BILL ANALYSIS
AB 2503
Page 1
Date of Hearing: April 13, 2010
ASSEMBLY COMMITTEE ON WATER, PARKS AND WILDLIFE
Jared William Huffman, Chair
AB 2503 (Perez) - As Amended: April 5, 2010
SUBJECT : Ocean Resources: Artificial Reefs: Decommissioned Oil
Platforms
SUMMARY : Enacts the California Marine Life Legacy Act,
authorizing conversion of decommissioned offshore oil platforms or
production facilities into artificial reefs if specified criteria
are met, including a finding that conversion to an artificial reef
would provide a "net benefit" to the environment as compared to
removal of the facility from the marine environment, and creates
the California Endowment for Marine Preservation. Specifically,
this bill :
1)States various legislative findings and declarations regarding
the benefits and need for an artificial reef research and
development program, the benefits and cost savings that may
result if decommissioned offshore oil platforms are allowed to
be converted to artificial reefs, and the need for a mechanism
to ensure that those savings are shared with the citizens of the
state and used to benefit coastal marine resources.
2)Defines various terms for purposes of the California Marine Life
Legacy Act (the Act).
3)Repeals, reenacts and expands the California Artificial Reef
Program, as part of the Act, to be administered by the
Department of Fish and Game (DFG), and to include all the
following elements:
a) Placement of artificial reefs, including decommissioned
offshore oil platforms allowed to remain in place as
artificial reefs in state or federal waters,
b) Study of existing successful reefs and all new reefs to
determine the design criteria needed to increase marine
biomass and biodiversity.
c) Determination of the requirements for reef siting and
placement.
d) Consideration of modification and use of existing marine
structures in both state and federal waters as artificial
reefs.
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4)States legislative intent that future sources of funding for the
Artificial Reef Program may include the Fish and Game
Preservation Fund (FGPF), the California Environmental License
Plate Fund, the Wildlife Restoration Fund, bond funds, federal
funds, county funds, the California Endowment for Marine
Preservation which this bill would create, and private
donations.
5)Authorizes DFG to serve as the primary authority for managing
and operating artificial reefs created from offshore oil
platforms, to obtain funds for these purposes from any lawful
source, and to adopt regulations to implement the Act.
6)Authorizes DFG to approve conversion of an offshore oil platform
or facility to an artificial reef only if all the following
criteria are satisfied:
a) The alternative of conversion provides a "net benefit" to
the environment compared to the alternative of removing the
facilities from the marine environment. Requires DFG in
determining net benefit to take into account certain factors.
b) The artificial reef will be consistent with state and
federal water quality control laws, navigational safety, the
California Coastal Management Program, the Marine Life
Management Act, the Marine Life Protection Act, the federal
Magnuson-Stevens Fishery Conservation and Management Act, the
National Fishing Enhancement Act, and all applicable state,
federal and international laws.
c) The owner or operator of the oil platform provides
sufficient funds to DFG to cover an evaluation of the
benefits of the artificial reef, including any necessary
research, costs of reviewing, approving, and permitting the
project, and for overall management of the reef, including
enforcement, research and monitoring.
d) The owner or operator of the oil platform agrees to
indemnify the state against any and all liability that may
result.
e) The owner or operator applies for and receives all
required government permits, including a permit from the
United States Army Corps of Engineers. (This requirement
would not apply if DFG agrees to take title to the facility.)
f) For facilities in federal waters, DFG may approve
conversion to an artificial reef if DFG agrees to take title,
DFG obtains the U.S. Army Corps of Engineers permit, and the
conversion is approved by the U.S. Minerals Management
Service.
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1)Authorizes DFG to take title to a decommissioned oil platform in
either state or federal waters if an agreement is reached that
will ensure that cost savings to the owner or operator of the
facility are deposited in a new endowment created by the Act,
all other requirements of the act and required permits are met
and received, the artificial reef conversion operation is
completed, and the state is indemnified from any liability that
may result.
