BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1441| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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. SB 1441 Page 2 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 SB 1441 Page 3 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 SB 1441 Page 4 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 SB 1441 Page 5 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 SB 1441 Page 6 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. SB 1441 Page 7 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 SB 1441 Page 8 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 SB 1441 Page 9 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." SB 1441 Page 10 Prepared by:Nidia Bautista / E., U., & C. / (916) 651-4107 6/1/16 12:24:44 **** END ****