BILL ANALYSIS Ó
SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
Senator Ben Hueso, Chair
2015 - 2016 Regular
Bill No: SB 1441 Hearing Date: 4/5/2016
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|Author: |Leno and Pavley |
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|Version: |3/28/2016 As Amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Nidia Bautista |
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SUBJECT: Natural gas: methane emissions
DIGEST: This bill would require the California Air Resources
Board (ARB), in consultation with the California Public
Utilities Commission (CPUC), and other relevant agencies, to
adopt regulations to achieve a reduction of methane emissions of
40 percent below 2012 levels by 2025 for emissions associated
with the extraction, production, storage, processing, and
transportation of natural gas used in the state, including
imports. This bill would also prohibit the CPUC from 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 of the natural gas.
ANALYSIS:
Existing law:
1.Establishes the California Global Warming Solutions Act of
2006 and requires the ARB to determine the 1990 statewide
greenhouse gas (GHG) emissions level and approve a statewide
GHG emissions limit that is equivalent to that level, to be
achieved by 2020, and to adopt GHG emissions reductions
measures by regulation. Defines methane as a greenhouse gas.
Authorizes ARB to include the use of market-based mechanisms
to comply with these regulations. (Health and Safety Code
§38500 et seq.)
2.Requires the ARB to complete a comprehensive strategy to
reduce emissions of short-lived climate pollutants in the
SB 1441 (Leno) PageB of?
state. (Health and Safety Code §39730)
3.Requires the ARB to monitor high-emission methane hot-spots in
the state, consult with specified entities to gather
information for purposes of carrying out life-cycle GHG
emissions analyses of natural gas imports, update relevant
policies and programs based on those updated life-cycle
analyses, and review scientific information on atmospheric
reactivity of methane as a precursor to the formation of
photochemical oxidants. (Health and Safety Code §39731)
4.Requires the CPUC, in consultation with the ARB, to open a
proceeding to adopt rules and procedures that minimize natural
gas leaks from CPUC-regulated gas pipeline facilities while
giving priority to safety, reliability, and affordability of
service. Requires gas corporations to file a report that
includes a summary of utility leak management practices, list
of leaks and a best estimate of gas loss due to leaks.
Requires the rules and procedures adopted to accomplish
specified actions, including: provide for the maximum
technologically feasible and cost-effective avoidance and
repair of leaks and leaking components in CPUC-regulated gas
pipeline facilities that are intrastate transmission and
distribution lines; and establish protocols and procedures for
the development and use of metrics to quantify the volume of
emissions from leaking gas pipeline facilities and for
evaluating and tracking leaks geographically and over time
that may be incorporated into the ARB's mandatory GHG emission
reporting. (Public Utilities Code §975)
5.Requires the CPUC to consider as part of its accountability
for rate revenues and best value for ratepayers, consistent
with existing ratemaking procedures and authority, to provide
revenues for all activities identified and required to address
leaks, including any adjustment of allowance for lost and
unaccounted for gas related to actual leakage volumes, among
other provisions. (Public Utilities Code §977)
6.Establishes that the CPUC is the state authority responsible
for regulating and enforcing intrastate gas pipeline
transportation and pipeline facilities pursuant to Chapter 601
(commencing with Section 60101) of Subtitle VIII of Title 49
of the United States Code, including the development,
submission, and administration of a state pipeline safety
program certification for natural gas pipelines pursuant to
SB 1441 (Leno) PageC of?
Section 60105 of that chapter. (Public Utilities Code §955 et
seq.)
7.Establishes that the Division of Oil, Gas, and Geothermal
Resources (DOGGR) in the Department of Conservation at the
Natural Resources Agency is the state authority responsible
for regulating oil and gas, including natural gas storage
wells. Provides the division's leader, the state's oil and
gas supervisor, with broad authority to supervise oil and gas
operations to prevent damage to life, health, property and
natural resources, among other requirements. (Public
Resources Code §3100 et seq.)
