BILL ANALYSIS                                                                                                                                                                                                    

          |                                                                 |
          |                   Senator Fran Pavley, Chair                    |
          |                    2013-2014 Regular Session                    |
          |                                                                 |

          BILL NO: SB 4                      HEARING DATE: April 9, 2013  
          AUTHOR: Pavley                     URGENCY: No  
          VERSION: March 11, 2013            CONSULTANT: Katharine Moore  
          DUAL REFERRAL: Environmental QualityFISCAL: Yes  
          SUBJECT: Oil and gas: hydraulic fracturing.  
          The Division of Oil, Gas, and Geothermal Resources (DOGGR)  
          exists within California's Department of Conservation  
          (department). DOGGR's Supervisor (supervisor) has extensive and  
          broad authority to regulate activities associated with the  
          production and removal of hydrocarbons (e.g. oil and gas) from  
          the ground (Public Resources Code (PRC) 3106). The supervisor's  
          authority is granted in order to prevent damage to life, health,  
          property, natural resources, and to underground and surface  
          water suitable for irrigation or domestic purposes.

          California is the 4th largest oil and gas producing state and  
          natural resources extraction is an important contributor to the  
          state's economy.  According to 2009 data provided by the Western  
          States Petroleum Association (WSPA), approximately 100,000  
          people were directly employed in oil and gas production in  
          California and the state received a combined $5.8 billion in  
          fuel excise, corporate and personal income taxes. One of the  
          largest "unconventional" shale reservoirs in the United States  
          is California's Monterey Shale formation, estimated to contain  
          15.4 billion barrels of recoverable oil.  Hydraulic fracturing  
          or "fracking" of shale to enhance oil and gas recovery is an  
          increasingly popular well stimulation treatment and may be  
          needed to produce the oil in the Monterey Shale.  Fracking,  
          already widely practiced in California, is likely to increase in  
          the future.

          Fracking stimulates oil and gas production by pumping water and  
          chemicals into the well under high pressure to create or enlarge  
          cracks in the rock surrounding the well.  Fracking can use large  
          amounts of water - hundreds of thousands to millions of gallons.  


           Some fracking treatments, according to industry sources,  
          require clean water to work effectively.  Chemicals are mixed in  
          with the water and serve particular purposes (e.g. corrosion  
          inhibitor) in the fracking treatment.  The percentage of  
          chemicals in the fluid is relatively small - typically a few  
          percent by volume.  However, these chemicals can be thousands of  
          pounds in absolute terms, given the volume of water used, and  
          some are potentially hazardous.  According to a recent  
          congressional report, from 2005 - 2009 oil and gas companies  
          throughout the US used fracking products containing 29 chemicals  
          that are (1) known or possible human carcinogens, (2) regulated  
          under the Safe Drinking Water Act for their risk to human  
          health, or (3) listed as hazardous air pollutants under the  
          Clean Air Act. Sand ("proppant") is also injected to help keep  
          the cracks open after the fracturing process is completed.   
          Fracking is often used in conjunction with horizontal drilling,  
          in which a well bore runs horizontally through the production  
          zone to increase the zone of contact between the well bore and  
          the hydrocarbon-producing formation.  The innovation of  
          horizontal drilling combined with hydraulic fracturing has made  
          shale fossil fuel development economically feasible in recent  

          After the fracking treatment is completed, most of hydraulic  
          fracturing fluids return to the surface.  California does not  
          track the final disposal method for hydraulic fracturing  
          wastewater, but injection into disposal wells is likely to be  
          the primary disposal method.  

           Various forms of fracking have been used in California since the  
          1950s.  There has been no systematic data collection related to  
          fracking and estimates of how many wells in California have been  
          fracked vary.  Informal reports from industry sources suggest  
          that a majority of wells in the state are fracked. At the urging  
          of DOGGR, industry has started to voluntarily report frack  
          treatment data on the website (operated by a  
          consortium of the oil and gas industry and regulators).  WSPA  
          announced in 2012 that its members fracked 628 new and existing  
          oil and gas wells in California in 2011, a small fraction of the  
          more than 50,000 existing wells.  (The data reported to  
          Fracfocus are discussed further in the Comments.)  Counties  
          where wells have been fracked include Kern, Ventura, Santa  
          Barbara, Colusa, Sutter, Glenn, Los Angeles and Monterey. 

