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