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# .



# APPENDIX D

Socioeconomic Impact Analysis

For Revised Proposed Amendments to Rule 4311

June 18, 2009

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# DRAFT RULE 4311 (FLARES):

SOCIOECONOMIC IMPACT ANALYSIS

APRIL 21, 2009

Prepared for 

# San Joaquin Valley Air Pollution Control District

Prepared by 

# Applied Development Economics

100 Pringle Avenue, Suite 560  Walnut Creek, California 94596  (925) 934-8712

2151 River Plaza Drive, Suite 150  Sacramento, CA 95833  (916) 923-1562

www.adeusa.com

Revised Proposed Amendments to Rule 4311

# SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICT

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# CONTENTS

1. Executive Summary .........................................................................................................................5

2. Introduction .....................................................................................................................................7

3. Description of Draft Rule 4311 ....................................................................................................9

Existing Conditions .........................................................................................................................9

Proposed Draft Amendments .......................................................................................................10

4. Methodology ....................................................................................................................................11

5. Impacted Industries Subject To Proposed Amendments to Draft Rule 4311 .......................13

5.1 Regional Demographic and Economic Trends ....................................................................13

5.2 Description of Affected Industries .........................................................................................17

6. Socio-economic Impacts ................................................................................................................27

6.1 Compliance Cost Estimates .....................................................................................................27

6.2 Business Responses to Compliance Costs ............................................................................27

6.3 Impacts on Affected Industries ..............................................................................................27

# 1. EXECUTIVE SUMMARY

The proposed amendments to Rule 4311 will affect establishments in a limited set of industries, particularly oil refinery and oil production. The analysis shows that oil-related industries experienced tremendous surges in revenues and profits, starti ng in late 2005 and continuing into 2008. With respect to oil-related industries, the analysis show s that annual costs stemming from the proposed amendments are small in relation to estimated industry net profits, falling below the threshold used for purposes of analyzing whether rule impacts are significant or not. The proposed amendments

will also affect a number of industries outside of petroleum. These industries are not significantly impacted by proposed amendments.

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# 2. INTRODUCTION

The San Joaquin Valley Unified Air Pollution Contro l District (“District”) seeks to amend Rule 4311 (Flares) to implement emission control requirement s listed in the 2007 Ozone Plan as well as the 2008 PM 2.5 Plan. In particular, the District is c ontemplating changes that are already contained in flare rules or permit conditions in other air dist ricts in California, to ensure that Rule 4311 meets federal RACT and BACM requirements as well as CH&SC requirements to implement BARCT and all feasible control measures (AFCMs). The report is prepared pursuant to the provisions of AB2051 (Section 40728.5 of the California Health and Safety Code), which requires an assessment of socioeconomic impacts of proposed air quality rules. The findings in this report can assist District staff in understanding the socioeconomic impacts of the proposed amendments, and can assist staff in preparing a refined version of the rule. Figu re 1 is a map of the eight-county region that comprises the San Joaquin Valley Air Basin. As indi cated in the map, Kern County is not completely

in the District.

FIGURE 1

MAP OF SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICT

Source: ADE, Inc.



## Revised Proposed Amendments to Rule 4311

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# 3. DESCRIPTION OF DRAFT RULE 4311

In developing the draft amendments to Rule 43 11, District staff evaluated the emission reduction potential of flare minimization plans (FMP) and ot her provisions that other districts’ rules have already implemented, and determined that it is feasib le to require similar emission controls for flares that are operating within the District. However , other relevant findings, available technical information, and input from stakeholders would be considered during the rule development process

in order to further refine the draft rule amendm ents. The discussion below first summarizes existing conditions with regard to the Rule 4311. Then , we reference proposed amendments to Rule 4311.



# EXISTING CONDITIONS

Source categories subject to Rule 4311 currently includes flares associated with oil and gas production, combustion, sewage treatment, inci nerators, petroleum refining, and VOC control. Flaring is a high temperature oxidation proce ss used to burn combustible components, mostly hydrocarbons, of waste gases from industrial opera tions. 95 percent of the waste gases flared are natural gas, propane, ethylene, propylene, buta diene and butane. During combustion, gaseous hydrocarbons react with atmospheric oxygen to form carbon dioxide (CO 2 

# ) and water. In some waste gases, carbon monoxide (CO) is the major combustible component.

Flares generate air pollutants such as nitrogen oxides, sulfur dioxide, carbon monoxide, and particulate matter, in addition to the possible release of hydrocarbons that have not been completely

combusted.



# G ENERAL 

# E QUIPMENT 

# D ESCRIPTION



# There are two general types of flares, elevated and ground flares. Flares are ca tegorized by the height of the flare tip, and by the method of enhancing combustion by mixing at the flare tip (i.e., steamassisted, air-assisted, pressure-assisted, or non-assisted).

Elevated flares are more common and have larger capa cities than ground flares. In elevated flares, a waste gas stream is fed through a stack, which can be over 100 meters tall and is combusted at the tip of the stack. An elevated flare consists of five components: a gas collection header (to collect gases from various process units), a proprietary seal , water seal, or purge gas supply (to prevent flash back), a single or multiple-burner unit in the flare stack, and gas pilots and igniter.