          Because of potential adverse impacts to the environment and  
          public health, hydraulic fracturing is a controversial practice,  
          with critics calling for careful examination and regulation of  


          its environmental impacts. Significant environmental  
          contamination is attributed to fracking in Wyoming, Texas,  
          Colorado, West Virginia and Pennsylvania.  Many states have  
          instituted temporary or permanent bans on fracking, such as  
          Vermont, although the states that have taken these actions tend  
          to be either smaller oil and gas producers or have other  
          extenuating circumstances (i.e. the perceived threat to New York  
          City's drinking water supply).  Although their authority to do  
          so is being contested, local governments in New York,  
          Pennsylvania and Colorado have passed ordinances to ban fracking  
          within their jurisdiction.  Other states, including Texas,  
          Colorado, West Virginia, Wyoming, Louisiana, Arkansas and Ohio  
          have revised their laws and regulations to provide for  
          additional safety and protective measures for fracking  
          operations.  While the specific measures vary by state, they  
          include advance public notice, additional ground water  
          monitoring, disclosure of chemicals used, and limitations on  
          hydraulic fracturing in some areas.  At the federal level,  
          fracking is largely exempt from the provisions of the Safe  
          Drinking Water Act and the Underground Injection Control (UIC)  
          well program courtesy of the "Halliburton Loophole," and the  
          Bureau of Land Management is in the process of developing  
          fracking regulations.

          To date, DOGGR has not exercised its acknowledged authority to  
          either regulate or systematically collect data on hydraulic  
          fracturing treatments under PRC 3106.  In December 2012, a  
          "discussion draft" of proposed regulations was released.  DOGGR  
          is in the process of holding public workshops on the draft and  
          expect to begin the formal regulatory rulemaking process later  
          this year. (The discussion draft is presented in the Comments.)

          PROPOSED LAW
          This bill would provide a statutory framework for the  
          comprehensive regulation of fracking in California.   
          Specifically, this bill would:
                 State legislative intent to provide public transparency  
               and regulatory accountability regarding fracking in  
                 Require the Natural Resources Agency to arrange for an  
               independent scientific study on fracking to be conducted,  
               as specified, to address environmental, occupational and  
               public health and safety.  Hazard assessments and risk  
               analyses associated with fracking are required, as is an  
               examination of the potential for induced seismicity  
               associated with fracking and fracking-related activities.
                 Require that fracking regulations be promulgated by  


               January 1, 2015.
                 Establish a fracking permit system with specified  
               pre-fracking disclosure of the estimated amount of water  
               used and the list of chemicals likely to be used.  Fracking  
               permits would be valid for one year after approval.  Within  
               5 days or approving the permit, DOGGR would have to tell  
               the local regional water quality control board, the local  
               planning entity and post the permit on-line.  After a  
               fracking permit is issued, the well owner would have to  
               provide 30 days advance notice to the neighbors, as  
               specified, of fracking operations.
                 Allow neighbors to have the regional water quality  
               control boards conduct pre- and post-fracking water quality  
                 Require that DOGGR receive 72 hours notice of the actual  
               frack job being conducted in order to witness the event.
                 Require, as of January 1, 2015, that no fracking permits  
               can be issued until the scientific study is completed.
                 Require that within 60 days of completing the fracking  
               job that frack fluid chemical data must be posted on-line.   
               The Fracfocus website can be used until January 1, 2016.
                 Extend trade secret protection to fracking fluid  
               chemicals eligible, but require that DOGGR receive all  
               trade secret information.
                 Provide a framework for DOGGR to protect trade secret  
               information and share it with other regulators, emergency  
               responders and health professionals, as necessary.
                 Require DOGGR to perform spot checks to ensure that  
               pre-fracking disclosure is consistent with post-fracking  
                 Require that DOGGR enter into formal agreements with  
               certain other regulators to ensure clear regulatory  
               accountability and transparency for fracking from the  
               arrival of the fresh fluids at the well-head to the  
               permanent disposal of waste fluids at an injection well.
                 Provide for comprehensive annual reporting to the  
               Legislature on fracking including, for example, well  
               failure data, and the number of spills and inspections.
                 Raise the potential civil penalties for fracking  
               violations to no less than $10,000 and no more than $25,000  
               per violation per day.
                 Modify the oil and gas production fee calculation to  
               include the costs associated with fracking-related  

