(1)Existing law establishes the California Artificial Reef Program, administered by the Department of Fish and Wildlife, to include the placement of artificial reefs, as defined, in state waters and a prescribed study of existing successful reefs and new reefs to determine design criteria.

The California Marine Resources Legacy Act (act) establishes a program, administered by the department, to allow partial removal of offshore oil structures. The act authorizes the department to approve the partial removal of offshore oil structures, if specified conditions are satisfied. These conditions include the provision of financial assurances by the applicant to the department to ensure that the applicant will provide sufficient funds to cover the cost of review of the project and the management and maintenance of the structure after the department takes title to the structure, a finding by the Ocean Protection Council that the partial removal of the structure provides a net benefit to the marine environment compared to full removal, a calculation of the cost savings by the State Lands Commission of partial removal of the structure compared to full removal, a contractual agreement between the applicant and the department that provides sufficient funds for overall management of the structure by the department, an indemnification agreement between the applicant and the department, and the apportionment and transmittal by the applicant of a percentage of the cost savings funds in accordance with a prescribed schedule to specified entities and funds, including the California Endowment for Marine Preservation. The act requires the first person to file an application to partially remove an offshore oil structure to pay, in addition to the costs relating to review of the project and management and maintenance of the structure, the startup costs incurred by the department or the State Lands Commission to implement the act and provides for the reimbursement of startup costs from certain funds received by the department from the apportionment of cost savings.

This bill would revise and recast the California Marine Resources Legacy Act to establish a similar program to allow, 2 years after the payment of startup costs, a prospective transferor, as defined, to offer and the department to accept title to an artificial reef converted from a decommissioned oil and gas platform for incorporation into the California Artificial Reef Program if similar conditions to those described above are met, except if the platform is required to be fully removed by conditions in a lease issued by the State Lands Commission. As part of the implementation of the program, the bill would require the department to revise the Artificial Reef Plan prepared pursuant to the California Artificial Reef Program. The bill would not require the first transferor to pay the startup costs and would instead authorize funding sufficient to fully fund program startup costs for the state, as determined by the department, to be provided to the department for deposit in the Special Deposit Fund, a continuously appropriated fund. The bill would make those funds deposited into the Special Deposit Fund available to the department, the Ocean Protection Council, the State Lands Commission, and the California Coastal Commission for startup costs, thereby making an appropriation.

This bill would require a transferor to apportion and transmit a portion of the cost savings to the department or the endowment, as specified, instead of to the specified entities and funds. The bill would require the department or the endowment, as applicable, to apportion those cost savings funds in accordance with the prescribed schedule to the specified entities and funds upon final, nonappealable judicial decisions upholding the departments acceptance of title and all permits and approvals required for the partial removal of the platform or the running of the statutes of limitations applicable to all the permits and approvals, whichever is later. The bill would not require the person who deposited the startup funds in the Special Deposit Fund to be reimbursed for providing those funds but would require the person to identify one proposed transfer of a platform in which 55% of the total amount of the cost savings would be apportioned to the department for apportionment to the specified funds and entities. The bill would authorize a prospective transferor to withdraw its offer at any time before transfer of title becomes effective and would require the department to return funds submitted for review of the offer and certain other funds that have not been expended or committed as of the date of receipt of the notification of withdrawal. The bill would require the department or endowment, as applicable, to promptly return the cost savings to the transferor if the partial removal of the platform is not permitted by a court or governmental agency and the transferor is required to carry out full removal of the platform.

(2)The act requires that partial removal comply with the California Environmental Quality Act (CEQA) and requires the Natural Resources Agency to serve as the lead agency for the environmental review under CEQA of a proposed project to partially remove an offshore oil structure. The act requires the Ocean Protection Council, for purposes of determining whether partial removal provides a net environmental benefit, to establish specified criteria and to consult with the department, the California Coastal Commission, the State Lands Commission, the California Ocean Service Science Trust, and other appropriate entities as to those criteria.

This bill would instead require the State Lands Commission to serve as the lead agency for the environmental review under CEQA and would require that partial removal of a platform comply with CEQA if the platform or any of its components, including pipelines, cables, or other accessory structures, are located in state waters, as defined.

The bill would define net environmental benefit for purposes of the act and would delete the requirement for the council to establish criteria for purposes of making the net environmental benefit determination. The bill would require the council, in determining whether partial removal of the platform would provide a net benefit to the marine environment compared to full removal of the platform, to also consider adverse impacts to air quality and greenhouse gas emissions that would result from full removal compared to partial removal of the platform, in consultation with the State Air Resources Board, consistent with any guidance or information submitted by the local air districts.

(3)The act requires the State Coastal Conservancy, upon the departments final approval of the first application, to create and update, as specified, an advisory spending plan for cost savings deposited in the California Endowment for Marine Preservation. The act requires the conservancy to submit a copy of the spending plan and all updates to the Legislature and the Board of Directors of the California Endowment for Marine Preservation.

This bill would delete these requirements.

(1)Existing law establishes the California Artificial Reef Program, administered by the Department of Fish and Wildlife, to include the placement of artificial reefs, as defined, in state waters and a prescribed study of existing successful reefs and new reefs to determine design criteria.

The California Marine Resources Legacy Act establishes a program, administered by the department, to allow partial removal of offshore oil structures. The act authorizes the department to approve the partial removal of offshore oil structures, if specified conditions are satisfied. These conditions include the provision of financial assurances by the applicant to the department to ensure that the applicant will provide sufficient funds to cover the cost of review of the project and the management and maintenance of the structure after the department takes title to the structure, a finding by the Ocean Protection Council that the partial removal of the structure provides a net benefit to the marine environment compared to full removal, a calculation of the cost savings by the State Lands Commission of partial removal of the structure compared to full removal, a contractual agreement between the applicant and the department that provides sufficient funds for overall management of the structure by the department, an indemnification agreement between the applicant and the department, and the apportionment and transmittal by the applicant of a percentage of the cost savings funds in accordance with a prescribed schedule to specified entities and funds, including the California Endowment for Marine Preservation. The act requires the first person to file an application to partially remove an offshore oil structure to pay, in addition to the costs relating to review of the project and management and maintenance of the structure, the startup costs incurred by the department or the State Lands Commission to implement the act and provides for the reimbursement of startup costs from certain funds received by the department from the apportionment of cost savings.

This bill would revise and recast the California Marine Resources Legacy Act to establish a similar program to allow, 2 years after the payment of startup costs, a prospective transferor, as defined, to offer and the department to accept title to an artificial reef converted from a decommissioned oil and gas platform for incorporation into the California Artificial Reef Program if similar conditions to those described above are met, except if the platform is required to be fully removed by conditions in a lease issued by the State Lands Commission. As part of the implementation of the program, the bill would require the department to revise the Artificial Reef Plan prepared pursuant to the California Artificial Reef Program. The bill would not require the first transferor to pay the startup costs and would instead authorize funding sufficient to fully fund program startup costs for the state, as determined by the department, to be provided to the department for deposit in the Special Deposit Fund, a continuously appropriated fund. The bill would make those funds deposited into the Special Deposit Fund available to the department, the Ocean Protection Council, the State Lands Commission, and the California Coastal Commission for startup costs, thereby making an appropriation.

