BILL ANALYSIS                                                                                                                                                                                                    Ó





                             SENATE JUDICIARY COMMITTEE
                         Senator Hannah-Beth Jackson, Chair
                             2015-2016  Regular Session


          AB 2756 (Thurmond)
          Version: June 1, 2016
          Hearing Date: June 28, 2016
          Fiscal: Yes
          Urgency: No
          TH   


                                        SUBJECT
                                           
                     Oil And Gas Operations: Enforcement Actions

                                      DESCRIPTION  

          This bill significantly revises the current penalty structure  
          for assessing civil penalties against operators of oil, gas, and  
          geothermal wells.  Among other things, this bill authorizes the  
          Division of Oil, Gas, and Geothermal Resources (DOGGR) to  
          distinguish between major and minor violations, to assess  
          penalties for violations on a per day basis, and to allow  
          violators to complete supplemental environmental projects in  
          lieu of paying assessed penalties.  This bill also makes certain  
          changes to provisions governing discovery in the context of an  
          informal hearing before the Director of DOGGR, and makes changes  
          to the procedures governing an informal hearing before the  
          Director.

                                      BACKGROUND 

          The Division of Oil, Gas, and Geothermal Resources (DOGGR), part  
          of the Department of Conservation, is headed by the State Oil  
          and Gas Supervisor.  The Supervisor oversees the drilling,  
          operation, maintenance, and removal or abandonment of tanks,  
          facilities, wells, and certain pipelines.  Upon determination  
          that a violation of oil and gas regulations has occurred, the  
          supervisor may impose a civil penalty of up to $25,000 for each  
          violation.  Operators may appeal the orders of a supervisor  
          through an administrative appeals process, and may seek judicial  
          review of the administrative decision.









          AB 2756 (Thurmond)
          Page 2 of ? 

          This bill would allow the Supervisor to consider additional  
          factors in setting a civil penalty for a violation of laws and  
          regulations committed by operators of oil, gas, and geothermal  
          wells, and would allow the Supervisor to classify a violation as  
          either "major" or "minor," depending on the nature of the  
          violation, and would specify civil penalty limits for each  
          category.  This bill additionally authorizes the Supervisor to  
          allow a violator to complete a "supplemental environmental  
          project," which is simply an environmentally beneficial project,  
          in lieu of paying up to 50 percent of the civil penalty amount.

          This bill also makes certain changes to the procedures related  
          to appealing civil penalty assessments imposed by the Supervisor  
          to the Director of Conservation.  Among other things, this bill  
          revises exceptions for when a notice of appeal operates as a  
          stay of an order; revises what costs will be refunded if an  
          emergency order is set aside or modified on appeal; and revises  
          the circumstances in which appeals are to be heard in a formal  
          hearing process before an administrative law judge, instead of  
          in an informal hearing before the director.  This bill  
          authorizes the director to extend the date of a hearing for good  
          cause, revises the authorization for the hearing to be  
          electronically recorded, revises the timeline in which the  
          director is required to grant or deny a petition to order the  
          testimony of a witness at the hearing, and provides that  
          obtaining subpoenas may be considered good cause to extend the  
          date of the hearing.  Additionally, this bill makes certain  
          changes to discovery rules in the context of an informal hearing  
          before the director, and prohibits the division and the  
          department from making available to the public for inspection  
          portions of a report that might disclose trade secrets, well  
          data granted confidential status, or other confidential or  
          privileged information, when requested by the owner or operator  
          furnishing the report.

                                CHANGES TO EXISTING LAW
           
           1.Existing law  establishes the Division of Oil, Gas, and  
            Geothermal Resources (DOGGR) in the Department of Conservation  
            for purposes of regulating the operation of oil, gas, and  
            geothermal wells, as specified.  (Pub. Res. Code Sec. 3000 et  
            seq.)

             Existing law  requires the State Oil and Gas Supervisor  
            (Supervisor) to supervise the drilling, operation,  







          AB 2756 (Thurmond)
          Page 3 of ? 

            maintenance, and abandonment of wells and the operation,  
            maintenance, and removal or abandonment of tanks and  
            facilities attendant to oil and gas production, so as to  
            prevent, as far as possible, damage to life, health, property,  
            and natural resources, as specified. (Pub. Res. Code Sec.  
            3106.)

