BILL ANALYSIS Ó SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS Senator Ben Hueso, Chair 2015 - 2016 Regular Bill No: SB 888 Hearing Date: 4/19/2016 ----------------------------------------------------------------- |Author: |Allen | |-----------+-----------------------------------------------------| |Version: |1/20/2016 As Introduced | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |No |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Jay Dickenson | | | | ----------------------------------------------------------------- SUBJECT: Gas corporations: emergency management DIGEST: This bill prohibits a gas corporation from recovering from ratepayers any money paid in fines, penalties or damages to residents, businesses and other parties harmed by a gas storage leak. This bill also directs any penalties assessed against a gas corporation for a gas storage facility leak into a dedicated account, to be used for direct greenhouse gas (GHG) emissions reductions. Finally, this bill designates the Office of Emergency Services (OES) as the lead agency for emergency response to a leak from a natural gas storage facility. ANALYSIS: Existing law: 1)Directs the California Air Resources Board (ARB) to monitor and regulate sources of emissions of GHGs that cause global warming in order to reduce GHG emissions to 1990 levels by 2020. (Health & Safety Code §38510 et seq.) 2)Authorizes the California Public Utilities Commission (CPUC) to fix rates, establish rules, examine records, issue subpoenas, administer oaths, take testimony, punish for contempt, and prescribe a uniform system of accounts for all public utilities, including electrical and gas corporations, subject to its jurisdiction. (Article 12 of the California Constitution) 3)Requires that all charges demanded or received by any public utility for any product, commodity or service be just and SB 888 (Allen) PageB of? reasonable, and that every unjust or unreasonable charge is unlawful. (Public Utilities Code §451) 4)Prohibits a gas corporation from recovering any fine or penalty in any rate approved by the CPUC. (Public Utilities Code §959) This bill: 1)Prohibits a gas corporation from recovering from ratepayers any money paid in fines, penalties or damages to residents, businesses and other parties harmed by a gas storage leak. 2)Directs any penalties assessed against a gas corporation for a gas storage facility leak into a dedicated account, to be used for direct GHG emissions reductions. 3)Designates the OES as the lead agency for emergency response to a leak from a natural gas storage facility. Background Aliso Canyon Gas Storage Facility leak - a disaster. On October 23, 2016, the Southern California Gas Company (SoCalGas) discovered a leak from a well at the company's Aliso Canyon Gas Storage Facility. The Division of Oil, Gas and Geothermal Resources (DOGGR) - the state agency responsible for regulating Aliso Canyon's natural gas storage wells - reports that it was informed of the leak soon after its discovery. Other state and local agencies, as well as nearby residents threatened by the leak, were notified sometime later. For more than 100 days, the well continued to dump tons of methane gas into the atmosphere, along with irritants and other substances. According to the ARB, the leak emitted almost 100,000 tons of methane, a potent GHG, adding approximately 20 percent to statewide methane emissions over its duration.<1> Many resident from nearby Porter Ranch suffered noxious odors. Others reported more serious health effects, including nose bleeds, rashes and respiratory problems. Hundreds were relocated from their homes. Despite assurances from public --------------------------- <1>http://www.arb.ca.gov/research/aliso_canyon/arb_aliso_canyon_m ethane_leak_climate_impacts_mitigation_program.pdf SB 888 (Allen) PageC of? health agencies, many fear the leak's long term effects on health and wellbeing. According to the ARB SoCalGas has committed to paying for the damage caused by its leak, including mitigation of the emission of thousands of tons of methane. Last month, ARB released its Aliso Canyon Methane Leak Climate Impacts Mitigation Program, which recommends a program that will: Generate significant and quantifiable reductions in methane emissions within the agriculture and waste sectors. Promote a more sustainable energy infrastructure by promoting energy efficiency and decreasing reliance on fossil fuels. Address emissions from methane "hot spots" not presently targeted under federal, state, or local laws. The investigation into the cause of the leak continues. The Attorney General, ARB, the City of Los Angeles and the County of Los Angeles have formally accused SoCalGas of violating California laws. The CPUC, which regulates the rates of SoCalGas, is considering penalties against the gas company. This bill attempts to address a number of discrete issues related to or emerging from the Aliso Canyon leak. First, this bill declares the OES as the lead agency for emergency response to a leak of natural gas from a natural gas storage facility. Second, this bill directs the CPUC to place any penalties assessed against a gas corporation for a gas storage facility leak into a special account and places requirements and restrictions on the use of the monies in the account. Finally, this bill prohibits a gas corporation from recovering in rates approved by CPUC the money paid by the gas corporation for fines, penalties, or damages to residents, businesses, and other parties harmed by a gas storage facility leak. It seems appropriate to designate OES as the lead agency to respond to leaks from a natural gas storage facility. Such a designation is consistent with OES's responsibility for the coordination of overall state agency response to