This bill would require a transferor to apportion and transmit a portion of the cost savings to the department or the endowment, as specified, instead of to the specified entities and funds. The bill would require the department or the endowment, as applicable, to apportion those cost savings funds in accordance with the prescribed schedule to the specified entities and funds upon final, nonappealable judicial decisions upholding the departments acceptance of title and all permits and approvals required for the partial removal of the platform or the running of the statutes of limitations applicable to all the permits and approvals, whichever is later. The bill would not require the person who deposited the startup funds in the Special Deposit Fund to be reimbursed for providing those funds but would require the person to identify one proposed transfer of a platform in which 55% of the total amount of the cost savings would be apportioned to the department for apportionment to the specified funds and entities. The bill would authorize a prospective transferor to withdraw its offer at any time before transfer of title becomes effective and would require the department to return funds submitted for review of the offer and certain other funds that have not been expended or committed as of the date of receipt of the notification of withdrawal. The bill would require the department or endowment, as applicable, to promptly return the cost savings to the transferor if the partial removal of the platform is not permitted by a court or governmental agency and the transferor is required to carry out full removal of the platform.

(2)The act requires that partial removal comply with the California Environmental Quality Act (CEQA) and requires the Natural Resources Agency to serve as the lead agency for the environmental review under CEQA of a proposed project to partially remove an offshore oil structure. The act requires the Ocean Protection Council, for purposes of determining whether partial removal provides a net environmental benefit, to establish specified criteria and to consult with the department, the California Coastal Commission, the State Lands Commission, the California Ocean Service Trust, and other appropriate entities as to those criteria.

This bill would instead require the State Lands Commission to serve as the lead agency for the environmental review under CEQA and would require that partial removal of a platform comply with CEQA if the platform or any of its components, including pipelines, cables, or other accessory structures, are located in state waters, as defined.

The bill would define net environmental benefit for purposes of the act and would delete the requirement for the council to establish criteria for purposes of making the net environmental benefit determination. The bill would require the council, in determining whether partial removal of the platform would provide a net benefit to the marine environment compared to full removal of the platform, to also consider adverse impacts to air quality and greenhouse gas emissions that would result from full removal compared to partial removal of the platform, in consultation with the State Air Resources Board, consistent with any guidance or information submitted by the local air districts.

(3)The act requires the State Coastal Conservancy, upon the departments final approval of the first application, to create and update, as specified, an advisory spending plan for cost savings deposited in the California Endowment for Marine Preservation. The act requires the conservancy to submit a copy of the spending plan and all updates to the Legislature and the Board of Directors of the California Endowment for Marine Preservation.

This bill would delete these requirements.

(1)Existing law establishes the California Artificial Reef Program, administered by the Department of Fish and Wildlife, to include the placement of artificial reefs, as defined, in state waters and a prescribed study of existing successful reefs and new reefs to determine design criteria.

The California Marine Resources Legacy Act establishes a program, administered by the department, to allow partial removal of offshore oil structures. The act authorizes the department to approve the partial removal of offshore oil structures, if specified conditions are satisfied. These conditions include the provision of financial assurances by the applicant to the department to ensure that the applicant will provide sufficient funds to cover the cost of review of the project and the management and maintenance of the structure after the department takes title to the structure, a finding by the Ocean Protection Council that the partial removal of the structure provides a net benefit to the marine environment compared to full removal, a calculation of the cost savings by the State Lands Commission of partial removal of the structure compared to full removal, a contractual agreement between the applicant and the department that provides sufficient funds for overall management of the structure by the department, an indemnification agreement between the applicant and the department, and the apportionment and transmittal by the applicant of a percentage of the cost savings funds in accordance with a prescribed schedule to specified entities and funds, including the California Endowment for Marine Preservation. The act requires the first person to file an application to partially remove an offshore oil structure to pay, in addition to the costs relating to review of the project and management and maintenance of the structure, the startup costs incurred by the department or the State Lands Commission to implement the act and provides for the reimbursement of startup costs from certain funds received by the department from the apportionment of cost savings.

This bill would revise and recast the California Marine Resources Legacy Act to establish a similar program to allow, 2 years after the payment of startup costs, a prospective transferor, as defined, to offer and the department to accept title to an artificial reef converted from a decommissioned oil and gas platform for incorporation into the California Artificial Reef Program if similar conditions to those described above are met, except if the platform is required to be fully removed by conditions in a lease issued by the State Lands Commission. As part of the implementation of the program, the bill would require the department to revise the Artificial Reef Plan prepared pursuant to the California Artificial Reef Program. The bill would not require the first transferor to pay the startup costs and would instead authorize funding sufficient to fully fund program startup costs for the state, as determined by the department, to be provided to the department for deposit in the Special Deposit Fund, a continuously appropriated fund. The bill would make those funds deposited into the Special Deposit Fund available to the department, the Ocean Protection Council, the State Lands Commission, and the California Coastal Commission for startup costs, thereby making an appropriation.

This bill would require a transferor to apportion and transmit a portion of the cost savings to the department or the endowment, as specified, instead of to the specified entities and funds. The bill would require the department or the endowment, as applicable, to apportion those cost savings funds in accordance with the prescribed schedule to the specified entities and funds upon final, nonappealable judicial decisions upholding the departments acceptance of title and all permits and approvals required for the partial removal of the platform or the running of the statutes of limitations applicable to all the permits and approvals, whichever is later. The bill would not require the person who deposited the startup funds in the Special Deposit Fund to be reimbursed for providing those funds but would require the person to identify one proposed transfer of a platform in which 55% of the total amount of the cost savings would be apportioned to the department for apportionment to the specified funds and entities. The bill would authorize a prospective transferor to withdraw its offer at any time before transfer of title becomes effective and would require the department to return funds submitted for review of the offer and certain other funds that have not been expended or committed as of the date of receipt of the notification of withdrawal. The bill would require the department or endowment, as applicable, to promptly return the cost savings to the transferor if the partial removal of the platform is not permitted by a court or governmental agency and the transferor is required to carry out full removal of the platform.

(2)The act requires that partial removal comply with the California Environmental Quality Act (CEQA) and requires the Natural Resources Agency to serve as the lead agency for the environmental review under CEQA of a proposed project to partially remove an offshore oil structure. The act requires the Ocean Protection Council, for purposes of determining whether partial removal provides a net environmental benefit, to establish specified criteria and to consult with the department, the California Coastal Commission, the State Lands Commission, the California Ocean Service Trust, and other appropriate entities as to those criteria.