Ground flares vary in complexity and can consist either of conventional flare burners discharging horizontally with no enclosures or of multiple burners in refractory-lined steel enclosures.

Complete combustion requires proper mixing of ai r and waste gas. Smoking may result from combustion, depending upon waste gas components and the quantity and distribution of combustion air. Waste gases containing methane, hydrogen, CO, and ammonia usually burn without smoke, while waste gases containing heavy hydrocarbons cause smoke.

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# An external momentum force, such as steam injecti on, is used for efficient mixing of air and waste gas, and turbulence, which promotes smokeless fl aring of heavy hydrocarbon waste. Other external forces may also be used, including water spray, hi gh velocity vortex action, or natural gas. External momentum force is rarely required in ground flares. Combustion efficiency depends on flame temperature, residence time in the combustion zone, vent gas flammability, auto ignition temperature, heating value in British thermal units per standard cubic feet (Btu/scf), and turbulent
mixing. These factors promote a destruction e fficiency of 98 percent or greater. Complete

combustion would convert all VOCs to carbon dioxide and water.

Waste gases must have a fuel value of at least 200 to 250 British thermal units per cubic foot (btu/ft 3 

# ) for complete flare combustion. If a waste gas does not have the required fuel value, then fuel must be added. Flares providing supplemen tal fuel to waste gas are known as fired, or endothermic, flares. In some cases, even flaring waste gases having the necessary heat content will also require supplemental heat.

Flares are normally used to dispose of low volume continuous emissions, but are designed to handle large quantities of waste gases associated with plan t emergencies. Flare gas volumes can vary from a few cubic meters per hour during regular operations up to several thousand cubic meters per hour during major upsets.



# PROPOSED DRAFT AMENDMENTS

Timelines for flare minimization plans and flare m onitoring and reporting have been amended to give more time to industry and the District to implement and enforce new requirements. Please see draft rule language for specific requirements and corresponding dates. The following are quick

references to sections of the rule that will be amen ded. For detail, please see the District staff report of January 8, 2009.

Section 1.0 Purpose

Section 3.0 Definitions

Section 5.8 Flare Minimization Requirements

Section 5.9 Petroleum Refine ry Performance SO2 Targets

Section 6.2 Recordkeeping

Section 6.3 Testing and Sampling Methods for Flare Monitoring

Section 6.4 Flare Minimization Plan (FMP)

Section 7.0 Monitoring an d Reporting Requirements

Section 8.0 Compliance Schedule

# SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICT

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# 4. METHODOLOGY

The socioeconomic analysis involves the use of in formation provided directly by affected sources, as well as secondary data used to describe the industries affected by the proposed amendments to Draft Rule 4311. The approach is briefly described below.

Applied Development Economics (ADE) began the analys is by preparing a statistical description of the industry groups of which the affected sources are a part, analyzing data on the number of jobs, sales levels, the typical profit ratios and other economic indicators for each industry.

This report relies heavily on the most current data available from a variety of sources, such as the
Dun and Bradstreet, 2002 Economic Census an d the State of California’s Employment Development Department (EDD) Labor Market Info rmation Division. In addition, ADE utilized data from California Department of Conserva tion and the California Energy Commission. For purposes of estimating profits, ADE reviewed a number of sources, including Dun and Bradstreet,
the CCH, Inc., the US Internal Revenue Services, an d corporate annual reports of companies subject

to Rule 4311.

With the above information, ADE was able to es timate net after tax profit ratios for sources affected by the proposed amendments. ADE calculated ratios of profit per dollar of revenue for

affected industries. The result of the socioeconomic analysis shows what proportion of profits the compliance costs represent. Based on assumed thre sholds of significance, ADE discusses in the report whether the affected sources are likely to reduce jobs as a means of recouping the cost of rule compliance or as a result of reducing business ope rations. To the extent that such job losses appearlikely, the indirect multiplier effects of the jobs losses are estimated using a regional IMPLAN inputoutput model.

When analyzing the socioeconomic impacts of proposed new rules and amendments, ADE works closely within the parameters of accepted met hodologies discussed in a 1995 California Air Resources Board report called “Development of a Methodology to Assess the Economic Impact Required by SB513/AB969” (by Peter Berck, PhD, UC Berkeley Department of Agricultural and
Resources Economics, Contract No. 93-314, August, 1995). The author of this report reviewed a methodology to assess the impact that Califor nia Environmental Protection Agency proposed regulations would have on the ability of Califor nia businesses to compete. The California Air Resources Board (ARB) has incorporated the met hodologies described in this report in its own assessment of socioeconomic impacts of rules ge nerated by ARB. One methodology relates to determining a level above or below which a rule and its associated costs is deemed to have significant impacts. When analyzing the degree to whic h its rules are significant or insignificant, ARB employs a threshold of significance that ADE follows. Berck reviewed the threshold in his analysis and wrote, “The Air Resources Board’s (ARB) use of a 10 percent change in [Return on Equity] ROE (i.e. a change in ROE from 10 percent to a RO E of 9 percent) as a threshold for a finding of

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# no significant, adverse impact on either competitiveness or jobs seems reasonable or even

conservative.”

