BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 2267 (Hall) - Marine resources and preservation.
Amended: April 26, 2012 Policy Vote: NR&W 8-0
Urgency: No Mandate: No
Hearing Date: August 6, 2012
Consultant: Brendan McCarthy
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 2267 would revise an existing state program,
under which owners of offshore oil platforms who elect to
partially remove their platforms must share a portion of the
avoided costs of full removal with the state. Until 2017, the
bill would allow oil platform owners to count costs associated
with participating in the program against the funds that they
would pay to the state, reducing state revenues.
Fiscal Impact: By allowing platform owners to include certain
costs that they will incur to participate in the program in the
calculation of cost savings to be shared with the state, the
bill will reduce state revenues by that about half of that
amount. Reductions in anticipated revenues would be apportioned
to the various funds that will receive revenues under existing
law (see below).
Specific revenue losses include:
Revenue reduction of about $500,000 associated with program
startup costs. The Department of Fish and Game and the Ocean
Protection Council will incur costs to develop regulations
and procedures once the program is implemented.
Revenue reductions of about $1 million per application,
based on estimated costs to the Department of Fish and Game
and the Ocean Protection Council to review applications and
develop spending plans for revenues. The number of
applications the state will receive before 2017 is unknown.
Revenue reduction in the low millions per application,
based on anticipated costs to perform environmental review
under the California Environmental Quality Act.
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Unknown revenue reductions relating to indemnification of
the state for future liability associated with the remaining
platform. (See below.)
Background: Under current state and federal law, as well as
leases authorized by the state and federal government, owners of
offshore oil platforms are required to fully remove platforms at
the end of their lease term. There are 27 oil platforms off the
California coast (4 are in state waters and 23 are in federal
waters). Federal law allows for partial removal of oil
platforms, provided that certain conditions are met, including
the enactment of a law allowing for partial removal in the
adjacent state.
AB 2503 (J. Perez, Chapter 687, Statutes of 2010) created a
program that allows owners of offshore oil platforms to
voluntary enter into agreement with the state to partially
remove their oil platform. Under the program, a platform
operator can apply to the state for partial removal of the
platform. Partial removal can be approved by various state
agencies, provided that a finding is made that the net
environmental effect of partial removal will be beneficial. In
addition, project applicants are required to share the cost
savings from partial removal with the state.
Project applicants are required to reimburse the state for the
cost to review the application, including environmental review
under the California Environmental Quality Act. In addition, the
first applicant to apply under the program is required to
reimburse the state for any startup cost associated with the
program - for example, adopting regulations.
Under current law, cost savings realized by the applicant must
be shared with the state as follows:
55 percent to the state if the application is received
before January 1, 2017.
65 percent to the state if the application is received
between January 1, 2017 and January 1, 2023.
80 percent to the state if the application is received
after January 1, 2023.
The revenues received by the state, after covering costs to
process an application, are divided as follows:
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85 percent to the California Endowment for Marine
Preservation.
10 percent to the General Fund.
2 percent to the Fish and Game Preservation Fund.
2 percent to the Coastal Act Services Fund.
1 percent to the county adjacent to the project.
Proposed Law: AB 2267 would allow oil platform owners to count
costs associated with participating in the program against the
funds that they would pay to the state, reducing state revenues.
Until January 1, 2017, the bill allows applicants to count all
costs paid to state agencies to review an application and any
startup costs paid to the state against the cost savings that
are to be shared with the state. Those costs include any costs
to the applicant associated with a requirement to indemnify the
state against future liability.
Staff Comments: Under existing law, the applicant is required to
indemnify the state against any future liability once the state
has accepted ownership of the remains of the platform. Current
law allows this indemnification to take the form of an
agreement, an insurance policy, or other mechanism. The bill
allows the applicant to count the costs to provide
indemnification against the cost savings to be shared with the
state. This provision may incent a project applicant to purchase
an insurance policy against future liability and use the cost of
that policy to reduce the applicant's obligation to the state -
in effect shifting at least half the cost of indemnification to
the state. The extent of this impact is unknown, but could be
substantial.