BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 2453
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          Date of Hearing:  April 12, 2010

                                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.


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          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  

             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  

             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  


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            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  


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            "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  

            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  


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            Health, and Pesticide Regulation all have similar bifurcated  
            appeals processes based on the severity of an enforcement  

           3)Dual-referral  :  This bill will be heard in the Assembly  
            Judiciary Committee should it be approved by this committee.


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          Department of Conservation
          Western States Petroleum Association

          None on file

          Analysis Prepared by  :  Dan Chia / NAT. RES. / (916) 319-2092