BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 4
                                                                       

                      SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
                              Senator Jerry Hill, Chair
                              2013-2014 Regular Session
                                           
           BILL NO:    SB 4
           AUTHOR:     Pavley
           AMENDED:    April 24, 2013
           FISCAL:     Yes               HEARING DATE:     May 1, 2013
           URGENCY:    No                CONSULTANT:       Laura  
           Feinstein
           
           SUBJECT  :    OIL AND GAS: HYDRAULIC FRACTURING
           
            SUMMARY  :    
           
            Existing federal law  :  

            1)Under the Clean Water Act (CWA), regulates surface  
             discharges of water associated with drilling and production.  


           2)Under the Clean Air Act (CAA), limits air emissions from  
             engines, gas processing equipment, and other sources  
             associated with drilling and production. 

           3)Under the Safe Drinking Water Act (SDWA), establishes the US  
             EPA's Underground Injection Control (UIC) program to  
             regulate oil and gas production wells that inject fluids.  
             Hydraulic fracturing that does not use diesel fuels is  
             excluded from regulation by the UIC program (SDWA  
             1421(d)(1)). 

            Existing state law  :  
            
           1) Creates the Division of Oil, Gas, and Geothermal Resources  
              (DOGGR) within the Department of Conservation and entrusts  
              DOGGR's Supervisor (supervisor) with extensive authority to  
              regulate activities associated with the production and  
              removal of hydrocarbons (e.g. oil and gas) from the ground  
              to prevent damage to life, health, property, natural  
              resources, and to underground and surface water suitable  
              for irrigation or domestic purposes (Public Resources Code  
              3106).









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           2) Entrusts the State Water Resources Control Board (SWRCB)  
              and regional water quality control boards (regional boards)  
              with the protection of water quality under the  
              Porter-Cologne Water Quality Control Act (Water Code 13000  
              et seq.).

           3) Provides the California Air Resources Board (ARB) with  
              primary responsibility for control of mobile sources of air  
              pollution, and for greenhouse gas emissions (Health and  
              Safety Code 39000 et seq. and 39500 et seq.). 

           4) Provides that air pollution control districts (APCDs) and  
              air quality management districts (AQMDs) have primary  
              responsibility for controlling air pollution from  
              stationary sources and non-greenhouse gases (HSC 40000 et  
              seq.).

           5) Entrusts the Department of Toxic Substances Control (DTSC)  
              with the safe handling and disposal of hazardous waste  
              under Chapter 6.5 of the Health and Safety Code (HSC 25100  
              et seq.).

           6) Exempts waste from oil and gas production from hazardous  
              waste law, placing it under DOGGR's authority (HSC  
              25159.12(l)(2)).

            This bill  provides a statutory framework for the comprehensive  
           regulation of hydraulic fracturing (fracking) in California.

           1)Requires that DOGGR promulgate hydraulic fracturing  
             regulations by January 1, 2015.

           2)Requires that DOGGR receive 72 hours' notice of the  
             hydraulic fracturing job in order to witness the event.

           3)Establishes a hydraulic fracturing permit system. Within 5  
             days of approving a permit, DOGGR must notify the local  
             regional board, the local planning entity and post the  
             permit on-line.

           4)Requires, as of January 1, 2015, that no hydraulic  
             fracturing permits can be issued until the scientific study  









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             is completed.

           5)Requires DOGGR to perform spot checks to ensure that  
             pre-hydraulic fracturing disclosure is consistent with  
             post-hydraulic fracturing disclosure.

           6)Provides for comprehensive annual reporting to the  
             Legislature on hydraulic fracturing including, for example,  
             well failure data, and the number of spills and inspections.

           7)Raises the potential civil penalties for hydraulic  
             fracturing violations to no less than $10,000 and no more  
             than $25,000 per violation per day.

           8)Requires the Department of Toxic Substances Control, the  
             California Air Resources Board, local air districts, the  
             State Water Resources Control Board, regional water quality  
             control boards, and other public entities to enter into an  
             agreement with DOGGR that:

              a)   Delineates how authority, responsibility, and  
                notification and reporting requirements associated with  
                hydraulic fracturing treatments are divided between  
                agencies in accordance with existing statutory and  
                regulatory responsibilities.

              b)   Specifies the appropriate agency for air and water  
                quality monitoring, include trade secret handling  
                protocols, if necessary, and provides for ready public  
                access to information related to hydraulic fracturing  
                treatments and related activities.

