 then take that practical effect.

4 Therefore, the Board did not want to consider the 5 higher oxygen cap until we had decided to issue all the 6 ozones for potential of emissions from gasoline with 10 7 percent ethanol, and having just dealt with the later issue,

8 we can now return to the oxygen cap proposal.

9 In the past year, we have worked extensively on 10 ways to provide refiners with more practical latitude in how 11 they use oxygenated gasoline. We believe that the Board 12 should do what is possible in this regard as long as the 13 emissions benefits from cleaner burning gasoline are not 14 reduced.

15 The increase in the oxygen cap that we proposed in 16 August would raise the allowable ethanol content in gasoline 17 to about 10 percent. That would improve the utility of 18 ethanol to refiners as potential alternatives to MTBE.

19 By allowing 10 percent ethanol to qualify such 20 gasoline to be produced without an RVB control under the 21 Health and Safety Code Section, this has been considered by 22 the Board and it has not been our issue.

23 Consequently, at this time I would like to 24 introduce Mr. Simeroth, who will review the staff proposal.

25 MR. SIMEROTH: Mr. Kenny, I am going to ask Mr.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 151 1 Richard Vincent of my staff to present the staff's proposal.

2 MR. VINCENT: Madam Chairman and Board Members, the 3 content slide for this shows the three topics to be covered 4 in this presentation.

5 Last August, the Board heard the staff's proposals 6 for changes in the California's RFG regulations to give 7 refiners more flexibility in their use of the oxygenates, and 8 the Board adopted the proposal to receive the winter oxygen 9 program in the carbon monoxide attainment areas, and also the 10 Board made technical changes, technical corrections in the 11 regulations.

12 However, the Board decided to postpone action on 13 the proposed increase in the oxygen cap until the Board could 14 determine whether or not gasoline with 10 percent ethanol and 15 not subject to the RVP limit would cause increased divisions 16 and increase the ozone potential.

17 Increasing the oxygen cap to 3 1/ 2 weight percent 18 would allow 10 percent ethanol in some gasolines, such 19 gasolines would be subject to the particulate model which 20 would ensure that the higher oxygen content would not lead to 21 increases in NOx or toxic exhaust emissions.

22 The matters of the evaporative emissions in the 23 ozone forming potential of the emissions from gasoline with 24 10 percent ethanol have just been considered by the Board.

25 Staff determined that the current predicted model PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 152 1 remains applicable for the higher oxygen cap. With the 2 higher cap, refiners can add more ethanol than they do now to 3 gasoline, thereby getting more octane and volume benefit than 4 is now possible with ethanol.

5 Since the U. S. EPA allows oxygen over 2.7 percent 6 to be provided only by ethanol, the higher cap limit would 7 not increase the amount of MTBE used in gasoline. Now since 8 the Board has dealt with the RVP exemption of the 10 percent 9 ethanol, we recommend that the Board now raise the oxygen cap 10 limit to 3 1/ 2 weight percent.

11 That concludes the staff's presentation.

12 CHAIRPERSON RIORDAN: Oh, my goodness. Here I am.

13 It is going to be a long day. Pardon me.

14 All right. Do the Board Members have any questions 15 for this abbreviated wonderful staff report?

16 Apparently not. So, we will go into our witness 17 list.

18 I have one person at this point who signed up to 19 speak, Megan Smith.

20 Ms. Megan Smith. Is she still here?

21 Megan Smith. I knew she had to catch an airplane,

22 so maybe that is where she is, and she might have signed up 23 early.

24 Is there anyone else wishing to speak on this 25 particular item?

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 153 1 I did not have anybody on the witness list except 2 Megan Smith.

3 Seeing none, then I will return it back to Mr.

4 Kenny, and let me do this, the written submissions, I think 5 there probably are some.

6 MR. SIMEROTH: Madam Chairman, there are two 7 written submissions, the Western States Petroleum Association 8 wanted it to go on record that they are neutral on this item,

9 and they have no recommendation either way, and the other is 10 from the American Ethanol Institute, and they are raising the 11 CEQA issue, and there is the possibility that the increased 12 oxygen cap may bear on the CEQA analysis.

13 We do not think that that is correct. We think 14 that the differences between seven percent ethanol and ten 15 percent ethanol would not change our analysis.

16 It is an issue that we have evaluated, and we do 17 not see any issue there or any increased potential for 18 problems for the environment.

19 CHAIRPERSON RIORDAN: And that is the end of yours?

20 MR. SIMEROTH: That is it.

21 CHAIRPERSON RIORDAN: Mr. Cuelior, I am not going 22 to ask your name first, and I apologize you are going to have 23 to identify yourself.

24 MR. CUELIOR: Neil Cuelior, the pronunciation does 25 not look anything like its spelling.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 154 1 In concept we support and our industry supports a 2 coalition of people that we have been involved with in trying 3 to help ethanol find a role in this program to support 4 lifting the oxygen cap.

5 It is very important to note that it is totally 6 contingent upon RVP flexibility, and I would like to just 7 follow up with my remarks from before, I, too, and our 8 industry and coalition that we are part of are absolutely 9 committed to environmental equivalence.

10 So, we are not advocating anything in this program 11 that would in any way degrade the environment. In fact, we 12 think that ethanol not only has the ability to provide the 13 same, if not better, air quality benefits, but it also has 14 all these other environmental benefits that Mr. Parnell so 15 eloquently attested to.

16 But the issue that, as we talked to the refiners,

17 is that lifting the oxygen cap in itself does nothing to aid 18 in the introduction of ethanol into California gasoline. It 19 is economically impossible to produce enough sub grade RVP 20 gasoline to add ethanol to.

21 That is why there is a level of vapor pressure 22 tolerances that are absolutely warranted, and I think there 23 is going to be an effort on the part of the Air Resources 24 Board to try to quantify those.

