BILL ANALYSIS                                                                                                                                                                                                    Ó




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                                    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  








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            (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  








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            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  








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            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  








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               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.










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             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  








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          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)








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          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,  








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            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


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