           9)Requires notification of property owners within 1500 feet of  
             the wellhead, or within 500 feet from the horizontal  
             projection of all subsurface portions of the designated well  
             to the surface, that hydraulic fracturing will occur. These  
             property owners can choose to request that the regional  
             boards perform water quality sampling and testing on water  
             wells or surface water suitable for drinking or irrigation.  
             Regional boards will:

              a)   Obtain baseline measurements prior to the commencement  
                of the hydraulic fracturing treatment.









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              b)   Take measurements after the hydraulic fracturing  
                treatment on the same schedule as the pressure testing of  
                the well-casing of the hydraulically fractured well.

              c)   Retain and archive a sufficient quantity of water  
                sample to permit a reasonable number of additional  
                analyses.

           10)  The regional boards may contract with an independent  
               third party that adheres to SWRCB-specified standards and  
               protocols to perform the water sampling and testing.

           11) Requires the Secretary of the Natural Resources Agency to  
               commission a study on effects on water quality, air  
               quality, and waste disposal of hydraulic fracturing. The  
               study will also include a risk assessment of the impacts  
               to public health and safety of hydraulic fracturing with  
               the participation of the Office of Environmental Health  
               Hazard Assessment.

             12) Requires disclosure of the chemical content of all  
               hydraulic fracturing fluids to DOGGR. DOGGR would share  
               chemical data, including trade secret information, as  
               necessary with other regulators, emergency responders and  
               health professionals.

             13) Modifies the oil and gas production fee calculation to  
               include the costs associated with hydraulic  
               fracturing-related activities. This includes the costs of  
               scientific studies required to evaluate the treatment,  
               inspections, and air and water quality monitoring and  
               testing performed by public entities.

            COMMENTS  :

            1)Purpose of the bill  .  According to the author, this  
             legislation is motivated by the public's right to know about  
             fracking.  The author asserts that DOGGR's proposed  
             regulations are a step in the right direction, but don't go  
             far enough.  The author believes it is essential for public  
             transparency and accountability that companies obtain a  
             state-issued permit to frack, notify neighboring property  









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             owners 30 days before fracturing a well, and disclose the  
             chemical content of hydraulic fracturing fluids.  The author  
             states that water quality monitoring and an independent  
             scientific study of the environmental risks associated with  
             hydraulic fracturing are essential to protect air and water  
             quality.  According to the author, the bill allows industry  
             to claim trade secret protection for chemicals under  
             specific circumstances, while providing full disclosure to  
             DOGGR and allowing health professionals and other regulators  
             to obtain trade secret information when necessary.

             The author states that there is an emerging national  
             consensus on the basic assurances the public needs around  
             fracking operations.  The author notes that, while fracking  
             has taken place in California for 60 years, many of the  
             techniques and chemicals are new, as is the immense scale of  
             many of hydraulic fracturing fields.  The author concludes  
             that SB 4 will ensure that the state will gather sufficient  
             information on the extent of fracking in California and its  
             environmental effects, thereby enabling informed  
             decision-making about the practice.

            2)Arguments in support  .  The Environmental Defense Center  
             states, "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? 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."










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            3)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.  Opponents argue that 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.

            4)Proposed regulations  .  DOGGR issued a discussion draft of  
             regulations for hydraulic fracturing in December 2012.  
             DOGGR's Frequently Asked Questions document on the  
             discussion draft regulations states, "the Division hopes to  
             commence the formal rulemaking process in April 2013? The  
             Division estimates that this rulemaking process will take  









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             eight to ten months to complete."  The discussion draft  
             regulations include the following:


              a)   The well operator submits a form providing notice of  
                planned hydraulic fracturing operations 10 days in  
                advance of hydraulic fracturing to DOGGR and the  
                appropriate regional water quality control board.


              b)   DOGGR publicly posts the form on-line within 7 days of  
                receipt.


              c)   DOGGR receives 24 hours advance notice of the start of  
                a hydraulic fracturing job in order to witness it.


              d)   Operator tests well integrity before hydraulic  
                fracturing.


              e)   Operator monitors well pressure and production rates  
                during and after hydraulic fracturing.


              f)   Operator ceases hydraulic fracturing if well integrity  
                is compromised.


              g)   Operator updates spill contingency plans to include  
                hydraulic fracturing fluids.


              h)   Operator discloses non-trade secret chemical  
                information to the privately run FracFocus.org website.


              i)   Operator declares to DOGGR, under penalty of perjury,  
                that chemical information not disclosed meets trade  
                secret requirements.











