BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 4| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 4 Author: Pavley (D), et al. Amended: 5/24/13 Vote: 21 SENATE NATURAL RESOURCES AND WATER COMMITTEE : 6-2, 4/9/13 AYES: Pavley, Evans, Hueso, Jackson, Monning, Wolk NOES: Cannella, Fuller NO VOTE RECORDED: Lara SENATE ENVIRONMENTAL QUALITY COMMITTEE : 6-2, 5/1/13 AYES: Hill, Corbett, Hancock, Jackson, Leno, Pavley NOES: Gaines, Fuller NO VOTE RECORDED: Calderon SENATE APPROPRIATIONS COMMITTEE : 5-2, 5/23/13 AYES: De León, Hill, Lara, Padilla, Steinberg NOES: Walters, Gaines SUBJECT : Oil and gas: hydraulic fracturing SOURCE : Author DIGEST : This bill requires the Division of Oil, Gas, and Geothermal Resources (DOGGR) to regulate hydraulic fracturing and to perform numerous responsibilities associated with this regulatory duty. ANALYSIS : Existing federal law: CONTINUED SB 4 Page 2 1. Under the Clean Water Act, regulates surface discharges of water associated with drilling and production. 2. Under the Clean Air Act, limits air emissions from engines, gas processing equipment, and other sources associated with drilling and production. 3. Under the Safe Drinking Water Act, establishes the United States Environmental Protection Agency's (US EPA) 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. Existing state law: 1. Creates the DOGGR within the Department of Conservation and entrusts DOGGR's 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. 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. 3. Provides the Air Resources Board (ARB) with primary responsibility for control of mobile sources of air pollution, and for greenhouse gas emissions. 4. Provides that air pollution control districts and air quality management districts have primary responsibility for controlling air pollution from stationary sources and non-greenhouse gases. 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). 6. Exempts waste from oil and gas production from hazardous waste law, placing it under DOGGR's authority. CONTINUED SB 4 Page 3 This bill: 1. Requires that DOGGR, in consultation with the DTSC, ARB, SWRCB, the Department of Resources Recycling and Recovery, and any local air districts and regional water quality control boards in areas where hydraulic fracturing treatments may occur, promulgate hydraulic fracturing regulations by January 1, 2015. 2. Requires that DOGGR receive 72-hour notice of the hydraulic fracturing job in order to witness the event. 3. Establishes a hydraulic fracturing permit system. Within five days of approving a permit, DOGGR must notify the local regional board, the local planning entity and post the permit online. 4. Requires DOGGR to perform spot checks to ensure that pre-hydraulic fracturing disclosure is consistent with post-hydraulic fracturing disclosure. 5. Provides for comprehensive annual reporting to the Legislature on hydraulic fracturing including, for example, well failure data, and the number of spills and inspections. 6. 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. 7. Requires notification of property owners within 1,500 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, as specified. 8. 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. 9. Requires the Secretary of the Natural Resources Agency to CONTINUED SB 4 Page 4 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. 10.Requires, as of January 1, 2015, that no hydraulic fracturing permits can be issued until the scientific study is completed. 11.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. 12.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. 13. Defines, for the purposes of this bill, "additive," "base fluid," "hydraulic fracturing," "hydraulic fracturing fluid," "proppants," "supplier," "surface property owner," and "cyclic steam injection." 14.Requires DOGGR, on or before January 1, 2015, enter into formal agreements with specified state and local agencies, which specify the appropriate public entity responsible for air and water quality monitoring and the safe disposal of materials in landfills, include trade secret handling protocols, if necessary, and provide for ready public access to information related to hydraulic fracturing treatments and related activities. 15.Allows 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, 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. CONTINUED SB 4 Page 5 16.Requires DOGGR to operate a Web site that makes available to the public all fracking fluid composition and disposition by January 1, 2016. By January 1, 2016, DOGGR will be required to report to the Legislature on fracking in California. Background 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 (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. 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 U.S. 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 U.S. imports every 3.6 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. 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 often 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 to 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 CONTINUED SB 4 Page 6 fossil fuel development economically feasible in recent decades. 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 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. Hydraulic fracturing and water quality concerns . Hydraulic fracturing has the potential to affect water quality at a number of steps during the process, as specified. 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. CONTINUED SB 4 Page 7 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 matter, hydrogen sulfide, and carcinogenic benzene, toluene, ethylbenzene, and xylene 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 volatile organic compounds 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. 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 Section 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 CONTINUED SB 4 Page 8 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 Section 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 (HSC Section 25511 et seq). California Environmental Quality Act (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. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: Yes According to the Senate Appropriations Committee: One-time costs of $2.2 million (special fund) in fiscal year 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. CONTINUED SB 4 Page 9 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. SUPPORT : (Verified 5/23/13) Alameda County Water District California Association of Professional Scientists California Coastal Protection Network California League of Conservation Voters Clean Water Action (if amended) Councilmember Brian Brennan, City of Ventura Councilmember Carmen Ramirez, City of Oxnard Councilmember-Elect Gil Cedillo to the Los Angeles City Council for District 1 Earthworks (if amended) Environmental Defense Center Environmental Working Group League of Women Voters of California Los Angeles Community College District Los Angeles County Board of Supervisors Mayor Lou Lamonte, City of Malibu Natural Resources Defense Council Nature Conservancy PawPAC San Fernando Valley Young Democrats Santa Cruz County Board of Supervisors South Coast Air Quality Management District The Nature Conservancy Ventura County Board of Supervisors OPPOSITION : (Verified 5/23/13) American Chemistry Council California Business Properties Association California Chamber of Commerce California Independent Petroleum Association California Manufacturers and Technology Association Citizens Coalition for a Safe Community Physicians for Social Responsibility - Los Angeles (unless amended) Sierra Club California Southwest California Legislative Council CONTINUED SB 4 Page 10 Western States Petroleum Association 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 states 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." 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." RM:k 5/28/13 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED SB 4 Page 11 CONTINUED