25 Our point was that should have been done before a PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 155 1 negative finding, but that is done, and we are now into the 2 cap, and so it is just important to go on the record and to 3 say if the Board claims it has done something today to help 4 the cause of ethanol that would be an inaccurate assessment,

5 because without a level of the vapor pressure flexibility 6 that I think we will get to that there really is nothing 7 being done to help the cause of finding a replacement for 8 MTBE in today's findings.

9 So, while we support this, I would point out that 10 we have got to move to a collaborate process and get away 11 from the failed policies and politics of the past, and 12 certainly our industry, and I would say the majority of the 13 stakeholders in this room today are willing to enter into a 14 new collaborate process.

15 We have not seen the willingness on the part of 16 technical staff to enter into a good faith way into that, but 17 maybe we will get that behind us, and then we will be able to 18 in the future. I do not know.

19 But I certainly hope so, and we will try with all 20 of the resources we have and the creativity to do that.

21 The Legislature last year unanimously with no votes 22 of opposition passed a bill that would have lifted the oxygen 23 cap and would have actually put in context the same sort of 24 offsets we had suggested that we are talking about, and when 25 I hear the Board Members wanting to do and I would like to PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 156 1 note that there was only one entity in California that was 2 opposed to that bill, and that was the California Resources 3 Board, and it was unanimously supported by an incredibly 4 broad coalition, environmental, agricultural, resource groups 5 and was opposed by one, the California Air Resources Board,

6 authored by one of the most outstanding environmental 7 legislators in California, Assemblywoman Bowen and now 8 Senator Bowen, so I am sure the Legislature will have 9 something to say on all these issues, and hopefully, we can 10 get past a lot of the negativity that we have experienced and 11 move forward to a brand new day here, because I know ethanol 12 will be a part of that, and hopefully, we can all roll up our 13 sleeves and move in that direction.

14 So with the cap, it is great. It is a great start.

15 It does not do anything of itself to help the cause of 16 ethanol.

17 Thank you.

18 CHAIRPERSON RIORDAN: Thank you. That concludes 19 the witness list.

20 Since all of the testimonies, the written 21 submissions, and the staff's comments for this item have been 22 entered into the record and the Board has not granted an 23 extension of the comment period, I am officially closing the 24 record on this portion of Agenda Item number 98 9 2.

25 Written or oral comments received after the comment PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 157 1 period has closed will not be accepted as part of the 2 official record on this Agenda Item.

3 There are ex parte requirements on this item. Are 4 there any to disclose from the Board Members?

5 Seeing none, there is a Resolution before us. This 6 is number 98 79, and it contains the staff's 7 recommendations.

8 Do I have a motion on that?

9 Supervisor Patrick.

10 BOARD MEMBER DUNLAP: Second.

11 CHAIRPERSON RIORDAN: Supervisor Patrick to support 12 and seconded by Dunlap.

13 Any discussion on the motion?

14 Seeing or hearing none, all those in favor of the 15 motion, signify by saying aye.

16 Opposed, no.

17 The motion carries.

18 Thank you very much.

19 Staff really caught me by surprise, because we went 20 so fast. Where were you yesterday?

21 All right. Next before us, and do we need any 22 change here in staff?

23 No. We are okay.

24 Agenda Item 98 15 4, let me ask Mr. Kenny to 25 introduce this item and the staff presentation.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 158 1 MR. KENNY: Thank you, Madam Chairman and Members 2 of the Board.

3 This item is a proposal from staff to change the 4 fuel specification for LPG sold for use in motor vehicles.

5 LPG is commonly known as propane.

6 The changes are proposed to preserve the current 7 supply of complying fuel to owners of LPG vehicles while 8 assuring a quality vehicle fuel with adequate emissions 9 performance.

10 At the March 1997 Board hearing, the Board approved 11 the delay in implementing its previously adopted five percent 12 limit on the propene content on motor vehicle LPG. In 13 approving the delay, the Board directed staff to evaluate 14 alternative specifications for motor vehicle grade LPGs, and 15 the Board also made it clear that if staff were unable to 16 make an alternative recommendation, staff should propose an 17 ongoing solution that would eliminate the need for revisiting 18 this item in any future hearings.

19 First, I would like to briefly summarize the 20 history of the Board's action with respect to LPGs. The LPG 21 specifications were originally adopted in 1992 and include a 22 maximum limit on the propene content at five percent by 23 volume and a maximum limit on the butane and heavier content 24 at 2.5 percent by volume.

25 However, out of the concern that the supply of PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 159 1 complying LPG might be unreliable, the Board delayed 2 implementing the five percent propene level until January 3 first 1995, and set an interm propene limit at 10 percent.

4 In 1994 and again in 1997, after concluding 5 complying fuel would not be available Statewide, the Board 6 extended the effective date for the five percent propene 7 limit.

8 The current effective date is January first, 1999.

9 Following the Board's direction, staff formed the LPG task 10 force which is comprised of members representing refiners,

11 LPG distributors, engine manufacturers and vehicle parts 12 manufacturers and others.

13 The staff's group developed and implemented a test 14 program to determine if there were alternate LPG 15 specifications that had equivalent performance durability and 16 emissions when used in engines that represent the latest 17 technology.

18 The staff has worked with the LPG task group to 19 identify an alternative specification for vehicle LPG that 20 could be acceptable in terms of emissions and major 21 performance.

22 On the basis of this work and other information,

23 staff is proposing an alternative to the specifications to 24 take effect in January. Staff is recommending that the 25 interim 10 percent propene limit that has been in place since PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 160 1 1992 to replace the five percent limit and that limit on 2 butane, butene and heavier hydrocarbons be amended to five 3 percent by volume.

