BILL ANALYSIS
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| SENATE COMMITTEE ON NATURAL RESOURCES AND WATER |
| Senator Fran Pavley, Chair |
| 2009-2010 Regular Session |
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BILL NO: AB 2503 HEARING DATE: June 29 2010
AUTHOR: John Perez URGENCY: No
VERSION: June 21, 2010 CONSULTANT: Bill Craven &
Marie Liu
DUAL REFERRAL: Rules FISCAL: Yes
SUBJECT: Ocean resources: artificial reefs.
BACKGROUND AND EXISTING LAW
California has 27 offshore oil and gas platforms located 1.2 to
10.5 miles off its southern coast. The platforms stand in water
depths that range from 35 feet to 1200 feet. Four of the
platforms are in state waters and 23 are in federal waters.
Several of these platform rigs are expected to be decommissioned
in the next decade or two. In California, 6 platforms have
already been completely removed. Estimates vary, but oil
companies would stand to save substantial sums if they are
allowed to leave some or all of the platforms in place. The
estimates range from tens of millions to hundreds of millions
per platform.
Current federal law requires that "decommissioned" oil and gas
platforms be removed at the end of production, and the
surrounding marine environment be cleaned up and restored to a
natural condition. Additionally, existing state and federal
offshore oil leases require removal of decommissioned oil
platforms after the lease ends. The industry has been trying for
several years to change existing law to allow abandonment of
offshore platforms in place after production ceases, to avoid
the costs for this previously agreed-to remediation. These
obligations were known to the oil industry when the platforms
were installed. However, both federal regulations and the
provisions in state and federal leases allow the federal
government to consider and approve alternative decommissioning
methods other than complete removal.
California has existing statutory authority for an artificial
reef program. California's artificial reef program was initiated
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in 1958 by the Department of Fish and Game (DFG) for the purpose
of contributing to the development of habitat for nearshore
sportfishing. Various experiments were conducted using an
assortment of materials, including quarry rock, cars, street
cars, and ships. With the exception of the artificial reefs
composed from old automobile tires, most of these artificial
reefs were considered successes by DFG. The department concluded
that artificial reefs aggregated various species of sportfish
and contributed to their reproduction.
PROPOSED LAW
This bill would enact the California Marine Life Legacy Act,
authorizing conversion of decommissioned offshore oil platforms
or production facilities into artificial reefs under specified
conditions. The program would be administered by DFG with
specific roles for the State Lands Commission (SLC) and the
Ocean Protection Council (OPC). Specifically, this bill would:
Make several findings and declarations regarding the benefits
and need for an artificial reef research and development
program, the cost savings to industry that could be shared
with California for the benefit of coastal marine resources,
and the importance of establishing a funding mechanism that
would dedicate the cost savings to identified public purposes,
such as coastal and marine resource conservation through a new
endowment created specifically for this purpose.
Define several important terms, including:
o "Artificial reefs" would mean, in part,
objects that create conditions that induce production
of marine life.
o "Cost savings" would mean the difference
between the estimated cost to the operator or owner of
complete removal of an offshore oil platform or
production facility and the costs incurred by the
operator or owner for converting a platform or
facility into an artificial reef. Under the bill, 50%
of cost savings would be put to a public purpose.
Provide that the DFG would serve as the primary authority for
managing and operating decommissioned offshore oil platforms.
Allow platform owners to voluntary choose to convert an
offshore oil platform or production facility into an
artificial reef by submitting an application to DFG. The
application, which would be developed by DFG, must include a
plan for the removal of the relevant portion of the platform
and a management plan for the reef that includes provisions
for navigational safety. These plans would be advisory to DFG
only.
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Regarding the consideration of an application for conversion,
this bill would additionally:
Allow DFG to conditionally approve the conversion of an
offshore oil platform if all of the following criteria are
met:
o The conversion is consistent with all
applicable state, federal, and international laws and
the platform owner obtains all permits from all
necessary state and federal agencies;
o The conversion would provide a net
environmental benefit. This determination will be made
by the OPC and would be binding on DFG. To make this
determination, the OPC must consider an array of
biological and environmental factors and compare these
impacts if a platform was fully removed or,
alternatively, converted to an artificial reef.