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# 5. IMPACTED INDUSTRIES SUBJECT TO PROPOSED

AMENDMENTS TO DRAFT RULE 4311

This section of the socioeconomic analysis describes demographic and economic trends in the San Joaquin Valley region. The first part of this s ection compares the San Joaquin Valley region against California as a whole, and provides a context fo r understanding demographic and economic changes that occurred within the San Joaquin Valley region between 1998 and 2008. Starting with sub-section 4.2, the second part of this section narrows the fo cus of the socioeconomic analysis to industries affected by the proposed amendments to Draft Rule 4311. The second part of this section describes the economic characteristics of potentially impacted industries that might be subject to this rule.



# 5.1 REGIONAL DEMOGRAPHIC AND ECONOMIC TRENDS

R EGIONAL 

# D EMOGRAPHIC 

# T RENDS



# The San Joaquin Valley region experienced tremendous population growth during the 1990s. Many came to this area because of affordable housing. As a result, population increased significantly. The eight-county region’s population increased by 24 pe rcent (or approximately 2.2 percent annually),

from 3.2 million in 1998 to 3.9 million in 2008. In the last five years, population growth rate slightly declined, as regional population grew by 2.2 percent annually between 2003 and 2008. While the State of California’s population increased by 14 percent (or approximately 1.4 percent annually)
between 1998 and 2008, all the counties in the re gion experienced faster rates of growth than California over the period, as Table 1 shows. Wh ile, by many standards, a small county of 150,887 residents, Madera County experienced an annual growth rate of 2.8 percent between 1998 and 2008. Between 2003 and 2008, this county continued to grow annually but at a slightly lesser rate of 2.7 percent. In the same five-year period, Kern, Me rced, and San Joaquin Counties experienced rapid growth, growing annually by 2.9 percent, 2.4 percent, and 2.2 percent respectively, as Table 1 below shows. As demonstrated in the following s ection on regional economic trends, the demographic changes that occurred in the San Joaquin Valley re gion during the 1990s and into the new century significantly influenced the economy of this eight-county region.

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POPULATION TRENDS

1998 2003 2008 98-03 03-08 98-08

State 33,225,655 35,652,700 38, 049,462 1.4% 1.3% 1.4% Region 3,192,439 3,540,392 3,956,003 2.1% 2.2% 2.2%

Fresno 781,936 846,485 931, 098 1.6% 1.9% 1.8%

Kern 637,227 708,753 817, 517 2.2% 2.9% 2.5% Kings 120,957 137,411 154, 434 2.6% 2.4% 2.5%

Madera 114,137 131,821 150, 887 2.9% 2.7% 2.8%

Merced 203,181 227,132 255, 250 2.3% 2.4% 2.3% San Joaquin 546,852 616,477 685,660 2.4% 2.2% 2.3%

Stanislaus 428,272 483,705 525,903 2.5% 1.7% 2.1%

Tulare 359,877 388,608 435, 254 1.5% 2.3% 1.9% 

### Source: ADE, Inc., based on California Department of Finance



# R EGIONAL 

# E CONOMIC 

# T RENDS



# Economic development practitioners and planners have traditionally divided economies into two broad industrial categories—the economic base and local support industries. Economic base industries are the drivers of local and regional economies in that these industries draw income into a local economy by selling products outside of the local economy, much like the export industries of a national economy. Accrued earnings then circulate throughout the local area in the form of wages and salaries; investments; purchase s of fixed assets, goods, and services; and generation of more jobs

and wealth.

The economic base is typically comprised of indust ries within the manufacturing, minerals-resource extraction, and agricultural sectors. There are also the “local support industries” such as retail or service sectors, the progress of which is a function of the economic base and demographic changes,

and more so the latter than the former. As population increases in a given area, demand for
services–such as realtors, teachers, and healthcare –increases, as does demand for basic retail items like groceries, gas for commuting, or clothing at the local apparel shops.

Agriculture is the economic base of the San Joaquin Valley region by virtue of the amount of goods this sector produces and exports throughout the na tion and the globe. Slightly less than 14 percent of all workers in the region are employed by industri es within agriculture, as Table 2 shows. In 1998, approximately 13.1 percent of all workers worked in agriculture. By 2003, this ratio stood at 14 percent. In fact, over the five-year period b etween 2003 and 2008, employment in agriculture increased at a modest pace of one percent per year.

Between 2003 and 2008, local support industries gained in prominence within the San Joaquin Valley region. Service-rendering industries empl oyed the most workers as a proportion of total employment in the region. Service-rendering indust ries comprise 71 percent of all jobs, includingpublic sector positions. In other words, 932,713 jobs out of a total of 1,317,365 jobs are in servicerendering industries. Excluding the public sector, se rvice-rendering jobs account for 52 percent of all jobs in 2008. In 2003, service-rendering industri es (excluding the public sector) represented 51 percent of all jobs, indicating that the transition toward a services economy was in place as early as the mid to late 1990s with the significant increa se in the number of people during that time.