This bill would instead require the State Lands Commission to serve as the lead agency for the environmental review under CEQA and would require that partial removal of a platform comply with CEQA if the platform or any of its components, including pipelines, cables, or other accessory structures, are located in state waters, as defined.

The bill would define net environmental benefit for purposes of the act and would delete the requirement for the council to establish criteria for purposes of making the net environmental benefit determination. The bill would require the council, in determining whether partial removal of the platform would provide a net benefit to the marine environment compared to full removal of the platform, to also consider adverse impacts to air quality and greenhouse gas emissions that would result from full removal compared to partial removal of the platform, in consultation with the State Air Resources Board, consistent with any guidance or information submitted by the local air districts.

(3)The act requires the State Coastal Conservancy, upon the departments final approval of the first application, to create and update, as specified, an advisory spending plan for cost savings deposited in the California Endowment for Marine Preservation. The act requires the conservancy to submit a copy of the spending plan and all updates to the Legislature and the Board of Directors of the California Endowment for Marine Preservation.

This bill would delete these requirements.

(1)Existing law establishes the California Artificial Reef Program, administered by the Department of Fish and Wildlife, to include the placement of artificial reefs, as defined, in state waters and a prescribed study of existing successful reefs and new reefs to determine design criteria.

The California Marine Resources Legacy Act establishes a program, administered by the department, to allow partial removal of offshore oil structures. The act authorizes the department to approve the partial removal of offshore oil structures, if specified conditions are satisfied. These conditions include the provision of financial assurances by the applicant to the department to ensure that the applicant will provide sufficient funds to cover the cost of review of the project and the management and maintenance of the structure after the department takes title to the structure, a finding by the Ocean Protection Council that the partial removal of the structure provides a net benefit to the marine environment compared to full removal, a calculation of the cost savings by the State Lands Commission of partial removal of the structure compared to full removal, a contractual agreement between the applicant and the department that provides sufficient funds for overall management of the structure by the department, an indemnification agreement between the applicant and the department, and the apportionment and transmittal by the applicant of a percentage of the cost savings funds in accordance with a prescribed schedule to specified entities and funds, including the California Endowment for Marine Preservation. The act requires the first person to file an application to partially remove an offshore oil structure to pay, in addition to the costs relating to review of the project and management and maintenance of the structure, the startup costs incurred by the department or the State Lands Commission to implement the act and provides for the reimbursement of startup costs from certain funds received by the department from the apportionment of cost savings.

This bill would revise and recast the California Marine Resources Legacy Act to establish a similar program to allow, 2 years after the payment of startup costs, a prospective transferor, as defined, to offer and the department to accept title to an artificial reef converted from a decommissioned oil and gas platform for incorporation into the California Artificial Reef Program if similar conditions to those described above are met, except if the platform is required to be fully removed by conditions in a lease issued by the State Lands Commission. As part of the implementation of the program, the bill would require the department to revise the Artificial Reef Plan prepared pursuant to the California Artificial Reef Program. The bill would not require the first transferor to pay the startup costs and would instead authorize funding sufficient to fully fund program startup costs for the state, as determined by the department, to be provided to the department for deposit in the Special Deposit Fund, a continuously appropriated fund. The bill would make those funds deposited into the Special Deposit Fund available to the department, the Ocean Protection Council, the State Lands Commission, and the California Coastal Commission for startup costs, thereby making an appropriation.

This bill would require a transferor to apportion and transmit a portion of the cost savings to the department or the endowment, as specified, instead of to the specified entities and funds. The bill would require the department or the endowment, as applicable, to apportion those cost savings funds in accordance with the prescribed schedule to the specified entities and funds upon final, nonappealable judicial decisions upholding the departments acceptance of title and all permits and approvals required for the partial removal of the platform or the running of the statutes of limitations applicable to all the permits and approvals, whichever is later. The bill would not require the person who deposited the startup funds in the Special Deposit Fund to be reimbursed for providing those funds but would require the person to identify one proposed transfer of a platform in which 55% of the total amount of the cost savings would be apportioned to the department for apportionment to the specified funds and entities. The bill would authorize a prospective transferor to withdraw its offer at any time before transfer of title becomes effective and would require the department to return funds submitted for review of the offer and certain other funds that have not been expended or committed as of the date of receipt of the notification of withdrawal. The bill would require the department or endowment, as applicable, to promptly return the cost savings to the transferor if the partial removal of the platform is not permitted by a court or governmental agency and the transferor is required to carry out full removal of the platform.

This bill would authorize a transferor to assert, and would prohibit the state from waiving, any defenses that the state may have against any claims against the state subject to indemnification. The bill would prohibit the transferor from indemnifying or being liable for any claims that may arise from the administration or use of the cost savings by entities receiving a portion of the cost savings.

(2)The act requires that partial removal comply with the California Environmental Quality Act (CEQA) and requires the Natural Resources Agency to serve as the lead agency for the environmental review under CEQA of a proposed project to partially remove an offshore oil structure. The act requires the Ocean Protection Council, for purposes of determining whether partial removal provides a net environmental benefit, to establish specified criteria and to consult with the department, the California Coastal Commission, the State Lands Commission, the California Ocean Service Trust, and other appropriate entities as to those criteria.

This bill would instead require the State Lands Commission to serve as the lead agency for the environmental review under CEQA and would require that partial removal of a platform comply with CEQA if the platform or any of its components, including pipelines, cables, or other accessory structures, are located in state waters, as defined.

The bill would define net environmental benefit for purposes of the act and would delete the requirement for the council to establish criteria for purposes of making the net environmental benefit determination. The bill would require the council, in determining whether partial removal of the platform would provide a net benefit to the marine environment compared to full removal of the platform, to also consider adverse impacts to air quality and greenhouse gas emissions that would result from full removal compared to partial removal of the platform, in consultation with the State Air Resources Board, consistent with any guidance or information submitted by the local air districts.

(3)The act requires the State Coastal Conservancy, upon the departments final approval of the first application, to create and update, as specified, an advisory spending plan for cost savings deposited in the California Endowment for Marine Preservation. The act requires the conservancy to submit a copy of the spending plan and all updates to the Legislature and the Board of Directors of the California Endowment for Marine Preservation.

This bill would delete these requirements.

Date of Hearing: June 25, 2018

ASSEMBLY COMMITTEE ON NATURAL RESOURCES

Al Muratsuchi, Acting Chair

SBPCA Bill Id:SB 588

Author:(Hertzberg) – As Amended Ver:May 7, 2018

SENATE VOTE: 30-4

SUBJECT: Marine resources and preservation

SUMMARY: Substantially revises the California Marine Resources Legacy Act (CMRLA) to allow for partial removal, instead of full removal, of oil and gas platforms offshore at a depth of 100 feet or more in state or federal waters.