Economic considerations may not be considered in
making this determination;
o The cost savings from the conversion have been
determined by the SLC. DFG would be bound by the
determination of the SLC;
o The platform owner has provided sufficient
funding for all the administrative and management
actions of state agencies required by this act;
o The platform owner has entered into an
agreement that would provide indemnification to the
state;
o The platform owner has obtained all necessary
permits and leases; and
o If the platform is located in federal waters,
DFG agrees to take title to the platform and the
conversion acquires the proper federal approvals and
permits.
Require DFG to additionally take the following actions before
granting conditional approval of a conversion:
o Submit copies of the application to the OPC
and SLC.
o Conduct an environmental review of the
conversion pursuant to the California Environmental
Quality Act (CEQA). This bill provides that each such
application would be subject to individual review,
because of the unique circumstances of each rig. The
costs of the CEQA review as well as the costs of the
OPC and the SLC would be paid by the applicant;
o Prepare a plan to manage the platform after
conversion. The management plan must include measures
to manage fishery and marine life resources at and
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around the reef, which may include a buffer zone in
which fishing or removal of marine life is restricted
or prohibited;
o When all criteria for additional conditional
approval have been met, notify the California
Endowment for Marine Preservation and provide public
notice and a public hearing in order to provide an
opportunity for public comment.
Require the platform owner, once conditional approval has been
granted, to immediately transmit an amount equal to 50% of the
cost savings as follows: 85% would go to the newly established
California Endowment for Marine Preservation, 5% would go to
the county adjacent to the facility, and 10% would go the
state General Fund. DFG may not grant final approval of the
conversion until these funds are transferred.
Prohibit DFG from taking title to a decommissioned platform
until decommissioning and conversion is complete, DFG has
approved the conversion, and the state has been properly
indemnified.
Make several other provisions that subject the environmental
review to expedited timelines, when appropriate, provide that
a conversion does not count as mitigation for other
environmental projects, and address a variety of other
administrative matters.
Regarding the California Endowment for Marine Preservation, this
bill would additionally:
Establish the California Endowment for Marine Preservation
that would be subject to the Nonprofit Public Benefit
Corporation law and these new related provisions of the Public
Resources Code. The endowment shall not be incorporated until
the endowment it is notified by DFG that the first application
for a platform conversion has been filed.
Declare that purpose of the endowment would be to provide a
permanent funding source for research and projects that will
enhance coastal and marine resources of the state. The
endowment would be the entity that holds and invests the cost
savings that are contributed pursuant to the new artificial
reef program described earlier.
Establish the governing body of the endowment as follows:
o All 3 voting non-public members of the OPC,
o Two public members appointed by the Governor
(which may be, but are not required to be, the other
two voting members of the OPC),
o An expert in marine science, appointed by the
Speaker of the Assembly,
o An expert in marine fisheries, appointed by
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the Senate Committee on Rules,
o A member from a nonprofit organization with an
emphasis on marine conservation, appointed by the
Speaker of the Assembly, and
o A member from a nonprofit organization with an
emphasis on marine conservation and sustainable
consumptive recreational activities, appointed by the
Senate Committee on Rules.
Set governing board terms to six years; initial appointments
would be staggered.
Provide other administrative provisions for the endowment.
Allow the endowment to fund activities that further the
endowment's mission of funding projects that will conserve,
protect, restore, and enhance the coastal and marine resources
of the state, including:
o Projects and programs to enhance habitat for
coastal marine life,
o Applied research into a variety of coastal and
marine fisheries issues,
o Programs in open coastal waters that lead to
enforcement of laws regulating take of fish species,
and
o Other activities that are directly related to
the conservation of coastal and marine resources of
the state, including the watershed and water quality
provisions that are authorized in Prop 84 or pursuant
to the California Ocean Protection Trust Fund.
Require that 90% of the funds received by the endowment under
the California Marine Life Legacy Act be invested and managed
so that the interest on the investment income provides a
source of income in perpetuity. The principal is not to be
spent. The remaining 10% of funds received under the Act shall
be allocated by the governing board to "qualified state
agencies" within 24 months of receipt of the funds (in lieu of
being invested).
Authorize the endowment to obtain grants from a variety of
sources.
Require the endowment to develop a business plan, report
annually to the Legislature, conduct financial audits of its
activities, and conduct its activities subject to the
Nonprofit Public Benefit Corporation Law.