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# Employment increases in service-rendering in dustries are consistent with regional population growth. In the region, local support industries of local and private education, and health, and financial activities increased annually by 3.9 pe rcent, 3.0 percent, and 2.7 percent respectively

between 2003 and 2008.

Construction and financial services are two other local support industries that grew in accordance with the region’s population surge; however, with the downturn in the national economy, these industries’ rates of growth have lowered dramat ically. Employment in construction grew by a 6.7 percent per year in the five-year period stretching from 1998 to 2003. Between 2003 and 2008, construction continued to grow but by a slower rate of 0.9 percent per year. Likewise for financial services, which grew annually by 3.9 percent between 1998 and 2003, and has since grown by a slight
0.9 percent per year.

Close examination of Table 2 shows that the regi on experienced modest growth in manufacturing, as employment in this sector grew annually by 0.9 percent between 2003 and 2008. This modest increase reversed substantial declines experi enced between 1998 and 2003, when manufacturing employment dropped annually by 0.6 percent. Wha t was a regional bright spot between 1998 and 2003 (2.7 percent per year), transportation and warehousing declined annually by 1.1 percent between 2003 and 2008, as compared to the 2.7 pe rcent annual growth in the previous five-year period.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICTAppendix D: Socioeconomic Impact AnalysisJune 18, 2009D-16Final Draft Staff Report with Appendices ForRevised Proposed Amendments to Rule 4311TABLE 2ECONOMIC TRENDS: SAN JOAQUIN VALLEY, 1998-2008EmploymentDistributionEmployment:Annual PercentChange----------------1998-------------------------------2003--------------------------------2008---------------200898-0303-08NAICSEstab.EmploymentAveragePayEstab.EmploymentAveragePayEstab.EmploymentAveragePayRegionCaliforniaALL80,3981,060,454$33,56692,2311,209,849$40,577100,4141,317,365$39,543100.0%100.0%2.7%1.7%Ag, Natural Resources117,580139,953$18,2858,646169,556$23,3547,371178,522$21,71413.6%2.5%3.9%1.0%Utilities212519,533$66,8312138,340$81,30918510,512$82,6270.8%0.0%-2.6%4.7%Mining221654,231$72,4581795,071$86,0651695,618$81,2960.4%0.4%3.7%2.1%Construction236,12449,851$38,9696,07469,065$46,8706,70572,312$44,7165.5%5.7%6.7%0.9%Manufacturing31-332,998113,344$40,9892,779110,002$48,7352,662115,153$43,3528.7%9.3%-0.6%0.9%Wholesale422,74933,365$47,7262,72237,124$53,0533,02745,299$46,5103.4%4.6%2.2%4.1%Retail44-459,586121,132$26,4468,941132,956$31,3498,882143,910$25,89210.9%10.8%1.9%1.6%Transport Warehousing48-492,30633,821$38,9462,23738,554$44,9621,95736,514$40,1662.8%2.7%2.7%-1.1%Information5165314,885$43,40169214,257$53,69562515,328$47,4171.2%3.0%-0.9%1.5%Finance and Insurance522,63727,792$46,7093,04630,690$59,5303,37332,027$50,1122.4%4.0%2.0%0.9%Real Estate532,57513,180$26,7552,60715,932$34,1442,78415,897$32,6331.2%1.8%3.9%0.0%Prof Technical Services544,06425,130$44,2164,50131,812$52,4674,83936,411$46,7732.8%6.8%4.8%2.7%Management of Companies5532117,997$52,33831613,988$60,04528810,551$55,3230.8%1.3%-4.9%-5.5%Admn and Waste Services562,91044,283$22,3622,76848,182$28,9862,94758,761$27,1654.5%6.4%1.7%4.0%Private Educational Services614597,107$25,4564809,298$29,53249710,781$27,4070.8%1.7%5.5%3.0%Health Services626,08290,304$38,2436,526110,647$47,8676,983126,598$44,0589.6%8.8%4.1%2.7%Arts, Entertainment, Rec7161710,386$16,98562110,244$20,19264111,172$17,3050.8%1.6%-0.3%1.7%Food and Accommodations725,05070,335$12,8604,94278,805$15,8315,31290,404$14,0206.9%8.3%2.3%2.8%Other Services8120,15741,069$21,16530,39047,370$25,73135,62952,505$21,6064.0%4.6%2.9%2.1%Unclassified9985199$38,0331,7692,534$26,8360.2%0.3%Local Govt.40951,325$45,67443760,768$56,30747768,469$51,0515.2%5.2%3.4%2.4%Local Govt., Education88190,200$39,6641,487109,087$48,3041,792118,716$78,7189.0%5.9%3.9%1.7%State, ALL1,46423,639$46,0511,16628,463$56,5151,07831,639$51,2222.4%2.9%3.8%2.1%Federal, ALL36027,592$52,74937629,439$66,39542427,732$58,9452.1%1.6%1.3%-1.2%Source: ADE, Inc., based on California Employment Development Department, LMID

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# 5.2 DESCRIPTION OF AFFECTED INDUSTRIES

Whereas the previous section described the larger economic context within which the District is contemplating proposed amendments to Rule 4311, this section analyzes trends of industries directly affected by the proposed amendments. For the most part, this rule affects petroleum refineries and oil producers in the region. The discussion directl y below examines trends with respect to these industries in the San Joaquin Valley region, including data on an annual basis for a five-year period
starting in 2003.