EXISTING LAW:

1. Federal law requires the complete removal of all platforms and other facilities within one year after the lease terminates. Authorizes the regional supervisor of Bureau of Safety and Environmental Enforcement (BSEE) within the United States Department of the Interior (DOI) to approve partial structure removal or toppling in place for conversion to an artificial reef if the following conditions are met:
   1. The structures become part of a state artificial reef program, and the responsible state agency acquires a permit from the U.S. Army Corps of Engineers and accepts title and liability for the structure; and,
   2. U.S. Coast Guard navigational requirements are satisfied.
2. Federal law requires each permit for an artificial reef to specify the terms and conditions for the construction, operation, maintenance, monitoring, and managing the use of the artificial reef to ensure the protection of the environment and human safety and property.
3. Under the CMRLA, establishes a program to allow partial removal of decommissioned offshore oil structures as an alternative to full removal if specified conditions are met. Provides primary authority to the Department of Fish and Wildlife (DFW) to approve partial removal if specified conditions are met.
4. Provides that a partial removal of an offshore oil and gas platform:
   1. Is a project for purposes of the California Environmental Quality Act (CEQA), and the Natural Resources Agency (NRA) is the lead agency for the environmental review;
   2. Will be a net benefit to the marine environment as compared to a full removal, as determined through appropriate criteria by the Ocean Protection Council (OPC);
   3. If specified prerequisite conditions are met, requires the State Lands Commission (SLC) to determine an accurate and reasonable cost savings that would result from partial removal. If there is an approved partial removal, requires cost savings to be split between the state and the platform owner, according to a specified formula. Further specifies how the state’s share of funds shall be distributed, what uses it is eligible for, and requires the State Coastal Conservancy (Conservancy) to create an advisory spending plan for specific funds;
   4. Requires DFW to develop and implement, through a public process, a management plan that will ensure that the net benefits to the marine environment are maintained and enhanced; and,
   5. Prohibits the DFW from taking title or responsibility for management of a partially removed structure until final approval has been granted and the state is indemnified from liability associated with the structure.
5. Requires the first person to file an application for partial removal of an offshore oil structure to pay the startup costs incurred by the DFW or the SLC to implement the process, including the costs of developing and adopting regulations. Requires the DFW to reimburse the payment of startup costs from cost savings subsequently deposited into the Fish and Game Preservation Fund from future applicants.

THIS BILL:

1. Defines terms for the purposes of the program:
   
   1. “offshore oil and gas platform” to be a platform used for oil and gas exploration, development, production, process, or storage and to be exclusive of shell mounds and drilling muds.
   2. “transferor” to be the owner, operator, or legal entity responsible for the offshore oil and gas platform.
2. Revises the existing process for the partial removal of an oil and gas platform. Establishes a new process for the transfer of the title of an eligible artificial reef converted from an oil and gas platform. Specifies that partial removal of an offshore oil and gas platform is a project under CEQA. Designates SLC, instead of NRA, as the lead agency for all environmental reviews of any project proposed under this program for purposes of CEQA.
3. Specifies that nothing in the process is intended, or to be construed, to limit or affect the authority or duties of any state or local agency, including, DFW, the SLC, the OPC, and the California Coastal Commission (CCC). Specifies that nothing in the bill relieves the owner of an offshore oil platform from specified continuing liability for the offshore oil platform, and, among other things, clarifies that the bill does not relieve an owner of requirements of the federal Comprehensive Environmental Response, Compensation, and Liability Act.
4. Specifies requirements for, and processes through which, an offer to transfer an artificial reef converted from a decommissioned oil and gas platform for incorporation into the California Artificial Reef Program must occur. Requires a transfer to include, among other things, all of the following:
   1. The transferor has provided funding for the following evaluations:
      
      1. The OPC to make and submit a determination for inclusion in environmental documentation, based on credible science, whether partial removal of the platform would provide a net benefit to the marine environment compared to full removal of the platform. Specifies factors the OPC must consider when making the net benefit determination, including adverse impacts to air quality and greenhouse gas emissions that would result from full removal of the platform compared to partial removal.
      2. The transferor in consultation with the DFW, with public comment, to prepare and adopt a management plan for the artificial reef.
      3. The SLC to make a final determination of the estimated cost savings from the partial removal. Requires the SLC to ensure that any cost savings are accurately and reasonably calculated and allows the SLC to obtain assistance from governmental, nongovernmental, or private entities and experts to do so.
   2. Requires the transferor to enter into an indemnification agreement with the DFW that indemnifies the state and the DFW, to the extent permitted by law, against any and all liability. Specifies the indemnification agreement can be in the form of an insurance policy, cash settlement, or other mechanism as determined by the DFW.
      
   3. The CEQA process has been completed and any judicial process has been fully exhausted.
5. Outlines a declining schedule of benefits (share of decommissioning cost savings) to the platform owner, based on application date, and specifies how funds must be transferred to the state as follows:
   
   1. 55% of cost savings if the application is transmitted before January 1, 2017;
      
   2. 65% of cost savings if the application is transmitted between January 1, 2017 and January 1, 2023; and,
      
   3. 80% of cost savings if the application is transmitted after January 1, 2023.
6. Allows an entity that provides startup funding to designate one platform to receive 45% of the share of the decommissioning cost savings after January 1, 2017.
7. Specifies that the DFW must return funds if approval required for the partial removal of the offshore oil platform is permanently enjoined, vacated, invalidated, rejected, or rescinded by a court or governmental agency as the result of litigation challenging the acceptance.
8. Outlines allocation of the state’s share of the cost savings transmitted under the program as follows:
   1. 85% to the California Endowment for Marine Preservation;
      
   2. 10% to the General Fund;
      
   3. 2% to the Fish and Game Preservation Fund, to be spent as specified;
       
   4. 2% to the Coastal Act Services Fund; and,
      
   5. 1% to the board of supervisors of the county immediately adjacent to the location of the facility prior to its decommissioning.

FISCAL EFFECT: According to the Senate Appropriations Committee, this bill will result in unknown state costs in the mid to high millions per year, as outlined below, and an unknown amount of revenue from the program, potentially in the hundreds of millions, over time. Costs include the following:

1. Approximately $1.5 million annually (Special Deposit Fund) to the CDFW for staffing.
   
2. Approximately $440,000 in year 1, and ongoing cost of $540,000 (special fund), to the OPC for staffing and contracting costs.
   
3. Approximately $3 million to $3.75 million (Fee-for-Service) to prepare the first Platform-specific Decommissioning Environmental Impact Report (EIR), and up to $2.25 million to prepare the programmatic EIR for all remaining structures.
   