2)Requires DFG, for each application received for conversion of an
oil platform to an artificial reef, to determine criteria for
biological evaluation of the facility for use as an artificial
reef. Requires DFG to consult with and advise the California
Coastal Commission (CCC), the State Lands Commission (SLC) and
other responsible agencies as to the criteria. Requires the
criteria to include consideration of the depth and location of
the reef.
3)Requires DFG to ensure the accuracy of the cost savings
calculated or to contract with another entity for this purpose.
Requires DFG to use and consider estimates of cost savings
provided by any other governmental agency, or if DFG disagrees
with the estimate used by another agency, to prepare a public
report explaining the reasons for the differences.
4)Authorizes an oil platform owner, at any time prior to transfer
of title to the state, at its sole discretion, to cease
participation in the artificial reef conversion and pursue full
decommissioning, subject to reimbursement to the state of all
reasonable costs and expenses incurred.
5)States that nothing in this bill shall be construed to do any of
the following:
a) Relieve the prior owner or operator of an offshore oil
platform or facility from any continuing liability under
existing laws associated with seepage or release of oil from
the platform or facility,
b) Establish any new liability on the part of the state,
c) Require any agency to approve an artificial reef
conversion,
d) Promote or encourage offshore oil exploration in
California coastal waters,
e) Require the United States Department of Interior or the
State Lands Commission to modify an existing oil and gas
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lease,
f) Alter any existing law that establishes liability for
damages arising from artificial reefs,
g) Alter any existing law that protects natural reefs,
h) Alter the authority of any state or local agency,
i) Approve any particular method of abandonment.
1)Prohibits any conversion of an oil platform or facility to an
artificial reef from being used or counted as mitigation for any
environmental impacts to natural resources.
2)Requires 50% of the cost savings to an owner or operator of an
oil platform or facility from voluntarily converting the
facility to an artificial reef instead of removing the facility,
to be apportioned as follows:
a) 90% to be deposited in the California Endowment for Marine
Preservation, which this bill would create.
b) 10% to be deposited with the board of supervisors of the
county immediately adjacent to the facility. Requires the
county to use these funds for projects within coastal lands
and waters.
1)Establishes the Accelerated Existing Platform Decommissioning
Program (AEPDP). Provides that proposed conversions of oil
platforms to artificial reefs which meet the requirements of the
AEPDP shall be subject to expedited review under the California
Environmental Quality Act (CEQA). To apply to enroll in the
AEPDP and qualify for the CEQA expedited review, the project
must meet all other requirements for approval of artificial reef
conversions as specified in the Act (except that the applicant
shall have applied but need not yet have received all applicable
government approvals), and the application must contain a
reefing plan, a management plan, a proposed determination of the
net environmental benefit, and a proposed calculation of the
cost savings.
2)Requires DFG, for projects filed under the AEPDP, to complete
the CEQA review, consult with other responsible agencies,
provide opportunity for public comment, hold a public hearing,
make a final determination whether a project meets program
requirements, and determine if there is a net environmental
benefit, all within one year if certification for an
Environmental Impact Report (EIR), or within 180 days for a
negative declaration. Provides that if DFG does not complete
the review within these time frames then the application would
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be considered under the non-accelerated program.
3)Requires the applicant, upon execution of an agreement to enroll
the facility in the AEPDP, to pay 50% of the cost savings
apportioned to the California Endowment for Marine Preservation
for deposit into the State General Fund. Requires the
applicant, upon completion of the decommissioning and conversion
to an artificial reef and transfer of title to DFG, to deposit
the balance of the cost saving apportioned to the California
Endowment for Marine Preservation in the endowment. Further
requires that within 15 years of the deposits, the state shall
deposit an amount equal to 80% of the amount deposited in the
General Fund into the California Endowment for Marine
Preservation, and 20% of that amount to the county immediately
adjacent to the facility.
4)Sunsets the AEPDP on January 1, 2014.
