BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2756| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 2756 Author: Thurmond (D) Amended: 6/1/16 in Assembly Vote: 21 SENATE NATURAL RES. & WATER COMMITTEE: 7-1, 6/14/16 AYES: Pavley, Stone, Allen, Hertzberg, Hueso, Monning, Wolk NOES: Vidak NO VOTE RECORDED: Jackson SENATE JUDICIARY COMMITTEE: 7-0, 6/28/16 AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning, Wieckowski SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 ASSEMBLY FLOOR: 64-13, 6/2/16 - See last page for vote SUBJECT: Oil and gas operations: enforcement actions SOURCE: Author DIGEST: This bill substantially revises the Division of Oil, Gas and Geothermal Resources civil penalty structure for violations and procedures for appeals of its orders among other changes related to its enforcement actions. ANALYSIS: Existing law: 1)Establishes the Division of Oil, Gas and Geothermal Resources AB 2756 Page 2 (Division), the state's oil and gas regulator, within the Department of Conservation (Department). The Department is led by its Director (director), and the state oil and gas supervisor (supervisor) leads the Division. District deputies lead each of the Division's districts. 2)Requires the Division to regulate the drilling, operation, maintenance, and abandonment of oil and gas wells in the state. 3)Provides that a person who violated certain requirements related to the regulation of oil and gas is subject to a civil penalty not to exceed $25,000 per violation, although violations of well stimulation treatment statute are subject to civil penalties of $10,000 - $25,000 per violation per day. 4)Requires the supervisor to consider specified circumstances when establishing the amount of the civil penalty. 5)Establishes procedures for an operator of a well or production facility to appeal an order by the supervisor or a district deputy to the director. A notice of the appeal must be filed with the supervisor or the district deputy who issued the order. 6)Provides that if the operator does not appeal an order, seek judicial review of a decision affirming or modifying an order within the time provided in law, or if the court has affirmed the decision, then any charge, including penalty and interest, that the decision permits the supervisor to impose constitutes a state tax lien against the real and personal property of the operator. 7)Sets forth numerous provisions governing discovery in the context of an informal hearing before the director. The supervisor or the director, upon application to a judge of the AB 2756 Page 3 superior court of the county within which the proceeding or investigation is pending, is authorized to 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 within the limits prescribed in these provisions. 8)Establishes the Acute Orphan Well program and the Acute Orphan Well Account. An "acute orphan well" is a well that the supervisor determines could pose an immediate danger to life, health, or natural resources and there is no operator responsible or able to respond. The account is used, upon appropriation, to plug, abandon, and further secure an acute orphan well, as specified. The dedicated fee to support this account is expired and the Acute Orphan Well program is largely defunct. 9)Allows the Division to spend up to $1 million annually to address certain hazardous and idle-deserted wells, as defined, including orphan wells. This bill substantially revises the Division's civil penalty structure for violations and procedures for appeals of its orders among other changes related to its enforcement actions. Specifically this bill: 1)Requires the supervisor to consider certain additional factors including, for example, any economic benefit to the violator from the violation, among others, relevant to determining whether a civil penalty shall be assessed and its amount. 2)Establishes both "major" and "minor" violations, as specified. At the supervisor's discretion, each day a violation AB 2756 Page 4 continues may be treated as a separate violation. a) A major violation must meet one or more specified criteria, such as, for example, harming persons or property or being by a recalcitrant operator, among other things. A major violation shall be assessed at $2,500 to $25,000 per violation. b) A minor violation does not meet the criteria for a major violation and is assessed at not more than $2,500 per violation. 3)Establishes an Oil and Gas Remediation Account to receive civil penalties. This account shall fund specified actions by the Division, including plugging and abandonment of oil and gas wells among other things. This account sunsets on January 1, 2021. a) The supervisor may allow an operator to perform a supplemental environmental project to offset up to 50% of a civil penalty. A supplemental environmental project is an "environmentally beneficial project" that a person subject to an order of the supervisor imposing a civil penalty voluntarily agrees to undertake, as specified. b) The Oil and Gas Remediation Account replaces the Acute Orphan Well Program which is repealed. 4)Makes numerous changes to the appeal process and procedures. Among other things, these include: a) The notice of appeal is filed with the director. b) Exceptions for when the notice of appeal operates as a AB 2756 Page 5 stay of the order are revised. c) Refundable costs are revised, as specified, in the event an emergency order is set aside or overturned on appeal. d) The director may extend the date of a hearing for good cause. e) The circumstances are revised, as specified, in which appeals are heard in a formal hearing process before an administrative law judge instead of before the director in an informal hearing process. 