asked most of the questions that I would have asked and so I thank Mr. Hickox for coming.

Mr. BILBRAY. The gentlelady from Colorado.

Ms. DEGETTE. Thank you. Thank you, Mr. Chairman. Mr. Hickox, I was impressed by your commitment and your new Governor's commitment to maintaining the high clean air standards in California. But I guess I would like you to talk a little more specifically about how you intend to do that if you remove an oxygenate like MTBE. It sounded sort of like a great oratory statement, but how is that going to happen?

Mr. HICKOX. As you may or may not be aware, the California reformulated gasoline standards, which the Federal standards will soon approach but not quite reach, use a predictive model methodology for the refiners to offer a blending formulation for gasoline that will meet the equivalent air emission outcomes that are required by the law. As long as they prove that the formulation that they are proposing will do that, it is allowed to be produced and sold in California.

So the people at the Air Resources Board believe that it is possible to produce gasoline without an oxygenate that will meet the requirements of the Clean Air Act in California, and it is a matter of working with the refineries in California in terms of the way in which they would go about retrofitting the refinery to produce that gasoline. Some is produced now in small quantities.

Ms. DEGETTE. How is that equivalency going to be demonstrated, given the fact that the EPA doesn't use the same predictive model that California does?

Mr. HICKOX. We have the delegated authority to carry out the program in the manner in which we have and would continue to in California. In other words, we have the ability to use this predictive model and it is considered acceptable by U.S. EPA as a methodology for determining compliance with the Clean Air Act requirements.

Ms. DEGETTE. To follow up on that, one of the California studies predicted that removing MTBE from the State gasoline supply would result in a blending of 60 to 80 percent of California's gasoline with ethanol. That is what we were talking about before. Now Governor Davis's order, as you well know, calls for a study of the health risks of ethanol. What is your agency's view of the risks of ethanol leaking into the water supply versus MTBE?

Mr. HICKOX. Well, first of all, the Office of Environmental Health Hazardous Assessment, which I am responsible for, has been given the responsibility to do a portion of those studies by the end of this year and to respond to that would be premature. The way in which questions similar to that posed by the Governor were responded to was the following. The Governor was told that there is an enormous amount of information available about ethanol, what it is, how it reacts in the environment. There are some issues having to do with the byproducts of combustion with ethanol that we particularly want to look at a little more carefully. That is an air quality issue as related to a water quality issue. The focus of your question was with regard to water.

Ms. DEGETTE. Because we don't want to replace one problem with another with respect to the Santa Monica water supply, or anyplace else.

Mr. HICKOX. Right. Absolutely right.

Ms. DEGETTE. So we will know that by the end of this year?
Mr. HICKOX. End of this year.

Ms. DEGETTE. Thank you very much. I will yield back, Mr. Chairman.

Mr. BILBRAY. California is experiencing one of the actually, the largest and fastest price increase in the history of the country, $2 a gallon-plus. I guess that was one of the concerns that the Governor had articulated. But I would like you to specifically make reference to the fact that we have seen the recent experience with California refiners when it pertains to ethanol pricing in the Pacific Northwest, where there was a 12 to 14 percent increase just because the Governor-they thought the Governor had taken action that justified the increase.

Are you worried about California and how vulnerable it would be as a captive market without the flexibility of H.R. 11?

Mr. HICKOX. The question is absolutely. I am aware of the experience that you have referenced. One of the reasons for the phasein of this decision and the complete elimination of MTBE by the end of the year 2002 was a recognition of the Governor's responsibility to the people of California that the appropriate amount of time be taken such that we would not affect supply and demand and the base price of gasoline to the consumer and with regard to the elements that would go into whatever solution was developed. You are absolutely correct that too hasty a move and not having the flexibility that would be granted by H.R. 11 would create a risk in California similar to the one that you cited in Washington.

Mr. BILBRAY. Thank you. I just remember the outcry when we went to low sulfur fuel in California and the supply problems that occurred there and the nightmare. That is why I kind of came unglued with EPA when they said you "just do this, or this." If you had a room full of truck drivers with crowbars standing in the room with you, believe me they sensitize you to market demand real fast.

Any other questions from the members?

I will excuse you. Thank you very much.

Mr. HICKOX. Thank you.

Mr. BILBRAY. The next panel, please. Mr. Bordvick, you have 5 minutes.

