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 20, 2013      Consultant: Marie Liu
          This bill meets the criteria for referral to the Suspense File.
          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  
           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  


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          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  

          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,  


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          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  

          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  

          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  


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          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.