8.Authorizes the CPUC to fix rates, establish rules, and examine
records for all public utilities subject to its jurisdiction,
including gas corporations. (California Constitution Article
XII, Section 6)
This bill:
1.Requires the ARB, in consultation with the CPUC and other
relevant agencies, to adopt by regulation methane emissions
reductions 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.
2.Requires the regulation adopted to include information
acquired as part of ARB's existing efforts to carry out
life-cycle GHG emissions analysis of natural gas imports.
3.Requires the regulation to include interim targets to reach
the methane emissions goal.
4.Requires ARB, in consultation with CPUC and other relevant
state agencies, to consider specified approaches in efforts to
establish measures for reducing methane emissions, including:
a. developing new incentives and investment programs in
basins and fields from which the state receives natural
gas;
b. imposing new procurement and tracking requirements
of interstate deliveries on the state's regulated natural
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gas corporations;
c. modifying the state's market based-emissions
reductions measures to include compliance obligations of
natural gas utilities and fuel importers;
d. participating or forming interstate and federal
working groups, compacts or agreements; and
e. designing regulations in a manner that seeks to
minimize costs and maximize the total benefits.
5.Requires the CPUC to prohibit gas corporations from seeking or
receiving recovery from ratepayers the value of natural gas
lost to the atmosphere during the extraction, production,
storage, processing, transportation, and delivery of natural
gas.
Background
Natural gas. Natural gas is often referred to as the fossil
fuel of choice because it is lighter and burns cleaner than oil
and coal. Natural gas is used to fuel power plants that
generate electricity, as a heating and cooking fuel in homes and
industrial processes, and as a transportation fuel. According to
the U.S. Energy Information Agency, California is the second
largest consumer of natural gas as compared to other states,
with Texas being the top consumer. The majority of the natural
gas used in California, about 90 percent, is imported from
outside the state. Most of the imports come from the Southwest
and the Rocky Mountains, with an additional portion coming from
Canada. In California, just over 40 percent of natural gas is
used to generate electricity. In recent years, there's been a
growing reliance on natural gas-fired power plants to meet local
reliability needs, to provide emergency system support and to
provide additional services to keep the system running reliably.
When generation from renewable sources of energy decline but
energy load does not, other generation sources must be called on
to maintain the electric grid. The increased dependency on
natural gas-fired generation can be attributed to the shift away
from more carbon-intensive resources (such as coal), effects of
the drought which has reduced hydroelectric power supply, the
retirement of the San Onofre Nuclear Generating Station (SONGS),
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and increased use of other renewables, including solar and wind,
which are intermittent resources. Other resources, particularly
those fired by natural gas, are needed to ramp up production
quickly, as the renewables generation falls off, and be turned
down quickly as the renewables production increases. The result
is greater variation in gas load, as well as large draws on the
gas system, sometimes very quickly.<1>
About methane emissions. Methane is the primary component of
natural gas and is also produced biologically under anaerobic
conditions in animals with a four-part stomach (such as cattle
and sheep), landfills, and waste handling. Atmospheric methane
concentrations have been increasing as a result of human
activities related to agriculture, fossil fuel extraction and
distribution, and waste generation and processing. Methane is a
short-lived climate pollutant with an atmospheric lifetime of
about 12 years. Like other GHGs, methane warms the atmosphere
by blocking infrared radiation (heat) that is re-emitted from
the earth's surface from reaching space. Methane is a potent
GHG, with roughly 28 times the warming power of carbon dioxide
over a 100-year period and more than 80 times over a 20-year
timespan. Methane also affects local air quality by contributing
to the formation of global background levels of ozone. Ozone
itself is a powerful short-lived climate pollutant as well as a
regional ground level air pollutant (a.k.a. smog) which
negatively impacts human health and can lead to asthma attacks,
hospitalizations, and even premature death. About two-thirds of
the rise in global levels of background ozone can be attributed
to methane emissions.
Efforts to address methane emissions. Methane emissions come
from both intentional and unintentional releases of natural gas.
