BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session SB 380 (Pavley) - Natural gas storage: moratorium ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: January 27, 2016 |Policy Vote: Pending | | | | |--------------------------------+--------------------------------| | | | |Urgency: Yes |Mandate: Yes | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: January 28, 2016 |Consultant: Marie Liu | | | | ----------------------------------------------------------------- This bill meets the criteria for referral to the Suspense File. Bill Summary: SB 380 would place a moratorium on the injection and production of natural gas at the Aliso Canyon storage facility until specific conditions are met regarding well integrity and would require the California Public Utilities Commission (CPUC) to determine the feasibility of minimizing or eliminating use of that facility. Fiscal Impact: Unknown, but potentially in the hundreds of thousands of dollars from the Oil, Gas, and Geothermal Administrative Fund (special) to the Department of Conservation for the additional required evaluation of wells at the Aliso Canyon storage SB 380 (Pavley) Page 1 of ? facility. Minimum costs likely in the high hundreds of thousands and possibly in the low millions to the Public Utilities Reimbursement Account (special fund) for the CPUC to determine the feasibility of minimizing or eliminating the use of the Aliso Canyon storage facility and to make a determination regarding the lifting of the moratorium. Unknown costs to the California Energy Commission to the Energy Resources Program Account (General Fund). Background: In October 2015, a significant uncontrolled natural gas leak from a gas storage well was discovered within the Southern California Gas Company's Aliso Canyon natural gas storage facility. The Aliso Canyon natural gas storage facility is the largest natural gas storage facility in the western United States. The facility has approximately 115 wells of which 108 are gas storage wells. Forty-eight of the gas storage wells at Aliso Canyon were originally drilled in 1954 or earlier (almost half of those in gas storage service now). An additional 47 wells were all originally drilled at least 15 years ago. The Division of Oil, Gas, and Geothermal Resources (DOGGR) within the Department of Conservation and headed by the supervisor is responsible for the regulation of natural gas wells while the regulation of the storage facility itself is under the California Public Utilities Commission (CPUC). Proposed Law: This bill would require DOGGR to institute a moratorium on the injections of natural gas at the Aliso Canyon storage facility until several conditions are met regarding the integrity of the wells. Specifically, each well must be evaluated by "state-of-the-art" technology for well integrity and well failure risks. The technical methods and equipment used would be determined by DOGGR with input from independent experts and SB 380 (Pavley) Page 2 of ? through a public process. The supervisor of DOGGR, the CPUC, and the California Energy Commission (CEC) must all concur that the DOGGR's responsibility to prevent the damage to life, health, property, and natural resources has been fulfilled before the moratorium is lifted. This bill would also prohibit the use of wells drilled prior to 1954 for the production of natural gas at the Aliso Canyon storage facility until the wells have been evaluated as specified unless the well is needed to respond to the current gas leak or to maintain regional energy reliability as determined by the "commissions." Related Legislation: SB 886 (Pavley), which was introduced on January 20, 2016, is identical to this measure. No actions have yet been taken on SB 886. Staff Comments: This bill would require DOGGR to determine what "state-of-the-art" technology must be used to evaluate well integrity and risks posed by well failure through a public process, which presumably would be through the development of regulations. As DOGGR has been widely criticized for using outdated and inadequate methods, such technology is likely to be a departure from its current practices and therefore reasonably may result in additional costs to DOGGR. That said, staff notes that DOGGR has received significant additional resources in the last two budgets to both improve and expand its existing programs in a manner generally consistent by this bill. It is unclear whether those new resources would be sufficient to cover the additional actions required by this bill. This bill would require the CPUC to determine the feasibility of minimizing or eliminating the use of the Aliso Canyon storage facility while maintaining energy reliability for the region. While reliability is considered by the CPUC as part of its regular duties, this feasibility study would require additional analysis, similar to those studies conducted regarding electricity reliability after the closure of San Onofre nuclear power plant and the adoption of once-through-cooling regulations. The large size of the Aliso Canyon facility will SB 380 (Pavley) Page 3 of ? also increase the impacts that need to be considered. Depending on the level of existing analyses, staff roughly estimates that these costs could range in the high hundreds of thousands of dollars to low millions. Staff notes that this bill would require the CPUC and the CEC to make a determination regarding whether DOGGR's responsibilities have been fulfilled. At this time, it is unclear how this determination will be made by those agencies and therefore any costs associated with such a determination are unknown. -- END --