BILL ANALYSIS Ó
SENATE COMMITTEE ON NATURAL RESOURCES AND WATER
Senator Fran Pavley, Chair
2015 - 2016 Regular
Bill No: SB 233 Hearing Date: April 28,
2015
-----------------------------------------------------------------
|Author: |Hertzberg | | |
-----------------------------------------------------------------
-----------------------------------------------------------------
|Version: |April 21, 2015 |
-----------------------------------------------------------------
-----------------------------------------------------------------
|Urgency: |No |Fiscal: |Yes |
-----------------------------------------------------------------
-----------------------------------------------------------------
|Consultant:|Katharine Moore |
| | |
-----------------------------------------------------------------
Subject: Marine resources and preservation
BACKGROUND AND EXISTING LAW
There are 27 oil and gas platforms offshore California. Four of
these platforms are in state waters at relatively shallow depths
(approximately 200 feet or less). The remaining 23 platforms
are over 3 miles from shore at depths reaching nearly 1200 feet.
Additionally, there are five more offshore "islands" (which are
also platforms) in state waters. The platforms are located off
the coasts of Los Angeles, Ventura and Santa Barbara counties.
At least five offshore platforms, including one island, off the
coast of California have been "decommissioned" and removed.
AB 2503 (Perez, c. 687, Statutes of 2010) established state
policy to allow, on a case-by-case basis, the partial
decommissioning of offshore oil and gas platforms. Partial
decommissioning means removing the top part of the platform
while leaving the lower portion behind to act as a subsurface
"reef." Not all platforms may qualify for partial
decommissioning, however, as certain conditions must be met.
These include, among others, that there be a net environmental
benefit from the "reef" and that a portion of the cost savings
to the platform owner from partial, as opposed to full,
decommissioning be shared with the state and deposited in an
endowment whose moneys would be used to the benefit of coastal
marine resources. AB 2503's "rigs-to-reefs" program is
voluntary and platforms in both state and federal waters are
eligible to participate. AB 2503's legislative findings
SB 233 (Hertzberg) Page 2
of ?
included that the costs of the program should be borne by the
applicants.
There were at least two unsuccessful attempts prior to AB 2503
to establish a rigs-to-reefs program (SB 241, Alpert, 2000, and
SB 1, Alpert, 2001). Additionally, since AB 2503 became law,
there have been two unsuccessful attempts to alter its
extensively negotiated terms to the benefit of the platform
owners (AB 2267, Hall, 2012, and AB 207, Rendon, 2013).
Rigs-to-reefs programs allow the oil industry to avoid the costs
of full decommissioning, although full decommissioning was an
agreed-upon lease condition. Estimates of the cost savings
associated with partial decommissioning vary from tens of
millions to hundreds of millions of dollars per platform. AB
2503 provided a financial incentive to the oil industry to
submit partial decommissioning applications by providing that a
smaller fraction of the cost savings would be shared with the
state in the early years of the program (55%) compared to later
(80%).
Despite repeated assertions over at least the last 15 years that
applications for partial decommissioning were imminent, no
applications under AB 2503 have been filed with the state. It is
a fair point that no application has been developed pursuant to
AB 2503 (which this bill seeks to address), but it is also
staff's understanding that no serious inquiries to the relevant
agencies have occurred.
The economic viability of any offshore platform and its oil and
gas wells is a function of many factors. High prices for crude
oil the last five years - prices of benchmark crudes often
exceeded $100/barrel - compared to approximately $50/barrel in
last several months with muted expectations of a substantial
price rise in the short term are likely to have affected the
outlook for the offshore California platforms.
Existing federal law requires that "decommissioned" oil and gas
platforms be removed at the end of production, and the
surrounding marine environment be cleaned up and restored to a
natural condition. Existing state and federal offshore oil
leases generally require the removal of decommissioned oil
platforms after the lease ends. Both federal regulations and
provisions in state and federal leases allow the federal
SB 233 (Hertzberg) Page 3
of ?
government to consider and approve alternative decommissioning
methods other than complete removal. "Rigs-to-reefs" programs
are widely used in the Gulf of Mexico, and Louisiana, Texas and
Mississippi.
That said, as a recent commentary in the Proceedings of the
National Academy of Sciences pointed out, circumstances are
unique to each particular platform depending on the location,
water depth, platform size and other factors. Simple
generalizations about rigs-to-reef "working" in some locations
with the implication that partial decommissioning will
necessarily provide net environmental benefits and cost savings
in other locations are inappropriate.