5)Authorizes the supervisor to apply, for penalties due to uncontested or affirmed orders, as specified, to the appropriate superior court for a clerk's judgment in order to provide an additional enforcement mechanism, as specified. 6)Revises existing procedures and processes to the existing discovery process. Among other provisions, these include: a) A judge of the superior court, upon application by the supervisor or director, is required to assign a case number for the proceeding or investigation, to issue an order prescribing the nature and scope of the proceeding or investigation, and to retain jurisdiction for the limited purpose of enforcing subpoenas issued in the proceeding or investigation. b) The attorney of record for the supervisor or director is authorized to issue subpoenas compelling the attendance of witnesses and the production of certain records, as specified. AB 2756 Page 6 c) The supervisor, director, or certain inspector is authorized to inspect the well site or production facility to ascertain whether certain requirements are being met, as specified. d) The supervisor or director is authorized to require the owner or operator to provide certain technical reports, as specified. e) The Division and the Department are required to keep certain confidential material, as specified, from public release Comments The new penalty structure allows the supervisor to assess penalties in line with the harm caused. The existing structure is limited and inflexible. The Division has no established general formal policy for the handling of proprietary information. The Division is required under its own statutes to handle trade secrets associated with well stimulation treatment chemicals in a certain way. It is also required to keep certain information about prospective wells confidential for limited periods of time. The Division, however, has no established formal procedures for the handling of trade secrets or other confidential information. While this bill provides protections from public disclosure to proprietary information, it is not clear on what basis or bases that protection is established which may result in information held in confidence that does not warrant it. The Division has existing and ongoing programs that address orphan wells. While the bill repeals the largely defunct Acute Orphan Well program language, supplemental environmental projects and the Oil and Gas Remediation Account can address AB 2756 Page 7 orphan wells. In addition, the budget includes an additional $1 million for the orphan well remediation at the Administration's request. Locations of supplemental environmental projects may vary from the site of the violation. Supplemental environmental projects are not required to be co-located with the well or facility subject to the civil penalty. All oil and gas well remediation will not be completed by January 1, 2021. However, a sunset date for the new Oil and Gas Remediation Account will allow for the new Account to be evaluated FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: Yes SUPPORT: (Verified8/3/16) Department of Conservation (source) Alliance of Nurses for Healthy Environment California Interfaith Power and Light California League of Conservation Voters Center for Environmental Health City of Los Angeles Clean Water Action Environmental Defense Fund Environmental Working Group Mainstreet Moms Sierra Club California OPPOSITION: (Verified8/3/16) AB 2756 Page 8 None received ARGUMENTS IN SUPPORT: According to the author, "[the division] is responsible for regulating the State's oil and gas operations and investigating potential violations of statute and regulations. This bill would enhance the department's authority to regulate the oil and gas industry and protect public health and the environment. Specifically, this bill: Enhances the division's penalty authority to ensure that penalties assessed reflect the severity of the violation and serve as an adequate deterrent to violations. Allows up to half of penalty revenue to be spent on environmentally beneficial projects in communities impacted by oil and gas development. Creates a new account for civil penalties that will be used to remediate environmental contamination associated with oil and gas production where a responsible party cannot be identified or is insolvent. Authorizes the division to immediately shut-in injection projects that pose a risk to groundwater. Strengthens the division's investigative authorities to collect information about proposed and ongoing oil and gas projects, and secure witness testimony during investigative hearings." ASSEMBLY FLOOR: 64-13, 6/2/16 AYES: Achadjian, Alejo, Arambula, Atkins, Baker, Bloom, Bonilla, Bonta, Brown, Burke, Calderon, Campos, Chau, Chiu, AB 2756 Page 9 Chu, Cooley, Cooper, Dababneh, Daly, Dodd, Eggman, Frazier, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Roger Hernández, Holden, Irwin, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, McCarty, Medina, Mullin, Nazarian, O'Donnell, Olsen, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Mark Stone, Thurmond, Ting, Weber, Wilk, Williams, Wood, Rendon NOES: Travis Allen, Bigelow, Brough, Chávez, Beth Gaines, Harper, Jones, Melendez, Obernolte, Patterson, Steinorth, Wagner, Waldron NO VOTE RECORDED: Chang, Dahle, Mayes Prepared by: Katharine Moore / N.R. & W. / (916) 651-4116 8/3/16 21:56:44 **** END ****