BILL ANALYSIS Ó
AB 2756
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Date of Hearing: April 12, 2016
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
AB 2756
(Thurmond) - As Amended April 7, 2016
SUBJECT: Oil and gas operations: enforcement actions
KEY ISSUE: should the enforcement and investigatory powers of
the division of Oil, Gas, and geothermal resources be increased,
so as to increase the division's ability to deter
environmentally harmful violations by oil and gas operations?
SYNOPSIS
The Division of Oil, Gas, and Geothermal Resources (DOGGR) - a
division of the California Department of Conservation -
regulates oil and gas production in the state. Specifically,
DOGGR supervises the drilling, operation, maintenance, and
plugging and abandonment of onshore and offshore oil, gas, and
geothermal wells. While much of DOGGR's history has focused on
balancing the productive use and conservation of these important
natural resources, DOGGR has more recently turned its attention
to issues of public health and environmental protection, as
evidenced in an October, 2015 report of DOGGR. This bill aims
to enhance the power of DOGGR to carry out its mission. To
begin with, the bill enhances penalties. Whereas existing law
allows DOGGR to impose penalties not to exceed $25,000 per
violation, this bill would amend this penalty provision so that
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each day the violation continues constitutes a separate
violation. In short, while existing law authorizes a penalty of
$25,000 per violation, this bill authorizes a penalty of $25,000
per violation, per day. The author believes that these changes
will ensure that penalties are "commensurate to violations."
While the bill enhances the civil penalty, it at the same time
authorizes DOGGR to offer the violator the opportunity to
undertake a "supplemental environmental project" (SEP). This
would allow a violator to voluntarily undertake a beneficial
environmental project in exchange for offsetting up to 50% of
the civil penalty. This bill also includes a number of other
changes designed to enhance the power and efficiency of DOGGR.
The changes proposed by this bill can be roughly grouped in the
following categories: penalties; offsets for supplemental
environmental projects; shut-in orders and stays pending appeal;
investigatory powers; and hearing and appeal procedures. Each
category is discussed more fully in the analysis. This bill is
sponsored by the Department of Conservation and supported by
environmental and public health groups. The bill is opposed by
the Western States Petroleum Association. The bill recently
passed out of the Assembly Natural Resources Committee on a 7-2
vote.
SUMMARY: Enhances the authority of the Division of Oil, Gas,
and Geothermal Resources (DOGGR) to impose penalties, issue
shut-in orders, and conduct hearings and investigations of oil
and gas operations. Specifically, this bill:
1)Provides that each day a violation continues it may be
treated, at the discretion of the Supervisor of DOGGR, as a
separate violation.
2)Authorizes the Supervisor of DOGGR to consider the following
conditions, as well as any other relevant conditions, when
establishing the amount of the civil penalty:
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a) The extent of harm or potential harm caused by the
violation;
b) The persistence of the violation;
c) The pervasiveness of the violation;
d) The number of prior violations by the same violator;
e) The degree of culpability of the violator;
f) Any economic benefit to the violator resulting from the
violation;
g) The violator's assets, liabilities, and net worth; and,
h) The Supervisor's prosecution costs.
3)Requires the operator to cease injection operations as soon as
it is safe to do so when ordered to do so by DOGGR.
4)Authorizes DOGGR to permit environmentally beneficial projects
in lieu of up to 50% of the civil penalty amount.
5)Modifies requirements for appeals and for emergency order
hearings and removes the option for either party to
electronically record the hearing.
6)Allows the Supervisor to impose a state tax lien against the
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real and personal property of the operator for civil penalties
assessed by DOGGR.
7)Authorizes the Supervisor or Director to require an operator
to furnish, under penalty of perjury, technical or monitoring
reports that the Supervisor or Director requires.
8)Authorizes the Department of Conservation (DOC) or DOGGR to
inspect the well site or production facilities of any operator
to ascertain whether the operator is complying with the
requirements of the state's oil and gas laws or regulations.
Specifies that inspection will be conducted with the consent
of the operator or with a warrant. Authorizes DOC or DOGGR,
in the event of an emergency affecting the public health or
safety, to inspect a well site or production facilities
without consent or a warrant.
9)Requires civil penalties to be deposited in the Oil and Gas
Environmental Remediation Fund to be used for specified
remedial purposes.
