Amended in Senate March 28, 2016

Senate Bill No. 1441

Introduced by Senators Leno and Pavley

February 19, 2016

An act to add Section begin delete 38572 end delete begin insert 39731.5 end insert to the Health and Safety Code, and to begin delete add Section 747.2 to end delete begin insert amend Section 977 of end insert the Public Utilities Code, relating to natural gas.

LEGISLATIVE COUNSEL’S DIGEST

SB 1441, as amended, Leno. Natural gas: begin delete vented and fugitive emissions. end delete begin insert methane emissions. end insert

(1) The California Global Warming Solutions Act of 2006 designates the State Air Resources Board as the state agency charged with monitoring and regulating sources of emissions of greenhouse gases. begin delete The act requires the board to adopt greenhouse gas emission limits and emission reduction measures by regulation, and authorizes the state board to include the use of market-based compliance mechanisms in its implementing regulations to achieve those emissions goals. end delete begin insert end insert begin insert The state board is required to adopt a statewide greenhouse gas emissions limit equivalent to the statewide greenhouse gas emissions level in 1990 to be achieved by 2020 and to adopt rules and regulations in an open public process to achieve the maximum, technologically feasible, and cost-effective greenhouse gas emissions reductions. end insert

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This bill would require the state board, in regulations implementing a market-based compliance mechanism, to include vented emissions and fugitive emissions of natural gas as counting against the compliance obligation of certain covered natural-gas-related entities under the mechanism.

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The state board is also required to complete a comprehensive strategy to reduce emissions of short-lived climate pollutants, as defined, in the state and to take specified actions and conduct specified analyses with respect to methane emissions.

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This bill would require the state board, in consultation with the Public Utilities Commission and other relevant state agencies, to adopt by regulation no later than January 1, 2020, methane emissions reduction measures for the emissions associated with the extraction, production, storage, processing, and transportation of natural gas used in the state, including imports, that will achieve a reduction in methane emissions of at least 40% below 2012 methane emissions levels by 2025, as specified. The bill also would require the state board, in consultation with the commission and other relevant state agencies, to consider, among other things, developing new incentives or investment programs to facilitate emissions reductions in basins and fields from which the state receives natural gas and imposing new requirements on the state’s regulated natural gas corporations related to natural gas procurement and tracking of interstate deliveries.

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(2) Under existing law, the begin delete Public Utilities Commission end delete begin insert commission end insert has regulatory authority over public utilities, including gas corporations, as defined. Existing law authorizes the commission to fix the rates and charges for every public utility and requires that those rates and charges be just and reasonable.

This bill would, in establishing rates for gas corporations, prohibit the commission from begin delete considering systemic natural gas losses in the form of vented or fugitive emissions occurring during the injection, storage, transmission, or distribution end delete begin insert allowing gas corporations to seek or receive recovery from ratepayers for the value of natural gas lost to the atmosphere during the extraction, production, storage, processing, transportation, and delivery end insert of the natural gas.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

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begin insert SECTION 1. end insert   

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The Legislature finds and declares all of the
following:

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(a) California is the nation’s second largest user of natural gas,
comprising nearly 10 percent of the entire national consumption.
This natural gas comes from a variety of basins, with over 90
percent of the natural gas used in the state being imported from
locations across the southwestern United States, the Rocky
Mountains, and western Canada before being transported through
more than 100,000 miles of pipe to over 11 million customers in
state.

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(b) Methane, the principle component of natural gas, is a
greenhouse gas known by the Intergovernmental Panel on Climate
Change to have a global warming potential 28 times that of carbon
dioxide over a 100-year time horizon and 84 times that of carbon
dioxide over a 20-year time horizon.

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(c) Methane leakage during the drilling, production, and
transportation of natural gas used in the state contributes to the
overall climate footprint of the energy system of the state, and
although additional scientific research and analysis is presently
being conducted to evaluate how much methane is leaked, there
is enough information and it is imperative to continue to act to
reduce that leakage.

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(d) The Legislature has established a policy goal to significantly
reduce emissions of greenhouse gases in California, including
methane leakage, but there is insufficient accountability over
methane that is released into the atmosphere from operations
within the state or from operations connected to gas imported into
the state.

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(e) Requiring accountability for methane leakage associated
with operations necessary to bring natural gas to state residents,
in addition to adjusting and creating incentives to reduce leakage,
will enable a more thorough approach to meeting the state’s
climate change goals while providing for a full accounting of the
state’s climate footprint.

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(f) The Legislature also has established that the safety of the
natural gas pipeline infrastructure in the state is a priority for the
Public Utilities Commission and gas corporations, and nothing
in this act shall compromise or deprioritize safety as a top
consideration.

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(g) While providing just and reasonable rate revenues for
California gas corporations to find, categorize, and repair leaks
promptly when discovered, including employing an adequate
workforce, is in the public interest and promotes the interests of
customers and the public, providing revenue to gas corporations
to compensate them for the value of gas they lose to the atmosphere
is not in the public interest.