4 The staff believes these changes are necessary to 5 ensure continuing supplies and complying LPG for vehicular 6 use. Failure to ensure adequate supply of LPG could result 7 in current and potential owners of LPG powered vehicles 8 selecting gasoline or diesel powered vehicles, resulting in 9 an increase in emissions.

10 Now, Tony Brasil will give the staff presentation.

11 Tony.

12 MR. BRASIL: Thank you, Mr. Kenny.

13 Good afternoon, Madam Chairman and the Board 14 Members. I will summarize the regulatory history and the 15 issues regarding LPG that bring us here today.

16 I will provide an overview of the LPG test program 17 and results and will present staff's proposal and its 18 effects.

19 In 1992, the Board adopted motor vehicle grade to 20 LPG specifications to ensure fuel quality for vehicles, and 21 the Board set specifications for certifying new engines and 22 for in use LPG based on an ASTM standard for special duty 23 propane, which would put the limit on propene at five 24 percent.

25 To ease the transition to the new standards, the PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 161 1 Board included an interim limit, allowing 10 percent propene,

2 also referred to as HV 10. This is the limit in effect 3 today.

4 Under this average, the propene content is about 5 four percent. The rest of the United States can use the 6 broad specifications of commercial grade LPG in vehicles.

7 Recently the U. S. EPA adopted commercial grade LPG 8 as the motor vehicle certification fuel but has not set a 9 standard for in use LPG.

10 Commercial grade LPG has up to 50 percent propene.

11 Because of concerns with limited supply and distribution of 12 LPG complying with the five percent propene limit, the 13 Western Propane Gas Association petitioned the Board in 1994 14 and again in 1997 to continue the 10 percent interim propene 15 limit.

16 Concerns arise because there is little incentive 17 for fuel suppliers to change the propene content in LPG, and 18 most marketers and users cannot segregate the two grades of 19 LPG.

20 Our 1996 survey of wholesalers show that out of 104 21 sites currently selling to vehicles, only 38 would still be 22 able to if the propene limit for motor vehicles LPG is 23 reduced to five percent.

24 The Board recognized that implementing the five 25 percent propene limit would restrict supply, and the few PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 162 1 users would be able to secure it for consistent supply.

2 Therefore, the Board granted its delay each time.

3 However, at the 1997 hearing, the Board directed staff to 4 investigate alternative in use specifications and emphasized 5 that if staff were unable to make a recommendation by today's 6 Board hearing, the five percent propene limit would take 7 effect in January of 1999, and there would be no more delays.

8 In response to the Board's direction, staff formed 9 the LPG task group. The task group is comprised of members 10 representing more than 30 organizations, including the auto 11 industry, heavy duty engine manufacturers, fuel suppliers,

12 distributors and others.

13 The LPG task group designed and implemented the 14 test program to evaluate various skilled composition and the 15 overall cost exceeded over a half a million dollars.

16 The LPG task group selected these five LPG blends 17 for consideration. The base fuel meets the certification 18 fuel specifications in our regulations as propene content 19 four percent, and as you see the test fuel have varied 20 propene up to 21 percent and butene up to 20 percent.

21 Today what we are proposing is represented by fuel 22 one with 10 percent propene. I show in the right columns the 23 octane rating for fuel one, and there is only one octane 24 number below that of the base fuel.

25 Fuel five was added later in the process and was PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 163 1 not tested for octane. The results of the emissions tests 2 show that fuel one with ten percent propene and five percent 3 butene was the most similar to the base fuel with the four 4 percent propene.

5 The emissions of the other tests were higher. On 6 the Cummins engine, there was no increase in emissions,

7 except for NOx. NOx increased nine percent, and the 8 allowance for testing was six percent.

9 The results on the Ford vehicle showed no 10 significant increase in emissions for any pollutant. The 11 performance tests are in progress, but the durability tests 12 have not started.

13 The results should be available early next year.

14 The Cummins engine was selected by the task group for 15 performance and durability testing, because it was more 16 sensitive to fuel changes than the Ford engine.

17 Limited engine performance data collected on the 18 Cummins engine during emission testing do not provide any 19 evidence that fuel one with ten percent propene and five 20 percent butene is likely to present performance problems.

21 Also in the past, Detroit Diesel Company conducted 22 its own performance tests on the prototype series 50 engine 23 with a 10 percent propene fuel.

24 The test showed no concerns within the normal 25 operating range of that engine. Based on this information PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 164 1 and the fact that the 10 percent propene limit has been in 2 effect for the last four years without any report of 3 problems, we feel it is appropriate to make a recommendation.

4 We are recommending the following: That the Board 5 retain the present maximum propene limit of 10 volume percent 6 effectively limiting the content to the same cap as cleaner 7 burning gasoline; set a limit on butene at five percent; and 8 set a new standard limiting butene heavier, except butane, to 9 a one half percent.

10 As a result of comments received, we get to the 11 release of the staff report, we are also proposing to lower 12 the limits on sulfur in efforts to make the cap the same as 13 it is for gasoline, and I am proposing to make minor 14 technical modifications to clarify the test methods and the 15 limits on butane and butene and heavier.

16 These last two changes are different than what we 17 have noticed and will be subject to the 15 day comment 18 period, if adopted.

19 If staff's proposal is adopted, there will be 20 little change from the current situation. The average 21 propene content is likely to remain at four percent but will 22 be allowed to continue to vary up to the ten percent limit.

23 We may forego a maximum potential emission decrease 24 of a tenth of per ton a day for NOx activity adjusted 25 hydrocarbons, if we assume all of the vehicle grade LPG that PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 165 1 contains 10 percent propene since the in use average is only 2 four percent propene, the impact would be less.

