BILL ANALYSIS Ó SB 887 Page 1 Date of Hearing: June 27, 2016 ASSEMBLY COMMITTEE ON NATURAL RESOURCES Das Williams, Chair SB 887 (Pavley) - As Amended May 31, 2016 SENATE VOTE: 30-9 SUBJECT: Natural gas storage wells SUMMARY: Provides a framework for reforming the oversight of natural gas storage wells. Requires continuous monitoring of natural gas storage wells. Requires evaluation, testing, and installation of specified technology and practices for operating natural gas storage wells. EXISTING LAW: 1)Establishes the Division of Oil, Gas, and Geothermal Resources (DOGGR) as the state's oil and gas regulator. 2)Requires the state's Oil and Gas Supervisor (Supervisor) to supervise the drilling, operation, maintenance, and abandonment of wells and the operation, maintenance, and removal or abandonment of tanks and facilities attendant to oil and gas production. SB 887 Page 2 3)Defines "well" to mean any oil or gas well or well for the discovery of oil or gas; any well on lands producing or reasonably presumed to contain oil or gas; any well drilled for the purpose of injecting fluids or gas for stimulating oil or gas recovery, repressuring or pressure maintenance of oil or gas reservoirs, or disposing of waste fluids from an oil or gas field; any well used to inject or withdraw gas from an underground storage facility; or any well drilled within or adjacent to an oil or gas pool for the purpose of obtaining water to be used in production stimulation or repressuring operations. 4)Requires the operator of any well, before commencing the work of drilling the well, to file with the Supervisor a notice of intention (NOI). Requires approval of the NOI by the Supervisor. Authorizes the Supervisor to deny approval of proposed well operations for failure to comply with an order until the operator brings its existing well operations into compliance with the order. 5)Allows DOGGR to apply to the United States Environmental Protection Agency (US EPA) to receive "primacy" to operate the Class II Underground Injection Control (UIC) program for oil and gas injection wells at the state level. The US EPA granted primacy and delegated authority to DOGGR to operate the UIC program in 1983. 6)Prohibits the unreasonable waste of natural gas by the act, omission, sufferance, or insistence of the lessor, lessee, or operator of any land containing oil or gas, or both. 7)Provides that a person who violates the state's oil and gas laws or regulations is subject to a civil penalty not to SB 887 Page 3 exceed $25,000 for each violation. Requires the Supervisor to consider specified circumstances when establishing the amount of the civil penalty such as: a) The extent of harm caused by the violation; b) The persistence of the violation; c) The pervasiveness of the violation; and, d) The number of prior violations by the same violator. 8)Authorizes the California Public Utilities Commission (CPUC) to regulate gas corporations, including natural gas storage facilities (Facilities). 9)Requires Facilities to receive a Certificate of Public Convenience and Necessity (CPCN) before constructing a Facility. Requires that the CPUC grant a CPCN on the grounds that the present or future public convenience and necessity requires or will require the Facility. 10)Requires, pursuant to the California Global Warming Solutions Act (AB 32), the Air Resources Board (ARB) to adopt a statewide greenhouse gas (GHG) emissions limit equivalent to 1990 levels by 2020 and to adopt rules and regulations to achieve maximum technologically feasible and cost-effective GHG emission reductions. 11)Requires the Supervisor to continue the prohibition against Southern California Gas Company injecting any natural gas into SB 887 Page 4 the Aliso Canyon Facility located in the County of Los Angeles until a comprehensive review of the safety of the gas storage wells at the Facility is completed and the supervisor determines that well integrity has been ensured by the review. Prohibits the Supervisor from lifting the prohibition on injection until the Executive Director of the CPUC has concurred via letter with the Supervisor regarding his or her determination of safety. 12)Requires the CPUC, no later than July 1, 2017, to open a proceeding on the feasibility of minimizing or eliminating use of the Aliso Canyon Facility while still maintaining energy and electric reliability for the region. THIS BILL: 1)Requires ARB, in consultation with any local air district and DOGGR, to develop a Facility monitoring program that includes continuous monitoring of ambient concentrations of natural gas at a Facility to identify natural gas leaks. Requires the program to include guidelines for continuous monitoring that include optical gas imaging and accurate quantitative monitoring of natural gas concentrations. 