BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 4
                                                                  Page  1

          Date of Hearing:   August 21, 2013

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                  Mike Gatto, Chair

                    SB 4 (Pavley) - As Amended:  August 19, 2013 

          Policy Committee:                             Natural Resources  
          Vote:        6-3

          Urgency:     No                   State Mandated Local Program:  
          Yes    Reimbursable:              No

           SUMMARY  

          This bill establishes a comprehensive regulatory program for oil  
          and gas well stimulation treatments (such as fracking and acid  
          injection) including a study, the development of regulations, a  
          permitting process, and public notification and disclosure.

           FISCAL EFFECT  

          1)One-time costs of $2 million for Division of Oil, Gas, and  
            Geothermal Resources (DOGGR) initial activities including  
            rulemaking.  Ongoing costs of approximately $2 million for  
            DOGGR to provide regulatory oversight.

          2)Increased initial costs to the State Water Resources Control  
            Board (SWRCB) of $1.87 million and on-going costs of up to $10  
            million annually for the SWRCB and regional boards to provide  
            groundwater monitoring depending on well activity. 

          3)Unknown significant costs to the Natural Resources Agency,  
            potentially in the hundreds of thousands of dollars to conduct  
            an independent scientific study.

          4)Ongoing costs of approximately $2 million for the Air  
            Resources Board to update their regulations and provide  
            associated monitoring.

          5)Unknown one-time and ongoing costs for CalRecycle and the  
            Department of Toxic Substance Control likely in the hundreds  
            of thousands of dollars to consult with DOGGR in regulation  
            development and form multi-agency agreements.









                                                                  SB 4
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          This bill expands DOGGR's existing fee and assessment authority  
          (special fund) to allow revenues to be expended, upon  
          appropriation by the Legislature, for all costs associated with  
          the development and implementation of consultation processes and  
          agreements, well-stimulation treatment, scientific studies and  
          evaluations, inspections, air and water quality sampling,  
          monitoring and testing performed by public entities.
           
          COMMENTS  

           1)Purpose.  The intent of this bill is to provide a  
            comprehensive regulatory approach for various well injection  
            activities to protect human health and safety and  
            environmental resources.  The author's approach contains the  
            following elements identified by the Natural Resources Defense  
            Council as necessary for any fracking regulations: 

             a)   Prior notice of hydraulic fracturing to landowners and  
               residents, and disclosure of the chemicals to be used, at  
               least 30 days before fracking commences.

             b)   Complete disclosure concerning the geological and  
               environmental context of the well; 

             c)   Chemical identification of all substances used in  
               fracking, including the Chemical Abstract Service numbers  
               and actual concentrations.

             d)   Disclosure of other important information about the  
               hydraulic fracturing treatment, including the volume,  
               source, and type of the base fluid, the maximum pressure  
               used, a record of all annulus pressures, and the fracture  
               length.

             e)   Information concerning the waste generated, its  
               contents, and the methods of waste storage and disposal; 

             f)   Provision of confidential information to state  
               regulators and a process for the public to challenge  
               confidentiality claims; and 

             g)   Immediate access for medical professionals and first  
               responders to confidential information in order to diagnose  
               and treat patients.









                                                                  SB 4
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           1)Background.   Hydraulic fracturing (fracking) is one energy  
            production technique used to obtain oil and natural gas in  
            areas where those energy supplies are trapped in rock (i.e.  
            shale) or sand formations.  

            Once an oil or natural gas well is drilled and properly lined  
            with steel casing, fluids are pumped down to an isolated  
            portion of the well at pressures high enough to cause cracks  
            in shale formations below the earth's surface.  These cracks  
            or fractures allow oil and natural gas to flow more freely.   
            Often, a propping agent such as sand is pumped into the well  
            to keep fractures open.

            In many instances, the fluids used in hydraulic fracturing are  
            water-based.  There are some formations, however, that are not  
            fractured effectively by water-based fluids because clay or  
            other substances in the rock absorb water.  For these  
            formations, complex mixtures with a multitude of chemical  
            additives may be used to thicken or thin the fluids, improve  
            the flow of the fluid, or even kill bacteria that can reduce  
            fracturing performance.

           2)Federal Exemption Followed by Fracking Increase.   In 2005,  
            Congress exempted hydraulic fracturing (except when involving  
            the injection of diesel fuels) from the federal Safe Drinking  
            Water Act.  As a result of this action, the US Environmental  
            Protection Agency (US EPA) lacks the authority to regulate  
            hydraulic fracturing activities that do not use diesel fuel as  
            an additive.  Since 2007, shale oil production has increased  
            from about 39 barrels to 217 million barrels and shale gas  
            production increased from 1.6 trillion cubic feet to 7.2  
            trillion cubic feet.

           3)Potential Environmental Risks.   The United States Government  
            Accountability Office (GAO) categorizes the potential  
            environmental risks of fracking into the following categories:  
            a) air quality; b) water quality and quantity; c) land and  
            wildlife.

            Air quality risks are generally a result of engine exhaust  
            from increased traffic and equipment emissions with a risk of  
            unintentional emissions of pollutants from faulty equipment.

            Water Quality risks result from spills or releases of fracking  
            fluids from tank ruptures, or operational errors or  








                                                                  SB 4
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            underground migration.  Fracturing chemicals may contaminate  
            surface or groundwater under these conditions.  Water is the  
            primary component of fracking fluids. The cumulative effects  
            of using surface water or groundwater should be regulated to  
            prevent significant local effects.

            With regard to land and wildlife, the GAO raises concerns  
            about vegetation clearing, road construction, pipelines and  
            storage tanks, unintentional oil or toxic chemical spills and  
            the resulting impact on wildlife and habitat

           4)DOGGRs Fracking Regulations.     DOGGR has the statutory  
            responsibility to regulate fracking, but to date has not done  
            so.  In December 2012, DOGGR released a pre-rulemaking  
            discussion draft of fracking regulations to help inform the  
            next regulatory draft.  

             Once released, the proposed regulations will be vetted through  
            a year-long formal rulemaking process.  In the meantime, DOGGR  
            is conducting workshops throughout the state.  Numerous groups  
            are concerned that fracking activity is continuing absent  
            formally adopted safeguards and regulations.
           
             Others are concerned that DOGGR may not be conducting adequate  
            environmental review through the CEQA process to fully  
            determine significant environmental effects.
             
          5)Unresolved Issues.    The author, the administration and  
            interested stakeholders are involved in on-going discussions  
            including how best to regulate well stimulation, conduct  
            groundwater monitoring and strengthen the trade secret  
            language.

           6)Related Legislation.   The following related bills failed  
            passage in the Assembly:  

                a)     AB 7 (Wieckowski) fracking disclosure and  
                 regulations. 
               b)     AB 288 (Levine) well stimulation permits and code  
                 update.
               c)     AB 649 (Nazarian) fracking moratorium.
               d)     AB 669 (Stone) wastewater disposal and groundwater  
                 monitoring.
               e)     AB 982 (Williams) groundwater monitoring.
               f)     AB 1301 (Bloom) fracking moratorim.








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               g)     AB 1323 (Mitchell) fracking moratorium

             
          

           Analysis Prepared by  :    Jennifer Galehouse / APPR. / (916)  
          319-2081