3 Staff's proposal also assures an adequate supply.

4 Their restricted supply by going to the five percent propene 5 limit would result in increased emissions that LPG vehicles 6 are replaced by diesel or gasoline vehicles.

7 The proposed changes will have no economic impacts 8 compared to what is being done today and do not affect the 9 SIP. We will continue the plan performance and durability 10 test, and we will evaluate the results when the tests are 11 complete, but we do not anticipate any performance or 12 durability problems.

13 However, if we find any significant new 14 information, we'll return before the Board with appropriate 15 recommendations.

16 Because vehicle technology is changing rapidly, we 17 are committed to continue considering new information as 18 technology evolves.

19 In closing, if adopted, our proposal will maintain 20 the status quo and assure that it will continue supply of 21 complying LPG. The average propene content is expected to 22 remain close to four percent, the same as the certification 23 fuel as preserved.

24 The original intent in having the in use fuel is 25 similar to the certification fuel. We do not expect the PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 166 1 average propene content to change, because there is no 2 incentive for suppliers to change their existing practices.

3 Staff's proposal provides users with a high quality 4 fuel for vehicles. No other state does.

5 The 10 percent propene maximum is merely a cap that 6 does not change the users ability to obtain a higher grade 7 fuel nor does it prevent vehicle manufacturers from requiring 8 premium grade fuels as some do today.

9 There is essentially no economic impact by this 10 proposal, and finally it does not affect the SIP because no 11 emission benefit from the LPG fuel standards were claimed in 12 the SIP.

13 This concludes my presentation.

14 BOARD MEMBER DUNLAP: Thank you.

15 We will move to the Ombudsman.

16 Ms. Meade would you like to give a report.

17 MS. MEADE: Madam Chair and Members of the Board 18 i, n preparation for today's proposal, the staff formed an LPG 19 task group in February 1997, which was comprised of 37 20 organizations representing vehicle heavy duty engine 21 manufacturers, refiners, fuel suppliers and LPG distributors.

22 Staff worked closely with the group to develop the 23 test protocol. In addition, later the same year the testing 24 program project manager was selected, the Adapt Group, a Los 25 Angeles based consulting firm with expertise in private,

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 167 1 public institutional partnerships and extensive experts in 2 LPG fuel issues.

3 Between February 1997 and September of 1998, staff 4 held 10 LPG task force meetings to develop a memorandum of 5 understanding, project goals to test protocol and to receive 6 testing updates.

7 Each meeting summary was mailed to each task force 8 member and posted on ARB's website. Numerous phone calls 9 were handled by staff, averaging about 20 per week during the 10 first six months of the project.

11 In addition, staff met with the project manager 12 once a week during the implementation of the testing program 13 beginning in April 1998.

14 On October 23, staff mailed the staff report 15 together with the notices of the November 10 workshop and 16 today's Board hearing. These items were also posted on ARB's 17 Website.

18 The mailing went to 1300 individuals, including 19 task force members, groups which have been participating in 20 the past with ARB's fuel regulations, environmental 21 organizations, the U. S. EPA and other governmental 22 institutions.

23 On November 10, the workshop was attended by 15 24 interested parties, including representatives of Ford Motor 25 Company, Engine Manufacturing Association, Cummins Engine PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 168 1 Companies, Arco Products, and the Western Propane Gas 2 Association.

3 In conclusion, staff worked closely with affected 4 parties and provided adequate access to participation in the 5 development of the item now before you.

6 BOARD MEMBER DUNLAP: Very good. Thank you.

7 Mr. Kenny, would you add anything?

8 MR. KENNY: No, no, thank you.

9 BOARD MEMBER DUNLAP: What I think we will do, we 10 will hop into the witnesses.

11 Kate Drakos. I will ask everyone that we call to 12 sit in the front row or two.

13 Bruce Irion, Baron Glassgow, Alina Tan and Bill 14 Platz.

15 One thing I should mention, at various times there 16 are Board Members that are not sitting up here. In the back 17 they are taking their lunch, and we have a speaker for 18 listening, and I know I have been up and down, and I want you 19 to know I have been listening to what the testimony is.

20 MS. DRAKOS: Thank you. Good afternoon, Members of 21 the Board and staff.

22 My name is Kate Drakos, and I am representing the 23 Engine Manufacturers Association. EMA members include the 24 manufacturers of engines utilizing liquid petroleum gas and 25 small utility engines for industrial application and PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 169 1 alternative fuel, heavy duty engines, all of which are all 2 included in today's discussion on liquifed petroleum gas.

3 Now, in the interest of time, I will shorten up my 4 oral statement, but I would like to say that EMA has 5 submitted a more expansive comment that is in the record.

6 I will proceed with a modified version here. First 7 of all, the staff's proposed fuel specifications changes will 8 lower the octane reading in the commercial fuel used in our 9 member company engines. California octane rating is known as 10 anti NOx fuel.

11 LPG engines which are derived from diesel platforms 12 are designed for HD 5 fuel octane quality. These engines 13 operate at higher compression ratios and load factors than 14 traditional light duty LPG engines.

15 These design considerations were adopted to 16 maintain diesel engine like performance, good fuel economy,

17 lower emissions and long life.

18 By increasing the propene content of the fuel, the 19 octane reading of that fuel will be lowered, and this in turn 20 will reduce our design margin and thus jeopardize the 21 performance and durability of these engines.

22 Secondly, data from the program indicates that 23 increasing the propene level increases the amount of NOx and 24 other ozone forming hydrocarbon emissions, although this may 25 be used as an acceptable trade off to ensure a reasonable PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 170 1 supply of LPG for LPG vehicle community in California.

2 EMA believes the Board must keep this in mind when 3 considering a broader LPG specification.

4 Next, the CARB LPG task group has not completed its 5 work. The group was formed to address technical issues 6 associated with a new, less restricted standard for LPG 7 engines.

