BILL ANALYSIS Ó ----------------------------------------------------------------- | | | SENATE COMMITTEE ON NATURAL RESOURCES AND WATER | | 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. BACKGROUND AND EXISTING LAW 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. 1 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 decades. 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 Fracfocus.org (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 2 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 California 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 3 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 monitoring. 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 disclosure. 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 activities ARGUMENTS IN SUPPORT According to the author, this "legislation is motivated by the 4 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." 5 ARGUMENTS IN OPPOSITION 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 information." 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. COMMENTS 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, 6 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 warranted. 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 7 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 wells). 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 California. 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 8 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 Fracfocus.org 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 9 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 inoperable. 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 10 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 Committee) 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 Committee) 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 11 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 Committee) SUPPORT 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 PawPAC Santa Cruz County Board of Supervisors Sierra Club California (if amended) South Coast Air Quality Management District (w/amendments) Ventura County Board of Supervisors OPPOSITION American Chemistry Council California Business Properties Association California Chamber of Commerce California Independent Petroleum Association California Manufacturers and Technology Association 12 Physicians for Social Responsibility - Los Angeles (unless amended) Western States Petroleum Association 13