             Existing law  provides that a person who violates regulations  
            for the operation of oil and gas wells is subject to a civil  
            penalty not to exceed $25,000 for each violation, and a person  
            who violates specified provisions related to well stimulation  
            treatment is subject to a civil penalty of not less than  
            $10,000 and not to exceed $25,000 per day per violation.   
            Existing law states that the Supervisor shall consider, in  
            addition to other relevant circumstances, all of the following  
            when establishing the amount of the civil penalty:
                 the extent of harm caused by the violation;
                 the persistence of the violation;
                 the pervasiveness of the violation; and
                 the number of prior violations by the same violator.   
               (Pub. Res. Code Sec. 3236.5.)

             This bill  additionally authorizes the Supervisor to consider  
            the following when establishing the amount of the civil  
            penalty:
                 the degree of culpability of the violator;
                 any economic benefit to the violator resulting from the  
               violation;
                 the violator's ability to pay the civil penalty amount,  
               as determined based on information publicly available to  
               the division; and
                 the supervisor's prosecution costs.

             This bill  authorizes the Supervisor to classify a violation as  
            a "major violation" based on one or more of the following:
                 a violation that results in harm to persons or property  
               or presents a significant threat to human health or the  
               environment;
                 a knowing, willful, or intentional violation;
                 a chronic violation or one that is committed by a  
               recalcitrant violator; or
                 a violation where the violator derived significant  
               economic benefit, either by significantly reduced costs or  
               a significant competitive advantage.








          AB 2756 (Thurmond)
          Page 4 of ? 

             This bill  specifies that the civil penalty amount for a major  
            violation shall be not less than $2,500 and not more than  
            $25,000 per violation.

             This bill  authorizes the Supervisor to classify a violation  
            that is not a major violation as a "minor violation," as  
            specified.  This bill specifies that the civil penalty amount  
            for a minor violation shall be not more than $2,500 per  
            violation.

             This bill  provides, at the Supervisor's discretion, that each  
            day a major or minor violation continues or is not cured may  
            be treated as a separate violation.

             This bill  authorizes the Supervisor to permit completion of a  
            supplemental environmental project in lieu of not more than 50  
            percent of the total civil penalty amount.

           1.Existing law  provides that if an operator does not appeal an  
            order from the Supervisor, if the operator does not timely  
            seek judicial review of a decision affirming or modifying an  
            order, or if the operator has timely sought and obtained  
            judicial review and the court has affirmed the decision, then  
            any charge, including penalty and interest, that the decision  
            permits the Supervisor to impose on the operator for work  
            performed by the Supervisor or the Supervisor's agents shall  
            constitute a state tax lien against the real and personal  
            property of the operator, as specified.  (Pub. Res. Code Sec.  
            3356.)

             This bill  provides that in addition to a state tax lien, the  
            Supervisor may apply to the appropriate superior court for a  
            clerk's judgment.  The application, which shall include a  
            certified copy of the final agency order or decision, shall  
            constitute a sufficient showing to warrant the issuance of the  
            judgment.  The court clerk shall enter the judgment  
            immediately in conformity with the application.  The judgment  
            so entered shall have the same force and effect as, and shall  
            be subject to all the provisions of law relating to, a  
            judgment in a civil action, and may be enforced in the same  
            manner as any other judgment of the court.

           2.Existing law  provides that in any proceeding before the  
            director, and in any proceeding instituted by the Supervisor  
            for the purpose of enforcing or carrying out the provisions of  







          AB 2756 (Thurmond)
          Page 5 of ? 

            this division, or for the purpose of holding an investigation  
            to ascertain the condition of any well or wells complained of,  
            or which in the opinion of the Supervisor may reasonably be  
            presumed to be improperly located, drilled, operated,  
            maintained, or conducted, the Supervisor and the director  
            shall have the power to administer oaths and may apply to a  
            judge of the superior court of the county in which the  
            proceeding or investigation is pending for a subpoena for  
            witnesses to attend the proceeding or investigation.  Upon the  
            application of the Supervisor or the director, the judge of  
            the superior court shall issue a subpoena directing the  
            witness to attend the proceeding or investigation, and such  
            person shall be required to produce, when directed, all  
            records, surveys, documents, books, or accounts in the  
            witness' custody or under the witness' control, as specified.   
            The Supervisor or the director may in such case cause the  
            depositions of witnesses residing within or without the state  
            to be taken in the manner prescribed by law for like  
            depositions in civil actions, and may, upon application to a  
            judge of the superior court of the county within which the  
            proceeding or investigation is pending, obtain a subpoena  
            compelling the attendance of witnesses and the production of  
            records, surveys, documents, books, or accounts at such places  
            as the judge may designate.  (Pub. Res. Code Sec. 3357.)

