BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                       SB 1441|
          |Office of Senate Floor Analyses   |                              |
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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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