disasters. Surely, the Aliso Canyon disaster could have benefited from clear lines of responsibility (though, according to OES, SoCalGas, in failing to notify it of the Aliso Canyon leak sooner, violated existing law). The South Coast Air Quality SB 888 (Allen) PageD of? Management District, writing in tentative support of this bill, recommends additionally requiring OES to work in coordination with local air districts. The other aspects of this bill are addressed below. GHG emissions reduction program allows for indirect emissions reductions. Existing law - ARB's regulations to implement the Global Warming Solutions Act - authorizes the use of "market mechanisms" to reduce California's emissions of GHGs. Specifically, ARB authorizes the creation of a "cap-and-trade" market, in which covered entities purchase tradable allowances authorizing the emission of a quantity of GHGs. Similarly, ARB has authorized covered entities to receive GHG emissions reduction credit for "offset" projects, that is, projects that, according to ARB, represent verified GHG emission reductions or removal enhancements. The rationale for use of both of these types of indirect emissions reductions is that allowances and offsets may allow a covered entity to reduce an amount of GHG emissions at a lower cost than would otherwise occur. This bill requires that money in a special account established by this bill - the Gas Storage Facility Leak Mitigation Account - be expended only for direct GHG emissions reductions. Relatedly, this bill prohibits the money from being used for the purchase of GHG emissions allowances or offsets. This bill also requires that monies in the account be used in a manner that, at a minimum, reduces GHG in an amount at least as great as the amount of GHGs emitted by the leak. It is unclear why this bill limits use of monies in the account in this way. According to ARB, allowances and offsets both represent real, verifiable and additional reductions in GHG emissions. Each, therefore, seems a legitimate tool for mitigating environmental damage caused by a gas storage facility leak. The author describes the prohibitions against allowances and offsets as better assurance that benefits go most directly to those harmed by the leak. However, in the case of the Aliso Canyon leak, this bill does not restrict direct emissions reductions by SoCalGas to the area of surrounding Aliso Canyon. Under this bill, SoCalGas - the largest natural gas utility in the country - could reduce its direct emissions of methane in locations nowhere near Aliso Canyon. As the utility itself SB 888 (Allen) PageE of? says, it operates across 20,000 square miles throughout Central and Southern California, from Visalia to the Mexican border. In addition, the two requirements described above may be at odds with one another. At this point, it is unknown the dollar amount, if any, of penalties that would be assessed against a natural gas corporation for a storage facility leak (although substantial penalties against SoCalGas for the Aliso Canyon leak seem likely, to say the least). Generally, the purchase of allowances or the use of offsets is a more cost-effective way to reduce GHGs. The more cost-effective the uses of money in the account, the more GHG reductions are realized. This bill requires that monies in fund be used in a manner that, at a minimum, reduces GHG in an amount at least as great as the amount of GHGs emitted by the leak; it may be necessary to realize the most cost-effective reductions of GHGs possible to achieve the requirement of this bill. Law already prohibits recovery of fines and penalties in rates. This bill creates a new prohibition against a gas corporation recovering in rates approved by CPUC the money paid by the gas corporation for fines, penalties, or damages to residents, businesses, and other parties harmed by a gas storage facility leak. This is appropriate: a utility should not recover from ratepayers the costs of its wrongdoing. However, existing statute already prevents such an outcome. Public Utilities Code §959, added following the explosion of a PG&E natural gas pipeline in San Bruno in 2010, prohibits a gas corporation from recovering any fine or penalty in any rate approved by the CPUC. The author's office agrees that the existing prohibition is sufficient. Therefore, the author and committee may wish to amend this bill to delete Public Utilities Code §972(c), as that section reads in the latest version of this bill. Prior/Related Legislation AB 56 (Hill, Chapter 519, Statutes of 2011) prohibited a gas corporation from recovering any fine or penalty in any rate approved by the CPUC. SB 380 (Pavley) calls for a moratorium on injecting or producing natural gas at the Aliso Canyon facility until certain safety measures have been performed and confirmed. The bill passed the Senate 40-0 and is pending consideration by Assembly Committee on Appropriations. SB 888 (Allen) PageF of? SB 887 (Pavley) reforms natural gas storage well standards and operations. The bill is pending consideration by Senate Committee on Environmental Quality. FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes SUPPORT: California Public Interest Research Group Clean Water Action Environment California Environmental Working Group Food & Water Watch Los Angeles Unified School District National Parks Conservation Association Sierra Club California South Coast Air Quality Management District Union of Concerned Scientists OPPOSITION: None received ARGUMENTS IN SUPPORT: Supporters contend this bill protects ratepayers from preventing them from having to pay for misconduct of a gas corporation and better protects the public by designating OES as the lead agency for responding to leaks from natural gas storage facilities. -- END --