          According to the author, this "legislation is motivated by the  


          public's right to know about fracking.  DOGGR's draft fracking  
          regulations represent a step in the right direction, but don't  
          go far enough.  My bill requires companies to obtain a  
          state-issued permit to frack and to notify neighboring property  
          owners 30 days ahead of time.  It also says they must disclose  
          to the state all of the chemicals they use to frack in a  
          particular location.  The bill allows industry to claim trade  
          secret protection for chemicals under specific circumstances  
          while providing full disclosure to DOGGR and retaining  
          provisions allowing for health professionals and other  
          regulators to obtain trade secret information, if necessary."

           "There is an emerging national consensus on the basic  
          assurances the public needs around fracking operations.  From  
          chemical disclosure, to notification, to water quality  
          monitoring and an independent health study, this legislation  
          brings the transparency and accountability needed in order to  
          protect our air and water supply. The rules within SB 4 are  
          merely the kind of common-sense protections needed for any  
          potentially hazardous industrial activity, let alone one that is  
          rapidly expanding in our state.  While the industry correctly  
          notes that fracking has been going on in California for 60  
          years, many of the techniques and chemicals are new, as is the  
          immense scale of many of these operations. SB 4's reporting  
          requirements ensure the state gathers sufficient information in  
          order to enable informed decision-making about fracking and to  
          understand the scope and extent of fracking in California,  
          including the amount of water used and waste disposal methods."

          The Environmental Defense Center adds "while the state of  
          California is widely regarded as the nation's leader on  
          environmental issues, our state lags far behind other major oil  
          and gas producing states in the development of a legal and  
          regulatory framework to address fracking and the significant  
          risks it poses to the public health, safety, and the natural  
          environment. [?] No one but the oil industry truly knows the  
          location, extent, or frequency of fracking, the source and  
          volume of water used, or what chemicals are being utilized."   
          They continue "SB 4 would remedy this unacceptable status quo."

          Ventura County supports SB 4 because the county is "highly  
          dependent on local groundwater resources for potable water, and  
          groundwater is the lifeblood of the County's $1 billion-plus  
          agricultural industry. [?] Ventura County has historically  
          balanced oil and gas production and the jobs it brings with the  
          protection of our natural and agricultural resources.  It is  
          important that this balancing continue to occur."


          In a joint letter, the Western States Petroleum Association  
          states that "SB 4 imposes a moratorium on the use of hydraulic  
          fracturing in oil and gas production starting on January 1,  
          2015, until [the state's] regulations are complete.  This would  
          unnecessarily and substantially threaten our supplies of oil and  
          natural gas, raising business costs and harming California's  
          economy."  They continue "this significant, untimely burden on  
          California's businesses and economy is unnecessary.  Oil and gas  
          production as a whole is heavily regulated and monitored, and  
          hydraulic fracturing has been used for decades with no reported  
          incidents of harm to the environment or public health.  SB 4  
          will not provide added public health or environmental  
          protections, but it will increase business costs, hamper  
          California's economic recovery and deprive our state of  
          much-needed fuel, jobs and tax revenues indefinitely."

          The California Independent Petroleum Association makes similar  
          points and adds that "over 90% of hydraulic fracturing happens  
          within Kern County, 80% within the Belridge oil field alone. [?]  
          These fields have no potable water, no surrounding population  
          and no other significant business interests. [?] CIPA supports  
          the disclosure of chemicals used to the appropriate health and  
          safety regulatory agencies while protecting proprietary  

          The Physicians for Social Responsibility - Los Angeles oppose SB  
          4 unless trade secret protection of the fracking fluid chemicals  
          is removed.  Clean Water Action and the Sierra Club California,  
          while writing in support, call for a similar amendment.

           SB 4 does not automatically stop fracking on January 1, 2015  .   
          The bill requires that the Natural Resources Agency arrange for  
          an independent science study, which must be completed and  
          peer-reviewed by scientific experts by January 1, 2015.  If the  
          study is not completed by that date, DOGGR is required to  
          suspend issuing fracking permits until it is.  During the  
          legislative resources budget sub-committee hearings in the  
          spring of 2012, the department indicated that an independent  
          scientific study was being sought.  It is unknown if the  
          department has - one year later - made any progress.