2)Requires an operator of a Facility to develop and submit to ARB a facility monitoring plan and the monitoring data. 3)Defines "natural gas storage well" as an active or idle natural gas storage well serving or located in a Facility. 4)Requires before January 1, 2018, and annually thereafter, all natural gas storage wells to be tested along their entire length for loss of integrity resulting in a leak. SB 887 Page 5 5)Requires a natural gas storage well to have an automatic downhole shutoff system (Shutoff System) deployed in order to limit leaks. Requires a Shutoff System to be tested no less than semiannually. 6)Requires DOGGR to review and update practices for the use of subsurface safety valves in natural gas storage wells to reflect best practices. 7)Requires natural gas storage wells to meet various evaluations, including baseline and follow-on proactive. Requires DOGGR to adopt a schedule for the completion of the evaluations and for the performance of the evaluations. Specifies that the schedule for evaluations be based on risk. 8)Requires a natural gas storage well that has lost integrity or that is at risk of loss of integrity to be immediately repaired. 9)Requires all natural gas injection and production to be through tubing only and isolated from contact with the well casing. Requires annular pressure and production or injection flow rate to be continuously monitored. 10)Defines "sensitive receptor" to include, but not be limited to, schools, hospitals, and residential housing. SB 887 Page 6 11)Requires the Office or Environmental Health hazard Assessment (OEHHA) and the State Department of Public Health, in consultation with the DOGGR, to perform a science-based risk assessment of natural gas storage wells to determine the appropriate setback distances for natural gas storage wells. Requires DOGGR to review the assessment and appropriately revise its regulations. 12)Requires the operator to submit annually to DOGGR for approval all of the following material: a) A regular maintenance program. b) Design and operating conditions for the well. c) An inspection, leak detection, and monitoring program. d) A site-specific risk management plan which includes the following: i) A protocol for public notice of the leak to the community; ii) Prepositioning, as feasible, materials and personnel to respond to a leak; iii) A training program for site personnel on how to respond to a leak; iv) A plan for corrosion monitoring and evaluation; v) A schedule for regular well and reservoir integrity assessments; vi) An assessment of the risks associated with the natural gas storage well and its operation; and, SB 887 Page 7 vii) Planned risk mitigation efforts. 13)Declares the public has a right to review the location of a natural gas storage well before its approval. 14)Requires notice and preparations for drilling a relief well within 24 hours for a loss of integrity or leak of any size from a natural gas storage well. 15)Requires DOGGR to convene an independent panel of recognized experts to develop best practices for Facilities. Requires the panel to look at risk management and automatic shutoff systems, among other topics. Requires DOGGR to review the best practices and incorporate them into their regulations. 16)Requires annual inspections of some natural gas storage wells by DOGGR. 17)Requires the operator to develop and maintain a comprehensive gas storage well training and mentoring program for their employees. 18)Requires all materials provided to DOGGR to comply with this bill be posted on DOGGR's website. Allows a member of the public to sue DOGGR for not enforcing this bill. SB 887 Page 8 19)Establishes minimum of $10,000 per day and maximum of $25,000 per day penalties for the unreasonable waste of natural gas. FISCAL EFFECT: According to the Senate Appropriations Committee: 1)First year costs of approximately $4.68 million and ongoing costs of approximately $3.75 million (Oil, Gas and Geothermal Administrative Fund) for DOGGR staffing costs resulting from increased regulatory activities for underground gas storage facilities. 2)Minor and absorbable costs to the ARB and the CPUC. 3)Potentially significant costs to OEHHA to conduct risk assessments. COMMENTS: 1)Aliso canyon leak. On October 23, 2015, a natural gas storage well, known as "SS-25" owned by Southern California Gas (SoCalGas) and located in the Aliso Canyon storage field in close proximity to the Porter Ranch neighborhood in Los Angeles County began leaking natural gas. The leak continued until it was initially controlled on February 11, 2016, and the well was successfully sealed on February 18, 2016. During the four months the well leaked, there were numerous attempts to control it. All attempts to stop the leak from the top of SB 887 Page 9 the well failed. A relief well was finally able to stop the natural gas leak by plugging the leaking