4. Unknown, likely in the low hundreds of thousands annually (special fund), costs to the CCC for permitting.
   
5. Unknown, likely minor, costs to the Air Resources Board.
   

COMMENTS:

1. Author’s Statement:

The California coast is home to over two-dozen oil platforms that have been extracting fossil fuels for more than fifty years. During that time, the structures have become habitat used by a wide variety of marine life, including many species of fish, sea mammals, and invertebrates – some of which are at-risk species. CMRLA – “rigs-to-reefs” – allows the DFW to issue a permit for the partial removal of offshore oil structures, leaving in place the steel frame that supports the existing marine life. Total removal of an oil rig would both destroy that habitat and lead to other environmental damage, such as emissions associated with shipping the steel overseas for recycling. Partial decommissioning also provides cost-savings, relative to full removal, and under the CMRLA cost-savings are shared with the state for conservation programs. Under this bill, the oil companies will be responsible for funding the rigs-to-reef permitting program, and the OPC will decide whether partial decommissioning provides a net benefit to the marine environment.

1. Background: Oil and Gas Platforms. There are 27 oil and gas platforms offshore California. Four of these platforms are in state waters at relatively shallow depths. The remaining 23 platforms are over 3 miles from shore in federal waters known as the Outer Continental Shelf (OCS), at depths ranging to nearly 1,200 feet. Additionally, there are five more offshore “islands” (which are also platforms) in state waters. Platforms are located off the coasts of Los Angeles, Ventura, and Santa Barbara counties. The oldest of the offshore platforms was installed in the early 1960s and the newest in the late 1980s.

At least five offshore platforms, including one island, off the coast of California have been decommissioned and removed. In at least one instance, hazardous and accumulated materials in the remaining shell mounds surrounding the legs of a decommissioned platform have presented an ongoing issue that remains unresolved over 20 years post-decommissioning.

Partial decommissioning or “rigs-to-reefs” programs are widely used in the Gulf of Mexico, Louisiana, Texas, and Mississippi. Partial decommissioning, generally, is an alternative to complete rig removal in which the owner of the platform chooses to modify a platform so that, in part, it can continue to support marine life as an artificial reef. Partial removal typically entails removing the top 80 to 90 feet of the platform by towing, toppling in place, or removing, while leaving the lower portion behind to act as a subsurface “reef.” In 2014, a study commissioned for BSEE estimated the decommissioning costs for the federal platforms off the coast of California at $1.4 billion. The most expensive platform to decommission identified in the study would be platform Harmony, which is estimated to cost $184.7 million. Harmony’s platform is at nearly 1,200 feet which is the greatest depth of any platform off the California coast. No fixed platform at a depth of more than 500 feet has ever been fully decommissioned.

AB 2503 (Pérez), Chapter 687, Statutes of 2010, established the California Artificial Reefs Program (“rigs to reefs”), that allowed, on a case-by-case basis, the partial decommissioning of offshore oil and gas platforms. Since the program has gone into effect, no rigs-to-reefs applications under its auspices have been filed with the state, but interested platform owners had no state-developed application materials with which to apply and NRA was not equipped to conduct the CEQA analyses. This bill has SLC serve as lead agency and allows start-up costs to develop the program to be provided by platform owners in return for a more generous cost sharing agreement for the platform owner. The bill also modifies when SLC must complete determination of the cost savings of partial decommissioning from upon certification of the appropriate environmental documents in a timely manner. The cost savings must be determined before DFW accepts the remaining platform. It is unclear whether SLC will wait until the platform is partially decommissioned to know the actual costs of partial decommissioning. Decommissioning costs vary significantly based on the planning and strategy for the decommissioning, selection of contractors, standards for removal, and number of platforms being done at the same time. It may be difficult and speculative to determine the full cost of complete removal for a platform that is never fully removed. Disagreements over the cost savings may arise. The bill also excludes drilling muds and shell mounds from the definition of offshore oil and gas platform. Cleaning up drilling muds and shell mounds is a major part of full removal and should be included in the cost savings calculation.

1. Offshore Oil. In 1994, the California Coastal Sanctuary (CCSA) removed all state lands underlying the Pacific Ocean from the SLC’s oil and gas general leasing authority. The CCSA contains two limited exceptions that allow the SLC to approve new offshore oil and gas production in state waters. One exception is if the SLC determines that state oil or gas deposits are being drained by means of producing wells upon adjacent federal lands and a new oil and gas lease is in the best interests of the state. The other exception allows the Commission to adjust the boundaries of an existing offshore oil and gas lease to encompass all of an oil and gas field partially contained in the lease.
   

Since 2001, the SLC adopted several resolutions opposing the resumption or expansion of federal offshore oil and gas lease sales in the OCS. The foundation for each resolution was the same: that the danger of an oil spill like the 1969 Santa Barbara oil spill was too high and that oil development and potential spills would adversely affect fishing, tourism, and environmental, recreational, economic, scenic, and other values. The resolutions are also based on and expressive of the state’s policy and practice of not issuing new offshore leases. The Obama Administration prohibited offshore drilling in the Pacific OCS until 2022. In January 2018, the Trump Administration announced its plan to lift the moratorium put in place by President Obama, opening 90% of federal waters, including off the California’s coast, to new drilling leases. In a tweet, United States Secretary of the Interior Ryan Zinke (Secretary Zinke) indicated that Florida could be exempted from new leases due to concerns about impacts on the tourism industry, but this decision has not been reflected in the Bureau Of Ocean Energy Management’s (BOEM) proposed OCS oil and gas leasing plan. Secretary Zinke also testified at a U.S. Senate Energy Committee that he doubts oil and gas explorations would occur in the Pacific region and indicated that would be reflected in the next draft of BOEM’s proposed OCS oil and gas leasing plan. The next draft has not yet been released. If new leases are allowed in the Pacific OCS, this bill may make new oil and gas development in the Pacific OCS more attractive by reducing decommissioning costs by potentially tens of millions of dollars.

The bill states it is the intent of the Legislature to end drilling off the coast of California. This might not be an accurate statement considering past bills SB 1096 (Jackson, 2014) and SB 788 (McGuire, 2015), which would have removed SLC authority to issue new oil and gas leases in state waters failed to pass the Legislature. This bill also states it is the intent of the Legislature that nothing in the CMRLA encourages additional oil and gas leases. However, there is nothing in the bill prohibiting a platform accessing a new oil and gas lease from pursuing partial decommissioning to reduce their decommissioning costs. Therefore, this bill does provide an option to make new oil and leases more financially attractive by allowing platforms associated with those new leases to be partially decommissioned.

The sponsor claims that without a viable rigs to reefs program platform operators will continue to delay decommissioning, and entire platforms will be left in place for much longer than if they could be partially decommissioned. However, nothing in CMRLA requires a platform owner to apply for partial decommissioning and future legislation could be pursued to reduce operator decommissioning costs even further.