AB 2503 recognized the multi-jurisdictional nature of platform
decommissioning and the need for a viable rigs-to-reefs program
to utilize the established expertise and authority of different
state entities. AB 2503 purposefully split up program
responsibilities between different regulators.
AB 2503's rigs-to-reefs program uses the expertise of the
following state entities:
The Department of Fish and Wildlife (department) has the
primary authority, as specified, for carrying out the
program, including:
o the development of application materials,
o the determination of whether an application
was complete,
o the preparation of a plan to manage the reef,
o providing an opportunity for public comment on
the application,
o holding a public hearing in the county nearest
to the proposed reef,
o the review and conditional and final approval
of an application, and
o the management and operation of approved
artificial reefs.
The Natural Resources Agency serves as lead agency under
the California Environmental Quality Act (CEQA).
The Ocean Protection Council (council) determines
whether a net benefit to the marine environment from
SB 233 (Hertzberg) Page 4
of ?
partial decommissioning exists. This includes establishing
appropriate criteria to make this evaluation.
The State Lands Commission (commission) determines the
cost savings.
The State Coastal Conservancy (conservancy) creates an
advisory spending plan for the cost savings deposited in
the endowment.
In addition, the authority of the California Coastal
Commission in the coastal zone as well as the authority of
local and federal regulatory entities within their
respective jurisdictions were explicitly acknowledged and
protected.
AB 2503 requires information sharing among different state
entities including the department, the council, the commission
and the endowment. It repeatedly allows for formal agreements
to be developed, as needed, to support the coordination and
consultation required between entities.
Focusing on the application, AB 2503 establishes minimum
standards for the required materials, including:
a plan and schedule for partial decommissioning,
a determination of the estimated costs of partial and
full decommissioning,
a determination of the environmental impacts and
benefits to the marine environment from partial and full
decommissioning,
identification of all necessary permits, leases and
approvals needed and a schedule to obtain them, and
in some instances, a management plan for the reef
following partial decommissioning.
An AB 2503 application is complete when the applicant provides
certain financial assurances that ensures that sufficient funds
are available to pay for the cost of processing the application.
The first AB 2503 applicant will also be required to pay the
program's set-up costs, although those are reimbursable.
AB 2503 provides specific criteria for the department to issue a
conditional approval for a partial decommissioning project.
These include:
SB 233 (Hertzberg) Page 5
of ?
all applicable laws are followed,
there is a net benefit to the marine environment,
there are cost savings,
there is funding to do the evaluation that is provided
by the applicant,
an agreement has been reached between the applicant and
the department to support the overall management of the
reef,
the applicant and the department have entered into an
indemnification agreement to protect the state from
liability, as specified,
the applicant has obtained all necessary permits, leases
and approvals, and
the department and owner of the platform have reached an
agreement for the department to take title to the reef.
AB 2503 requires the owner or operator of an oil structure, upon
receipt of conditional approval for partial removal, to transmit
a portion of the total cost savings as follows:
55% by January 1, 2017
65% between January 1, 2017 - January 1, 2023
80% after January 1, 2023
The department shall not grant final approval until the full
amount of applicable cost savings has been transmitted.
PROPOSED LAW
This bill would modify the AB 2503 rigs-to-reefs program. It
would:
replace the Natural Resources Agency as CEQA lead with the
commission;
allow the applicant to withdraw its rigs-to-reef application
at any time;
re-set or potentially re-set the financial incentives by
replacing the years in the dates with blanks;
add consultation with the Air Resources Board, as specified,
in the calculation of net benefits to the marine environment;
add air quality or greenhouse gas emissions to the
determination of the net benefit to the marine environment;
add a public meeting to review the environmental documents to
the one already required on the application, as specified; and
make additional technical and clarifying changes.
SB 233 (Hertzberg) Page 6
of ?
ARGUMENTS IN SUPPORT
According to the author, "in 2010, the Legislature passed AB
2503 by former Speaker John Perez, which enacted California's
rigs-to-reefs program. We are now nearing the point where the
first of California's offshore oil rigs will be ready for
decommissioning in the next few years. It has become apparent
through discussions with the Administration, that the permitting
process is unworkable, both for practical reasons involving a
lack of expertise and fiscal reasons as well. Senate Bill 233
is intended to make the current rigs-to-reefs permitting process
more pragmatic without sacrificing any level of environmental
review. As the bill moves along, we intend to work closely with
a multi-agency group to review the rigs-to-reefs approval
process and make recommendations for changes, the chairs of the
policy committees, and stakeholders to make sure that we have a
consensus approach to the decommissioning process [that] is both
workable and protective of the environment."