well at its base. According to a recent study, the leak at Aliso Canyon was the largest natural gas leak recorded in the United States, doubling the methane emission rate of the entire Los Angeles basin. Methane is a potent GHG with a global warming potential more than 80 times as powerful as carbon dioxide. The South Coast Air Quality Management District has received thousands of complaints regarding the odor. Complaints by residents suggest that mercaptans, which are odorants required to be added to natural gas, were present in Porter Ranch at varying levels since the gas leak started. Some people may experience adverse health effects to the strong odors of mercaptans, such as nausea and headaches. In mid-November, the Los Angeles County Department of Public Health, citing public health concerns associated with the use of odorants in the natural gas, ordered SoCal Gas to provide temporary housing relocation assistance to affected residents. Over 8,000 households were relocated due to the leak. Now that the leak has been stopped, residents are returning home, regulators are investigating the cause of the leak, and a comprehensive safety review of the other 114 wells at the field is in progress. 2)Natural gas storage facilities. Natural gas providers inject natural gas into large underground reservoirs for storage before later withdrawing the gas for sale during peak load periods. These underground reservoirs often contained oil or gas that has already been extracted. Natural gas providers utilize these facilities to reduce the cost of procurement and SB 887 Page 10 to maintain adequate supply of natural gas during peak times. While the CPUC regulates natural gas providers, natural gas transmission lines, and the permitting of Facilities, it is DOGGR that regulates the wells that natural gas is injected into and withdrawn from. Gas storage injection wells are the only type of injection wells in DOGGR's UIC program that are not part of the primacy agreement with US EPA. DOGGR's UIC program regulates 14 active gas storage facilities in 12 separate fields across the state to ensure well construction and integrity, appropriateness of the injection site, and zonal isolation of the injections. Each Facility may contain dozens of active gas storage wells. There are 343 active and 85 idle natural gas storage wells in the state. Some natural gas storage facilities have been in operation since the 1940s, and approximately half of the active wells are over 40 years old. Natural gas storage wells vary in construction, depth, design, age, location, and operating conditions. In Aliso Canyon, the wells were drilled in the 1940s for production purposes and then converted into storage wells. The wells at Aliso Canyon do not contain a cement barrier along the entire length of the casing and have had a history of well integrity issues. 3)DOGGR's UIC problems. In 1974, the Safe Drinking Water Act authorized the US EPA to control underground injection to protect underground drinking water sources. In 1982, a primacy agreement was signed that allowed DOGGR to implement the US EPA's UIC program for oil and gas wells in California. DOGGR's handling of the portion of the UIC program delegated to it by the US EPA has come under criticism in recent years. A 2011 US EPA audit of DOGGR's UIC program implementation concluded that DOGGR was misclassifying underground sources of drinking water and doing an insufficient job monitoring the UIC program. In June 2014, it was discovered that DOGGR was approving injection wells in aquifers that were not exempt from the Safe Drinking Water Act. This included injections into aquifers that were not properly exempted, but also SB 887 Page 11 included injections into aquifers that were never exempt. California Environmental Protection Agency's (CalEPA) review found that DOGGR's district offices were approving projects without review from DOGGR and were making errors identifying the injectable zone of exempt aquifers. This included misidentifying the borders and depth of the aquifer and allowing expansion of productive limits over time beyond boundaries established in the Primacy Application. SB 83 (Committee on Budget and Fiscal Review), Chapter 24, Statutes of 2015, required the Secretary for Environmental Protection and the Secretary of Natural Resources Agency (NRA) to appoint an independent review panel (Panel), on or before January 1, 2018. The Panel will evaluate the regulatory performance of DOGGR's administration of the UIC program and to make recommendations on how to improve the effectiveness of the program. The recommendations the Panel can make include: requests for additional resources; needed statutory or regulatory changes; proposals for program reorganization; and, whether to transfer the UIC program to the State Water Resources Control Board. In