8 Only the emission testing portion of the program 9 has been completed. Combustion performance and limited 10 durability testing, which makes up almost two thirds of the 11 program, has yet to be done.

12 As technology continues to advance, durability 13 becomes a critical issue, and any new or amended commercial 14 fuel specifications must be shown to be acceptable over the 15 use of the life of the engine.

16 It is critical that the remainder of the program be 17 completed. Finally, and perhaps most importantly, the Board 18 must assure that any broadening of the LPG commercial fuel 19 specification is accompanied by strict enforcement of that 20 specification at the point of retail sale.

21 If the LPG specification is to be relaxed from HV 5 22 to HV 10, it remains critical for CARB to monitor the in use 23 fuel to ensure that limits on the fuel are met and that 24 contaminants do not enter the fuel supply.

25 Also, if the LPG specification is to be relaxed,

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 171 1 EMA requests that language be inserted in the Resolution 2 which allows for an automatic reconsideration of the new 3 specifications at a later time if it turns out that it is 4 demonstrated either for completion of the present CARB LPG 5 test program or from future relevant data that the broadened 6 commercial LPG specifications is harmful to the engines or 7 the environment.

8 In summary, the EMA requests that the Board fully 9 consider all of the ramifications of a broader commercial LPG 10 specification, including octane reduction, air quality, the 11 effect on engine durability and the need for enforcement of 12 fuel quality at the retail level.

13 We also request that in the future data from the 14 CARB LPG test program which is still underway or field use 15 that indicates that HV 10 adversely affects the manufacturers 16 engine durability and or performance, CARB will consider 17 whether HV 10 is an appropriate commercial specification in 18 developing new proposals if it is deemed necessary.

19 EMA thanks you for this opportunity to comment and 20 looks forward to working with the staff in the future.

21 I will be happy to answer any questions.

22 CHAIRPERSON RIORDAN: Thank you.

23 Are there any questions of this witness?

24 Seeing none, thank you very much.

25 Mr. Bruce Irion, and followed by Baron Glassgow.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 172 1 If you would introduce yourself for the record,

2 please, and who you represent.

3 MR. IRION: Good afternoon. I am Bruce Irion.

4 I work for the Martinez Refining Company, in 5 addition to that, Equilon Enterprises.

6 We welcome staff's proposals. The way to promote 7 the use of LPGs and motor vehicle fuel, we urge the Board to 8 encourage continued investigation with additional fuel 9 flexibility to promote the same.

10 I am sure if you have read through the staff 11 report, I think there are some things in there that I think 12 are relevant, and I would like to quote quickly from page 5,

13 the amendments were proposed to preserve and enhance the 14 current supply to complying fuel owners of LPG vehicles while 15 assuring adequate emission performance.

16 On page 4 the staff's proposal, will not have any 17 impacts on the State Implementation Plan because these fuel 18 specifications are not a sub strategy.

19 On the same page, the emission from gasoline 20 vehicles have greater ozone warrant potential and much 21 greater toxic contents than do emissions from LPG vehicles,

22 and also, LPG fuel engines produce virtually no particulate 23 matter compared to diesel engines.

24 Finally, from page 24, if the continued 25 availability of complying LPG due to the proposal promises PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 173 1 the sale of even a few new LPG engines in vehicles in lieu of 2 the gasoline, diesel vehicles, that effect in the proposal 3 could be a decrease in future emissions.

4 I would also like to add a couple of things which I 5 got from the Energy Information Administration in December 6 1997, alternatives to traditional transportation fuels, 1996,

7 I believe it is, like everything else, available on the Web.

8 CHAIRPERSON RIORDAN: Thank you. Amazing.

9 MR. IRION: Isn't technology wonderful?

10 In 1996, this report indicates that LPG vehicles 11 accounted for 75 percent of all alternative fuel vehicles, 75 12 percent, and 80 percent of those LPG vehicles were privately 13 owned versus 45 percent from non LPF alternate fuel vehicles.

14 From these statements, it is clear that LPG is the 15 fuel of choice for alternative fuel owners and overwhelmingly 16 so for private owners of alternative fuel vehicles.

17 Also, CARB's LPG fuel standard will not ignore the 18 emissions consideration but was primarily adopted to promote 19 the use of LPG as an alternative fuel.

20 We believe that the proliferation of LPG as an 21 alternative fuel needs to continue and is best served by 22 having as much flexibility as fuel standards that consumer 23 acceptance will allow.

24 As the staff report indicates, less than 10 percent 25 of propane marketed is used in motor vehicles, and in fact,

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 174 1 while some LPG marketed by refiners may meet motor vehicles 2 fuel specifications, I am not aware of any refiner that 3 guarantees this product meets these specifications, meets 4 specifications anymore restrictive than commercial grade LPG.

5 We are concerned, of course, that any overly 6 restrictive motor vehicle fuel specification could stifle LPG 7 fuel vehicles by limiting supply availability.

8 I have heard concerns raised that a flexible fuel 9 standard might impair the performance for emission 10 characteristics of engines. I do not view these concerns as 11 problems.

12 The emission performance of engines will continue 13 to be judged against the certification fuel that has not 14 changed. Furthermore, in the same fashion that certain 15 gasoline vehicles are recommended for use of 92 octane 16 fuels, there is nothing in this regulation that precludes a 17 manufacturer's ability to specify the use of the stringent 18 fuel then required by the regulation.

19 Finally, we trust gasoline users to make judgments 20 in deciding adequate performance for their engines. Why 21 should we assume that all alternative fuel vehicle owners 22 would exercise any poorer judgment?

23 It does not seem reasonable. A more restrictive 24 requirement should be set for LPG, and for gasoline, I was 25 also struck by your comment, Tony, about the EPA adopting PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 175 1 commercial grade propane as standard one, their fuel.