           A California-based study of the risks associated with hydraulic  
          fracturing will benefit from work already underway  . According to  
          news reports, scientific studies on fracking are underway,  


          although the scope of each varies.  The US EPA's fracking study  
          is focused on drinking water protection and is due in 2014.   
          However, no site in California is included in the US EPA's  
          study.  The US EPA has also identified that additional data are  
          required to accurately estimate air emissions from oil field  
          operations and is working to address that gap.

          Academic and government researchers around the country are  
          studying fracking. However, given differences in geology, the  
          characteristics of the hydrocarbon resource, existing state laws  
          and regulations, the surrounding environment, demographics and  
          public health concerns between California and other locations in  
          the country, results obtained elsewhere may not necessarily be  
          representative of what may occur in California.  Therefore, an  
          independent science study focused specifically on California is  

           There has been a scientific study conducted in California.  A  
          2012 study of a frack job at the Inglewood Oil Field, conducted  
          as part of a legal settlement, has been completed.  The study  
          found no immediate problems related to ground movement,  
          well-casing integrity, or air and water quality.  Given the  
          absence of other data, it is not known how representative this  
          study is of all fracking activity in California.  Critics have  
          also argued that long-term monitoring should have been included  
          as environmental contamination can take years to be apparent.

           Is a separate permit system for fracking necessary  ?  DOGGR's  
          current well permitting system applies only to drilling a new or  
          re-working an existing well (PRC 3203).  An existing well can  
          be fracked without DOGGR's review and approval.  Establishing a  
          fracking permit system, as distinct from a notice requirement,  
          will provide DOGGR the opportunity to assess the safety of a  
          planned frack job and require modifications in order to protect  
          natural resources, and health and safety.
          Earthquakes (induced seismicity), hydraulic fracturing and waste  
          disposal.  A significant public concern is the risk of  
          earthquakes caused by hydraulic fracturing or related  
          activities, particularly the use of injection wells. Injection  
          wells are distinct from hydraulically fractured production  
          wells.  They are a common means of disposal for hydraulic  
          fracturing wastewater as well as wastes from other sources.  The  
          risk of induced seismic activity depends largely on the  
          proximity of wells to a fault.  In 2012, the National Research  
          Council (NRC) released a draft study exploring the potential for  
          induced seismicity or "earthquakes attributable to human  


          activities" associated with energy technologies.  The NRC found  
          that hydraulic fracturing "does not pose a high risk for  
          inducing felt seismic events," and that wastewater disposal in  
          injection wells did pose some risk, although relatively few  
          events have been documented given the number of operating  
          disposal wells.  Of particular concern, recent work indicates  
          that a magnitude 5.7 earthquake in 2011 in Oklahoma is linked to  
          a waste disposal well in operation for over 18 years.  
           The U.S. Geological Survey has found an increase in earthquakes  
          over magnitude 3 in the proximity of injection wells in  
          Colorado, Texas, Arkansas, Oklahoma and Ohio.  Arkansas and Ohio  
          have since revised their regulations governing waste injection  
          wells to address seismic risks.  SB 4 specifically requires that  
          induced seismicity be included in the scientific study.  

          Well "neighbors.  "  The criteria in SB 4 used to determine who is  
          able to request baseline and follow-up ground and surface water  
          testing is consistent with the groundwater testing requirements  
          in the vicinity of oil and gas wells required by other states.   
          Colorado has recently approved regulations requiring testing  
          within a half-mile radius of the wellhead.  West Virginia and  
          Pennsylvania requires testing within 1,000 feet.  Alaska's  
          proposed regulations require baseline and follow-up testing  
          within one quarter mile of the well's trajectory (for fracked  

           The limitations of voluntary reporting  .  As noted previously,  
          WSPA reported that its members fracked 628 wells in California  
          in 2011 and that information for all of these frack jobs would  
          be reported to Fracfocus.  However, as of March 7, 2013, data on  
          Fracfocus show only 93 wells were fracked in California in 2011,  
          with another 599 and 86 frack jobs reported for 2012 and 2013,  
          respectively.  Of the 778 frack jobs listed:
                 at least 28 frack jobs were reported twice in error, 
                 fourteen wells were fracked twice and one was fracked  
               three separate times, and
                 nine wells actually in Texas were reported to be in  

