BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 2453
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          AB 2453 (Tran)
          As Introduced  February 19, 2010
          Majority vote 

           NATURAL RESOURCES   9-0         JUDICIARY           10-0        
          |Ayes:|Chesbro, Gilmore,         |Ayes:|Feuer, Tran, Brownley,    |
          |     |Brownley,                 |     |Evans, Hagman, Jones,     |
          |     |De Leon, Hill, Huffman,   |     |Knight, Swanson, Monning, |
          |     |Knight, Logue, Skinner    |     |Nava                      |
          |     |                          |     |                          |
           APPROPRIATIONS      17-0                                        
          |Ayes:|Fuentes, Conway, Ammiano, |     |                          |
          |     |Bradford, Charles         |     |                          |
          |     |Calderon, Coto, Davis,    |     |                          |
          |     |Monning, Ruskin, Harkey,  |     |                          |
          |     |Miller, Nielsen, Norby,   |     |                          |
          |     |Skinner, Solorio,         |     |                          |
          |     |Torlakson, Torrico        |     |                          |
          |     |                          |     |                          |
           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 (OAH).   
          Specifically,  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  


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            gas and geothermal operations.  Authorizes an appeal of an  
            order to be heard by an Administrative Law Judge (ALJ) in the  
            OAH and pursuant to the Administrative Procedures Act (APA)  
            under one of the following circumstances:

             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; or,

             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  
            of the Department of Conservation (DOC) under any other  
            circumstance.  Establishes due process requirements, including  
            notice, timelines for decisions, and standard of review.

          5)Provides that DOC 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 of DOC 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  
            review of an order, or a court, on appeal, affirms the DOC  
            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 of DOC  
            for appeals of emergency orders and requires DOGGR to  
            reimburse the operator for required work if an emergency order  
            is invalidated on appeal.


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           EXISTING LAW  :

          1)Creates the Division of Oil, Gas, and Geothermal Resources  
            (DOGGR) in DOC.

          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 DOC.  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 of DOC 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.
          FISCAL EFFECT  :  According to the Assembly Appropriations  
          Committee, DOC estimates it will need one staff counsel  
          position, at an approximate cost of $145,000 a year, to  
          represent DOGGR in both informal and formal hearings.

           COMMENTS  :  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 of DOC 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  


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          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 DOC 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  

          In addition to clarifying the judicial standard of review, the  
          bill creates a "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 DOC, 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 of DOC who is a member of the  
          DOCs executive staff.  The hearing officer is advised by a DOC  
          attorney, both of whom are expected not to have substantive  
          involvement in the action being appealed.  Since there are no  


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

          Analysis Prepared by  :    Dan Chia / NAT. RES. / (916) 319-2092  
          FN:  0004718