BILL ANALYSIS Ó 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). SB 4 Page 2 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 SB 4 Page 3 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. SB 4 Page 4 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 SB 4 Page 5 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." SB 4 Page 6 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 SB 4 Page 7 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. SB 4 Page 8 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 SB 4 Page 9 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. SB 4 Page 10 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 SB 4 Page 11 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 SB 4 Page 12 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.) SB 4 Page 13 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 SB 4 Page 14 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 SB 4 Page 15 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