ARGUMENTS IN SUPPORT
The author states, "AB 2503 presents the state with a rare
opportunity to generate significant new funds to protect and
enhance ocean resources, at no cost to the General Fund or to
taxpayers. And it ensures that there will be a net
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environmental benefit. A growing number of studies, including
the recent report by the Ocean Science Trust on alternatives to
oil rig decommissioning, confirm that leaving a decommissioned
oil rig structure partially in place often creates benefits to
fish and other marine life. And the cost savings from leaving a
rig partially in place instead of completely removing it can
generate large cost savings. Under AB 2503 a significant
portion of those cost savings would go to a new endowment
established to provide funds in perpetuity that are dedicated to
coastal and ocean resource protection."
The California Chamber of Commerce, in support of the bill,
believes that these converted oil platforms will provide an
enhanced marine environment, food, and shelter for a variety of
marine species while at the same time providing a cost-effective
means of decommissioning oil platforms.
The Sportfishing conservancy of California, in support of the
bill, states, "?AB 2503 will accelerate the decommissioning of
offshore oil rigs, generate hundreds of millions of dollars for
ocean and coastal environmental projects and research, and save
valuable habitat from destruction."
ARGUMENTS IN OPPOSITION
The Environmental Defense Center (EDC), expresses appreciation
for the author's attempt to address some of their earlier
concerns, however they remain in opposition to the bill due to
"the need for more scientific analysis and further evaluation of
the safety, management and economic ramifications of a
state-sponsored rigs-to-reefs program." More specifically, EDC's
concerns include:
Information regarding environmental impacts, navigational and
safety hazards, and the true cost of state management and
liability is still lacking. EDC points to a recent Ocean
Science Trust report that acknowledges several essential "data
gaps."
No scientific consensus that oil platforms function to enhance
fish resources. EDC references a 2000 study by the University
of California that concludes "there is no clear evidence of
biological benefit (in the sense of enhancement of regional
stocks) of the platforms in their present configuration."
Insufficient clarity regarding the application of CEQA to the
decision whether to approve a conversion.
Decommissioned platforms could be converted to fishing
magnets, ultimately leading to a decrease in fsih stocks. EDC
contends this has occurred at the converted platforms in the
Gulf of Mexico.
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The state should receive full apportionment of cost savings
related to the conversion.
The potential conflict of interest for state agencies, that
is, the agencies that are considering the application will
also be receiving funding from that applicant.
DFG is not given full discretion by the bill on when an
conversion application should be approved.
Concern that the state will not be fully protected from
liability.
Concern that this bill could incentivize new or expanded
offshore drilling because of the cost savings in leaving
platforms in place.
EDC concludes that, "Despite the efforts to address concerns
raised during previous attempts to establish a state
rigs-to-reef program, many critical questions remain.
Fortunately, no platforms will be ready for decommissioning for
several years. We urge the Legislature to refrain from changing
existing law without first analyzing all of the potential
implications and responding to concerns that have been raised
repeatedly over the years."
The Sierra Club California states additional concerns regarding:
the bill's lack of criteria by which SLC will make cost saving
calculations, the need for the "net environmental benefit"
criteria to be established early and with a thorough public
process, the need for the oil operator to contribute at least
90% of its cost savings, and the significant differences between
artificial reefs that were designed, built, and located for
their artificial reef potential and "oil rig reefs."
COMMENTS
1. The primary question- should the state allow the conversion
of decommissioned oil rigs to artificial reefs?
Science that supports rig conversion : Several scientific
arguments have been offered in support of re-using
decommissioned oil platform 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. An estimated 900 tons
of invertebrates were destroyed when 2 platforms were removed in
1986, and over 2,000 tons were removed during decommissioning of
4 platforms in 1996. Biological surveys conducted in southern
California found that platforms tended to have higher abundances
of large fishes, particularly for declining but economically
important species, than did most natural reefs. Scientific
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researchers M.S. Love and D.M. Shroeder concluded that 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 marine life. 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 they contribute relatively little
additional habitat. 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. Alternate, but more expensive, cutting methods may
help reduce the loss of fish life compared to the use of
explosives.
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.
The committee should note that there is by no means a scientific
consensus that the conversion of decommissioned platforms to
reefs results in a net benefit for the environment, nor is there
consensus that partial removal and conversion is a better option
than full removal (see next comment). However, this bill would
require OPC to evaluate each oil platform proposed for
conversion to an artificial reef to determine whether there
would be a "net environmental benefit."