The author continues, "[t]he bill adds the impact of greenhouse
gas emissions [which] should be considered in weighing the
removal options for offshore oil rigs" in the calculation of the
net environmental benefit and "has left open for negotiation
moving back the various cut-off dates which encourage early
retirement of oil rigs to accommodate the five years since the
passage of AB 2503."
"Overall, SB 233 seeks to take a critical look at the
rigs-to-reefs program and to work to make the process better.
Ultimately, if oil rigs are approved for conversion, a
productive marine ecosystem will be saved from destruction and
potentially hundreds of millions of dollars will be made
available in perpetuity for funding ocean oriented environmental
programs."
Get Wet Scuba notes that "our group frequently dives at oil rigs
that are off the coast of Long Beach. It is a vibrant ecosystem
and supports enormous amount[s] of marine life. It is one of the
most beautiful dives in Southern California."
ARGUMENTS IN OPPOSITION
The letters opposing this bill were all received prior to the
most recent amendments. Those amendments addressed or appear to
have addressed some of the specific objections raised against
SB 233 (Hertzberg) Page 7
of ?
the bill.
In a joint opposition letter, the Environmental Defense Center
and others note that the bill "is unnecessary, premature, and
would undermine the provisions in existing law that require a
balanced, thorough analysis of proposal to leave offshore oil
platforms at sea. The bill is unnecessary because the
legislature already passed AB 2503 in 2010. That bill followed
many years of state-wide debate and was fashioned to include
relevant agencies and stakeholders in a process that would
address the many issues that will be raised if oil platforms are
not removed from the ocean environment. These issues include
legacy pollution resulting from residual toxins and contaminated
debris left in the ocean, introduction of invasive species,
attraction of fish away from productive natural reefs, safety
and navigational risks, and increased liability to the state."
The joint letter continues that the bill is premature because
"no platforms are ready for decommissioning. [?] Clearly, there
is no need to hasten to amend existing law." While acknowledging
that many of the letter signers did not support AB 2503 because
"we believe the oil industry should comply with its original
commitments to remove oil platforms at the end of their
productive life and to restore the marine environment to a
natural condition," they note that "[e]xisting law is adequate
to address the issues raised by proposals to avoid full
decommissioning of offshore oil platforms."
The West Marin Environmental Action Committee identifies several
issues in its letter, including, among others, concerns about
the length of time considered in the net environmental benefit
analysis, the lack of public participation in the development of
net environmental benefit criteria, and the proposed reset of
the cost saving criteria.
Many of the bill's opponents express an interest in engaging
with the author and other stakeholders on the issue. For
example, the Ocean Conservancy writes, "we urge more time to
engage and reach a level of mutual understanding and commitment
by designated responsible agencies, stakeholders and the
affected public to achieve an effective and thorough process to
guide the disposition of oil platforms offshore California. We
would be pleased to participate in a dialogue with interested
parties to that end."
SB 233 (Hertzberg) Page 8
of ?
COMMENTS
This bill is a work-in-progress . Committee staff understand
that discussions are active among the author's office and
stakeholders to facilitate implementation of the rigs-to-reefs
program. These discussions include providing the upfront
resources necessary for implementation. It is likely that
further amendments may be proposed by the author at a later date
to incorporate the results of these negotiations. The committee
may wish to re-hear the bill in that event.
The commission has experience as a CEQA lead agency for platform
decommissioning . Even in the event of an application for a
rigs-to-reefs conversion in federal waters, it is likely that
substantial elements of the decommissioning would be under the
commission's jurisdiction.
Cost sharing and incentives . AB 2503 established state policy
to provide financial incentives to platform owners for
rigs-to-reef conversions with the proviso that the state share
in the cost savings. The incentives to platform owners were
front-loaded. The applicants had 6 years from the date AB 2503
became law to obtain the required conditional approval of the
rigs-to-reefs conversion in order to qualify for the most cost
savings. The AB 2503 incentive structure has been established
law for over 4 years, and no platform operators have provided
resources to fund AB 2503 implementation or come forward to
apply for partial decommissioning. However, under current law,
it would be effectively impossible for an applicant to qualify
for the maximum savings level now.
