BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1441|
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THIRD READING
Bill No: SB 1441
Author: Leno (D) and Pavley (D)
Amended: 5/31/16
Vote: 21
SENATE ENERGY, U. & C. COMMITTEE: 8-1, 4/5/16
AYES: Hueso, Cannella, Hertzberg, Hill, Lara, Leyva, McGuire,
Pavley
NOES: Morrell
NO VOTE RECORDED: Gaines, Wolk
SENATE ENVIRONMENTAL QUALITY COMMITTEE: 5-2, 4/20/16
AYES: Wieckowski, Hill, Jackson, Leno, Pavley
NOES: Gaines, Bates
SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/27/16
AYES: Lara, Beall, Hill, McGuire, Mendoza
NOES: Bates, Nielsen
SUBJECT: Natural gas: methane emissions
SOURCE: Author
DIGEST: This bill requires the California Public Utilities
Commission (CPUC) in establishing rates for gas corporations, to
the extent feasible as determined by 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.
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ANALYSIS:
Existing law:
1)Establishes the California Global Warming Solutions Act of
2006 and requires the California Air Resource Board (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. (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
state. (Health and Safety Code §39730)
3)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. (Public Utilities Code §975)
4)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. (Public
Utilities Code §975)
5)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)
6)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
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leaks, including any adjustment of allowance for lost and
unaccounted for gas related to actual leakage volumes, among
other provisions. (Public Utilities Code §977)
7)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
Section 60105 of that chapter. (Public Utilities Code §955 et
seq.)
8)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.)
9)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, §6)
This bill requires the CPUC in establishing rates for gas
corporations, to the extent feasible as determined by 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
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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, and
increased use of other renewables, including solar and wind,
which are intermittent resources. As intermittent resources,
renewable generation can fall off and turn up quickly based on
factors such as cloud cover that can block solar rays and
intermittent wind movement. As such, 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. [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/TN206470_20151030T160233_STAFF.pdf]
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
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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, the need to vent natural gas when pressures
reach levels where there could be a safety risk. [Ibid.]
There are many ongoing regulatory initiatives currently 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.
Addressing leaks from natural gas system. In an effort to
address systemic natural gas leaks from an aging infrastructure,
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
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emission reporting. SB 1371 also requires, to the extent
feasible, the owner of each CPUC-regulated gas pipeline facility
that is an intrastate transmission or distribution line to
calculate and report to the CPUC 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 part of this effort, the CPUC
is developing a methodology to calculate the lost and
unaccounted for gas specific to CPUC-regulated gas pipelines.
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, DOGGR 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
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 CPUC.
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.
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In August 2015, the United States Environmental Protection
Agency 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.
Protecting Ratepayers. This bill builds off the many efforts by
the state and federal government to reduce natural gas leaks and
the resulting methane emissions into the atmosphere by
preventing utilities from receiving recovery from ratepayers the
value of natural gas lost during the production and delivery
cycle, to the extent feasible as determined by the CPUC. The
author's intent is to eliminate all, if not, most, fugitive and
other emissions during the full life-cycle of the natural gas
extraction, production, distribution and delivery. In
recognition of current limitations, this bill appropriately
provides the CPUC with discretion to determine what is feasible
to recover in rates since the natural gas system runs as a
market and, as such, the utility does not control all aspects of
the system, beyond the facilities it owns and operates in the
state. Additionally, 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. Moreover, the current
state of emissions accounting is very uncertain due to the
complexities of the natural gas system and the many entities
involved from the gas producers, marketers, purchasers, etc.
Related/Prior Legislation
SB 1383 (Lara, 2016) requires 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
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anthropogenic black carbon of 50 percent below 2013 levels by
2030, as specified. The bill is on the Senate Floor.
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 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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According to the Senate Appropriations Committee, minor and
absorbable costs to the CPUC.
SUPPORT: (Verified 5/31/16)
California Interfaith Power & Light
California League of Conservation Voters
Clean Water Action
Consumer Federation of California
Engineers & Scientists of California
Environment California
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Environmental Defense Fund
Moms Clean Air Force
Sierra Club California
Union of Concerned Scientists
Utility Workers Union of America
OPPOSITION: (Verified5/31/16)
Pacific Gas and Electric Company
ARGUMENTS IN SUPPORT: The Environmental Defense Fund states:
"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."
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."
ARGUMENTS IN OPPOSITION: According to PG&E, they oppose SB
1441 stating it can only control emissions under its
jurisdiction. PG&E argues "SB 1441 disallows cost recovery for
fugitive methane emissions that occur outside of California on
pipelines and equipment not owned or operated by the gas
corporation. It is not clear how this provision would be
implemented. The CPUC has a methodology to account for lost gas
known as lost and unaccounted for gas, of which fugitive
emissions on CPUC-regulated pipelines are a small portion. SB
1441 reaches beyond the scope of the CPUC's jurisdiction and in
doing so penalizes the gas corporation for leaks outside of our
control."
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Prepared by:Nidia Bautista / E., U., & C. / (916) 651-4107
6/1/16 12:24:44
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