2 Again, we support the recommendation of staff to 3 increase LPG motor vehicle fuel flexibility and encourage the 4 Board and staff to continue to explore LPG fuel flexibility 5 as a way of encouraging it use as alternative fuel.

6 CHAIRPERSON RIORDAN: Thank you very much.

7 Mr. Baron Glassgow, followed by Ms. Kulikowski Tan.

8 MR. GLASSGOW: Good afternoon.

9 My name is Baron Glassgow, and I appreciate the few 10 moments I am going to spend with you today, and I emphasize 11 the few moments.

12 I am the Director of Field Services for the 13 National Propane Gas Association, and I staff NPGA's Engine 14 Power Committee.

15 I am here effectively to ask you to either 16 temporarily adopt the standard before you or to delay 17 adoption until the LPG task force has completed its work. As 18 what will be demonstrated in my very brief comments today,

19 the future of propane as a motor fuel in California is really 20 at stake in this conversation today.

21 The fine reputation today of the ARB leads your 22 conclusions to be used nationwide, certainly by the Federal 23 Government and by other states in the development of 24 regulations to be used throughout the country and sometimes 25 with unforeseen consequences.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 176 1 First I want to just point out briefly the reason 2 that the National Propane Gas Association is interested in 3 this issue. As a member of the LPG task force, we have been 4 a contributor to the participation, financially and as well 5 as the task force in terms of effort.

6 Our membership includes 4,000 businesses in 26 7 countries, including hundreds of businesses and thousands of 8 employees here in California. We are a trade association 9 that represents every spectrum of the propane industry from 10 the large mom and pop industry to the large corporation to 11 tank manufacturers.

12 With the propane producers, we represent everybody 13 and in this particular case, it is interesting, as Bruce 14 pointed out, and I am not going to repeat the statistics that 15 he had put in his comments, but certainly propane as a motor 16 fuel is the predominant alternative fuel.

17 As he indicated, 75 percent of vehicles located in 18 the country running on alternative fuel are running on 19 propane. The fuel spec that you have before is really 20 interesting in that it really does things that the staff 21 report doesn't reflect, I think.

22 The staff report indicates, and if I can  the 23 staff is not aware of any LPG producers or marketers who 24 alter their facilities or operations to allow for segregation 25 of vehicular LPG.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 177 1 I think the conclusion that is being drawn through 2 those comments is that because preparation has not been made 3 that therefore there is not a problem with that, and I guess 4 that would be similar to saying you have not purchased a 5 ticket for a trip, therefore, it is not going to cost you 6 anything.

7 I think in this particular case we have not 8 purchased the ticket for the trip because we are not sure if 9 we are going to take the trip or not.

10 The difficulty that has began is that propane is 11 really a singular, the infrastructure for propane really 12 allows for a singular fuel. The national propane spec that 13 you have for commercial grade propane really reflects the 14 realities of the propane industry.

15 We have propane distribution that goes nationwide.

16 Just because a propane is sold here in California does not 17 mean it is different propane which is used in Arizona,

18 Nevada, Utah. We bring propane into California, and we take 19 propane out of California.

20 The commercial grade propane that is called from a 21 national level reflects the realities of propane. There is 22 one distribution. There is one tank. There is one refilling 23 mechanism.

24 It is all transparent across the country.

25 Essentially this spec will likely call for a dual system, one PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 178 1 for propane motor fuel and one for non propane motor fuel,

2 and frankly, ladies and gentlemen, the propane industry is 3 not established to accommodate a separate motor fuel 4 facility.

5 The quickest way that we can kill the California 6 use of propane as an alternative fuel is to require 7 segregated propane as a motor fuel. The economics will not 8 support it. The infrastructure and production will not 9 support that.

10 In essence, what I would like to encourage you to 11 do is delay this for a few months until the LPG task force 12 work is done, or adopt this, recognizing that it is probably 13 a temporary adoption, and it will come back to you asking 14 that you reconsider this once the information is fully 15 available from the LPG task force.

16 Thank you very much for your time.

17 CHAIRPERSON RIORDAN: Thank you.

18 Are there any questions for this witness by any of 19 the Board Members?

20 Thank you very much.

21 The next witness is Ms. Kulilowski, and the final 22 witness is Mr. Platz.

23 If you would identify yourself for the record and 24 who you represent.

25 MS. KULIKOWSKI TAN: Thank you, Madam Chairman and PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 179 1 the Board.

2 My name is Alina Kulikowski Tan. I am with the 3 Adept Group, the project manager of the ARB LPG fuel blends 4 evaluation project.

5 First of all, I would like to acknowledge the ARB 6 staff and the consortium and task group who sponsored this 7 project. Without their guidance and time and sponsorship,

8 this would not have been possible.

9 This project has been a very exciting project. We 10 have gained new insight every step of the way, and we have 11 now garnered not only national attention but international 12 attention.

13 We are getting inquiries all over the world about 14 this project. The project is well under way. We are in the 15 middle of the second phase of testing.

16 We are also still fund raising for the project.

17 In light of these circumstances, what I would like 18 to emphasize today is that we as project managers support 19 staff's proposal and ask that the Board consider the 20 following modifications or additions.

21 We would ask that the Board review the data from 22 the performance and combustion testing and durability testing 23 when it is complete. We estimate that will be in about six 24 months.

25 We ask that there be mandatory review by the Board PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 180 1 within no more than three years. A lot of things change in 2 this industry in three years. They change year to year.

3 The technology that we are using to test in this 4 program right now did not exist two years ago. So, to assure 5 that the agreed upon testing program is completed, as I 6 mentioned, we are about halfway through, and we are still 7 fund raising, I appeal to the Board that they give the staff 8 the support they need to complete this program.