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              j)   Health professionals and state agency officials can  
                obtain trade secret information in case of emergency.


            5)California's oil and gas industry and the potential of  
             hydraulic fracturing  . California is the fourth 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, 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.  The technological  
             innovation of hydraulic fracturing, by itself and in  
             combination with advanced drilling techniques, has allowed  
             unconventional reserves to be developed. 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.  This is equivalent  
             to the amount of petroleum the United States imports every  
             five years.  Because of potential adverse impacts to the  
             environment and public health, hydraulic fracturing has been  
             a controversial practice, with critics calling for careful  
             examination and regulation of its environmental impacts.


            6)A technical overview of hydraulic fracturing  .  Hydraulic  
             fracturing, commonly known as fracking, is a strategy for  
             stimulating oil and gas production whereby water and  
             chemicals are pumped into the well under high pressure to  
             create or enlarge cracks in the rock formations surrounding  
             the well.  Sand is also injected to help keep the cracks  
             open after the fracturing process is completed.  It 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.  Hydraulic fracturing is  
             used to extract oil and gas from unconventional sources such  
             as shale rock.  Shale rock may contain large reservoirs of  
             oil and gas, but the hydrocarbons are difficult to extract  
             because they are trapped in the relatively impermeable rock.  
              The innovation of horizontal drilling combined with  
             hydraulic fracturing has made shale fossil fuel development  









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             economically feasible in recent decades.


            7)History of hydraulic fracturing in California  .  Hydraulic  
             fracturing has been employed in California since the 1950s.   
             With no systematic public tracking of its use, 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.  However, the  
             Western States Petroleum Association (WSPA) voluntarily  
             reported to DOGGR in 2012 that its members fracked 628 new  
             and existing oil and gas wells in California in 2011, which  
             represents about 27% of the 2,300 new wells drilled or 1% of  
             the more than 50,000 existing wells.  Industry can  
             voluntarily report fracking operations to FracFocus.org;  
             however, as of March 7, 2013, FracFocus.org showed only 93  
             hydraulically fractured wells in California in 2011.   
             Citizens and local governments have reported fracking  
             operations that do not appear on FracFocus.org.


            8)Hydraulic fracturing and water quality concerns  .  Hydraulic  
             fracturing has the potential to affect water quality at a  
             number of steps during the process, including the following:  


               a)   Groundwater contamination by hydraulically fractured  
                production wells. Well casing failures or nearby,  
                inadequately sealed abandoned wells can act as conduits  
                for hydraulic fracturing fluid and/or produced water to  
                penetrate surrounding aquifers.  


               b)   Contamination by mismanaged fluids at surface.  
                Hydraulic fracturing injects large volumes of chemicals,  
                some of which are known to be hazardous. These chemicals  
                are transported by trucks and mixed at the surface. After  
                a fracking job is performed, the well generates produced  
                water: oil or gas mixed with large amounts of brackish,  
                underground water and the fracturing fluid. Produced  
                water can contain hazardous substances. While at the  
                surface, improper management of fluids can contaminate  
                surface water.  









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               c)   Contamination from disposal wells. After separating  
                out the commercially valuable hydrocarbons, well  
                operators can reuse the produced water for hydraulic  
                fracturing or enhanced oil recovery, or they can dispose  
                of it, typically into a Class II underground injection  
                salt water disposal well. The potential avenues for  
                groundwater contamination from Class II wells are similar  
                to those from hydraulically fractured production wells.  


              In California, a Kern County almond farmer was awarded $8.5  
             million in damages in 2009, after his almond trees died when  
             he irrigated them with well water that had been tainted by  
             nearby oil and gas operations.  The contamination was traced  
             to unlined pits where Aera Energy LLC had dumped billions of  
             gallons of wastewater that leached pollutants into nearby  
             groundwater. It is unknown if any of this wastewater came  
             from hydraulic fracturing.


