BILL ANALYSIS Ó SB 1441 Page 1 Date of Hearing: June 29, 2016 ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE Mike Gatto, Chair SB 1441 (Leno) - As Amended May 31, 2016 SENATE VOTE: 28-11 SUBJECT: Natural gas: methane emissions SUMMARY: Prohibits gas corporations from using ratepayer dollars to recover costs associated with fugitive or unplanned natural gas leaks during the extraction, production, storage, processing, transportation, and delivery of natural gas. Requires the California Public Utilities Commission (CPUC) to establish rates for gas corporations in furtherance of this requirement, as specified. EXISTING LAW: 1)Establishes the California Global Warming Solutions Act of 2006. Requires the California Air Resource Board (ARB) to determine the 1990 statewide greenhouse gas (GHG) emissions level, approve a statewide GHG emissions limit that is equivalent to that level to be achieved by 2020, and adopt GHG emissions reductions measures by regulation. Defines methane SB 1441 Page 2 as a greenhouse gas. (Health and Safety Code Section 38500 et seq.) 2)Requires the ARB to develop a comprehensive strategy to reduce emissions of short-lived climate pollutants in the state. (Health and Safety Code Section 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 Section 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 Section 975) 5)Requires adopted rules and procedures to accomplish the following: prevent and repair gas leaks in CPUC-regulated intrastate gas transmission and distribution lines in a technologically feasible and cost-effective manner; develop metrics to quantify the amount of gas leaking from pipeline facilities; evaluate and track gas leaks geographically and over time so data may be incorporated into ARB's mandatory GHG emission reporting. (Public Utilities Code Section 975) 6)Requires the CPUC 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 Section 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 Section 955 et seq.) 8)Establishes the Division of Oil, Gas, and Geothermal Resources (DOGGR) in the Department of Conservation at the Natural Resources Agency as the state authority responsible for SB 1441 Page 3 regulating oil and gas, including natural gas storage wells. Provides the division's leader 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 Section 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, Section 6) FISCAL EFFECT: Unknown. COMMENTS: 1)Author's Statement: According to the author, "SB 1441 leverages recent regulatory and technological advances in the methodology of quantifying natural gas leaks to achieve meaningful and effective reductions in one of the most common and potent climate changing pollutants. SB 1441 prohibits the [CPUC] from including in the prices charged to ratepayers the cost of natural gas lost to the atmosphere during the injection, storage, transmission, or distribution of natural gas. Methane emissions represent a threat to our climate and a waste of natural gas, a valuable energy resource. Enough natural gas is lost each year to fuel 6 million homes. In the U.S. last year alone, this lost gas had the same negative impact on the climate as the annual carbon emissions of 117 million cars, or roughly half the cars in the United States. In 2014, I authored SB 1371 that required the CPUC to open a proceeding to adopt rules and procedures that minimize natural gas leaks from PUC-regulated gas pipeline facilities, with the goal of reducing GHG emissions. Currently underway, this proceeding has produced formulas for quantifying lost gas that can be used to determine what gas utilities should not SB 1441 Page 4 recover. SB 1441 clarifies that utility companies should be prevented from charging ratepayers for this lost gas. Preventing cost recovery from ratepayers of lost natural gas creates an added incentive to repair leaks to the maximum extent feasible." 2)Methane Emissions: Methane is the primary component of natural gas. It can also be produced biologically under anaerobic conditions in animals such as cattle and sheep, landfills, and waste handling. Atmospheric methane concentrations are increasing as a result of agriculture, fossil fuel extraction and distribution, and waste generation and processing. Methane is a short-lived climate pollutant that can persist in the atmosphere for 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 (also known as 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. 3)Methane Emission Reduction: Methane emissions can be intentional or unintentional releases of natural gas. Unintentional releases of methane, or fugitive emissions, can come from leaking pipelines, abandoned wells, or inefficient combustion. Intentional releases occur when there is a need to vent natural gas to reduce excess pressure on pipeline infrastructure when such pressure presents a safety risk. SB 1441 Page 5 Currently, there are various regulatory initiatives at the state level related to air pollution, GHGs, and increased use of renewable energy sources. Initiatives at the federal level include efforts to reduce short-lived climate pollution, improvements to pipeline safety in response to the fatal Pacific Gas and Electric Company San Bruno explosion of 2010, legislative requirements to address natural gas leaks, emergency regulations to address storage well integrity, and proposals to address methane emissions. 