BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair SB 4 (Pavley) - Oil and gas: hydraulic fracturing. Amended: May 7, 2013 Policy Vote: NR&W 6-2, EQ 6-2 Urgency: No Mandate: Yes Hearing Date: May 23, 2013 Consultant: Marie Liu SUSPENSE FILE. AS PROPOSED TO BE AMENDED. Bill Summary: SB 4 would require the Division of Oil and Gas (DOGGR) to regulate fracking and to perform numerous responsibilities associated with this regulatory duty. Fiscal Impact: One-time costs of $2.2 million (special fund) in FY 2013-14 for DOGGR's initial activities including the establishment of regulations. Ongoing costs of $1.98 million (special fund) for DOGGR to provide regulatory oversight of fracking. Estimated $1 million (special fund) to develop a web-based database for public fracking information. Ongoing costs of approximately $2 million (special fund) for ARB to update their regulations and associated monitoring. One-time costs of $25,000 for DTSC to collaborate with DOGGR in regulation development. Ongoing costs of $4.5 million from Regional Water Quality Boards for testing and sample storage. Unknown, but estimated millions to tens of millions of dollars, in revenues (special fund) to reimburse DOGGR and other state agencies for their regulatory costs. Background: Under existing law, operators of oil and gas wells are regulated by DOGGR within the Department of Conservation. DOGGR's broad authority gives them the ability to regulate hydraulic fracturing (aka "fracking") in order to protect life, health, property, and natural resources including water supply; however, DOGGR does not monitor fracking nor does it have reporting or permitting requirements. Fracking is a process where well operators pump water and a variety of chemicals into wells at very high pressures. This causes cracks to form or grow in the rock strata, allowing greater oil or gas production from the well. Fracking is done in both vertical wells and in SB 4 (Pavley) Page 1 horizontal bores that run horizontally through the target rock strata for as much as several thousand feet. There is growing public concern that fracking can lead to groundwater and surface water contamination. Proposed Law: This bill would require DOGGR, by January 1, 2015, to adopt rules and regulations specific to fracking that would include full disclosure of the composition and disposition of fracking fluids. The regulations would be developed in consultation with the Department of Toxic Substances Control (DTSC), the State Air Resources Board (ARB), the State Water Resources Control Board (SWRCB), the Department of Resources Recycling and Recovery (CalRecycle), and local air districts and regional water quality control boards. DOGGR would be required to enter into formal agreements with these agencies by January 1, 2015 that delineates respective authority and responsibilities. All agencies must revise its regulations if necessary to reflect the agreement. This bill would require a well operator to apply for a permit prior to performing a fracking treatment on a well. The permit application would include specific information including a complete list of chemicals planned to be used and the location of the well. DOGGR would be restricted to only approving complete permit applications. Approved permits would be transmitted to the appropriate regional water quality control board, transmitted to the local planning entity, and be posted on DOGGR's publically available website. The well operator would also be required to provide a copy of the approved permit to any property owner located within a 1,500 radius of the wellhead and within 500 feet from the horizontal projection of all subsurface portions of the well to the surface. This bill would allow any notified property owner to request that the regional water quality control board perform water quality testing on any well suitable for drinking or irrigation purposes before and after the fracking treatment. Samples would be required to be retained for future analyses. This bill would allow trade secret protection under the existing Uniform Trade Secrets Act. However, the supplier of the fracking fluid would still be required to disclose information to DOGGR, SB 4 (Pavley) Page 2 but not the well operator. The trade secret would not be part of the public record and DOGGR would not be permitted to disclose the trade secret information unless disclosure is necessary and required to protect health and safety. This bill require the Secretary of the Natural Resources Agency, by January 1, 2015 to commission a study on the hazards and risks that fracking poses to natural resources and public, occupational, and environmental health and safety. No permits for fracking would be allowed to be issued after January 1, 2015 unless the study is completed and peer reviewed. DOGGR would also be required to operate a website that would make available to the public all fracking fluid composition and disposition by January 1, 2016. By January 1, 2016, DOGGR would be required to report to the Legislature on fracking in California. This bill specifies that all costs associated with the requirements for fracking may be paid for by charges levied, assessed, and collected from a well owner. Related Legislation: SB 1054 (Pavley) 2012 would have required notification of nearby landowners of fracking activity. SB 1054 failed passage on the Senate Floor. Staff Comments: DOGGR estimates initial costs of $2.2 million in the first year and $1.98 million in ongoing costs to review fracking permits, review maps and directional well information to enforce nearby landowner notification requirements, and notification requirements. These costs would include staffing for two oil and gas engineers, four engineering geologists, one senior programmer analyst, and one staff information systems analyst, four associate governmental program analysts, two office technicians, one senior legal analyst, and one legal assistant. DOGGR estimates than an additional $1 million may be needed to develop a website to provide access to fracking permits and associated information. ARB indicates that this bill will necessitate increased monitoring needs and fracking specific oversight SB 4 (Pavley) Page 3 responsibilities totaling 10.7 PYs at $1.7 million annually. These cost estimates would include the workload to develop and negotiate the interagency agreement with DOGGR and the workload to amend six regulations. DTSC anticipates approximately $25,000 for consultation with DOGGR. The cost to update regulations or perform specific duties are unknown until the interagency agreement is developed. SWRCB estimates very significant costs, likely in the low millions of dollars, associated with the bill's provision to allow individuals to request that a regional quality control board test a drinking or irrigation well before and after fracking. Additional costs may be incurred to store the samples for future testing as indicated by the bill. The Natural Resources Agency estimates that a minor study would cost approximately $100,000 but the ultimate cost would depend on the scope of the study. Staff notes that the study indicated by the bill is will likely be more costly than a minor study. Proposed Author Amendments: Clarify that cyclic steam injection is not a hydraulic fracturing treatment, limits, removes the requirement for each agency to revise its regulations in accordance to a formal agreement, and explicitly allow for electronic reporting to DOGGR.