According to the California Employment Develo pment Department (EDD), 32 oil refineries are currently operating in the eight-county region, an amount that according to the EDD has not changed when compared to 2003. Close inspection of EDD’s data indicates that only four are actual

refineries. 1 

# The four refineries are Big West (66,000 barrels per day), Kern Oil Refining (26,000 barrels per day), San Joaquin Refining (15,000 barrel s per day), and Tricor. At the moment, Tricor is not operating its refinery, although Tricor contin ues to offer other petroleum-related services. Tricor still maintains a permit to operate its refinery. Kern Oil and San Joaquin Refining are

considered small refineries.

The number of workers employed by the three opera ting oil refineries in the region increased by three percent annually between 2003 and 2008, go ing from 549 to 637. Average wages tend to be very high in this industry, at an estimated $98, 900 in 2008, up from the 2003 average of $76,300. Table 3 below also includes revenue trends estimates. Oil refineries in the region generated an
estimated $3.1 billion in revenues in 2008, which is approximately $592,100,400 more than what was generated in 2003. On average, the three operating refineries generate $1,049,600,700 in revenues, versus the $511,300,200 average in 2003.

TABLE 3

EDD OIL REFINERY TRENDS: SAN JOAQUIN VALLEY REGION

Region 2003 2004 2005 2006 2007 2008 Change

03-08 Annual

Percent Change

03-08

Establishments 32 29 32 31 32 32 0 -0.3%
Actual Refineries 5 5 5 5 5 4 -1 -4%
Small Refineries 3 3 3 3 3 2 -1 -20% Employment 549 647 587 579 626 637 88 3% Payroll ($2008) $54,845,080 $81,177,515 $66,383, 607 $71,047,731 $83,006,037 $82, 445,713 $27,600,633 8.5% Average Pay ($2008) $76,287 $95,832 $86,317 $93,777 $101,405 $98,879 $22,591 5.3% Annual output 37,277,284 37,220,213 37,589,558 37,822,866 37,953,878 30, 025,891 -7,251,393 -19.5% Revenues (est.)($2008) $2,556,755,854 $2,243,6 02,281 $2,041,647,699 $2,536,154,282 $3,260,9 20,609 $3,148,838,270 $592,082,416 23.2% 

### Source: ADE, Inc., based on US Economic Census, California EDD LMID, and California Department of Conservation

1 

## District staff and ADE reviewed a list of companies prep ared by the EDD that included the 32 refineries, and determined that, while most of these businesses are in petr oleum-related businesses, most are not refineries. There are only four refineries in the region right now.

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# Proposed amendments to Rule 4311 also affects oil producers. In 2008, oil prices spiked up tremendously, resulting in significant amount of re venues for this industry. In 2008, oil producers generated $14.3 billion, almost triple what they generated in 2003, or $5.7 billion. To control for 2008, we calculated a three year average for 2005- 2008 period. Over this period, oil producers average $11.8 billion. As Table 4 shows, there ar e 52 oil producers operating in the eight-county region, and these businesses employ slightly over 2,700 workers.

TABLE 4

OIL PRODUCER TRENDS: SAN JOAQUIN VALLEY REGION

Region 2003 2004 2005 2006 2007 2008 Change

03-08 Annual

Percent Change

03-08

Establishments 59 56 59 60 54 52 -8 -2.7% Employment 2,799 2,683 2,942 3,225 2, 641 2,717 -83 -0.6% Payroll ($2008) $214,840,155 $201,052,717 $248,752, 305 $335,505,472 $320,002,762 $317, 146,194 $102,306,038 8.1% Average Pay ($2008) $76,745 $74,926 $84,549 $104,029 $121,178 $116,734 $39,989 8.8%

Revenues (est.)($2008) $5,746,954,400 $6,945,9 50,378 $8,731,699,584 $10,218, 990,325 $10,757,282,577 $14,315, 431,023 $8,568,4 76,623 20.0% 

### Source: ADE, Inc., based on California EDD LMID and California Department of Conservation



# Table 5 below also includes estimates on revenues generated by large and small oil producers, or $9.9 billion and $1.8 billion respectively. Large oil producers generate, on average, $1.9 billion in revenues, versus the $38,800,000 in revenues gene rated by small oil producers. Based on throughput capacity of each refinery (assuming an 80 per cent operating capacity), we estimate that the three operating refineries generate $2.6 billion in aggrega te revenues, as well as $168,900,700 in after-tax net-profits.