Air quality and the net environmental benefit . The
consideration of air quality, including greenhouse gas
emissions, in decommissioning is a required element of the CEQA
environmental analysis. The focus on biological resources and
water quality - in other words on the proposed reef and its
immediate subsurface environment - in the existing calculation
of the net environmental benefit to the marine environment seeks
to ensure the reef provides lasting benefits. It is highly
likely that there will be a significant difference in total air
emissions between partial and full decommissioning to the
advantage of partial decommissioning. That said, the direct and
indirect impacts from air emissions to the proposed reef and
their duration are unclear, and the council will have to
SB 233 (Hertzberg) Page 9
of ?
determine how to appropriately weigh these impacts in its
calculations.
Public participation . The bill adds a public hearing to review
the environmental documents to the public hearing on the
application held near the proposed reef location. While the
CEQA process, as well as the various permitting requirements for
a rigs-to-reefs proposal, provide for public participation, this
bill provides additional opportunity for public comment to those
likely to be most affected by the proposal.
The rigs-to-reef program is voluntary . Circumstances may arise,
such as advances in offshore oil production, where the platform
owner may wish to keep the platform in operation despite having
applied for partial decommissioning. Existing law is clear that
the rigs-to-reefs program is voluntary, and the bill makes
explicit that the platform owner may withdraw the program
application.
AB 2503's division of regulatory effort is appropriate given
existing jurisdiction and expertise. Offshore oil platforms
operate under the jurisdiction of multiple regulators, as will
their eventual partial or full decommissioning. There is
substantial existing expertise and experience relevant to
decommissioning already extant in state government.
Coordination and communication are critical between the relevant
entities as they utilize their existing expertise and exercise
their independent judgment in processing a rigs-to-reef
application. AB 2503 specifically provides for formal
agreements to be used to ensure coordination and communication
between entities and timely application processing. These have
proven successful in many other circumstances.
Recent platform decommissioning . According to the commission,
Belmont Island off the coast of Los Angeles County was
decommissioned in the early 2000s and was the last offshore oil
facility to be removed from California's waters. The commission
found that complete removal of the island was the
environmentally preferred option because there was no evidence
that the island provided unique habitat in the area.
Additionally, the Coast Guard determined, given the shallow
depth, that leaving the base of the island behind would create a
navigational hazard.
SB 233 (Hertzberg) Page 10
of ?
Prior to the Belmont Island decommissioning, the Chevron 4-H
platforms off the coast of Carpenteria and Summerland were
decommissioned in 1996. The commission acted as CEQA lead.
During the platforms' operation, "shell mounds" built up under
each one. The mounds are composed of materials from the
periodic cleaning of the platform legs of marine life as well as
other marine organisms. Additionally drilling fluids and drill
cuttings were deposited on the sea floor underneath the
platforms prior to this practice being banned. The drilling
materials contain contaminants such as PCBs, hydrocarbons and
metals. All of these materials are now bonded together in the
mounds which were left in place when the platforms were
decommissioned. The mounds are 25 - 28 feet high, and 200 - 250
feet in diameter. Decommissioning requirements included the
full removal of the shell mounds and all site debris, and that a
"trawl test" with standard equipment be performed. According to
reports, the site is untrawlable. A decision has been made to
leave the mounds in place, but it is unclear if all the
necessary permits have been issued.
Most of the offshore platforms are in federal waters and will
need federal permits . While close coordination and
communication may be able to facilitate the necessary state
permits for partial decommissioning, the state cannot compel the
relevant federal entities to issue the applicable federal
permits in a timely manner.
Do rigs-to-reefs automatically mean there will be more fishing
opportunities ? Not necessarily. The department is authorized
to limit fishing in the vicinity of the reef, if warranted (FGC
§6613(c)).
SUPPORT
Coalition for Enhanced Marine Resources (Co-Sponsor)
Sport Fishing Conservancy (Co-Sponsor)
Get Wet Scuba
Hubbs-Sea World Research Institute
Inland Empire Waterkeeper
Orange County Coastkeeper
Professional Association of Diving Instructors
United Anglers
Valley Industry and Commerce Association
OPPOSITION
SB 233 (Hertzberg) Page 11
of ?
Citizens Planning Association of Santa Barbara County
Community Environmental Council
Environment California
Environmental Action Committee of West Marin (unless amended)
Environmental Defense Center
Food and Water Watch
Friends of the Sea Otter
Get Oil Out!
International Marine Mammal Project of Earth Island Institute
Ocean Conservancy
Ocean Conservation Research
Pacific Coast Federation of Fishermen's Association
Santa Barbara Channelkeeper
Sierra Club - Los Padres Chapter
Sierra Club California
The Ocean Foundation
Western Alliance for Nature
Wholly H2O
Two individuals
-- END --