BILL ANALYSIS                                                                                                                                                                                                    Ó


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                                    THIRD READING

          Bill No:  SB 4
          Author:   Pavley (D), et al.
          Amended:  5/24/13
          Vote:     21

          AYES:  Pavley, Evans, Hueso, Jackson, Monning, Wolk
          NOES:  Cannella, Fuller
          NO VOTE RECORDED:  Lara

          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:



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          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.



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          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  

           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  



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             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  

           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.



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          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.

           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  



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          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; however, as of  
          March 7, 2013, showed only 93 hydraulically  
          fractured wells in California in 2011.  Citizens and local  
          governments have reported fracking operations that do not appear  

           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  

          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.



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           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  

          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  



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          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  
          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.



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             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
          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  
          Sierra Club California
          Southwest California Legislative Council



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          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  

          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

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