Unintentional releases of methane, or fugitive emissions, can
come from multiple sources and phases of the natural gas system,
such as from leaking pipelines, abandoned wells, or inefficient
combustion. Intentional releases are purposeful and known
emissions that occur in the normal operations of the natural gas
system. For example, safety dictates the venting of natural gas
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<1> California Energy Commission. AB 1257 Natural Gas Act
Report: Strategies to Maximize the Benefits Obtained from
Natural Gas as an Energy Source. Final Staff Report. November
2015.
http://docketpublic.energy.ca.gov/PublicDocuments/15-IEPR-04/TN20
6470_20151030T160233_STAFF.pdf
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when pressures reach levels where there could be a safety
risk.<2>
There are many ongoing regulatory initiatives being undertaken
by various agencies in the state (mostly relating to air
pollution, greenhouse gases, and the increased use of renewable
energy sources), as well as, the federal government to address
methane emissions from the natural gas system both directly and
indirectly. These include: efforts to reduce short-lived
climate pollution, improvements to pipeline safety requirements
largely in response to the 2010 PG&E San Bruno fatal explosion,
legislative requirements to address natural gas leaks, emergency
regulations to address storage well integrity, federal proposals
to address methane emissions and others. Of these efforts,
perhaps the most relevant are the state's efforts to develop a
strategy for reducing short-lived climate pollutants, including
methane emissions, and implementation of legislative
requirements to address leaks.
Short-lived climate pollutant strategy. SB 605 (Lara and
Pavley, Chapter 523, Statutes of 2014) requires ARB to develop a
strategy for reducing short-lived climate pollutants, including
methane. ARB has developed a draft strategy, solicited public
comment and is currently expecting to finalize the strategy in
mid-2016. The draft strategy includes a proposed goal of
reducing overall methane emissions by 40 percent below 2013
levels by 2030. SB 1383 (Lara, 2016) proposes to codify this and
the other proposed goals within the draft strategy. The
strategy acknowledges the need to further minimize fugitive
emissions of methane from natural gas infrastructure. However,
the report also notes the current aging natural gas
infrastructure which may pose challenges to the ability to
minimize emissions. Below are the methane emissions sources for
the 2013 benchmark year and the 2030 emissions goals, including
the roughly 13% of the emissions attributed to oil and gas
extraction and pipelines in the state.
Source: ARB, Draft Short-Lived Climate Pollutant Reduction
Strategy: September, 2015. See
http://www.arb.ca.gov/cc/shortlived/2015draft.pdf.htm.
Addressing leaks from natural gas system. In an effort to
address systemic natural gas leaks from an aging infrastructure,
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<2> Ibid.
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as well as, climate impacts due to methane, SB 1371 (Leno,
Chapter 525, Statutes of 2014) requires the CPUC, in
consultation with ARB, to open a proceeding to adopt rules and
procedures that minimize natural gas leaks from CPUC-regulated
gas pipeline facilities. SB 1371 requires the rules and
procedures include procedures for the development of metrics to
quantify the volume of emissions from leaking gas pipeline
facilities, and for evaluating and tracking leaks geographically
and over time that may be incorporated into ARB's mandatory GHG
emission reporting. SB 1371 also requires, to the extent
feasible, the owner of each commission-regulated gas pipeline
facility that is an intrastate transmission or distribution line
to calculate and report to the commission and ARB a baseline
system-wide leak rate, along with any data and computer models
used in making that calculation. The CPUC is currently in the
midst of implementing the requirements of SB 1371, having opened
a rulemaking proceeding in January 2015 with an expected
decision in the first quarter of 2017. As of the date of this
analysis, the CPUC, working with ARB, has hosted several public
workshops, solicited comments on a Safety and Enforcement
Division "Best Practices" report, gathered reports from the
utilities on gas leaks and leak management practices, and has
scheduled a joint workshop with ARB on emission reduction
targets, compliance, and enforcement on April 12, 2016.