5)Establishes the California Endowment for Marine Preservation,
which shall be subject to the Nonprofit Public Benefit
Corporation Law, and governed by a board of directors consisting
of nine members appointed by the Governor. Specifies criteria
for each member and term of office.
6)Authorizes the members of the initial board to serve as
incorporators, and states legislative intent that the endowment
not be incorporated until funds are made available pursuant to
the California Marine Legacy Act.
7)States that the purpose of the endowment is to create a
permanent source of funding for projects to conserve, protect,
restore and enhance open coastal marine resources, as specified.
8)Authorizes the endowment board to obtain grants, make contracts,
loan funds, hire employees and obtain legal counsel. Prohibits
an employee of the endowment from also being an employee of the
state, and requires that employees of the endowment shall have
the right to representation under the National Labor Relations
Law.
9)Requires the endowment board to create a 5 year business plan
and to update the plan annually. Requires the endowment board
to submit a report to the Legislature by February 1 of each year
that includes the business plan, a comprehensive report of all
activities, grants and loans, and any independent audits
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required.
10)Prohibits the endowment board from making political
contributions. Requires the endowment to coordinate with
specified state and federal agencies. Authorizes the endowment
to receive charitable contributions and loans from the state.
11)Requires the endowment to invest and manage funds it receives
in order to provide income in perpetuity, prohibits expenditure
of the principal amount, and authorizes expenditure only of
returns on investment. Requires that the funds be invested and
managed in accordance with the Nonprofit Public Benefit
Corporation law, requires annual independent audits of the
funds, and authorizes the Bureau of State Audits to audit the
endowment. Requires that a report of each audit be made to the
Legislature and Governor. Further requires that recipients of
assistance from the endowment comply with record keeping
requirements, and that the endowment and the Bureau of State
Audits be given access to the records of recipients.
EXISTING LAW :
1)Establishes the California Artificial Reef Program to research
the construction and placement of artificial reefs in California
waters to enhance marine fish species.
2)Generally requires, pursuant to existing state and federal
offshore oil leases, removal of decommissioned oil platforms
after the lease ends, though federal regulations and state and
federal lease provisions allow the federal government to
consider and approve decommissioning methods other than complete
removal.
FISCAL EFFECT : Unknown
COMMENTS : The purpose of this bill is to provide a process by
which an oil company wishing to decommission an offshore oil
platform can apply to the state to leave it in place (with the top
80 feet removed) and split the savings incurred from not having to
remove it with the state and with a nonprofit trust fund that will
be created. According to the author and sponsor, this bill is
necessary to create a legal framework for the conversion of
offshore oil rigs to artificial reefs, and to determine how the
revenue generated will be spent.
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Background : Currently, there are 27 offshore oil and gas
platforms located 1.2 to 10.5 miles off the southern California
coast, at depths ranging from 35 to 1,198 feet. Four of the
platforms are in state waters and 23 in federal waters. Several
of these rigs are expected to be decommissioned in the next
decade. The options for dealing with a platform after
decommissioning are to leave it in place, partially remove it, or
completely remove it. In the Gulf of Mexico, 85% of
decommissioned oil platforms have been partially removed or
toppled, providing aquatic habitat. Most of these are in much
shallower water than the rigs in California. In California, six
platforms have been decommissioned, all by removal. Oil companies
stand to gain substantial cost savings (by some estimates in the
tens of millions to hundreds of millions of dollars per platform)
if they are allowed to leave some or all of the platform in place.
Science : Several scientific arguments have been offered in
support of re-using decommissioned oil rigs as artificial reefs.
The platforms may provide breeding, rearing and refuge habitat for
fish and invertebrates. In California, 32 out of 52 federally
managed rockfish species have been documented at the platforms.