Recent Ocean Science Trust report does not make recommendations
on decommissioning options : Earlier this month, the California
Ocean Science Trust released its report titled "Evaluating
Alternatives for Decommissioning California's offshore Oil and
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Gas Platforms," which analyzed several options for
decommissioning. The report concluded that the only likely
feasible options for decommissioning are full platform removal
or partial removal and conversion to an artificial reef.
However, the report acknowledged significant data gaps that
prevent the full quantification of all potential impacts of both
options. While the report offered an analysis and decision
framework to allow the implications of the two options to be
compared, the report did not offer recommendations on whether
complete or partial rig removal is more beneficial.
Incomplete past decommissioning efforts in California : Beginning
in 1996, California required Chevron to remove four platforms
offshore in southern Santa Barbara County. When Chevron removed
the four platforms, it left behind piles of debris that,
according to the Environmental Defense Center, measure up to 200
feet in diameter and 30 feet in height. The lease required that
the company completely clean up any materials and obstructions
from the seafloor, and restore the ocean to a natural condition.
However, the residual mounds contain varying levels of toxics
which are now covered by shells. If the shell mounds are left in
place, there will be an ongoing risk that contaminates could
leach out of the mounds, potentially resulting in toxicity to or
toxic bioaccumulation in marine biota. On the other hand, if the
mounds are removed, there will be a range of short-term impacts
to water and sediment quality. At present, the California State
Lands Commission is reviewing several alternatives to remediate
these mounds that will be analyzed in a new, updated
Environmental Impact Report (EIR) that it hopes will be released
this fall. The U.S. Army Corps of Engineers is concerned that
removal of these mounds will create water quality problems. The
committee may consider this situation as an illustration that
both "complete" removal and partial removal with conversion are
complicated and neither illustrate an environmentally foolproof
decommissioning option.
2. If the possibility of conversion is desirable,, then there
are substantial secondary questions regarding the conditions for
approval of a platform conversion:
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 "to the extent permitted by law." The operator would
also be required to defend the state against any claims against
DFG for any DFG action that is taken pursuant to this act.
However, it is unclear how the state will secure such
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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. The
bill also requires DFG to consult with the Attorney General's
office in preparing and entering into the indemnification
agreement.
Necessary early activities- and who should pay for them : This
bill places significant responsibilities on DFG, OPC, and SLC.
In particular, DFG is an agency which has been plagued with
budget and staff cuts, in addition to growing statutory and
legal obligations. While some of these activities do not have to
be conducted until the first application is submitted, some
activities, such as DFG's creation of the application, need to
be done in advance. There are other activities that arguably
also should be done in advance because they are critical to
determining the appropriateness and desirability of an oil
platform conversion, such as the OPC criteria to determine
whether a proposed platform conversion will have a "net benefit
to the environment" compared to platform removal.
While this bill would require an applicant to pay for all of the
agencies' costs for evaluation, review, approval, permitting,
management, enforcement, research and monitoring, it is unclear
how the agencies could fund the upfront activities needed by
this bill. Especially in the case of DFG, it is highly unlikely
that the agencies currently have the capacity to fulfill these
responsibilities within their existing budgets.
A recent legislative proposal has faced a similar quandary. SBx8
34 (Padilla) established a new expedited program for approval
and citing of solar energy projects in the desert, and gave the
DFG and CEC new fee authority to collect upfront permit
application fees to cover program costs. Another possible option
might be to consider a one time loan to DFG from another funding
source to be repaid from the endowment or with applicant fees.
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The committee may wish to request that the author consider
identifying a method to fund the upfront activities that would
be needed by this bill. Additionally, the committee may wish to
direct staff to work with the author in identifying which
activities required by this bill, such as the criteria
development by OPC and SLC, shall be completed before the first
application is filed.
Application review- which activities come first? DFG, OPC, SLC,
and the endowment are all required to take numerous actions once
an application is received. This bill specifies some sequencing
of activities. For example, the SLC is directed to begin
commencing its cost savings determination upon receiving a copy
of an application. However, the committee may find that
modifying existing and specifying additional activity sequencing
may be beneficial to ensure a more thorough application review.