In response to the state of emergency from the recent natural
gas leak at the Southern California Gas Company's Aliso Canyon
storage well facility, the Division of Oil Gas and Geothermal
Resources has adopted new emergency regulations of oil and gas
storage facilities. The new regulations are in effect for six
months beginning February 5, 2016, but can be extended. DOGGR is
requiring increased inspections and monitoring requirements for
all wells, regular testing of all safety valves, minimum and
maximum pressure limits for each gas storage facility in the
state, and each storage facility to establish a comprehensive
risk management plan that evaluates and prepares for risks at
each facility, including corrosion of potential pipes and
equipment.
Additionally, the CPUC enforces statutes and rules (General
Order 112-E) which establish, in addition to the Federal
Pipeline Safety Regulations that CPUC enforces, minimum
requirements for the design, construction, quality of materials,
locations, testing, operations and maintenance of facilities
used in the gathering, transmission and distribution of gas and
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in liquefied natural gas facilities to safeguard life or limb,
health, property and public welfare and to provide that adequate
service will be maintained by gas utilities operating under the
jurisdiction of the commission.
In February of this year, ARB proposed new emissions regulations
for oil and gas facilities aimed at tackling fugitive and vented
methane emissions in the state. The proposed regulations require
underground storage well facility owners to develop a plan for
surface-leak monitoring on a continuous or daily basis, and
require that intentional venting be limited to the use of
no-vent devices, vapor collection, and other measures.
In August 2015, the United States E.P.A. proposed standards to
directly reduce methane emissions from the oil and gas sector to
help address climate change. The standards are strategies to
support the Administration's goal of reducing methane emissions
from the oil and gas sector by 40-45 percent from 2012 levels by
2025. The proposed requirements address emissions from the
production to transmission segments, including: expanding the
federal New Source Performance Standards for the oil and gas
industry to include methane emissions directly upstream; require
leak detection and repair at well sites, gathering and boosting
stations and compressor stations across the transmission and
storage segments; new standards to reduce methane emissions from
hydraulically fractured oil wells; and emission guidelines to
reduce smog-forming emissions from existing oil and gas sources
in areas where smog reaches unhealthy levels.
Goal merits clarification. This bill proposes codifying a goal
to reduce methane emissions from natural gas processes, but it
is unclear whether the proposed goal aligns, or may not align,
with California's existing GHG emission reduction goals and
proposed goals. Specifically, this bill proposes to require a
reduction of methane emissions from natural gas processes that
would result in a 40 percent reduction below 2012 levels by
2025. The goal is modeled after the U.S. E.P.A. goal announced
in 2015. However, currently ARB's proposed related emissions
goals use 2013 as the emissions inventory benchmark year. For
example, the methane emissions reduction goal proposed in ARB's
draft strategy to reduce short-lived climate pollutants,
proposed to be codified in SB 1383 (Lara), would require a 40
percent reduction from 2013 levels in overall methane emissions
(from all sources in the state) by 2030. Should this bill move
forward, the Senate Committee on Environmental Quality may wish
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to ensure the proposed goal is aligned with and complimentary to
related emissions goals.
Not a single penny. The language as currently proposed would
not allow gas corporations to recover from ratepayers even a
single penny for the value of any gas lost to the atmosphere.
The author's intent is to eliminate all fugitive and other
emissions during the full life-cycle of the natural gas
extraction, production, distribution and delivery. However, it
may not be feasible, or cost-effective, to capture 100 percent
of all potential lost gas during the full life-cycle of the
natural gas system. It's also unclear how much of the natural
gas system is under the control of the utility, beyond the
facilities it owns and operates in the state. Moreover, the
current state of emissions accounting is very uncertain due to
the complexities of the natural gas system. In order to
maintain the intent of the bill, while recognizing the practical
realities and limitations to capture all lost gas 100 percent of
the time, the author and committee may wish to have the CPUC
determine what, if any, of the value of lost gas may be recouped
in rates by gas corporations. Specifically:
SEC 3. Section 977 of the Public Utilities Code:
(b) (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, to
the extent feasible as determined by the California Public
Utilities Commission.