STATEMENTS OF DUANE B. BORDVICK, VICE PRESIDENT, ENVIRONMENT AND EXTERNAL AFFAIRS, TOSCO CORPORATION; GREGORY C. KING, VICE PRESIDENT AND GENERAL COUNSEL, VALERO ENERGY CORPORATION; THOMAS L. ROBINSON, PRESIDENT, ROBINSON OIL COMPANY, INC., ON BEHALF OF SOCIETY OF INDEPENDENT GASOLINE MARKETERS OF AMERICA, NATIONAL ASSOCIATION OF CONVENIENCE STORES, AND CALIFORNIA INDEPENDENT OIL MARKETERS ASSOCIATION; ERIC VAUGHN, PRESIDENT AND CEO, RENEWABLE FUELS ASSOCIATION; AND MARK BEUHLER, DIRECTOR OF WATER QUALITY, METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA, ON BEHALF OF ASSOCIATION OF CALIFORNIA WATER AGENCIES

Mr. BORDVICK. Thank you very much. Thank you for this opportunity. Thank you for this subcommittee hearing on this very important subject. My name is Duane Bordvick. I am Vice President for Tosco Corporation and for Environmental and External Affairs.

Tosco strongly supports the prompt enactment of H.R. 11 which has been endorsed by Governor Davis, as you have heard, authored by Congressman Bilbray, and is co-sponsored by a bipartisan group of 52 House Members from California. H.R. 11 is also supported by the Western States Petroleum Association OF which Tosco is a member.

Tosco's four petroleum refineries in California with the combined crude capacity of 400,000 barrels per day supply California and the neighboring States of Arizona, Nevada, and Oregon. Almost all of the gasoline we produce in California meets the requirement for California cleaner burning gasoline, Federal reformulated gasoline, or both. Tosco markets our gasoline on the West Coast through more than 3,000 retail outlets under the brand Union 76 and Circle K.

Driven by a growing concern in California over groundwater contamination, our company took the lead for our industry in advocating the removal of MTBE from gasoline. In October 1997 we wrote the California Air Resources Board proposing that, "responsible action should be taken sooner rather than later to allow the reduced use or elimination of MTBE in gasoline."

We pointed out then, as we do now, how important passage of Congressman Bilbray's bill would be to provide refiners with the flexibility needed to rationally shift away from MTBE use.

To underscore our commitment and to demonstrate the technical and commercial viability of non-MTBE fuel, Tosco launched a project in April 1998 for northern California to produce and market California cleaner burning gasoline, using ethanol instead of MTBE in both the summer and winter. We have been marketing ethanolblended California gasoline at about 60 of our Union 76 outlets in the Bay area ever since, and we have received a very positive response from our dealers and our customers.

In addition, Tosco has demonstrated that California cleaner burning gasoline can be produced without using any oxygenate. During this past winter, we produced non-oxygenated California gasoline from our refinery in Rodeo, California, which we marketed in the San Francisco Bay area.

It is not surprising, then, that Tosco welcomed the decision of Governor Davis in March of this year to require a complete phaseout of MTBE from California by the end of the year 2002. In response to a request from Governor Davis, we have already begun supplying non-MTBE gasoline to our stations in South Lake Tahoe where concerns over water contamination, as we have heard today, are especially acute.

While we are proud of these special programs, our current ability to supply this non-MTBE gasoline is very limited because of refinery hardware limitation. It is limited because of unavoidable characteristics of California's system for transporting gasoline throughout the State, and it is limited because of the Federal oxygenate mandate affecting 70 percent of California gasoline.

The Governor's phaseout order was based in part on a study performed by the California Energy Commission by MathPro, Incorporated, which examined the supply and cost implications of removing MTBE from gasoline. Together with Chevron Products Company, Tosco sponsored an extension of the MathPro study to examine the relationship of H.R. 11 to the supply and cost implications of eliminating MTBE. A summary of the MathPro results is attached in my prepared statement and I request that the full study be included in the record of the hearing.

The MathPro study included the following three key findings: First, enactment of H.R. 11 would reduce the cost of removing MTBE from gasoline by one half or more.

Second, enactment of H.R. 11 will create the opportunity for California refiners to optimize cleaner burning gasoline production by providing two types of gasoline, one blended with ethanol and one blended without oxygenate.

Third, this optimal production of non-MTBE gas will result in a substantial increase in the use of ethanol in California.

The study predicted that 60 to 80 percent of the California gasoline production would be blended with ethanol remaining nonoxygenated. So based on the MathPro study and our own experience, we are convinced that H.R. 11 would significantly moderate the negative economic impacts of eliminating MTBE from California gasoline without adverse effects on emission quality, and we hope that Congress will enact the bill promptly in order to facilitate this orderly and rational phaseout of MTBE.