TABLE 5

PROFILE OF SOURCES SUBJECT TO PROPOSED AMENDMENTS
Type Establishments Emplo yment Revenues Net Profits

Oil Refineries 3 637 $2,631,319,832 $168,930,734 Large Refinery 1 393 $1,623,057,093 $104,200,266 Small Refinery 2 244 $1,008,262,739 $64,730,468

Oil Producers 52 2,717 $11,763,901,3 08 $1,225,798,516 Large oil producers 5 2,301 $9,961,618,08 1 $1,038,000,604 Small oil producers 47 416 $1,802,283,227 $187,797,912 

### Source: ADE, Inc., based on US Economic Census, SJVUAPCD, California Department of Conservation, and California Energy Commission



# What is driving the increase in revenues in oil prod uction and refining is the significant increase in oil price on a per barrel basis. In the five-year pe riod between 2003 and 2008, the monthly price of crude oil in California averaged approximately $5 5.00 per barrel (see Figure 1). Since January 2007, the monthly average has been above the medium-term average, having spiked up significantly in the spring of 2008. The price of crude oil in California has declined signif icantly since early fall, and, at $35.05 per barrel in December 2008, has fallen belo w the 2003-2008 average. It is important to note

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# that the price of oil is set on the world market, not locally or regionally. A variety of factors influence the price of oil in California, includin g energy demand from fast-growing economic such as the People’s Republic of China and India, am ount of reserves available on the world market, national and global economic climate, global political unrest, and rela tive availability of alternative sources of energy, to name a few factors.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICTAppendix D: Socioeconomic Impact AnalysisJune 18, 2009D-20Final Draft Staff Report with Appendices ForRevised Proposed Amendments to Rule 4311FIGURE 1MONTHLY CRUDE OIL PRICE (PRICE PER BARREL)JANUARY 2000 THROUGH NOVEMBER 2008 ($2008)$19.11$15.89$29.81$30.68$32.58$53.03$84.69$35.05$53.78$0.00$10.00$20.00$30.00$40.00$50.00$60.00$70.00$80.00$90.00$100.00$110.00$120.00$130.00 Jan 00 Mar 00 Ma y 00 Jul 00 Se p 00 Nov 00 Jan 01 Mar 01 Ma y 01 Jul 01 Se p 01 Nov 01 Jan 02 Mar 02 Ma y 02 Jul 02 Se p 02 Nov 02 Jan 03 Mar 03 Ma y 03 Jul 03 Se p 03 Nov 03 Jan 04 Mar 04 Ma y 04 Jul 04 Se p 04 Nov 04 Jan 05 Mar 05 Ma y 05 Jul 05 Se p 05 Nov 05 Jan 06 Mar 06 Ma y 06 Jul 06 Se p 06 Nov 06 Jan 07 Mar 07 Ma y 07 Jul 07 Se p 07 Nov 07 Jan 08 Mar 08 Ma y 08 Jul 08 Se p 08 Nov 08Region (mos. output per producing well)2003-2008 Five-year AvgSource: ADE, Inc., California Department of Conservation

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# It is interesting to note that Central Valley oil pr oducers responded to the surge in oil prices by opening up more wells (see Figure 2). Despite this effort to supply the market, oil producers experienced declining oil production in aggregate (see Figure 3), which is partly explained by Figure 4, which traces a declining output per producing we ll. Thus, data suggest that newer wells are not producing as much oil as older wells, which, for thei r part, could be experiencing declining output as

well.

