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 ----------------------------------------------------------------- |Author: |Leno and Pavley | |-----------+-----------------------------------------------------| |Version: |3/28/2016 As Amended | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |No |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Nidia Bautista | | | | ----------------------------------------------------------------- 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 SB 1441 (Leno) PageD of? 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), SB 1441 (Leno) PageE of? 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 --------------------------- <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 SB 1441 (Leno) PageF of? 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, --------------------------- <2> Ibid. SB 1441 (Leno) PageG of? 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 SB 1441 (Leno) PageH of? 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 SB 1441 (Leno) PageI of? 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, SB 1441 (Leno) PageJ of? 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." SB 1441 (Leno) PageL of? -- END --