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.
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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,
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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.
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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
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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
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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
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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
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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
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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 :
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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)
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