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. AB 2503 Page 2 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. AB 2503 Page 3 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 AB 2503 Page 4 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 AB 2503 Page 5 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 AB 2503 Page 6 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. AB 2503 Page 7 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. AB 2503 Page 8 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 AB 2503 Page 9 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, AB 2503 Page 10 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 AB 2503 Page 11 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, AB 2503 Page 12 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 AB 2503 Page 13 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