EXISTING LAW:
1)Requires the state's Oil and Gas Supervisor (Supervisor) to
supervise the drilling, operation, maintenance, and
abandonment of wells and the operation, maintenance, and
removal or abandonment of tanks and facilities attendant to
oil and gas production. (Public Resources Code Sections
3200-3228.)
2)Provides that a person who violates the state's oil and gas
laws or regulations is subject to a civil penalty not to
exceed $25,000 for each violation. Requires the Supervisor to
consider specified circumstances when establishing the amount
of the civil penalty such as the extent of harm caused by the
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violation, the persistence of the violation, the pervasiveness
of the violation; and the number of prior violations by the
same violator. (Section 3236.5.)
3)Establishes procedures for an operator of a well or production
facility to appeal to the Director of Conservation (Director)
for an order of the Supervisor or a district deputy, including
the following:
a) Requires appeal to be filed within 10 days of the service
of the order or waive its rights to challenge the order;
b) Requires a notice of appeal to be filed with the
Supervisor or with the district deputy who issued the order;
c) Requires a written notice of appeal to operate as a stay
of a shut-in order, except in the case of an emergency
order, which require two hearings to issue; and,
d) Requires the Supervisor to reimburse operators for their
costs to perform remedial work or tests if the emergency
order is set aside or modified. (Public Resources Code
Sections 3250-3257.)
FISCAL EFFECT: As currently in print this bill is keyed fiscal.
COMMENTS: California produced more than 200 barrels of oil in
2014, making it one of the top five oil-producing states in the
nation. While oil and gas production makes a significant
contribution to the state's economy, it can also create
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potential environmental harms, including harm to the state's
precious groundwater supply. Since 1915, the Department of
Conservation's Division of Oil, Gas, and Geothermal Resources
(DOGGR) has supervised the drilling, operation, maintenance, and
plugging and abandonment of onshore and offshore oil, gas, and
geothermal wells. In October of 2015, DOGGR released a plan
outlining a number of reforms that the division intends to take
in order to protect public health and the environment in and
around the state's oil fields. This bill is apparently intended
to help in that project. According to the author, the purpose
of this bill is to enhance DOGGR's authority to regulate the oil
and gas industry. Most significant, the bill would allow DOGGR
to issue penalties of $25,000 per day, per violation. In
addition to the enhanced penalties, this bill also includes a
number of other changes designed to enhance the regulatory and
investigatory work of DOGGR. The changes proposed by this bill
can be roughly grouped in the following categories: penalties;
offsets for supplemental environmental projects; shut-in orders
and stays pending appeal; investigatory powers; and procedural
and due process concerns. Each category is discussed below.
Penalties: Under existing law, a person who violates
regulations relating to oil and gas operations is subject to a
civil penalty not to exceed $25,000 per violation. Existing law
requires the Supervisor of DOGGR to consider a number of factors
when setting the amount of a fine, but the penalty cannot exceed
$25,000 no matter the seriousness of the violation, the degree
of harm done, or the culpability of the operator. This bill
would add to the list of existing considerations the following:
the extent of the potential harm caused by the violation (not
just the actual harm, as is in existing law); the economic
benefit to the violator resulting from the violation; the
violator's assets and liabilities, and the Supervisor's
prosecution costs. Perhaps most significantly, while existing
law permits a $25,000 penalty per violation, this bill would
permit the Supervisor, at his or her discretion, to impose the
penalty per violation per day, treating each day that the
violation continues as a separate violation. The penalty for
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this per day violation cannot be less than $10,000 per day. As
under existing law, the penalty imposed by the DOGGR Supervisor
constitutes a tax lien. Finally, as most recently amended, the
enhanced civil penalties assessed under this bill shall be
deposited in the Oil and Gas Environmental Remediation Account,
to be used for specified purposes, including conducting remedial
work on sites that could pose a danger to life, health, water
quality, wildlife, or natural resources.
Offsets for Supplemental Environmental Projects: While the
civil penalties would be significantly enhanced by this bill,
especially where the violation is on-going, at the same time the
Supervisor would be authorized, again at his or her discretion,
to offer the violator the opportunity to undertake a
Supplemental Environmental Project (SEP) - that is, some project
that has a beneficial or restorative environmental effect on the
affected area or community - in exchange for up to a 50%
reduction in the civil penalty. According to the author, SEPs
will allow the affected communities to benefit by making
environmentally beneficial projects a part of the civil penalty
settlement.