If the platforms are removed this fish habitat will be lost, and
the attached invertebrates will be killed. Approximately 900 tons
of invertebrates were estimated destroyed when 2 platforms were
removed in 1986, and over 2,000 tons when 4 platforms were removed
in 1996. Biological surveys conducted in southern California
found the platforms tended to have higher abundances of large
fishes, particularly declining but economically important species,
than did most natural reefs. Scientific researchers M.S. Love and
D.M. Shroeder concluded this is likely due to the relatively low
fishing effort around many platforms in southern California, thus
the platforms are acting as de-facto mini-marine protected areas
for fish. These same researchers also found the platforms served
as nurseries harboring higher densities of young fish. The
platforms occupy a relatively small space and so contribute little
additional habitat relatively speaking. However, their importance
as fish nurseries and refuges may be more significant than
otherwise suggested by their size, since the off shore position
makes them less susceptible to coastal pollution.
Another reason given for keeping the rigs in place is the
environmental destruction caused by their removal. Removal kills
the organisms attached to the platform, and fish are killed by the
underwater explosions used to remove the platforms from the sea
floor.
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Information from DFG indicates that offshore platforms do support
abundant populations of fish and invertebrates, but their actual
habitat value and contribution to increased production of marine
life is under study. DFG is part of an Inter-agency
Decommissioning Working group composed of federal, state and local
agencies that have been following this issue for several years.
While some earlier studies questioned the contributions of oil
platforms to reef habitat in the southern California region, in
2003 the California Artificial Reef Enhancement Program, a
non-profit group sponsored by Chevron, published a report which
concluded, based on peer reviewed science, that some platforms may
be important to regional fish production. This bill requires DFG
to study each oil platform proposed to be allowed to stay in place
as an artificial reef to determine whether there would be a "net
environmental benefit."
Arguments in Opposition : Although the committee has not received
any formal written opposition to this bill as of the date of this
writing, arguments against rigs to reef proposals in the past have
generally raised three main arguments: 1) that the oil industry
agreed to remove these platforms as a condition of the lease and
should be held accountable for the full costs of removal, clean up
of the site, and return of the ocean environment to its natural
condition; 2) that the abandoned oil platforms present a safety
hazard for navigation and an obstacle to commercial fishing,
especially trawling; and 3) that if oil companies are allowed to
leave the oil rigs in place as artificial reefs, a greater share
of the cost savings should inure to the state.
Related Legislation : SB 1 (Alpert) of 2001 proposed a similar
Rigs to Reefs program but was vetoed by the Governor.
Questions and Issues :
1. Ocean Protection Council (OPC) Study ongoing : The OPC, through
the Ocean Science Trust recently commissioned a comprehensive
study on oil and gas platform decommissioning alternatives in
California. The State Natural Resources Agency began a
stakeholder process in 2007 which outlined a range of
environmental, economic, engineering and social questions
concerning decommissioning options. The OPC issued an RFP, a
consultant was selected, and the project team commenced work on
the study in April 2009. The study is scheduled to be completed
and submitted to the OPC, along with a decision-making computer
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model, in June of 2010. The purpose of the study is to assemble
and examine scientific and legal information to frame state policy
discussions on alternatives for decommissioning. Information
developed is intended to be used by the California Natural
Resources Agency to evaluate and inform policy discussions. The
consultant team is working with the California Ocean Science Trust
and an Expert Advisory Committee. The OPC notes that the
potential decommissioning of oil and gas platforms in State
Tidelands and on the Outer Continental Shelf off the California
coast is a complex issue requiring careful collection and analysis
of information on decommissioning alternatives. This report, once
it is finalized, should provide useful information to help inform
the Legislature and the agency on policy alternatives.
2. State Liability Issues : Since the state will be acquiring
title to the decommissioned oil platforms, and assuming
responsibility for long term management, this bill requires the
owner or operator of the oil platform to indemnify the state
against liability, and authorizes DFG to consider a number of
mechanisms for ensuring the state can defend itself against
resulting judgments. However, it is unclear how the state will
secure such protection, determine the amount of liability coverage
that is needed, or what the remedy would be if the security
required turns out to be inadequate to cover all the state's
future liability costs. The sponsors believe liability risk to
the state would be minimal for three reasons: 1) because federal
law requires the oil company to continue to assume the ongoing
risk for any oil leaks, 2) because federal law provides there is
no liability for navigational collisions with structures that are
identified on navigational charts, and 3) because diving is
considered an inherently dangerous activity to which the
assumption of risk doctrine applies. It should be noted this bill
does provide that nothing in the Act shall be construed to relieve
the owner or operator from continued liability for any oil
seepage, or establish any new liability for the state.