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(h) While action in other states and by the federal government
is necessary to fully address methane pollution from operations
associated with gas imported into the state, integrating the full
climate footprint of California natural gas into statewide planning
efforts while also developing initiatives to actually reduce that
footprint benefits the environment and reduces the leakage
associated with the state’s climate programs.

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begin insert SEC. 2. end insert   

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begin insert Section 39731.5 is added to the end insert begin insert Health and Safety
Code end insert begin insert , to read: end insert

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begin insert 39731.5. end insert   

(a) Notwithstanding Sections 38550 and 38551, no
later than January 1, 2020, the state board, in consultation with
the Public Utilities Commission and other relevant state agencies,
shall adopt by regulation methane emissions reduction measures
for the emissions associated with the extraction, production,
storage, processing, and transportation of natural gas used in the
state, including imports, that will achieve a reduction in methane
emissions of at least 40 percent below 2012 methane emissions
levels by 2025.

(b) The regulation adopted pursuant to subdivision (a) shall
include both of the following:

(1) Information gathered or acquired pursuant to subdivision
(b) of Section 39731 to determine the 2012 level of methane
emissions.

(2) Interim targets to reach the methane emissions level
described in subdivision (a).

(c) The state board, in consultation with the Public Utilities
Commission and other relevant state agencies, shall consider all
of the following:

(1) Developing new incentives or investment programs to
facilitate emissions reductions in basins and fields from which the
state receives natural gas.

(2) Imposing new requirements on the state’s regulated natural
gas corporations related to natural gas procurement and tracking
of interstate deliveries.

(3) Modifying the state’s market-based emissions reduction
measures, including a market-based compliance mechanism
adopted pursuant to Section 38570, to account for and include
methane emissions within the compliance obligations of natural
gas utilities or fuel importers.

(4) Participating in or forming interstate and federal working
groups, compacts, or agreements.

(5) Designing regulations in a manner that seeks to minimize
costs and maximize the total benefits.

(d) This section shall be implemented to the extent feasible and
consistent with law.

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begin insert SEC. 3. end insert   

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begin insert Section 977 of the end insert begin insert Public Utilities Code end insert begin insert is amended
to read: end insert

977.  

In order to achieve transparency and accountability for
rate revenues and best value for ratepayers, and consistent with
the commission’s existing ratemaking procedures and authority
to establish just and reasonable rates, the commission shall consider
all of the following:

(a) Providing an adequate workforce to achieve the objectives
of reducing hazards and emissions from leaks, including leak
avoidance, reduction, and repair.

(b)  begin insert (1) end insert begin insert   end insert Providing revenues for all activities identified and
required pursuant to Section 975, including any adjustment of
allowance for lost and unaccounted for gas related to actual leakage
volumes.

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(2) In establishing rates for gas corporations, in an individual
rulemaking proceeding or in general rate cases, the commission
shall not allow gas corporations to seek or receive recovery from
ratepayers for the value of natural gas lost to the atmosphere
during the extraction, production, storage, processing,
transportation, and delivery of the natural gas.

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(c) Providing guidance for treatment of expenditures as being
either an item of expense or a capital investment.

(d) The impact on affordability of gas service for vulnerable
customers as a result of the incremental costs of compliance with
the adopted rules and procedures.

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SECTION 1.  

In enacting this act, it is the intent of the
Legislature to create incentives to reduce or eliminate vented
emissions and fugitive emissions of natural gas.

SEC. 2.  

Section 38572 is added to the Health and Safety Code,
to read:

38572.  

(a) For purposes of this section, the following
definitions apply:

(1) “Fugitive emissions” has the same meaning as set forth in
Section 39023.3.

(2) “Vented emissions” means intentional or designed releases
of natural gas or hydrocarbon gas, not including stationary
combustion flue gas, including process designed flow to the
atmosphere through seals or vent pipes, equipment blowdown for
maintenance, and direct venting of gas used to power equipment,
such as pneumatic devices.

(b) In regulations implementing a market-based compliance
mechanism pursuant to this part, the state board shall include
vented or fugitive emissions of natural gas as counting against the
compliance obligation of covered entities engaged in the extraction,
distribution, or transmission of natural gas under the mechanism.

SEC. 3.  

Section 747.2 is added to the Public Utilities Code, to
read:

747.2.  

(a) For purposes of this section, the following
definitions apply:

(1) “Fugitive emissions” has the same meaning as set forth in
Section 39023.3 of the Health and Safety Code.

(2) “Vented emissions” means intentional or designed releases
of natural gas or hydrocarbon gas, not including stationary
combustion flue gas, including process designed flow to the
atmosphere through seals or vent pipes, equipment blowdown for
maintenance, and direct venting of gas used to power equipment,
such as pneumatic devices.

(b) In establishing rates for gas corporations, the commission
shall not consider the systemic natural gas losses in the form of
fugitive or vented emissions occurring during the injection, storage,
transmission, or distribution of the natural gas.

(c) (1) This section does not prohibit gas corporations from
using ratepayer funds to repair systemic natural gas leaks or to
improve industry practices to reduce or eliminate vented or fugitive
emissions.

(2) This section does not prohibit gas corporations from
recovering their costs incurred in compliance with regulations
adopted pursuant to Section 38572 of the Health and Safety Code.

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