Specifically, the committee may wish to specify that the OPC and
the SLC should not make determinations regarding net
environmental benefit and cost savings until DFG completes the
CEQA analysis on the project, as both of these determinations
should be influenced by information from that analysis. The
committee may wish to direct staff to work with the author to
determine appropriate language regarding the sequencing of
activities.
What is the balance of economic benefits to the operator and the
public in a platform conversion? This bill currently requires an
oil company to contribute 50% of its cost savings to the state
and endowment to be used for public purposes while the other 50%
may be retained by the platform owner. Staff is concerned that
at the present level of 50 percent, the public will perceive the
bill as overly favorable to the platform owners. Although the
income to the endowment is speculative, at 50 percent the
benefits to the public could be perceived as too few. Staff is
cognizant of the fact that the platform owners will be required
to honor the indemnification provisions and to fund the
administrative costs of state agencies. No formula is magic. The
California Council of Land Trusts suggests 85% go to public
purposes, the Environmental Defense Center suggests 100%, and
the Sierra Club suggests a minimum of 90%, while previous
related legislation (SB 1 in 2001) chose 40-70% depending on the
platform's location. The committee may wish to find that it is
more acceptable to require that 80% of the cost savings be put
to public purposes instead of 50%. [See amendment 1]
This bill does not address any tax implications for the operator
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as a result of the conversion. The committee may wish to direct
staff to work with the author on developing any provisions to
ensure that the operator will not receive any unintended tax
benefits.
Who should be eligible for the endowment funds that become
immediately available? This bill allows 10% of the deposits to
the endowment to be used immediately instead of invested. These
funds currently can only be allocated to qualified state
agencies. This bill does not specify who the "qualified" state
agencies are, but presumably they are the agencies that have
responsibilities for coastal and ocean protection. The committee
may wish to suggest that the bill be amended accordingly.
Furthermore, the committee may wish to consider whether it would
be beneficial to also allow these non-invested deposits to be
used for appropriate projects (i.e. projects consistent with the
endowment's purpose), so long as the majority of the
non-invested deposits are still allocated to the state agencies.
[See amendment 2]
Technical and clarification amendments needed : This bill has
many cross references and seemingly duplicative provisions. For
example, there are numerous separate findings and declarations
sections within the Act. Also, the bill states that the
endowment fund may be used for ocean related projects. It may be
more appropriate to require that this be the use of the fund.
Should this bill move forward, the committee may wish to direct
staff to continue to work with the author to make clarification
and technical amendments that include those listed below.
Potential future amendments to the bill : The author has
indicated to committee staff that future amendments to this bill
are likely as the author continues to work with the opposition
regarding their concerns. The committee may wish to ask for the
author to commit to bring this bill back to committee if there
are substantial amendments and to keep committee staff abreast
of all potential changes.
SUGGESTED AMENDMENTS
AMENDMENT 1
Page 13, line 19 change 50 percent to 80 percent (or a
higher number agreed to by the Committee.)
AMENDMENT 2
Page 30, lines 30-34: Amend to read: (2) Ten percent of any
funds received by the endowment pursuant to Section 6427.3
of the Fish and Game Code in a calendar year shall be
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allocated by the endowment board, pursuant to Section
71552, as grants for projects or programs consistent with
the purpose of the endowment, within 24 months of receipt
of funds. The majority of these funds shall be granted to
state agencies engaged in coastal and ocean protection.
ADDITIONAL TECHNICAL AMENDMENTS:
1.Page 4, line 34, after "facility", add: "as required by the
state or federal lease"
2.Page 9, line 9, add at end: "and as provided in this article."
3.Page 10, line 26, after "agency", add: "and the endowment
pursuant to Division 37 of the Public Resources Code"
4.Page 13, line 33, delete (b) and insert (c)
5.Page 13, line 35, delete (a) and insert (b)
6.Page 13, line 36, delete (c) and insert (d)
7.Page 15, line 21, at end, insert "The council may contract or
enter in a memorandum of understanding with any other
appropriate agency or other party, including an independent
expert, to ensure that the net environmental benefit is
accurately and reasonably determined."
8.Page 26, delete lines 30-31
9.Page 14, line 29, delete "6428" and insert "6428.1"
SUPPORT
Sportfishing Conservancy of California
California Chamber of Commerce
OPPOSITION
Environmental Defense Center
Sierra Club California
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