9 This is a very exciting program. I cannot stress 10 that it has given a lot of insight to many different players 11 in this industry and related to this industry about how LPG 12 functions as a motor fuel.

13 We learned a whole heck of a lot in the emissions 14 phase.

15 Allow for equivalent LPG blend formulations. This 16 is an off shoot off of what the ARB has already done with 17 diesel. We think this is a model that should be considered.

18 We are asking that the Board support staff looking 19 into looking at equivalent formulations and also to support 20 staff in maybe developing emissions prediction models because 21 of all that we have learned so far.

22 The final is delete the butane, butene and heavier.

23 This is usually a very valued issue, and staff's attention to 24 this issue is correct.

25 We as the project manager have not addressed this PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 181 1 issue so far in the project. The task group has not 2 addressed it in their dialogues.

3 In summary, I would like to say thank you very much 4 for the support you have given the project today. I would 5 also like to extent thanks to the staff and to all those who 6 have made it possible.

7 Thank you.

8 CHAIRPERSON RIORDAN: Thank you very much and thank 9 you for your testimony.

10 Staff, I do not know whether you want to make any 11 comments on any of the speakers, and then what I would like 12 you to do is do the written submission, if there are any

13 I'm sorry, Mr. Platz, I forgot you, and I apologize.

14 I am so excited to get to the end of this Agenda.

15 MR. PLATZ: It is all right, Madam Chairman.

16 You are saving the best for last.

17 CHAIRPERSON RIORDAN: Best for last. I apologize.

18 MR. PLATZ: Well, as many of you probably know, I 19 am also, if not the signatory, at least the reason why we 20 keep getting to discuss this issue every couple of years.

21 Officially, my name is William Platz. I am 22 currently the President of the Western Propane Gas 23 Association.

24 This is a voluntary organization made up of some 25 175 propane marketers, distributors, fuel producers and PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 182 1 equipment suppliers in the State of California and 2 represented also in Nevada now.

3 I want to remind the Board that propane or LPG is 4 sold for many different uses, not only for engine fuel but 5 for heating purposes, water heating, cooking, et cetera, and 6 any given market area in California is served by a minimum of 7 at least three if not more marketers.

8 Industry is deeply fragmented, highly competitive.

9 We eat our young.

10 Most of our companies are small mom and pop 11 organizations as opposed to the large groups that you deal,

12 say PG& E or Southern California Gas Company. We are not set 13 up that way, and frankly, we have a hard time getting along 14 and agreeing on much of anything.

15 For the past two years, WPGA has been working 16 closely with staff and the Engine Manufacturers on the LPG 17 task group in order to achieve a workable fuel specification.

18 We recognize that the decision point here before 19 you today is will LPG engine fuel have a limit of 5 percent 20 or 10 percent of propene, not none of the above, and I will 21 address some of the other little side issues on that one in a 22 minute.

23 Therefore, at this point WPGA feels they have no 24 choice but to support staff's recommendation to limit the 25 propene content to 10 percent by volume and the butane PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 183 1 content to 5 percent by volume, and in our opinion this is a 2 workable interim solution, as most of the LPG produced in 3 California meets and frequently exceeds this specification,

4 that is the propene and butane contents are most of the time 5 lower from most of the production points in California.

6 In our opinion, the results of emission testing has 7 been conducted over the past two years. The task group 8 supports our contention that an even wider LPG specification 9 may be appropriate, so we do not want to close the door.

10 We believe that as engine fuel metering technology 11 improves and emissions equipment is enhanced, the need for a 12 stringent LPG fuel specification is lessened.

13 We applaud staff's willingness to continue the 14 dialogue developed between our industry and look forward to 15 continuing the performance and durability testing of LPG 16 powered engines in the future.

17 We are confident that this specification today and 18 future specifications of tomorrow will build the AFV fleet 19 population in California while at the same time sustain the 20 existing fleet of some 40,000 propane powered trucks, vans 21 and taxis that are in California's current vehicle 22 population.

23 These platitudes aside, WPGA and certainly a number 24 of companies such as myself have some real concerns as to 25 how CARB intends to enforce compliance of this fuel PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 184 1 specification. You heard EMA ask for vigorous compliance on 2 the retail level.

3 I am assuming that the Department of Measurement 4 Standards is going to be the agency that promulgates 5 enforcement procedures, but DMS does not answer directly to 6 this Board, to my knowledge.

7 We believe that it is appropriate that you as the 8 Board publicly give the staff, DMS, industry, engine 9 manufacturers some direction and opinion as to where and how 10 compliance is to be administered, if you truly desire future 11 growth of LPG as an alternative engine fuel.

12 Engine manufacturers have a major investment in 13 engine development. They want to sell some engines. We 14 marketers have a major investment in the distribution system,

15 but, as Baron Glassgow indicated to you, we are prepared to 16 only sell one LPG.

17 The fuel producers on the other hand make gasoline,

18 diesel and jet fuel. That is their primary product. While 19 LPG is a profitable niche market, it really only amounts to 20 three percent of their overall sales.

21 Refiners, with the exception of Bruce here from 22 Shell, still have the perception right or wrong that LPG is 23 equivalent to sawdust. Economics drive what is and is not in 24 LPG in any given month, and ASTM specifications aside, it 25 gets pretty tempting in the winter time when propane demand PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 185 1 is up for heating purposes and sales margins are high to 2 spike that LPG with a little extra propene, if not a few 3 unknown hydrocarbons.

4 The Agenda Item today is limited to approval or 5 denial of only a small portion of the overall alternative 6 motor fuel vehicles regulation. The main body of this 7 regulation specifically defines liquefied petroleum gas as 8 one of seven of the alternative fuels.

