BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          SB 380 (Pavley) - Natural gas storage:  moratorium
          
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          |Version: January 27, 2016       |Policy Vote:  Pending           |
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          |Urgency: Yes                    |Mandate: Yes                    |
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          |Hearing Date:  January 28, 2016 |Consultant: Marie Liu           |
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          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  







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            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  








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          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  








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          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.




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