4)SB 1371 (Leno): In 2014, SB 1371 (Leno), Chapter 525, Statutes of 2014, became law. This statute requires the CPUC, in consultation with ARB, to adopt rules and procedures to minimize natural gas leaks within gas pipeline facilities regulated by the CPUC. The rules and procedures instruct the development of metrics to quantify the amount of gas leaking from pipeline facilities. With this data, fugitive emissions may be evaluated and tracked geographically and over time, and may be incorporated into ARB's mandatory GHG emission reporting. To the extent feasible, SB 1371 also requires the owner of each intrastate gas transmission or distribution line regulated by the CPUC to calculate and report to the CPUC and ARB a baseline system-wide leak rate, along with any data and computer models used to make that calculation. 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. The CPUC opened a rulemaking proceeding in January 2015 to instruct the ongoing implementation of this statue with an expected decision in the first quarter of 2017. 5)Aliso Canyon Gas Leak: In response to the recent natural gas leak at the Aliso Canyon storage well facility controlled by Southern California Gas Company, DOGGR adopted emergency regulations of oil and gas storage facilities. The new SB 1441 Page 6 regulations will remain in effect for six months beginning February 5, 2016, but may be extended. DOGGR is requiring increased inspection and monitoring requirements for all wells, regular testing of all safety valves, the development of minimum and maximum pressure limits for each gas storage facility in the state, and the establishment of a comprehensive risk management plan that evaluates and prepares for risks at each facility, including corrosion of potential pipes and equipment. 6)Gas Pipeline Safety Requirements: In addition to the Federal Pipeline Safety Regulations, the CPUC enforces statutes and rules (General Order 112-E) which establish 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 or in liquefied natural gas facilities. These regulations are meant 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 2016, 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 Environmental Protection Agency proposed standards to directly reduce methane emissions from the oil and gas sector to help address climate change. The proposed requirements address emissions from production to transmission, including: requiring leak detection and repair SB 1441 Page 7 at well sites and other points 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. 7)Protecting Ratepayers: This bill continues efforts by the state and federal government to reduce natural gas leaks and methane emissions by preventing utilities from recovering costs from ratepayers associated with 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 most, if not all, fugitive emissions during the full cycle of natural gas extraction, production, distribution and delivery. In recognition of logistical limitations, this bill provides the CPUC with discretion to determine what is feasible to recover in rates since the natural gas system runs as a market. As such, the utility does not control aspects of the system outside of the facilities it owns and operates in California. Further, it may not be feasible, or cost-effective, to capture 100% of all potential lost gas during the full cycle of the natural gas system. 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. 8)Related Legislation: SB 1383 (Lara) of 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%, hydrofluorocarbon gases of 40%, and anthropogenic black carbon of 50% below 2013 levels by 2030, as specified. Pending in the Assembly. SB 1441 Page 8 9)Prior Legislation: AB 1496 (Thurmond), Chapter 604, Statutes of 2015: Requires the ARB to monitor hot-spots in the state with high methane emissions, gather information for purposes of conducting analyses of life-cycle GHG emissions 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: Requires 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: Requires the ARB to complete a comprehensive strategy to reduce emissions of short-lived climate pollutants, as defined, including methane emissions, in the state. REGISTERED SUPPORT / OPPOSITION: Support SB 1441 Page 9 California Interfaith Power & Light California League of Conservation Voters Clean Water Action Consumer Federation of California Engineers and Scientists of California Environmental California Environmental Defense Fund Moms Clean Air Force Sierra Club California Union of Concerned Scientists Utility Workers Union of America Opposition SB 1441 Page 10 Pacific Gas and Electric Company Analysis Prepared by:Darion Johnston / U. & C. / (916) 319-2083