[The prepared statement of Duane B. Bordvick follows:]

PREPARED STATEMENT OF DUANE B. BORDVICK, VICE PRESIDENT, ENVIRONMENTAL AND EXTERNAL AFFAIRS, TOSCO CORPORATION

Mr. Chairman and Members of the Subcommittee: My name is Duane B. Bordvick, and I am Vice President of Tosco Corporation for Environmental and External Affairs. Tosco strongly supports the prompt enactment of H.R. 11, which has been endorsed by Governor Davis, is authored by Congressman Bilbray, and is cosponsored by a bi-partisan group of 50 House members from California. H.R. 11 is also supported by the Western States Petroleum Association, of which Tosco is a member.

Tosco's four petroleum refineries in California, with a combined gasoline production capacity of about 400,000 barrels per day, supply California and the neighboring states of Arizona, Nevada, and Oregon. Approximately 75 percent of the gasoline we produce in California meets the requirements for Čalifornia Cleaner Burning Gasoline ("CBG"), Federal Reformulated Gasoline ("RFG"), or both. Tosco markets gasoline on the West Coast through more than 3,000 retail outlets, primarily under our Union 76 and Circle K brands.

Driven by a growing concern in California over groundwater contamination, our company took the lead for our industry in advocating the removal of MTBE from gasoline. In October 1997, we wrote the California Air Resources Board proposing that "responsible action should be taken sooner rather than later to allow the reduced use or elimination of MTBE in gasoline." We pointed out then, as we do now, how important passage of Congressman Bilbray's bill would be to provide refiners with the flexibility needed to shift away from MTBE.

To underscore our commitment and to demonstrate the technical and commercial viability of a non-MTBE fuel, Tosco launched a project in April 1998 for Northern California to produce and market California CBG using ethanol instead of MTBE in both the summer and winter seasons. We have been marketing ethanol-blended CBG at about 60 of our Union 76 outlets in the San Francisco Bay Area ever since, and we have received a very positive response from our dealers and our customers. In addition, Tosco has demonstrated that California CBG can be produced without using any oxygenate. During this past winter, we produced non-oxygenated CBG at our refinery at Rodeo, California, which we market in the Bay Area.

Tosco welcomed the decision of Governor Davis in March of this year to require a complete phase-out of MTBE from California by the end of the year 2002. In response to a request from Governor Davis, we have already begun supplying nonMTBE gasoline to our stations at South Lake Tahoe, where concerns over water contamination are especially acute. While we are proud of these special programs, our current ability to supply non-MTBE gasoline is very limited because of refinery hardware limitations, unavoidable characteristics of California's system for transporting gasoline throughout the state, and the federal oxygenate mandate affecting 70 percent of California gasoline.

The Governor's phase-out order was based in part on a study performed for the California Energy Commission by MathPro Inc., which examined the supply and cost implications of removing MTBE from gasoline. Together with Chevron Products Company, Tosco sponsored an extension of the MathPro study to examine the relationship of H.R. 11 to the supply and cost implications of eliminating MTBE. A summary of the MathPro study results are attached to my prepared statement, and I request that the full study be included in the record of this hearing. The MathPro study included the following three key findings:

First, enactment of H.R. 11 would reduce the cost of removing MTBE from gasoline by up to one-half, from 6.1 cents per gallon to 2.7 cents per gallon.

Second, enactment of H.R. 11 will create the opportunity for California refiners to optimize CBG production by providing two types of gasoline, one blended with ethanol and the other non-oxygenated.

Third, this optimal production of non-MTBE gasoline will result in a substantial increase in the use of ethanol in California. The Study predicted that 60 to 80 percent of California gasoline production would be blended with ethanol and the remaining gasoline, about 20 percent to 40 percent of statewide supply, would be nonoxygenated.

Based on the MathPro study and on our own experience, we are convinced that enactment of H.R. 11 would significantly moderate the negative economic impact of eliminating MTBE from California gasoline and would lead to a substantial new market for ethanol in California, with no adverse effect on the emission quality of California CBG. We hope the Congress will enact the bill promptly in order to facilitate an orderly transition away from MTBE in California.

I would be pleased to answer any questions the Committee may have.

STATEMENT OF GREGORY C. KING

Mr. KING. Mr. Chairman, members of the subcommittee, thank you for this opportunity to testify. My name is Greg King and I am Vice President and General Counsel of Valero Energy Corporation. Valero Energy is the second largest independent refining and marketing company in the United States with five refineries in Texas, Louisiana, and New Jersey. Valero produces premium environmentally clean products such as reformulated gasoline, car gasoline and oxygenates like MTBE. Valero believes strongly that the production and use of MTBE worldwide has been a boon to air