3. DFG Capacity and Start-up costs : This bill places significant
responsibilities on DFG, an agency which has been plagued with
budget and staff cuts, in the face of growing statutory and legal
obligations. DFG's responsibilities under this bill include but
are not limited to, determining net environmental benefit,
determining all requirements of the act are met and the project is
consistent with all other applicable laws, determining liability
indemnification requirements, determining criteria for biological
evaluation, ensuring accuracy of cost savings estimates,
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completing CEQA review, holding a public hearing, obtaining
federal permits, consulting with other agencies, and assuming
primary responsibility for management and operation of the
platforms as artificial reefs. Whether DFG currently has the
capacity to fulfill these responsibilities is highly doubtful.
Particularly given the short time constraints for completion, DFG
would likely need to have staff and resources already in place to
begin the work before an application is received. DFG does not at
this time have such a unit. Background information provided by
DFG indicates at a minimum such a unit would need to include
fishery biologists, an environmental toxicologist, civil engineer,
legal counsel, and program analyst. Preliminary estimates to fund
such a unit are $1.7 million or more per year, though costs could
decline in subsequent years.
Although this bill provides that the owner or operator of the oil
platform shall be responsible for paying all of DFG's costs for
evaluation, review, approval, permitting, management, enforcement,
research and monitoring, it is unclear how the upfront startup
costs for DFG to establish the inhouse capacity to do this work
would be paid for. By analogy, a recent legislative proposal that
established a new expedited program for approval and siting of
solar energy projects in the desert, SBX8 34 (Padilla), gave the
DFG and CEC new fee authority to collect upfront permit
application fees to cover program costs. Another option to
consider might be a one time loan to DFG from another funding
source to be repaid from the endowment or with applicant fees.
Some of the factors this bill requires be taken into account in
determining net environmental benefit are also arguably more
within the purview of other agencies and outside the expertise of
DFG, for example, air quality impacts and other onshore impacts,
which may be more appropriately analyzed by the Air Resources
Board and other agencies with specific authorities in the coastal
zone.
4. Practicality of Timelines for Accelerated Program : Under the
AEPDP accelerated decommissioning program option, this bill would
require DFG to complete the CEQA review, consult with other
responsible agencies, provide opportunity for public comment, hold
a public hearing, make a final determination whether a project
meets program requirements, and determine if there is a net
environmental benefit, all within one year of certification if an
EIR is required, or within 180 days for a negative declaration.
Given DFG's current capacity, this expedited time frame may not be
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practically feasible. If DFG is not able to complete the review
within the expedited time frame then this bill provides that the
application would revert to the non-accelerated process.
Under the accelerated program the applicant is required to apply
for all required state, federal and local permits and approvals,
but need not have received those permits and approvals before the
state takes title to the platforms. What happens if all required
permits and approvals are ultimately not received is unclear and
should be clarified.
5. Funding for long-term management and maintenance : This bill,
in Section 6427 (f) requires the owner or operator of the offshore
oil platform to provide sufficient funds to DFG to cover DFG's
costs for evaluation, necessary research, review, approval,
permitting, and overall management of the reef, including
enforcement, research and monitoring. Committee staff suggests
three amendments to clarify this section. First, subsection (C)
should be amended to clarify that overall management includes
costs for long term management, operations and maintenance.
Second, subsection (f)(2) provides that funds paid to DFG under
this section shall be deposited in the California Endowment for
Marine Preservation (which this bill would create, and which would
be managed outside the state by a nonprofit board of directors),
except for those funds required by DFG to cover permitting costs,
including but not limited to, scientific evaluations, EIRs, and
monitoring reports. Since all of the funds to be paid under
(f)(1) are funds necessary to cover DFG's costs, it is unclear why
any of the funds paid under that section should go to the
endowment instead of DFG.