Figure 5 translates the per barrel price of crude o il into per gallon terms, and compares these prices against wholesale price of refined gasoline and price of reformulated gasoline as sold by gas station. What is even more interesting about this figure are differences between per gallon price of crude oil and the per gallon wholesale price of gasoline, and the per gallon wholesale price and per gallon price of reformulated gasoline sold at gas stat ions. Expressed in dollar per gallon terms, gross margins of the oil refineries tend to be higher than gross margins for gas station, reinforcing anecdotal information that suggests gasoline stations do not necessarily benefit when oil producers and oil refineries are doing well. For example, at its peak in June 2008, gas stations sold reformulated gas at $4.36 per gallon after having pu rchased the gas from refineries and distributors for $3.56 per gallon, for a gross margin of $0.80 per gallon. Refineries purchased crude oil at approximately $2.23 per gallon and then sold the refined product at $3.56 per gallon, for a gross margin of $1.33 per gallon.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICTAppendix D: Socioeconomic Impact AnalysisJune 18, 2009D-22Final Draft Staff Report with Appendices ForFIGURE 2MONTHLY TRENDS IN NUMBER OF PRODUCING WELLJANUARY 2000 THROUGH NOVEMBER 200830,00032,50035,00037,50040,00042,500 Jan 00 Mar 00 May 00 Jul 00 Sep 00 Nov 00 Jan 01 Mar 01 Ma y 01 Jul 01 Sep 01 Nov 01 Jan 02 Mar 02 May 02 Jul 02 Sep 02 Nov 02 Jan 03 Mar 03 May 03 Jul 03 Sep 03 Nov 03 Jan 04 Mar 04 May 04 Jul 04 Sep 04 Nov 04 Jan 05 Mar 05 May 05 Jul 05 Se p 05 Nov 05 Jan 06 Mar 06 May 06 Jul 06 Se p 06 Nov 06 Jan 07 Mar 07 May 07 Jul 07 Sep 07 Nov 07 Jan 08 Mar 08 May 08 Jul 08 Sep 08 Nov 08Monthly Producing Wells in RegionSource: ADE, Inc., California Department of ConservationRevised Proposed Amendments to Rule 4311SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICTAppendix D: Socioeconomic Impact AnalysisJune 18, 2009D-23Final Draft Staff Report with Appendices ForFIGURE 3MONTHLY CRUDE OIL PRODUCTIONJANUARY 2000 THROUGH NOVEMBER 200813,000,00015,000,00017,000,00019,000,00021,000,00023,000,00025,000,000 Jan 00 Apr 00 Jul 00 Oct 00 Jan 01 Apr 01 Jul 01 Oct 01 Jan 02 A p r 02 Jul 02 Oct 02 Jan 03 A p r 03 Jul 03 Oct 03 Jan 04 A p r 04 Jul 04 Oct 04 Jan 05 A p r 05 Jul 05 Oct 05 Jan 06 Apr 06 Jul 06 Oct 06 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 A p r 08 Jul 08 Oct 08RegionCaliforniaSource: ADE, Inc., California Department of ConservationRevised Proposed Amendments to Rule 4311SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICTAppendix D: Socioeconomic Impact AnalysisJune 18, 2009D-24Final Draft Staff Report with Appendices ForFIGURE 4MONTHLY OIL PRODUCTION (BBL) BY PRODUCING WELLSJANUARY 2000 THROUGH NOVEMBER 2008300400500600 Jan 00 Mar 00 May 00 Jul 00 Sep 00 Nov 00 Jan 01 Mar 01 May 01 Jul 01 Sep 01 Nov 01 Jan 02 Mar 02 May 02 Jul 02 Sep 02 Nov 02 Jan 03 Mar 03 May 03 Jul 03 Sep 03 Nov 03 Jan 04 Mar 04 May 04 Jul 04 Sep 04 Nov 04 Jan 05 Mar 05 May 05 Jul 05 Sep 05 Nov 05 Jan 06 Mar 06 Ma y 06 Jul 06 Se p 06 Nov 06 Jan 07 Mar 07 Ma y 07 Jul 07 Sep 07 Nov 07 Jan 08 Mar 08 May 08 Jul 08 Sep 08 Nov 08Region (mos. output per producingwell)Output per producing well (2003-2008 avg)Source: ADE, Inc., CaliforniaDepartment of ConservationRevised Proposed Amendments to Rule 4311SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICTAppendix D: Socioeconomic Impact AnalysisJune 18, 2009D-25Final Draft Staff Report with Appendices ForRevised Proposed Amendments to Rule 4311$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$4.50$5.00 2000-Jan 2000-Mar 2000-May 2000-Jul 2000-Sep 2000-Nov 2001-Jan 2001-Mar 2001-May 2001-Jul 2001-Sep 2001-Nov 2002-Jan 2002-Mar 2002-May 2002-Jul 2002-Sep 2002-Nov 2003-Jan 2003-Mar 2003-Ma y 2003-Jul 2003-Sep 2003-Nov 2004-Jan 2004-Mar 2004-May 2004-Jul 2004-Sep 2004-Nov 2005-Jan 2005-Mar 2005-Ma y 2005-Jul 2005-Sep 2005-Nov 2006-Jan 2006-Mar 2006-Ma y 2006-Jul 2006-Sep 2006-Nov 2007-Jan 2007-Mar 2007-Ma y 2007-Jul 2007-Sep 2007-Nov 2008-Jan 2008-Mar 2008-Ma y 2008-Jul 2008-Sep 2008-NovRegular Reformulated Gas: Monthly Average: California (dollar per gallon) ($2008)California Total Gasoline Wholesale/Resale Price by Refiners (dollar per gallon) ($2008)Price Per Gallon from Oil Producers ($2008)FIGURE 5COMPARISON OF CALIFORNIA MONTHLY PRICE PER GALLON: CRUDE OIL, REFINED OIL, AND REGULARREFORMULATEDGASOLINE, JANUARY 2000 THROUGH DECEMBER 2008Source: ADE, Inc., California Department of Conservation

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# 6. SOCIO-ECONOMIC IMPACTS

This section of the report compares the economic ch aracteristics of affected industries against the annual compliance costs. The first part of this section discusses annual compliance costs. Section 6.2 discusses general business responses to compliance costs. Section 6.3 analyzes the socioeconomic impacts of the proposed amendments to Rules 4311.