             This bill  additionally provides that in conducting a  
            proceeding or investigation, the Supervisor or director may  
            require an owner or operator to furnish, under penalty of  
            perjury, technical or monitoring reports that the Supervisor  
            or director requires, as specified.

             This bill  states that when requested by the owner or operator  
            furnishing the report, neither the division nor the department  
            shall make available to the public for inspection portions of  
            a report that might disclose trade secrets, well data granted  
            confidential status, or other confidential or privileged  
            information.  The division or department shall make that  
            confidential or privileged information available to other  
            public agencies as needed for regulatory purposes and in  
            accordance with a written agreement with the other public  
            agency regarding the sharing of the information.

             This bill  states that in conducting a proceeding or  
            investigation, the Supervisor or director, or his or her  
            inspector, may inspect the well site or production facilities  







          AB 2756 (Thurmond)
          Page 6 of ? 

            of any owner or operator to ascertain whether the owner or  
            operator is complying with the requirements of or authorized  
            by this division. The inspection shall be made with the  
            consent of the owner or operator or, if consent is withheld,  
            with a warrant duly issued, but in the event of an emergency  
            affecting the public health or safety, an inspection may be  
            performed without consent or a warrant.

             This bill  makes further changes and clarifications to the  
            hearings and appeals process conducted by the Division of Oil,  
            Gas, and Geothermal Resources.

                                        COMMENT
           
           1.Stated need for the bill
           
          According to the author:

            This bill would improve and clarify the Department of  
            Conservation's Division of Oil, Gas, and Geothermal Resources'  
            penalty and enforcement capabilities.  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 safely and responsibly.

           2.Enhanced investigatory and penalty assessment authority
           
          This bill modifies several aspects of the Division of Oil, Gas,  
          and Geothermal Resources' existing penalty, enforcement, and  
          investigatory capabilities.  Among other things, this bill  
          authorizes the Supervisor to assess penalties in-line with the  







          AB 2756 (Thurmond)
          Page 7 of ? 

          harm they cause by creating a new penalty classification  
          framework.  This bill streamlines the appeals process within  
          DOGGR by concentrating most appeal decisionmaking responsibility  
          with the DOGGR's director.  This bill also gives the Division  
          enhanced authority to subpoena information relevant to an  
          ongoing investigation under the supervision of a superior court  
          judge.  Writing in support, the Environmental Defense Fund  
          states:

            AB 2756 . . . [would strengthen] the Division of Oil, Gas and  
            Geothermal Resources' (DOGGR) ability to regulate oil and gas  
            operations by enhancing civil penalties, authorizing DOGGR to  
            immediately plug any oil injection projects that pose a risk  
            to groundwater, and allowing penalty revenue to be spent on  
            environmentally beneficial projects.  Furthermore, this bill  
            enhances DOGGR's ability to investigate potential violations  
            by giving them authority to issue investigative orders.

            Oil and gas production operations have the potential to create  
            costs from significant environmental damage by polluting our  
            air, water, and soil.  This bill would give DOGGR explicit  
            statutory authority to issue investigative orders and  
            subpoenas during an investigation and would allow DOGGR to  
            immediately stop injection projects that are believed to  
            impact beneficial use waters.

            Existing law also limits penalties and types of factors that  
            can be considered for addressing most violations related to  
            oil and gas production.  AB 2756 would permit DOGGR, in  
            determining the amount of [a] civil penalty, to consider the  
            harm or potential harm, the degree of culpability, and the  
            economic benefit gained by committing the violation and to  
            issue penalties of up to $25,000 per violation per day until  
            the violation has been remediated.  Communities most burdened  
            by oil and gas activities with directly benefit from  
            enforcement actions through environmentally beneficial  
            projects.