Third, proposed Section 6425, on page 5 of this bill, states
legislative intent that future sources of funding for the program
may include a number of state fund sources, including but not
limited to the FGPF. Since Section 6427 (f) provides that all
state costs for the program should be paid by the operators or
owners of the oil platform or facility, it is recommended that
this section be deleted.
6. Enforceability of requirement for state to repay cost savings
to endowment fund after 15 years and interpretation of cost
savings allocation : This bill provides a different allocation for
the cost savings incurred by the oil company, depending on whether
the application is processed through the accelerated program or
the non-accelerated program. Under the non-accelerated program,
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50% of the cost savings stays with the oil company, and the other
50% is allocated 90% to the endowment created by the bill, and 10%
to the county immediately adjacent to the oil rig. These payments
are required to be made once all the permits and approvals for
conversion to an artificial reef are granted. Under the
accelerated program, half of the portion that would otherwise go
to the endowment would go instead to the state General Fund upon
execution of the agreement with DFG. The other half of the cost
savings allocated to the endowment would go to the endowment upon
completion of the conversion of the facility and transfer of the
title to DFG. Then within 15 years, the state would be required
to deposit 80% of the amount which was paid to the General Fund
into the endowment, and 20% to the county. The requirement for
the state, within 15 years, to deposit that money in the endowment
fund is likely unenforceable, since the Legislature cannot bind a
future legislature, which could simply amend the law to remove
that requirement. The language of this bill also lacks clarity as
to the allocation and could be simplified.
In addition, 50% split on the cost savings, allowing the company
to retain 50% of the savings, is modeled after the Texas law, but
it is unclear whether a 50/50 split, or some other cost allocation
formula is most appropriate.
7. Endowment : This bill creates the California Endowment for
Marine Preservation, which would be a new private, nonprofit
entity, managed be a nine member board of directors appointed by
the Governor. A portion of oil company cost savings from being
allowed to leave the decommissioned oil platforms in place would
be deposited in the endowment, which would be required to be
managed as a nonwasting endowment, and the return on investment
used for specified purposes related to conserving, protecting,
restoring and enhancing open coastal marine resources. There are
pros and cons to managing these funds through a private endowment
versus a state trust fund the Legislature may wish to consider.
Managing the funds through an endowment may help to protect the
funds from being used for other unrelated state purposes. A
private endowment may also have the capacity to earn higher
returns on investment than is possible with the state's pooled
money investment account, which is important if only the returns
on investment and not the principal are to be available for
expenditure. On the other hand, a private entity is not subject
to the same requirements as state entities are with regard to
public process and transparency, and the state would not have
direct control over the fund. The Legislature may also want to
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consider the merits of adding additional safeguards, such as
requiring the endowment to follow reasonable and prudent investor
standards, generally accepted accounting practices, and investment
policies that are consistent with the Uniform Management of
Institutional Funds Act, and to include a nonperformance or
reversion clause in the event of nonperformance. Issues regarding
management and uses of the fund should be further analyzed and
considered as this bill moves forward.
The nine board members of the endowment would be appointed by the
Governor for specified terms. The Legislature may wish to
consider whether some of the appointments should be made by the
Legislature, or subject to Senate confirmation.
8. Technical amendments : This bill proposes definitions for
various terms in both the Fish and Game Code and Public Resources
Code. Amendments should be taken to make the definition of
"artificial reef" consistent in both codes, and to correct an
inconsistency between proposed sections 6427(g) and Section 6427.5
regarding receipt of permits and when DFG takes title.
REGISTERED SUPPORT / OPPOSITION :
Support
California Council of Land Trusts (in concept)
Sportfishing Conservancy
Western States Petroleum Association
Opposition
None on file
Analysis Prepared by : Diane Colborn & Igor Lacan, Ph.D. / W.,
P. & W. / (916) 319-2096