In-state vs. out-of-state investments. This bill allows for ARB
to consider investments in fields and basins that supply natural
gas to California. However, the bill does not make a
distinction regarding in-state vs. out-of-state basins and
fields. As noted above, a majority of the natural gas consumed
in California is imported from outside the state (about 90
percent), including from the Southwest, Rocky Mountains and
Canada. However, to-date investments from the revenues of
California's greenhouse gas reduction funds have been made for
projects in-state, including high speed rail, intercity transit
and rail, affordable housing, low-income weatherization and
solar installations, zero and near-zero emissions vehicles,
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urban forests, and many others. The list of in-state potential
projects and programs that could benefit from the GHG reductions
funds continues to expand. Since these revenues are derived
from facilities subject to the cap-and-trade program
requirements in California, this bill raises questions and
concerns regarding whether out-of-state projects that may help
to reduce GHG emissions attributed to California's consumption
should be considered eligible to receive some of these funds
and, if so, to what extent California can and should verify that
those investments are to the benefit of Californians.
Double-referred. Should this bill be approved by this
committee, it has been referred to the Senate Committee on
Environmental Quality.
Prior/Related Legislation
SB 1371 (Leno, Chapter 525, Statutes of 2014) required the CPUC
to open a proceeding to adopt rules and procedures that minimize
natural gas leaks from CPUC-regulated gas pipeline facilities
with the goal of reducing GHG emissions.
SB 605 (Lara, Chapter 523, Statutes of 2014) required the ARB to
complete a comprehensive strategy to reduce emissions of
short-lived climate pollutants, as defined, including methane
emissions, in the state.
AB 1496 (Thurmond, Chapter 604, Statutes of 2015) required the
ARB to monitor high-emission methane hot-spots in the state,
consult with specified entities to gather information for
purposes of carrying out life-cycle GHG emissions analyses of
natural gas imports, update relevant policies and programs based
on those updated life-cycle analyses, and review scientific
information on atmospheric reactivity of methane as a precursor
to the formation of photochemical oxidants.
SB 1383 (Lara) would require the state board to approve and
implement a comprehensive strategy to reduce emissions of
short-lived climate pollutants to achieve a reduction in methane
of 40 percent, hydrofluorocarbon gases of 40 percent, and
anthropogenic black carbon of 50 percent below 2013 levels by
2030, as specified. The bill has been referred to the Senate
Committee on Environmental Quality and is scheduled to be heard
April 6th.
FISCAL EFFECT: Appropriation: No Fiscal
SB 1441 (Leno) PageK of?
Com.: Yes Local: No
SUPPORT:
California Interfaith Power & Light
California League of Conservation Voters
Clean Water Action
Consumer Federation of California
Engineers & Scientists of California
Environment California
Environmental Defense Fund
Moms Clean Air Force
Sierra Club California
Union of Concerned Scientists
Utility Workers Union of America
OPPOSITION:
None received
ARGUMENTS IN SUPPORT: The Environmental Defense Fund states
that "SB 1441 closes two important loopholes that undermine the
state's overall effort and create a new era of accountability
for natural gas leakage. Since utilities are compensated for the
gas they lose, utility incentive to reduce leakage above and
beyond regulatory requirements are muted, thus reducing overall
signals to minimize overall emissions. SB 1441 removes this
incentive in order to increase the overall incentive to minimize
methane pollution. California's strategies [to reduce methane
pollution] stop at the border and fail to consider 91 percent of
gas California imported into the state - and the 20 and 100
million metric tons of carbon dioxide equivalent pollution
associated with it. SB 1441 removes this loophole in the state
climate program and requires ARB to integrate methane reductions
from imported gas into its long term plan for pollution
reduction."
Utility Workers Union of America and Engineers & Scientists of
California argue "it is high time that the safety culture of our
gas utilities be fundamentally shifted to a system that creates
strong incentives to stop gas leaks rather than financially
rewarding them. Had SB 1441 been law, we doubt that the leak at
Aliso Canyon would ever have happened."
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