BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     SB 887


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          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.








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          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  








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            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  








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            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.
          









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          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. 
          









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          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,








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               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.











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          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  








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            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  








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            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  








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            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.  














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          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  








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            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  








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            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  








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            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.








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             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. 








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          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









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          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








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          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












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          Central Valley Gas Storage
          Gill Ranch Storage
          Lodi Gas Storage
          Wild Goose Storage


          Analysis Prepared by:Michael Jarred / NAT. RES. / (916)  
          319-2092