# 6.1 COMPLIANCE COST ESTIMATES

Table 6 summarizes the estimated annualized costs associated with proposed amendments to Rule 4311. The table includes cost estimates issued by th e District and industry stakeholders. As the table shows, the District indicates that impacted sources will bear $920,000 in total capital costs, which,
when annualized, translates into an annual cost of $239,652, which includes cost of personnel. Industry stakeholders in the refining industry place total cost per establishment at $8,500,000, which,
when annualized, amounts to $1,671,245.

TABLE 6

COST ASSOCIATED WITH PROPOSED DRAFT RULE 4311
Capital Cost Per Establishment Annual Cost Per Establishment

Air District 920,000 $239,652 Industry Stakeholders (petroleum industries only) $8,500,000 $1,671,245 

### Source: San Joaquin Valley Unified Air Polluti on Control District and Kern Oil\Big West



# 6.2 BUSINESS RESPONSES TO COMPLIANCE COSTS

Industries impacted by the proposed amendments may respond in a variety of ways when faced with new regulatory costs. These responses may range from simply absorbing the costs and accepting a lower rate of return, to shutting down the a ffected business operation altogether and, where practical, shift from lower-value to higher-value product and or service. Impacted industries might also seek to pass costs to users of services or purchasers of goods, depending on the magnitude of

costs and on what the overall market can bear. Aff ected sources may also seek to renew efforts to increase productivity and reduce costs elsewhere in their operation in order to recoup the regulatory costs and maintain profit levels. More than likely, industries impacted by amendments to Rule 4311 will pass costs to consumers and commercial\industrial entities needing fuel, which is to say most

industries.



# 6.3 IMPACTS ON AFFECTED INDUSTRIES

This section of the report analyzes estimated after tax net profits of affected industries against anticipated costs associated with implementation of proposed amendments to Rule 4311. As Table 7 below indicates, impacts to petroleum-related industries including refineries and oil producers are less than significant. Small oil producers\oil fiel d services are also not disproportionately impacted by proposed amendments to Rule 4311. In addition to oil-related industries, a number of other industries are also potentially impacted by the proposed amendments. Table 8 below shows that, for

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# the most part, impacts are less than significant. A fruit juice manufacturer – Odwalla – is potentially significantly impacted by the rule, as estimated annual impacts of $239,700 exceed the ten-percent threshold, or $180,210, by $59,440. Recouping th at amount above the ten-percent threshold through workforce reduction would amount to 1.4 full-time equivalent positions, or under one percent of the estimated plant workforce. However, we conclude that Odwalla is not significantly impacted because, more than likely, the 1.4 FTE impact falls within normal job attrition that occurs at the Odwalla plant in Dinuba. Thus, we conclude by saying that proposed amendments to Rule 4311 does not significantly impact industries, nor are small businesses disproportionately impacted by the proposed amendments.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICTAppendix D: Socioeconomic Impact AnalysisJune 18, 2009D-29Final Draft Staff Report with Appendices ForRevised Proposed Amendments to Rule 4311TABLE 7SOCIOECONOMIC IMPACT ANALYSIS: DRAFT RULE 4311: PETROLEUM\NATURAL GAS RELATED INDUSTRIESLarge RefineriesSmall RefineriesLargeOil\Natural GasProducersSmall OilProducers\OilField ServicesOthersEstablishments125504Revenues$1,623,057,093$1,008,262,739$9,961,618,081$1,806,286,727$124,567,646Net Profits$104,200,266$64,730,468$1,038,000,604$188,215,077$12,979,949Total Annual Costs: District Scenario$239,652$479,304$1,198,260$11,982,600$958,608Total Annual Costs: Industry Stakeholder Scenario$1,671,245$3,342,490$8,356,225$83,562,250$6,684,980Cost to Net Profit Ratio: District Scenario0.23%0.74%0.12%6.37%7.39%Cost to Net Profit Ratio: Industry Stakeholder Scenario1.60%5.16%0.81%NANADistrict Scenario Significanceless than significantless than significantless than significantless than significantless than significantIndustry Stakeholder Scenario Significanceless than significantless than significantless than significantNANASource: ADE, Inc., based on US Economic Census, SJVUAPCD, California Department of Conservation, and California Energy CommissionTABLE 8SOCIOECONOMIC IMPACT ANALYSIS: DRAFT RULE 4311: INDUSTRIES OTHER THAN PETROLEUM\NATURAL GASDairy FarmsFrozen Fruits,Fruit JuicesManufacturingFlat GlassManufacturingIndustrial OrganicChemicalsSewerageSystemsOtherPublicEstablishments311192Revenues$555,813,005$34,292,958$134,062,280$70,105,071$213,607,700$318,000,000Net Profits$61,695,244$1,802,096$5,174,021$3,166,035$213,607,700$318,000,000Total Annual Costs: District Scenario$718,956$239,652$239,652$239,652$2,156,868$479,304Cost to Net Profit Ratio: District Scenario1.17%13.30%4.63%7.57%1.01%0.15%District Scenario Significanceless than significantsignificantless than significantless than significantless than significantless than significantSource: ADE, Inc., based on US Economic Census, US Census Quarterly Financial Report for Manufacturing and Mining, SJVUAPCD, and California State Controller

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