          Random sampling of the data sheets specific to individual wells  
          on Fracfocus readily provided examples of incomplete data  
          reporting (e.g. omitted water volume) as well as a frack job  
          total water volume exceeding 1,500,000 gallons  
          (API#04-030-22893).  This water volume is well in excess of the  
          several hundred thousand gallons reported as "typical" for  
          California. Without mandatory reporting, there is no way to  
          determine how much water is actually used in California for  


          fracking.  A recent Pacific Institute study expressed  
          considerable concern about the potential risks to water supply  
          and quality from fracking in California.  However, with little  
          data available, it is impossible to quantify the risks and take  
          adequate steps to protect ground and surface waters.

          Further, while it is evident that over 90% of the reported frack  
          jobs are in Kern County, it does not necessarily follow that the  
          majority of all frack jobs, including the unreported ones, are  
          there as well.

           Fracfocus' terms of use  .  The terms of use of the department's  
          web-site primarily emphasize that any communication with the  
          department is subject to public disclosure.  By contract, the  
          terms of use of the web-site are significantly  
          more restrictive.  Fracfocus' reserves the right to:
                 modify or stop the site at any time,
                 add fee-based services
                 require registration in the future (and reserve the  
               right to disclose information about users to others), and
                 limit access.

          The site also make no warranties about the accuracy of the data  
          reported (which, as noted above, could be improved) and  
          expressly indicates that the site should not be used as the only  
          storage facility for data.  Further, Fracfocus' terms require  
          that data from the site can be downloaded for personal use only  
          and cannot otherwise be republished with prior permission.  
          (Committee staff sought and received permission to reproduce the  
                                                                Fracfocus data reported here.)  These restrictions are  
          inconsistent with how the discussion draft proposal treats data  
          reported to Fracfocus, as well as the usual public availability  
          of regulatory data.

           DOGGR's discussion draft regulations  . The discussion draft  
          regulations include the following:
                 the well owner or operator must ensure that all required  
               data are reported
                 the well operator would submit a form providing notice  
               of planned fracking operations 10 days in advance of  
               fracking to DOGGR and the appropriate regional board
                 DOGGR would publicly post the form on-line within 7 days  
               of receipt
                 DOGGR would receive 24 hours advance notice of the start  
               of a fracking job in order to witness it.
                 Additional testing and monitoring pre-, during- and  
               post-fracking are required


                 Fracking must stop if well integrity is compromised
                 Spill contingency plans must be update to include  
               fracking fluids
                 DOGGR would not receive trade secret information on  
               fracking chemicals, just notification that it exists.
                 60 days after fracking, chemical information would be  
               disclosed to the Fracfocus web-site.  DOGGR would not  
               obtain the chemical data unless the Fracfocus web-site was  
                 Health professionals and others who need trade secret  
               data would have to obtain it from the operator.

           Trade secret protection for the chemicals in fracking fluids is  
          a contentious issue  .  Trade secret protection is  
          well-established in California law.  The California Public  
          Records Act (Government Code 6250 et seq) generally requires  
          that all agency documents are publicly-available, but there are  
          specific exceptions.  These include, for example, privacy  
          concerns (health records) and also trade secrets (which can  
          range from marketing plans to chemical formulations).  A trade  
          secret must generally meet two criteria: (1) the owner makes an  
          effort to keep it secret and (2) the owner gains some business  
          advantage from it.  Numerous provisions for sharing trade secret  
          information between government entities acting in their official  
          capacities, as well as maintaining the confidentiality of that  
          information exist in California law and regulation. 

          The formulation of a pesticide, for example, may be in whole or in  
          part a trade secret.  The owner provides all of the information to  
          the Department of Pesticide Regulation (DPR), but can claim trade  
          secret protection.  DPR can still provide all the chemical  
          information to other regulators, as needed, but public disclosure  
          is limited to the non-trade secret part.  There are provisions  
          providing for challenging the trade secret (Food and Agriculture  
          Code 14021 et seq).