1. Net benefit to the marine environment. The overall habitat value or detriment of an offshore oil and gas platform is unique to each platform, especially because the depth of each platform varies so greatly. The U.S. Coast Guard navigational rules require between 80 and 90 feet of the platform to be removed. Therefore, some platforms may have 100 feet of platform remaining after partial decommissioning, others may have over 1,000. A crucial question in determining net benefit of a rig-to-reef is the impact it can have on species’ population in the region. Science suggests there may be some species, such as certain rockfish, that could benefit from leaving the platform in place. Research published in 2014, indicated that the subsurface platform structures in California may be some of the most productive habitat for marine life in the world, but there is variation from platform to platform on the extent of marine life productivity. There are also questions about the impact of a platform habitat has on the surrounding natural habitat either through additional invasive species or luring some species from their natural habitat. In addition, it is unclear whether increased fishing after partial decommissioning would eliminate additional species’ populations. Full and even partial removal of steel or concrete fixed platforms that weigh thousands of tons has a significant, although short-term and localized, negative impact on the marine environment.

This bill requires OPC to determine whether partial removal provides a net benefit to the marine environment. This includes affects to fish, biological resources, and other marine life and impacts on water quality. However, this bill requires OPC to weigh the adverse impacts of air quality and greenhouse gases. These impacts are inconsistent with the rest of the factors OPC is being required to review. It may be difficult for OPC to decide which impact is more important. In addition, it is unclear whether OPC staff or the Council itself will make the determination that there is a net marine benefit to partial removal.

1. Platform Holly. On April 17, 2017, the SLC received documents from Venoco quitclaiming its interests in the South Ellwood Field leases, including Platform Holly and the Ellwood Beach pier leases offshore the City of Goleta. SLC is now responsible for decommissioning Platform Holly. SLC will ensure that the 32 offshore wells and facilities are secured and maintained while it develops a plan, in coordination with local and state regulatory agencies, to efficiently and safely address the disposition of the wells, platform, and piers. The process for decommissioning the facilities and plugging and abandoning the approximately 32 wells on state property will be expensive, complex, and lengthy. SB 840 (Mitchell, 2018) appropriates $108,500,000 from the General Fund over three years to cover a portion of the costs to permanently secure, plug and abandon, and decommission both Rincon Island Limited Partnership and Platform Holly. SLC is negotiating with Exxon Mobil, the prior owner of the lease, on what level they will be responsible for the decommissioning costs for Platform Holly. The state could be responsible for a portion of the cost of decommissioning, and Platform Holly may be particularly costly because it will be the only platform removed by the state. If the state could cooperate with other decommissioning efforts to reduce contracting costs and the cost of securing equipment, including a barge, it could provide a major cost savings.
2. Prior Legislation:

AB 2503 (Perez), Statutes of 2010, Chapter 687, established a program to allow for the partial removal of existing offshore oil platforms. Any cost savings realized from partial removal would be split between the state and the platform owner. This bill specified that any state proceeds would largely be provided to a new endowment and to be used for various ocean-related purposes.

AB 2267 (Hall 2012), would have added air quality and greenhouse gas emissions to the net environmental benefit calculations and revised the calculation and sharing of cost savings from partial decommissioning. Held in Senate Appropriations Committee.

AB 207 (Rendon, 2013), would have added air quality and greenhouse gas emissions to the net environmental benefit calculations, among other things. Held in Assembly Appropriations Committee.

SB 233 (Hertzberg, 2015), would have modified the California Marine Resources Legacy Act regarding applications to allow the partial removal of an offshore oil structure. Held in Assembly Appropriations Committee.

1. Double Referral. This bill was also referred to the Assembly Water, Parks, and Wildlife Committee and passed out of that committee on a 12-2 vote.

REGISTERED SUPPORT / OPPOSITION:

Support

Amigos del Aire Libre
Coalition for Enhanced Marine Resources
Deep Blue Scuba & Swim Center
Hubbs-SeaWorld Research Institute
Ocean Conservancy

San Diego County Wildlife Federation

Sportfishing Conservancy of California

State Building and Construction Trades Council, AFL-CIO

United Anglers

Opposition

5 Gyres Institute, The
350 Conejo / San Fernando Valley
350 South Bay Los Angeles

California Coastal Protection Network
Californians for Western Wilderness
Center for Oceanic Awareness, The

Citizens Planning Association
Clean Water Action

Congressman Salud Carbajal, 24^th Congressional District, California

Defenders of Wildlife

Environment California

Environmental Caucus, California Democratic Party

Environmental Defense Center
Environmental Protection Information Center

Friends of the Earth

Fund for Santa Barbara
Great Old Broads for Wilderness

Hands Across the Sand
Heal the Bay

Heal the Ocean
Inland Ocean Coalition
Klamath Forest Alliance

Ocean Conservation Research

Ocean Foundation, The

Ocean Protection Coalition

Pacific Coast Federation of Fishermen’s Associations
Plastic Pollution Coalition

Redwood Coast Watersheds Alliance

Safe Energy Now
SanDiego350
San Francisco Baykeeper

Santa Barbara Channelkeeper

Santa Barbara County Action Network

Santa Barbara County Board of Supervisors

Sierra Club California
Seventh Generation Advisors
SoCal 350 Climate Action

Surfrider Foundation
Western Alliance for Nature
Wildcoast

Analysis Prepared by: Michael Jarred / NAT. RES. /

Date of Hearing: June 27, 2017

ASSEMBLY COMMITTEE ON WATER, PARKS, AND WILDLIFE

Eduardo Garcia, Chair

SBPCA Bill Id:SB 588

Author:(Hertzberg) – As Amended Ver:June 19, 2017

SENATE VOTE: 30-4

SUBJECT: Marine resources and preservation

SUMMARY: Substantially revises the existing state program that allows for partial removal of oil and gas platforms offshore in state or federal waters. Specifically, this bill:

1. Defines terms for the purposes of the program. Among other terms, defines an “offshore oil and gas platform” to be a platform used for oil and gas exploration, development, production, process, or storage and to be exclusive of shell mounds and drilling muds. And, among other terms, defines “transferor” to be the owner, operator, or legal entity responsible for the offshore oil and gas platform.
2. Revises the existing process for the partial removal of an oil and gas platform. Establishes a new process for the transfer of the title of an eligible artificial reef converted from an oil and gas platform. Specifies that partial removal of an offshore oil and gas platform is a project under the California Environmental Quality Act (CEQA). Designates the State Lands Commission (SLC) as the lead agency for all environmental reviews of any project proposed under this program for purposes of CEQA.
3. Specifies that nothing in the process is intended, or to be construed, to limit or affect the authority or duties of any state or local agency, including, the Department of Fish and Wildlife (DFW), the SLC, the Ocean Protection Council (OPC), and the Coastal Commission. Specifies that nothing in the bill relieves the owner of an offshore oil platform from specified continuing liability for the offshore oil platform, and, among other things, clarifies that the bill does not relieve an owner of requirements of The Comprehensive Environmental Response, Compensation, and Liability Act.
4. Specifies requirements for, and processes through which, an offer to transfer an artificial reef converted from a decommissioned oil and gas platform for incorporation into the California Artificial Reef Program must occur. Requires a transfer to include, among other things, all of the following:
5. The transferor has provided funding for the following evaluations:
   • 1. The OPC to make and submit a determination for inclusion in environmental documentation, based on credible science, whether partial removal of the platform would provide a net benefit to the marine environment compared to full removal of the platform. Specifies factors the OPC must consider when making the net benefit determination, including adverse impacts to air quality and greenhouse gas emissions that would result from full removal of the platform compared to partial removal.
     2. The transferor in consultation with the DFW, with public comment, to prepare and adopt a management plan for the artificial reef.
     3. The SLC to make a final determination of the estimated costs savings from the partial removal. Requires the SLC to ensure that any cost savings are accurately and reasonably calculated and allows the SLC to obtain assistance from governmental, nongovernmental, or private entities and experts to do so.
6. Requires the transferor to enter into an indemnification agreement with the DFW that indemnifies the state and the DFW, to the extent permitted by law, against any and all liability.
7. The CEQA process has been completed and any judicial process has been fully exhausted.
8. Outlines a declining schedule of benefit (share of decommissioning cost savings) to the platform owner, based on application date, and specifies how funds must be transferred to the state.
9. Allows an entity that provides startup funding to designate one platform to receive an additional share of the decommissioning cost savings.
10. Specifies that the DFW must return funds if approval required for the partial removal of the offshore oil platform is permanently enjoined, vacated, invalidated, rejected, or rescinded by a court or governmental agency as the result of litigation challenging the acceptance.
11. Outlines allocation of the state’s share of the cost savings transmitted under the program as follows: (1) eighty-five percent to the California Endowment for Marine Preservation; (2) ten percent to the General Fund; (3) two percent to the Fish and Game Preservation Fund, to be spent as specified; (4) two percent to the Coastal Act Services Fund; and, (5) one percent to the board of supervisors of the county immediately adjacent to the location of the facility prior to its decommissioning.

EXISTING LAW:

1. Establishes state and federal offshore oil leases that generally require, or can in certain circumstances require (e.g., if it is in the state’s best interests), the full removal of decommissioned oil platforms after the lease ends. Both federal regulations and provisions in state and federal leases allow the federal government to consider and approve alternative decommissioning methods other than complete platform removal.
2. Federal law requires each permit for an artificial reef to specify the terms and conditions for the construction, operation, maintenance, monitoring, and managing the use of the artificial reef to ensure the protection of the environment and human safety and property. Federal law immunizes the United States against liability when the terms and conditions of the permit are not satisfied.
3. Under the California Marine Resources Legacy Act, establishes a program to allow partial removal of decommissioned offshore oil structures as an alternative to full removal if specified conditions are met. Provides primary authority to the DFW to approve partial removal if specified conditions are met.
4. Provides that a partial removal of an offshore oil and gas platform:
   1. Is a project for purposes of CEQA, and the California Natural Resources Agency (CNRA) is the lead agency for the environmental review.
   2. Will be a net benefit to the marine environment as compared to a full removal, as determined through appropriate criteria by the OPC.
   3. If specified prerequisite conditions are met, requires the SLC to determine an accurate and reasonable cost savings that would result from partial removal. If there is an approved partial removal, requires cost savings to be split between the state and the platform owner, according to a specified formula. Further specifies how the state’s share of funds shall be distributed, what uses it is eligible for, and requires the State Coastal Conservancy (Conservancy) to create an advisory spending plan for specific funds.
   4. Requires the DFW to develop and implement, through a public process, a management plan that will ensure that the net benefits to the marine environment are maintained and enhanced.
   5. Prohibits the DFW from taking title or responsibility for management of a partially removed structure until final approval has been granted and the state is indemnified from liability associated with the structure.
5. Requires the first person to file an application for partial removal of an offshore oil structure to pay the startup costs incurred by the DFW or the SLC to implement the process, including the costs of developing and adopting regulations. Requires the DFW to reimburse the payment of startup costs from cost savings subsequently deposited into the Fish and Game Preservation Fund from future applicants.

FISCAL EFFECT: Unknown.

COMMENTS: Substantially revises the existing state program that allows for partial removal of oil and gas platforms offshore in state or federal waters.

Author’s Statement:

The California coast is home to over two-dozen oil platforms that have been extracting fossil fuels for more than fifty years. During that time, the structures have become habitat used by a wide variety of marine life, including many species of fish, sea mammals, and invertebrates – some of which are at-risk species. The California Marine Resources Legacy Act (CMRLA) – “rigs-to-reefs” – allows the Department of Fish and Wildlife to issue a permit for the partial removal of offshore oil structures, leaving in place the steel frame that supports the existing marine life. Total removal of an oil rig would both destroy that habitat and lead to other environmental damage, such as emissions associated with shipping the steel overseas for recycling. Partial decommissioning also provides cost-savings, relative to full removal, and under the CMRLA cost-savings are shared with the state for conservation programs. Under this bill, the oil companies will be responsible for funding the rigs-to-reef permitting program, and the Ocean Protection Council will decide whether partial decommissioning provides a net benefit to the marine environment.

Background: Oil and Gas Platforms. There are 27 oil and gas platforms offshore California. Four of these platforms are in state waters at relatively shallow depths. The remaining 23 platforms are over 3 miles from shore in federal waters at depths ranging to nearly 1,200 feet. Additionally, there are five more offshore “islands” (which are also platforms) in state waters. Platforms are located off the coasts of Los Angeles, Ventura and Santa Barbara counties. The oldest of the offshore platforms was installed in the early 1960’s, and the useful production lifetimes of the platforms is estimated to end between 2017 and 2055.

At least five offshore platforms, including one island, off the coast of California have been decommissioned and removed. In at least one instance, hazardous and accumulated materials in the remaining shell mounds surrounding the legs of a decommissioned platform have presented an ongoing issue that remains unresolved over 20 years post-decommissioning.

Partial decommissioning or “rigs-to-reefs” programs are widely used in the Gulf of Mexico, Louisiana, Texas and Mississippi. Partial decommissioning, generally, is an alternative to complete rig removal in which the owner of the platform chooses to modify a platform so that, in part, it can continue to support marine life as an artificial reef. Partial removal typically entails removing the top 80 to 90 feet of the platform by towing, toppling in place, or removing, while leaving the lower portion behind to act as a subsurface “reef.” Cost savings to the platform owners from partial decommissioning compared to full decommissioning are estimated to be on the order of tens to hundreds of millions of dollars.

AB 2503 (Pérez), Chapter 687, Statutes of 2010, established the California Artificial Reefs Program (“rigs to reefs”), that allowed, on a case-by-case basis, the partial decommissioning of offshore oil and gas platforms. Since the program has gone into effect, no rigs-to-reefs applications under its auspices have been filed with the state, but interested platform owners had no state-developed application materials with which to apply.