9 If you want to call the P series, fuel number 8, I 10 suppose you could. It continues that no person shall sell,

11 offer for sale or supply an alternative fuel intended for use 12 in motor vehicles unless it conforms with applicable 13 specifications of which we are trying to adopt.

14 Alternative fuel shall be deemed to be intended for 15 use in motor vehicles, and I will get back to that one in a 16 minute. Motor vehicles, if it is sold or offered for sale or 17 supplied to a person engaged in the distribution, all of us 18 on the marketing side are engaged in the distribution of 19 alternative fuels, because for the most part our fleet 20 operates on our own fuel, unless the person selling, and that 21 is talking about our suppliers, unless the person supplying 22 or selling the fuel demonstrates that he or she has taken 23 reasonably prudent precautions to assure that the fuel will 24 not be used as a motor vehicle fuel in California.

25 Now, the Vehicle Code in California defines a motor PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 186 1 vehicle as a vehicle that is self propelled. So while the 2 LPG specification applies to fleets and forklifts, it does 3 not apply to the myriad of irrigation engines, wind machines,

4 floor buffers and LPG powered generators in California,

5 unlike gasoline and diesel, which are precisely defined by 6 CARB in Title 13.

7 There are no other provisions aside from what we 8 have just reviewed in this or any other regulation that gives 9 DMS the authority to administer LPG specifications. In our 10 minds, Section 2291 of Title 13 clearly gives an out to the 11 companies that make or import LPG by simply stating in 12 writing that they sell only commercial grade propane, which 13 is exactly what we get today, and that their product is 14 unsuitable for engine fuel use.

15 Now the practical matter, most LPG produced or 16 imported in California can, in fact, meet this 17 specifications.

18 But nobody is holding the producers feet to the 19 fire. The producers have said up until now that hardly even 20 sometimes be held to the ASTM specifications let alone engine 21 fuel specifications. This is entirely a game of trust that 22 has no oversight.

23 As I said in the beginning of my remarks the 24 distribution side of the propane/ LPG industry is composed 25 mainly of mom and pop operators. They do not have the PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 187 1 financial wherewithal to distribute multiple LPG blends nor 2 the inclination as their single largest LPG engine fuel 3 demand is likely to be their own delivery and service fleet.

4 In today's oil economics, there is not a clamor to 5 purchase or convert private fleets to LPG use, and the Feds 6 have taken a decidedly soft approach on EPACT and Clean Air 7 Act fleet purchase requirements.

8 So, aside from an unknown quantity of LPG powered 9 lift trucks, propane use as an engine fuel does not currently 10 have much use potential for growth, and in fact, unlike the 11 other statistics that were quoted, the API statistic show the 12 fuel sales in this particular area are going down.

13 Compliance and exposure to fines for this or any 14 other LPG engines fuel specification would appear to fall 15 squarely on the shoulders of those marketers you folks should 16 be relying upon to distribute this clean burning alternative 17 fuel.

18 But we have no control over the specification of 19 LPG we are purchasing nor the capital required to set up 20 testing facilities to prudently assure ourselves that the LPG 21 that we receive complies with California specification for 22 our own fleets let alone our customers.

23 If the producers will not certify or are not 24 required to certify to what they are selling, how are we as 25 marketers supposed to determine whether or not our LPG PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 188 1 complies?

2 Frankly, it is easier, cheaper and far safer to 3 purchase and operate diesel powered Bobtails and pickups for 4 propane delivery. I do not think this is where this Board 5 wants to go, but as a practical matter, it is already where 6 we are headed.

7 Now, the argument we hear on the producers side is 8 that enforcement of engine fuel specifications on all propane 9 when so little of it is used for engines will shorten supply,

10 primarily propane supply, by some 8,000 barrels per day.

11 This is a lot of propane, and it cannot be possibly 12 made up with increased imports of specification propane from 13 outside Northern California.

14 There is not enough rail cars, and there are not 15 enough transports.

16 But what are the refineries going to do with it?

17 They make gasoline and diesel, and they make propane, whether 18 they like to or not.

19 They cannot fuel it all. They cannot burn it in 20 the refineries.

21 The same infrastructure argument holds for 22 exporting the stuff to any place outside of the State, and 23 the last time I looked, 8,000 barrels a day of California's 24 specification propane still yielded $ 125,000 of daily revenue 25 stream.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 189 1 In our opinion, that is worth investing some money 2 to cleanup some propane for a couple of refiners out there.

3 Like I said before, 90 percent of the propane made in 4 California today supposedly meets this proposed engine fuel 5 specification, but the regulations do not guarantee that the 6 fuel will be made available.

7 As a practical matter, imposing a fuel standard 8 would be much less expensive and far more equitable to 9 marketers if it were enforced uniformly at the producer level 10 where it is made.

11 In addition, the uniform standard would address 12 engine fuel uses outside of the purview of current 13 regulations.

14 An enforcement of a uniform specification 15 production would address the residual matter problem that we 16 marketers periodically face, but as written in Title 13,

17 Section 2290, does not address the availability problem.

18 If DMS only looks to the marketer for compliance,

19 this regulation could result in less LPG being sold to AFVs.

20 It could lead to heavy price discounting of non complying LPG 21 into the propane market.

22 This fuel ultimately may end up in fueling engines.

23 It could lead to abandonment of a market segment by marketers 24 that refuse to be bothered by fuel specification regulations.

25 They already have too many regulations to deal with now.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 190 1 The cost to enforce Title 13 as currently written 2 will be far higher at the end use level because of the 3 quantity and variety of locations where LPG is used as an 4 engine fuel.

5 Compliance officers will need to sample engine fuel 6 from containers as small as eight gallon forklift cylinders 7 to as large as 30,000 gallon storage tanks at some fleet 8 locations.