October 2015, DOGGR released a "Renewal Plan For Oil and Gas Regulation," which was intended to address concerns over its handling of the UIC program and its regulation of oil and gas in general. The plan called for the review of all injection projects and the review and updating of all UIC regulations. Many of those regulations had not been changed in decades. Concerns have been raised that DOGGR has not required enough inspections, maintenance, or upgrades for older natural gas storage wells to prevent leaks. DOGGR indicates they were already in the process of updating their gas storage regulations when the leak occurred. SB 887 Page 12 4)State actions. On January 6, 2016, the Governor issued a proclamation of a state of emergency, which directed several state agencies to act in response to the Aliso Canyon gas leak. These actions included all of the following: a) Direction to DOGGR to continue prohibiting all injections into Aliso Canyon; b) Direction to CPUC and California Energy Commission (CEC) to reduce the pressure of the facility by withdrawing gas; c) Direction to ARB to require real-time monitoring of emissions; d) Direction to OEHHA to review public health concerns, ensure energy and natural gas reliability; e) Direction to DOGGR to promulgate emergency regulations to require new safety and reliability measures for underground natural gas storage facilities; and, f) Direction to DOGGR, CPUC, ARB, and CEC to assess the long-term viability of natural gas storage facilities. On February 5, 2016, DOGGR established emergency regulations SB 887 Page 13 to improve the regulation of gas storage wells. The regulations include the requirement that within six months (August 6) after the regulations become effective, the operator of a gas storage facility to submit a Risk Management Plan to DOGGR to assess the integrity and risk associated with their gas storage project. DOGGR has yet to receive a risk management plan from an operator. DOGGR is working with Lawrence Berkeley National Laboratory, Lawrence Livermore National Laboratory, and Sandia National Laboratory on its permanent regulations for gas storage wells. A draft of the regulations is expected in July. 5)Monitoring. On May 31, 2016, ARB proposed regulations for oil and natural gas facilities that included monitoring requirements. The proposed regulations call for continuous monitoring of the ambient air at the facility and daily or continuous monitoring of each natural gas storage wellhead. The requirements in this bill are largely consistent with ARB's proposed regulations with one exception. This bill has a specific technology requirement of optical gas imaging. While optical gas imaging provides easily understandable images of leaks, it might not always be appropriate or feasible for every well. 6)Shutoff systems. There is much debate about whether automatic downhole shutoff systems (Shutoff Systems) are appropriate in all cases and little evidence about their effectiveness at preventing natural gas storage leaks. However, this bill requires all wells to have Shutoff Systems. Several Shutoff Systems at the McDonald Island gas storage fields and the Los Medanos gas storage field have failed. When Shutoff Systems fail, the operator must remove them from the well to repair them. Pulling the Shutoff System up thousands of feet to the SB 887 Page 14 surface may create the potential for damaging the casing or tubing. This bill requires an independent panel of recognized experts to develop best practices for natural gas storage, including for the appropriate use of Shutoff Systems, but then mandates the Shutoff Systems in all cases before the independent panel reviews them. In addition, the bill mandates these devices be installed on January 1, 2017, without a phase-in. This could lead to reliability concerns if hundreds of natural gas storage wells are all being retrofitted to meet the requirements of this bill during winter when natural gas is needed to meet electrical generation and consumer demand for heating. 7)Production through the tubing. Most natural gas storage wells produce through tubing and the casing. However, if the casing has integrity issues, the tubing can be isolated from the casing and natural gas can solely be injected and withdrawn from the tubing. If this occurs, anti-corrosive fluids or inert gas is often placed in the casing to further isolate the tubing from the casing. Using only the interior tubing will reduce both injection and withdrawal capacity by approximately 40 to 50%. This bill requires on January 1, 2017, all natural gas storage wells to produce solely through tubing regardless of the casing integrity or whether there is a cement barrier. Some storage fields were designed to only have the wells necessary to meet their delivery needs and would need to drill additional wells