          In an emergency - for example, a spill at a chemical site -  
          existing law requires that emergency responders, health  
          professionals and anyone else who needs the trade secret  
          information in an official capacity receives it.  However, trade  
          secret confidentiality must be maintained (see HSC 25511 et seq).  

          SB 4 requires DOGGR to collect all chemical data, including trade  
          secret information, on the fracking chemicals.  (In their current  
          proposal, DOGGR does not collect this data.  This is in sharp  
          contrast to numerous examples in California law and regulation  


          where regulators charged with protecting health and safety receive  
          trade secret chemical composition data.)  There are specific  
          provisions providing DOGGR with a framework for handling the data,  
          sharing it with other regulators and health professionals, when  
          needed, although - consistent with other statute - confidentiality  
          must be maintained.  A procedure for challenging the trade secret  
          status is included.  In order to provide medical care, health  
          professionals are specifically allowed to share trade secret  
          information amongst themselves and also to disclose it to the  
          patient.  The health professional provisions stem directly from  
          issues that have arisen in other states, notably Colorado and  
          Pennsylvania. SB 4 requires that if trade secret protection is  
          claimed that substitute information be provided for public  
          disclosure - for example "quaternary amine compounds" as opposed  
          to a specific one.

          Every single state that has passed legislation to regulate  
          fracking or finalized regulations related to fracking under  
          existing authority extends trade secret protection to fracking  
          chemicals.  Alaska's draft proposal to regulate fracking requires  
          full public disclosure of the composition of fracking chemicals,  
          but the regulatory process has not been completed.

           Related legislation (all 2013)
           SB 395 (Jackson) -would move all produced water under the  
          purview of the Department of Toxic Substances Control (DTSC),  
          not DOGGR. (before the Senate Environmental Quality Committee)

          SB 665 (Wolk) - would raise the bonding requirements for oil and  
          gas wells. (before the Senate Natural Resources and Water  

          AB 7 (Wieckowski) - would provide comprehensive framework for  
          fracking regulation.  Chemical disclosure post-fracking, trade  
          secret protection and notice-of-intent for fracking required  
          (among other provisions). (before the Assembly Natural Resources  

          AB 288 (Levine) - would provide general principles to regulate  
          fracking to protect public health and safety.  (before the  
          Assembly Natural Resources Committee)

          AB 649 (Nazarian) - would provide for a ban on hydraulic  
          fracturing and sets up a distinguished panel to investigate  
          fracking.  If the panel decides fracking is safe then fracking  


          can be approved later (time frame is 4 - 5 years).  The bill  
          would ban the use of fresh water in fracking as well as fracking  
          within an unspecified distance of an aquifer. (before the  
          Assembly Natural Resources Committee)

          AB 669 (Stone) -would require more tracking, approval and  
          reporting related to produced water and related information.  
          (before the Assembly Natural Resources Committee)

          AB 982 (Williams) - would require extensive groundwater  
          monitoring in the vicinity of fracking. (before the Assembly  
          Natural Resources Committee) 

          AB 1301 (Bloom) - would ban fracking until the legislature  
          specifically acts to authorize it. (before the Assembly Natural  
          Resources Committee)

          AB 1323 (Mitchell) - would ban fracking until a study shows how  
          it can be done safely.  It provides for an advisory council of  
          specified membership (appointed by 2014), a study due in 2016,  
          formal public review of the study, and a 2019 timeframe for  
          further action. (before the Assembly Natural Resources  

          California Association of Professional Scientists
          California Coastal Protection Network
          California Nurses Association
          Clean Water Action (if amended)
          Councilmember Brian Brennan, City of Ventura
          Environmental Defense Center
          Los Angeles Community College District
          Los Angeles County Board of Supervisors
          Natural Resources Defense Council
          Santa Cruz County Board of Supervisors
          Sierra Club California (if amended)
          South Coast Air Quality Management District (w/amendments)
          Ventura County Board of Supervisors

          American Chemistry Council
          California Business Properties Association
          California Chamber of Commerce
          California Independent Petroleum Association 
          California Manufacturers and Technology Association


          Physicians for Social Responsibility - Los Angeles (unless  
          Western States Petroleum Association