Shut-in Orders and Stays Pending Appeal: Under existing law,
DOGGR has the authority to issue so-called "shut-in" orders that
call upon the operator to cease and desist the operation of
"injection wells," which can have an adverse impact on
groundwater aquifers. Under existing law, when an operator
files an appeal, the appeal operates as a stay on the cease and
desist order, and the potentially harmful injections continue.
The only time the order is not stayed by an appeal is when the
order qualifies as an "emergency" order. However, under this
bill, a cease and desist order against injections - that is, a
"shut-in" order - will not be automatically stayed by the
appeal.
Investigatory Powers: The bill makes a number of procedural and
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substantive changes that enhance DOGGR's ability to conduct
investigations and discover violations. Among the more
important changes are those granting DOGGR subpoena power that
is similar to what other agencies, including the State Water
Board, already possess. This enhanced subpoena power may not be
as great as opponents of the bill fear. According to the
California Department of Conservation - the sponsor of this bill
- any attorney (including attorneys for DOGGR) has the power to
obtain a subpoena. Another important investigatory tool that
this bill would grant to DOGGR is the power to conduct
investigations of oil and gas operations without a warrant in an
emergency situation. However, this power to conduct warrantless
inspections is only justified where there is "an emergency
affecting the public health or safety," which appears consistent
with other areas of law in which warrantless searches are
permitted under judicially defined "exigent circumstances."
Procedural Changes and Due Process Concerns: This bill
implements a number of procedural changes that, according to the
author, streamline the process for hearings and appeals, but,
according to the Western States Petroleum Association, amount to
a denial of due process. As noted above, one of these
procedural changes provides that, in the case of a cease and
desist order against injection wells, the appeal will no longer
operate as a stay on the order. However, the author and
supporters of this bill reasonably justify this change by noting
that it is necessary to stop irreparable damage that may result
from the injection process. If the order is stayed, it may be
impossible to undo the damage. The bill provides that if an
order is later set aside, the DOGGR Supervisor must refund any
reasonable costs incurred by the operator during an emergency
shut down. The bill makes a number of other seemingly
reasonable changes to the process and procedures for an informal
hearing. For example, the bill authorizes DOGGR to extend the
date of the hearing for good cause shown; removes a provision
that authorized the hearing to be electronically recorded by
either party; revises the timeline in which DOGGR may grant or
deny a petition to hear the testimony of a witness; and provides
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that the obtaining of subpoenas may be considered good cause to
extend the date of the hearing. Finally, in conducting a
proceeding or investigation, the supervisor or director may
require the operator, under penalty of perjury, to furnish
specified technical and monitoring reports, so long as DOGGR
identifies the evidence that supports requiring the reports.
ARGUMENTS IN SUPPORT: According to the author, this bill will
increase the powers of DOGGR in the following ways:
First, the bill will ensure that penalties issued by the
Division will serve as sufficient deterrents to those
operators who may otherwise behave irresponsibly.
Second, the bill allows for impacted communities to
potentially benefit from penalty actions taken against
violators by giving the Division specific authority to
approve environmentally beneficial projects as part of the
civil penalty settlement.
Third, AB 2756 would ensure that injection wells that could
potentially impact underground sources of drinking water
can be shut-in without complicated hearing procedures.
Fourth, it gives the Division some of the same
investigative authorities as the Water Board during
investigations about alleged violations.
Finally, the bill clarifies and streamlines due process if
an operator appeals the Supervisor's order, such as in
cases where penalties are appealed. Collectively, these
are important changes that will better enable the Division
to ensure that the state's natural resources are extracted
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safely and responsibly.
The Environmental Defense Fund (EDF) supports this bill because
it will allow revenue collected from civil penalties to be spent
on environmentally beneficial projects, and that it will enhance
the division's "ability to investigate potential violations by
giving them authority to issue investigatory orders." EDF
argues that oil and gas operations "have the potential to cause
significant environmental damage by polluting our air, water,
and soil." EDF contends that this bill gives DOGGR the
authority to "issue investigative orders and subpoenas during an
investigation and would allow DOGGR to immediately stop
injection projects" that impact water. The problem with
existing law, according to EDF, is that it "limits penalties and
types of factors that can be considered for addressing most
violations related to oil and gas production." This bill, on
the other hand, would permit DOGGR, when determining the proper
amount of a civil penalty, "to consider harm, or potential harm,
the degree of culpability, and the economic benefit gained by
committing the violation" and to issue penalties of $25,000 per
day until the violation has been remedied.
