BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session SB 1441 (Leno) - Natural gas: methane emissions ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: April 25, 2016 |Policy Vote: E., U., & C. 8 - | | | 1, E.Q. 5 - 2 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: May 16, 2016 |Consultant: Narisha Bonakdar | | | | ----------------------------------------------------------------- This bill meets the criteria for referral to the Suspense File. Bill Summary: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% below 2013 methane emissions levels by 2025. The bill also prohibits the CPUC from allowing gas corporations to recover 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 when establishing rates for gas corporations in an individual rulemaking proceeding or in general rate cases. Fiscal Impact: Up to $1.15 million annually (COI) for ARB staffing costs. SB 1441 (Leno) Page 1 of ? One-time cost of $500,000 to establish the natural gas procurement tracking system, and ongoing costs of $100,000 annually to maintain the system (COI). Approximately $6,000 annually (Out-of-State travel funds) for staff to travel to out-of-state facilities. Minor and absorbable costs to the CPUC. * COI = Cost of Implementation Fee Background:1) Fugitive methane from the natural gas sector. A growing body of evidence suggests that national and state estimates of methane emissions have been significantly underestimated. Studies suggest that U.S. methane emissions from all sources are likely anywhere from 25 to 75% higher than EPA estimates, and they note the discrepancy may in large part be due to a small number of very large leaks from natural gas production and distribution system. Additionally, several recent analyses of atmospheric measurements in state suggest that actual California methane emissions may be 30 to 70% higher than estimated in ARB's emission inventory. The Short-Lived Climate Pollutant draft strategy notes that several efforts are underway at the CEC and ARB to improve emissions monitoring to help identify sources of fugitive methane emissions and reduce them, including from oil and gas operations. Additionally, ARB and NASA's Jet Propulsion Laboratory are collaborating to identify large "hot spot" methane sources through a systematic survey of high methane emitters throughout California using both aerial and ground measurements. By state, California is the second largest user of natural gas in the country (Texas is the largest user). Although the state has worked to reduce fugitive methane emissions from various sources over recent years, including new efforts to reduce fugitive leaks from natural gas infrastructure in the state, 91% of the natural gas used in California is imported. State efforts to reduce natural gas system leaks. SB 1371. In an SB 1441 (Leno) Page 2 of ? effort to address systemic natural gas leaks from an aging infrastructure as well as address climate impacts due to methane, SB 1371 (Leno, Chapter 525, Statutes of 2014) requires 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 emissions 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. On January 15, 2015, CPUC opened a rulemaking proceeding to implement the requirements of SB 1371, with an expected decision in the first quarter of 2017. On July 7, 2015, CPUC released a scoping memo that raises questions and issues in implementing the legislation to be addressed by the rulemaking. Among many other questions raised, the memo asks how ratepayer and shareholder financial incentives should be aligned when accounting for and paying for "lost gas." SB 1441 clarifies this issue by requiring CPUC, to the extent feasible, to prohibit gas corporations from recovering the value of natural gas lost to the atmosphere during the extraction, production, storage, processing, transportation, and delivery of natural gas, from ratepayers. ARB draft oil and gas regulations. In April of last year, ARB released a draft regulation to address fugitive and vented emissions from new and existing oil and gas facilities, pursuant to authority under AB 32 to regulate GHGs. Specifically, the proposed regulation applies to crude oil and natural gas production, crude oil storage, underground natural gas storage, natural gas processing plants and transmission stations. The draft regulation contains requirements for natural gas underground storage facility well monitoring, restrictions for SB 1441 (Leno) Page 3 of ? natural gas venting and specifications for leak detection and repair, as well as other requirements. Aliso Canyon and DOGGR's emergency regulation. 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 (DOGGR) adopted emergency regulations for 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. National efforts to reduce natural gas sector emissions. In August 2015, the United States Environmental Protection Agency (US EPA) 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 to 45% 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; requiring 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. Proposed Law: 1) 1)Makes findings and declarations about California's natural gas SB 1441 (Leno) Page 4 of ? usage, impacts of methane, methane leakage during the drilling, production, and transportation of natural gas, and how the accountability measures and initiatives to address imported natural gas will benefit the environment and reduce the leakage associated with the state's climate programs. 2)Requires, by January 1, 2020, the California Air Resources Board (ARB), in consultation with the Public Utilities Commission and other relevant state agencies, to adopt regulations will achieve a reduction in methane emissions of at least 40 percent below 2013 levels for systemwide methane emissions from emissions associated with the extraction, production, storage, processing, and transportation of natural gas used in the state, including imports, by 2025. 3)Requires that the regulations include: (1) information gathered to determine the 2013 levels for systemwide methane emissions, and (2) interim targets to reach the methane emissions level. 4)Requires ARB, in consultation with the CPUC and other relevant state agencies, to consider all of the following: a. Developing new incentives or investment programs to facilitate emissions reductions in basins and fields from which the state receives a significant portion of its natural gas. b. Imposing new requirements on the state's regulated gas corporations related to natural gas procurement and the tracking of interstate deliveries. c. 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. SB 1441 (Leno) Page 5 of ? d. Participating in or forming interstate and federal working groups, compacts, or agreements. e. Regulations adopted pursuant to subdivision (a) shall be designed in a manner that seeks to minimize the costs and maximize total benefits. f. Specifies that the bill must be implemented to the extent feasible and consistent with law. 5)Prohibits the CPUC from allowing gas corporations to recover 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 when establishing rates for gas corporations in an individual rulemaking proceeding or in general rate cases. 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 1441 (Leno) Page 6 of ? 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. Currently on the Suspense File. Staff Comments: The ARB notes that "Substantial new resources are necessary to perform the tasks required by this bill because it covers imports of natural gas, which comprises approximately 90 percent of all natural gas consumed in California. ARB would need to determine 2013 lifecycle methane emissions from natural gas supplied to the State and the 2025 and interim emissions target reductions, evaluate and implement other alternatives, such as incentive programs, and develop and implement a regulation that includes a methane emissions standard. Staff would also require contract funds to develop a natural gas procurement tracking system (estimated $500,000 to establish the system and $100,000 annually to maintain). Further, staff would be required to travel out of state (three times per year for site visits to the three main pipeline routes for natural gas entering California, gather information on imported gas emissions, and establish the standards required under the bill, as well as provide ongoing implementation, enforcement, and auditing functions upon adoption of the regulation." -- END --