BILL ANALYSIS                                                                                                                                                                                                    Ó



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          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  








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            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  








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            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  








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            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. 










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            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  








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            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  








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            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.










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          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










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          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











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          Pacific Gas and Electric Company 




          Analysis Prepared by:Darion Johnston / U. & C. / (916)  
          319-2083