ARGUMENTS IN OPPOSITION: The Western States Petroleum
Association (WSPA) opposes this bill unless amended to "give the
Supervisor of [DOGGR] more discretion over the assessment of
penalties." WSPA writes that while it recognizes that the
intent of the bill is to reflect the gravity of the violation,
it contends that "AB 2756 contains several concerning provisions
that would prevent operators from obtaining proper due process
in cases where they may be facing penalties for violations of
the Public Resources Code." WSPA notes in particular that while
existing law gives the DOGGR Supervisor discretion to asses a
civil penalty of not more than $25,000 for a violation, "AB 2756
would allow the DOGGR Supervisor to issue penalties of up to
$25,000 per violation per day until the violation has been
remedied, regardless of the severity of the violation." WSPA
also notes that under existing law a civil penalty imposed by
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DOGGR is treated as a state tax lien and enforceable in superior
court; however, this bill allows the Supervisor to apply to the
superior court for a clerk's judgment which would be immediately
enforceable without a hearing. WSPA claims that the changes
proposed by this bill do not provide any certainty to the
operator "that the amount of the civil penalty will be
reasonably commensurate with the severity of the violation."
Finally, WSPA believes that the Supervisor's expanded power to
subpoena evidence, as provided in this bill, "removes any
evidentiary protections provided by statute or common law. In
essence, it's possible the bill could abrogate the
attorney-client privilege without providing due process."
WSPA's proposed amendments would create different categories of
violations with corresponding maximum penalties and proposes
other changes that it believes will ensure sufficient due
process.
Related Prior Legislation. AB 1882 (Williams, 2016) requires
the State Water Resources Control Board (SWRCB) or appropriate
regional water quality control board (RWQCB) to review and
concur with any Underground Injection Control (UIC) project
subject to review or approval. This bill allows SWRCB or the
appropriate RWQCB to propose additional requirements for a
project, including groundwater monitoring.
AB 2729 (Williams, 2016) creates disincentives for operators to
maintain large idle well inventories, will ensure that funds are
available to plug and abandon idle wells in the event that they
are deserted, and will help improve public perception of oil and
gas operations.
SB 248 (Pavley, 2015) requires DOGGR to review and update its
regulations, data management practices, and enhance required
reporting. This bill prohibits the use of oil sumps after July
1, 2017. This bill also prohibits injection chemicals, unless
DOGGR has complete information about specified properties and
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potential groundwater impacts.
SB 4 (Pavley), Chapter 313, Statutes of 2013, established a
comprehensive regulatory program for oil and gas well
stimulation treatments, which includes, among other things, a
study, the development of regulations, a permitting process, and
public notification and disclosure. This bill also required
DOGGR to assess between $25,000 and $10,000 per day that a
violation related to well stimulation occurred.
AB 2453 (Tran, Chapter 264, Statutes of 2010) modified the
appeals process at DOGGR to clarify that the judicial review of
an appealed order be based on the "substantial evidence"
standard of review, shifted certain appeals from an informal
hearing to a formal hearing, and made other changes relating the
issuance of DOGGR orders.
AB 1960 (Nava, Chapter 562, Statutes of 2008) substantially
strengthened and clarified DOGGR's authority to regulate oil and
gas production facilities, imposed additional requirements on
operators to minimize frequency and severity of oil spills, and
authorized DOGGR to impose life-of-well and life-of-facility
bonding on operators under specified circumstances. The bill
also increased maximum penalties that DOGGR could impose from
$5,000 to $25,000 per violation.
REGISTERED SUPPORT / OPPOSITION:
Support
Department of Conservation (sponsor)
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Alliance for Nurses for Healthy Environments
California Interfaith Power and Light
California League of Conservation Voters
Center for Environmental Health
Clean Water Action California
Environmental Defense Fund
Mainstreet Moms
Opposition
Western States Petroleum Association (unless amended)
Analysis Prepared by:Thomas Clark / JUD. / (916) 319-2334
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