             The Central Valley Water Board is currently investigating  
             allegations that Vintage Production California dumped  
             hydraulic fracturing wastewater into unlined pits.


             The US EPA has attributed two cases of groundwater  
             contamination to hydraulic fracturing: one in Jackson  
             County, West Virginia and another in Pavilion, Wyoming.  
             Industry representatives dispute the source of water  
             contamination in Wyoming; the data is presently being  
             reviewed by an independent group of experts.  There is no  
             comprehensive list of surface spills associated with  
             hydraulic fracturing, but there have been a few dozen  
             documented cases in academic papers and the popular press  
             and confirmed by local and state governments.


            9)Hydraulic fracturing and air quality concerns.   Oil and gas  
             production wells, regardless of whether they are  
             hydraulically fractured, can emit air pollutants such as  
             greenhouse gases, volatile organic compounds, particulate  









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             matter, hydrogen sulfide, and carcinogenic benzene, toluene,  
             ethylbenzene, and xylene (BTEX) compounds.  California well  
             sites are designed to control air emissions by operating as  
             closed systems, with vapors and other fluids from the wells  
             being directed through a series of pipes, valves, and  
             flanges into storage tanks, compressors, processors, and  
             other equipment. Emissions from the system are due to leaks,  
             also known as fugitive emissions, or emergency releases. The  
             air districts have authority to regulate VOC and toxic air  
             emissions from well sites. The ARB will be considering how  
             to address methane emissions in their pending rulemaking on  
             upstream oil and gas operations.

           Silica is a common proppant material used in hydraulic  
             fracturing. The National Institute for Occupational Safety  
             and Health has identified exposure to airborne respirable  
             silica as a health hazard to workers conducting some  
             hydraulic fracturing operations. Breathing silica can  
             increase the risk of lung cancer and other diseases such as  
             silicosis, tuberculosis, and kidney and autoimmune diseases.


             10)CEQA review of oil and gas wells  .  DOGGR regularly  
              approves oil and gas development proposals under the CEQA  
              categorical exemptions for minor alterations to land or  
              existing facilities, or by way of negative or mitigated  
              negative declarations. As a result, oil and gas permits are  
              rarely reviewed in Environmental Impact Reports that would  
              evaluate the potential risks associated with hydraulic  
              fracturing. 


            11)SB 4 imposes a moratorium on hydraulic fracturing beginning  
             January 1, 2015 only if the scientific study is incomplete  .   
                                                                                          An important misconception about the bill is that it stops  
             DOGGR from issuing permits for hydraulic fracturing after  
             January 1, 2015 unless the Division's regulations are  
             finalized. In fact, DOGGR must halt issuance of permits on  
             that date only if the scientific study is incomplete, and  
             may resume once the study is finalized.  


            12)Do other agencies need statutory authority to provide  









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              input on DOGGR's regulations  ?  South Coast Air Quality  
              Management District (SCAQMD) recommends that SB 4 require  
              DOGGR to consult with other agencies during their  
              rulemaking process, including the California Air Pollution  
              Control Officers Association (CAPCOA), which represents  
              local air districts. Their concern is that the formal  
              agreement DOGGR is required to negotiate with other  
              agencies will be constrained by regulations adopted without  
              input from those agencies.  


               A technical amendment is needed to clarify that DOGGR shall  
              consult with other agencies during the rulemaking process.


              Additionally, as noted in Forbes Magazine, there is now  
              concern that waste from hydraulic fracturing that is  
              testing for high concentrations of low level radioactive  
              waste is being disposed of in landfills.


              A second amendment is needed to require DOGGR to consult  
              with the Department of Resources, Recycling and Recovery  
              (CalRecycle) in the development and implementation of  
              regulations to ensure that radioactive waste is not being  
              inappropriately disposed of in landfills.  


             13)Is testing wells on request preferable to a systematic,  
              but costly, program to monitor water quality  ?  In a  
              February 8, 2013 letter to Senators Pavley and Rubio, the  
              State Water Resources Control Board noted "In order to  
              measure the impact on water quality of a particular point  
              source, one needs a specific monitoring protocol that  
              includes the proper placement of monitoring wells to detect  
              likely discharges from the activity."  California's Toxic  
              Well Injection Control Act, which regulates wells for  
              disposal of hazardous waste, stipulates the construction of  
              groundwater monitoring wells around the injection well  
              sufficient in number and location to determine groundwater  
              movement, changes in water quality in the vicinity of the  
              well, and movements of wastes (HSC 25159.10 et seq.) 