if they could only produce through the tubing. The author's office believes any production through the casing will create wear and tear on the casing and reduce its integrity. However, the drilling of additional wells also poses risks. Should production through the casing be allowed when the well has a second barrier of cementing and is considered low risk? This bill has no requirement for a second cement barrier, which was missing at SS-25. If operators are required to produce only through the tubing, they may not consider a cement barrier as an option to prevent leaks. In addition, requiring all wells to produce through SB 887 Page 15 tubing by January 1, 2017, while at the same time requiring them to install Shutoff Systems, would likely dramatically reduce the amount of natural gas that could be delivered. 8) Penalties. AB 2756 (Thurmond and Williams, 2016) increases penalties that DOGGR may assess for any violation. This bill also increases penalties, but just for the unreasonable waste of natural gas. These provisions create chaptering issues for both bills. The author's office has stated the author is willing to work on chaptering issues as the bills move forward. 9)Amendments. The author and committee may wish to consider the following amendments: a) Amend definition of "natural gas storage well" to mean an active or idle well used solely to inject gas into or withdraw gas from an underground gas storage facility. b) Amend definition of "sensitive receptor" to mean any residence, including private homes, condominiums, apartments, and living quarters; education resources such as preschools and kindergarten through grade 12 (K-12) schools; daycare centers; and health care facilities such as hospitals or retirement and nursing homes. A sensitive receptor includes long-term care hospitals, hospices, prisons, dormitories, or similar live-in housing. SB 887 Page 16 c) Delay effective date for specified requirements of the bill by two and half years for low risk wells. Higher risk wells shall comply with specified requirements in one and half years. If there is an imminent hazard, this does not limit the supervisor's authority to take action. d) Allow DOGGR to modify requirements for Shutoff Systems and injection/production only through the tubing for low risk non-urban wells. e) Require all new natural gas storage wells to have a cement barrier, as determined by the Supervisor. 9)Related legislation. SB 380 (Pavley), Chapter 14, Statutes of 2016, sets in statute criteria for testing and inspection of the natural gas storage wells at the Aliso Canyon facility and required the CPUC and others to study the feasibility of minimizing the use of or shutting down the Aliso Canyon gas storage facility. AB 1903 (Wilk, 2016) requires a long-term health impact study from the Aliso Canyon gas leak, as specified. This bill is awaiting hearing in the Senate Environmental Quality Committee. AB 1905 (Wilk, 2016) requires the NRA, on or before July 1, 2017, to complete an independent scientific study on natural gas injection and storage practices and facilities. This bill was held on the suspense file in the Assembly Appropriations Committee. SB 887 Page 17 AB 2756 enhances the DOGGR penalty, shut-in order, and investigation authority. This bill authorizes DOGGR to permit environmentally beneficial projects in lieu of up to 50% of the amount of a civil penalty. This bill is awaiting hearing in the Senate Judiciary Committee. SB 888 (Allen, 2016) clarifies the role of the California Office of Emergency Services in the event of a gas leak such as the one at Aliso Canyon. This bill establishes the Gas Storage Facility Leak Mitigation account and directs how funds in that account should be spent. This bill is scheduled to be heard in this committee on June 27, 2016. REGISTERED SUPPORT / OPPOSITION: Support SB 887 Page 18 American Lung Association in California Asian Pacific Environmental Network California Coastal Protection Network California Public Interest Research Group California Voices for Progress Education Fund City of Los Angeles Center on Race, Poverty & the Environment Clean Power Campaign Clean Water Action Consumer Attorneys of California Environment California Environmental Working Group Los Angeles County Board of Supervisors Los Angeles County Democratic Party SB 887 Page 19 Los Angeles Unified School District Los Angeles Unified School District Board of Education Natural Resources Defense Council Porter Ranch Neighborhood Council Santa Susana Mountain Park Association Sierra Club California South Coast Air Quality Management District Voice for Progress Utility Workers Union of America 19 individuals Opposition SB 887 Page 20 Central Valley Gas Storage Gill Ranch Storage Lodi Gas Storage Wild Goose Storage Analysis Prepared by:Michael Jarred / NAT. RES. / (916) 319-2092