           3.Trade secrets
           
          Under existing law, DOGGR is authorized to apply to a superior  
          court judge for a subpoena of "records, surveys, documents,  
          books, or accounts" in connection with enforcing or carrying out  
          specified duties under the law, or for the purpose of holding an  
          investigation to ascertain the condition of any well "which in  







          AB 2756 (Thurmond)
          Page 8 of ? 

          the opinion of the supervisor may reasonably be presumed to be  
          improperly located, drilled, operated, maintained, or  
          conducted."  (Pub. Res. Code Sec. 3357.)  This bill modifies  
          that subpoena authority by authorizing the Director or  
          Supervisor, under the supervision of a judge, to directly issue  
          subpoenas during certain investigations.  It also provides that  
          in conducting specified proceedings and investigations,  
          Supervisor or Director "may require an owner or operator to  
          furnish, under penalty of perjury, technical or monitoring  
          reports," and further provides that "[w]hen requested by the  
          owner or operator furnishing the report, neither the division  
          nor the department shall make available to the public for  
          inspection portions of a report that might disclose trade  
          secrets, well data granted confidential . . . , or other  
          confidential or privileged information."

          This section appears to provide owners and operators of oil,  
          gas, and geothermal wells with some role - the extent of which  
          is unclear - in designating information in a report as a trade  
          secret, confidential, or privileged, and therefore not subject  
          to public release.  Generally speaking, California, like many  
          other states, affords protection to trade secrets not because  
          they are property interests deserving of protection, but instead  
          because commercial ethics impose a general duty of good faith on  
          those to whom trade secret information is disclosed.  (See  
          Kewanee Oil Co v. Bicron Corp. (1974) 416 U.S. 470, 481 ["The  
          maintenance of standards of commercial ethics and the  
          encouragement of invention are the broadly stated policies  
          behind trade secret law."].)  Protection of trade secrets, like  
          protection given to other confidential or sensitive information  
          shared with a regulator during the course of an investigation,  
          helps establish a trusted pathway between parties to exchange  
          information.  However, the protected status given to sensitive  
          information in such arrangements can be misused by parties who  
          seek to prevent the disclosure of damaging or embarrassing  
          information by falsely claiming such information to be a trade  
          secret or otherwise privileged.  Given the potential for misuse  
          of trade secret protections by parties seeking to shield  
          information from disclosure, and given the public's broad  
          interest in having access to information held by state agencies,  
          the Committee may wish to consider whether sufficient safeguards  
          exist to ensure that regulators - not regulated parties - make  
          the determination as to whether privilege claims are warranted,  
          and whether sufficient procedures and protocols are in place at  
          DOGGR to evaluate whether information submitted by a regulated  







          AB 2756 (Thurmond)
          Page 9 of ? 

          party should or should not be protected from public disclosure.


           Support  :  Environmental Defense Fund

           Opposition  :  None Known

                                        HISTORY
           
           Source  :  Department of Conservation

           Related Pending Legislation  :

          AB 1882 (Williams, 2016) requires the State Water Resources  
          Control Board, or the appropriate regional water quality control  
          board to review and concur with any Underground Injection  
          Control project subject to review or approval, and allows these  
          boards to propose additional requirements for a project,  
          including groundwater monitoring.  This bill is in the Assembly  
          Appropriations Committee.

          AB 2729 (Williams, 2016) revises idle oil and gas well  
          requirements, fees, and indemnity bonds imposed by the Division  
          of Oil, Gas and Geothermal Resources, in order to create a  
          financial incentive for operators to properly plug, rather than  
          idle, low performing wells.  This bill is in the Senate  
          Committee on Natural Resources and Water.

          SB 248 (Pavley, 2015) requires the Division of Oil, Gas, and  
          Geothermal Resources to update and revise its regulations,  
          develop a data management system, and enhance required  
          reporting.  This bill also prohibits the use of injection  
          chemicals, unless DOGGR has complete information about specified  
          properties and potential groundwater impacts, and prohibits  
          disposal of water or wastewater associated with oil or gas  
          exploration, development or production into oil sumps.  This  
          bill is in the Assembly Appropriations Committee.
           Prior Legislation  :  AB 2453 (Tran, Ch. 264, Stats. 2010)  
          clarified the judicial standard of review for an enforcement  
          action of the State Oil and Gas Supervisor, and expanded  
          procedural safeguards for an administrative appeal of an  
          enforcement action, including the use of the Office of  
          Administrative Hearings.

           Prior Vote  :







          AB 2756 (Thurmond)
          Page 10 of ? 


          Senate Natural Resources and Water Committee (Ayes 7, Noes 1)
          Assembly Floor (Ayes 64, Noes 13)
          Assembly Appropriations Committee (Ayes 14, Noes 6)
          Assembly Judiciary Committee (Ayes 7, Noes 2)
          Assembly Natural Resources Committee (Ayes 7, Noes 2)

                                   **************