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            Comprehensively and definitively identifying point source  
              pollution from a hydraulically fractured well would require  
              a thorough sampling program with monitoring wells in  
              strategic locations.  However, such a program would be  
              costly, requiring the drilling of deep monitoring wells. SB  
              4 proposes a system of testing existing drinking water  
              wells upon request, which will be less costly and will  
              provide information to concerned citizens about individual  
              drinking water wells.


             14)SB 4 institutes a large new program for regional boards  .   
              Regional boards are small agencies that regulate the  
              substantial water quality problems in many regions of  
              California.  A program of testing domestic water wells on  
              request could prove cumbersome for them.  The bill does  
              allow the regional boards to contract out the testing of  
              water and provides for reimbursement for costs incurred by  
              the program. 


             15)Related legislation  .  

               AB 7 (Wieckowski) of 2013 provides a comprehensive  
              framework for hydraulic fracturing regulation. AB 7 is in  
              the Assembly Committee on Natural Resources.

              AB 288 (Levine) of 2013 provides general principles to  
              regulate hydraulic fracturing to protect public health and  
              safety. AB 288 is in the Assembly Committee on  
              Appropriations.

              SB 395 (Jackson) of 2013 requires testing of produced water  
              for hazardous content, and moves hazardous produced water  
              under the purview of the Department of Toxic Substances  
              Control (DTSC), not DOGGR. SB 395 is in the Senate  
              Committee on Environmental Quality.

              AB 649 (Nazarian) of 2013 directs a panel to investigate  
              hydraulic fracturing, places a moratorium on fracking that  
              would be lifted if the panel deems the practice to be safe,  
              and bans the use of fresh water in hydraulic fracturing as  
              well as hydraulic fracturing near an aquifer. AB 649 is in  









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              the Assembly Committee on Natural Resources.

              SB 665 (Wolk) of 2013 raises the bonding requirements for  
              oil and gas wells. SB 665 is in the Senate Committee on  
              Natural Resources and Water.

              AB 669 (Stone) of 2013 requires more tracking, approval and  
              reporting on use of freshwater and disposal of wastewater.  
              AB 669 is in the Assembly Committee on Appropriations.

              AB 982 (Williams) of 2013 requires extensive groundwater  
              monitoring in the vicinity of hydraulic fracturing. AB 982  
              is in the Assembly Committee on Appropriations.

              AB 1301 (Bloom) of 2013 bans hydraulic fracturing until the  
              Legislature specifically acts to authorize it. AB 1301 is  
              in the Assembly Committee on Natural Resources.

              AB 1323 (Mitchell) of 2013 bans hydraulic fracturing 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. AB 1323 is  
              in the Assembly Committee on Natural Resources.

              SB 1054 (Pavley) of 2012 would have required advance  
              notification of hydraulic fracturing and drilling  
              activities in California. SB 1054 failed on the Senate  
              floor, 18-15.

              AB 591 (Wieckowski) of 2011 would have required DOGGR to  
              promulgate hydraulic fracturing regulations including  
              chemical disclosure. AB 591 was held on the Senate  
              Appropriations suspense file.

              AB 972 (Butler) of 2011 would have instituted a ban on  
              hydraulic fracturing in California. AB 972 was held on the  
              Senate Appropriations suspense file.


            SOURCE  :        Senator Pavley  

           SUPPORT  :       California Association of Professional  









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                          Scientists
                          California Coastal Protection Network
                          California Nurses Association
                          City of Ventura Councilmember Brian Brennan
                          Environmental Defense Center
                          Environmental Working Group
                          League of Women Voters of California
                          Los Angeles Community College District
                          Los Angeles County Board of Supervisors
                          Natural Resources Defense Council
                          National Nurses Organizing Committee
                          PawPAC
                          Santa Cruz County Board of Supervisors
                          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
                          Physicians for Social Responsibility - Los  
                          Angeles 
                          Western States Petroleum Association