BILL ANALYSIS AB 2453 Page 1 Date of Hearing: April 12, 2010 ASSEMBLY COMMITTEE ON NATURAL RESOURCES Wesley Chesbro, Chair AB 2453 (Tran) - As Introduced: February 19, 2010 SUBJECT : Oil and gas operations: enforcement actions. SUMMARY : Clarifies the judicial standard of review for an enforcement action of the State Oil and Gas Supervisor (Supervisor); expands procedural safeguards for an administrative appeal of an enforcement action, including the use of the Office of Administrative Hearings. EXISTING LAW : 1)Creates the Division of Oil, Gas, and Geothermal Resources (DOGGR) in the Department of Conservation (Department). 2)Requires the Supervisor of DOGGR to supervise the drilling, operation, maintenance, and abandonment of oil and gas and geothermal wells, tanks and facilities, including certain pipelines, to prevent damage to life, health, property, and natural resources; damage to underground oil and gas or geothermal deposits; loss of oil, gas, or reservoir energy; and damage to underground and surface waters. 3)Requires the Supervisor to order tests or remedial work necessary to prevent damage to life, health, property, and natural resources; to protect oil and gas or geothermal deposits from damage; to prevent the escape of water into underground formations; or to prevent the infiltration of detrimental substances into underground or surface water. 4)Requires a lessor, lessee, operator, or owner of a well, rig or derrick, within 10 days of the date of service of an order above, to comply with the order or appeal it to the Director of the Department. Due process provisions, including timelines for a hearing, written decision, and judicial review are provided. 5)Requires any charge, including penalty and interest, imposed by the Director to constitute a lien on real or personal property if an operator does not seek judicial review of an order or the Director's order is affirmed by a court. AB 2453 Page 2 THIS BILL : 1)Requires that an order of the Supervisor state the factual basis of the regulatory action being taken, the statutory basis of the action, the associated penalties and requirements, and the right of an operator to appeal. 2)Eliminates a hearing on appeal of an order before the Supervisor and subjects an order imposing a civil penalty to judicial review. 3)Revises and bifurcates appeals of an order for both oil and gas and geothermal operations. Authorizes an appeal of an order to be heard by an Administrative Law Judge (ALJ) and pursuant to the procedures and timelines of the Administrative Procedures Act (APA) under the following circumstances, as applicable: a) The order is issued upon a finding that a well is deserted and should be abandoned. b) The order imposes a civil penalty greater than $10,000. c) The order rescinds an injection project that has already commenced. d) The order imposes a left-of-well or life-of-production facility bond. 4)Authorizes an appeal of an order to be heard by the Director under any other circumstance. Establishes due process requirements, including notice, timelines for decisions, and standard of review. 5)Provides that the Director's order and decision to affirm or reject the ALJ decision are subject to judicial review with a 30-day statute of limitations. Provides that a court's standard of review is whether the Director acted in excess of jurisdiction, whether there was a fair hearing, and whether there is any prejudicial abuse of discretion. 6)Provides that a penalty or charge imposed on the operator must constitute a state tax lien against the property of the operator if the operator does not appeal or seek judicial AB 2453 Page 3 review of an order, or a court, on appeal, affirms the Director's decision. 7)Clarifies that when an order of the Supervisor is issued under emergency circumstances, the order is not stayed by the filing of an appeal. If an order is set aside or modified on appeal, the costs incurred by the operator must be refunded. 8)Provides for an expedited hearing before the Director for appeals of emergency orders and requires DOGGR to reimburse the operator for required work if an emergency order is invalidated on appeal. FISCAL EFFECT : Unknown COMMENTS : 1)Purpose of bill : This bill responds to a California appellate court decision, Termo Company v. Luther, holding that the trial court incorrectly applied a "substantial evidence" standard of review when it upheld an order of the Director requiring an operator to abandon 28 oil wells in Huntington Beach that were allegedly posing a threat to public health and safety and the environment. The court ruled that the trial court should have applied an "independent judgment standard," particularly since the applicable statute does not clearly specify otherwise nor does it contain sufficient procedural safeguards. In order words, in this instance, the trial court should have determined whether the Director's order was supported by the "weight of the evidence" not the more deferential "substantial evidence in light of the whole record" standard. This bill expressly requires a court, on appeal, to apply the "substantial evidence" standard and more generally, according to the author's office, "Strengthen[s] procedural safeguards and ensure[s] ample protection of due process rights for oil, gas, and geothermal wells operators subject to [the Supervisor's] enforcement orders." The author's office further notes that "In these tough economic times, this due process right of appeal is especially important for operators facing an enforcement action." 2)Bill provides bifurcated appeals process : In addition to clarifying the judicial standard of review, the bill creates a AB 2453 Page 4 "formal" and "informal" process for appealing the enforcement actions administratively prior to seeking judicial review, if necessary. Formal appeals, before an ALJ, would be required when an operator appeals an order imposing civil penalties greater than $10,000 or when an order may threaten the economic viability of an operation or operator (e.g., order to abandon wells or to cease a project that has already commenced). These hearings would be conducted by an ALJ at the Office of Administrative Hearings, pursuant to the APA. After a hearing, the ALJ would issue a written decision, subject to the approval by the Director. According to the Department, formal hearings include "procedural requirements and mechanisms?to ensure that the [appellant] has a meaningful opportunity to be heard, guard against abuse of process?and ensure that [a] thorough and complete administrative record is available to a reviewing court." These mechanisms include prehearing discovery and conferences and evidentiary rules governing admissible evidence. All other actions would be heard, on appeal, by the Director. Informal hearings are conducted by a delegate (known as a hearing officer) of the Director who is a member of the Department's executive staff. The hearing officer is advised by a Department attorney, both of whom are expected not to have substantive involvement in the action being appealed. Since there are no regulations governing the hearing process, the hearing officer is empowered to determine such things as timeframes and admissibility of evidence. These hearings are considered part of the administrative record so they are either recorded or transcribed. The appellant can choose to be legally represented and is entitled to bring witnesses and to question the Supervisor's witnesses. After the hearing, the officer issues a written decision based on the testimony and evidenced presented. This bill imposes notice requirements, including the content of notices, deadlines to issue a decision; establishes the Director's standard of review (e.g., preponderance of the evidence); and subjects a decision to judicial review. Importantly, it extends the statute of limitations to file a lawsuit by 20 days (a total of 30 days) which comports with other statutory schemes. The Department notes that the Departments of Agriculture, Toxics Substances Control, Public AB 2453 Page 5 Health, and Pesticide Regulation all have similar bifurcated appeals processes based on the severity of an enforcement action. 3)Dual-referral : This bill will be heard in the Assembly Judiciary Committee should it be approved by this committee. AB 2453 Page 6 REGISTERED SUPPORT / OPPOSITION : Support Department of Conservation Western States Petroleum Association Opposition None on file Analysis Prepared by : Dan Chia / NAT. RES. / (916) 319-2092