Can a Rig to Reef be a Net Benefit? The overall habitat value or detriment of an offshore oil and gas platform is unique to each platform. The total “reef” area comprised by all 27 platforms is extremely small in relation to the availability of other hard surface. A crucial question in determining net benefit of a rig-to-reef is the impact it can have on species population in the region. Science suggests there may be some species, and species of particular interest that could benefit from leaving the platform in place. Research published in 2014, indicated that the subsurface platform structures in California may be some of the most productive habitat for marine life in the world, but there is variation from platform to platform on the extent of marine life productivity. It is unclear if the platforms attract or produce fish, however and it is not known what impact removing the top portion of the platform would have on all life using the platform.

Full, and even partial removal, of steel or concrete fixed platforms that weigh thousands of tons is generally impossible without using explosive materials. Bulk explosive charges have been used in 90% of removal cases. This has a significant, although short-term and localized, negative impact on the marine environment.

The habitat value of the platform, and the impacts of removal of the platform, are generally what are considered under existing law when looking at the net benefit. Among other things, the bill requires the SLC to evaluate, based on credible science, all potential impacts from enhanced productivity of marine life in a partial removal, adverse impacts that would be avoided in a partial removal over a full removal, adverse impacts from a partial removal, and benefits from a full removal.

Definition of a Platform. The bill specifically excludes “shell mounds” and “drilling muds” from the definition of a platform. “Shell mounds” are the accumulation of materials that build up at and around the base of the platform during normal operations and maintenance of the facility. The mounds are composed of materials from the periodic cleaning of the platform legs of marine life as well as other marine organisms. Additionally, drilling fluids and drill cuttings may be deposited on the sea floor underneath the platform. The drilling materials contain contaminants such as PCBs, hydrocarbons and metals.

The Chevron 4-H platform off the coast of Carpenteria and Summerland were decommissioned in 1996. The “shell mounds” were left in place when the platforms were decommissioned. The mounds are 25 – 28 feet high, and 200 – 250 feet in diameter. At least one of these shell mounds is known to have toxic effects on marine life. The SLC put together a shell mound and technical and environmental report in the early 2000’s. A summary of the report to the Coastal Commission states:

“The concentrations of metals and organics in the mounds at Platforms Hope, Heidi, and Hilda are not expected to be toxic to water column organisms. However, elutriate bioassay-testing results show that shell mound sediments at the Platform Hazel site are toxic enough at 48% concentration to kill 50% of the test organism, a mysid shrimp (Mysidopsis bahia).”

At the time of decommissioning a decision was made to leave the shell mounds in place, but how they are to be addressed remains unresolved.

By excluding “shell mounds” and “drilling muds” from the definition of a platform under a partial decommissioning the bill introduces ambiguity over the responsibility for shell mounds.

Long-Term Management and Liability. This bill requires the transferor in consultation with the DFW to prepare a management plan that if approved, among other things, includes the monitoring of shell mounds. Monitoring could be helpful in the ability of the state to quickly address responsibility should toxicity issues with the shell mounds arise.

AB 2503 established an indemnification agreement requirement to protect the state from any liability claims that could result from the transfer of the rig. This bill contains a substantially similar indemnification requirement. In 2001, the Legislative Counsel of California issued an opinion on the liability protections of similar indemnification language on earlier rigs-to-reef legislation. The opinion stated the indemnification agreement would not absolve the department of liability and that the effectiveness and scope of an indemnity depends on its specific wording.

Benefit From Going First. Under AB 2503 that established the rigs-to-reef program, a schedule of costs savings that increases the state’s share over time was established. The original program would have had 45 percent of cost savings going to the transferor prior to January 1, 2017. That reduced to 35 percent for the period of time from January 1, 2017, to January 1, 2023. This bill would maintain the existing schedule with the exception that the first transferor to move forward will receive 45 percent of the cost savings.

Platform Holly. Recently, Venoco, the owner and operator of Platform Holly, located in state waters in the Santa Barbara Channel, declared bankruptcy. The SLC is taking over operations of the platform as it moves to plug and abandon 32 offshore wells prior to decommissioning the platform (the deepest in state waters). Current estimates are that decommissioning of the platform and related facilities will be at least $44.5 million.

Double-Referral: Should this bill pass this committee it will be referred to the Assembly Natural Resources Committee.

Prior and Related Legislation:

AB 2503 (Perez), Statutes of 2010, Chapter 687, established a program to allow for the partial removal of existing offshore oil platforms. Any cost savings realized from partial removal would be split between the state and the platform owner. This bill specifies that any state proceeds would largely be provided to a new endowment and would be used for various ocean-related purposes.

AB 2267 (Hall), 2012, would have added air quality and greenhouse gas emissions to the net environmental benefit calculations and revised the calculation and sharing of cost savings from partial decommissioning. Held in Senate Appropriations Committee.

AB 207 (Rendon), 2013, would have added air quality and greenhouse gas emissions to the net environmental benefit calculations, among other things. Held in Assembly Appropriations Committee.

SB 233 (Hertzberg), 2015 would have modified the California Marine Resources Legacy Act regarding applications to allow the partial removal of an offshore oil structure. Held in Assembly Appropriations Committee.

Supporting Arguments: Supporters argue that, since the passage of AB 2503 (Perez), 2010, it has become clear that there are practical impediments to the successful implementation of the program. This bill is the product of two years of extensive work with the appropriate state agencies to streamline and rationalize the decommissioning process. It solves the financial problems by requiring the first applicant to provide upfront funding to the state in return for a one-time reduction in the cost share. In addition, the bill clarifies the functions of each of the state agencies and the timing of the process vis-à-vis the federal government.

California’s almost two dozen off-shore oil rigs are declining in production and nearing the end of their economic life. The cost of fully removing them, however, is so enormous that there is strong economic incentive for oil companies to leave them in place until the last drop of oil is pumped. This could take many decades. This bill will reverse that incentive and help end offshore oil production early while not only protecting valuable marine habitat but creating a permanent source of environmental funding.

Opposing Arguments: This bill would clearly weaken existing law by explicitly increasing the bias towards partial removal of spent oil and gas rigs by focusing on short-term impacts of full removal and ignoring the benefits of fully removing oil platforms and restoring the marine environment. Additionally, the bill would expose the state, as the owner of the partially decommissioned platforms, to substantial liability.

Sea floor discard of all or even portions of spent offshore drilling platforms presents entanglement issues for commercial fishing gear, and perpetuation of toxic drilling wastes. Objective science does not support claims that platforms function as productive habitat.

The bill would expose the state to substantial risk of liability. Although the bill contains what purports to be an indemnification clause, a prior opinion by the Legislative Counsel of California warns that such protections are limited and that the state could still be exposed to liability.

This bill is an ill-advised bill that will weaken existing law and make it easier for oil companies to transfer their obligations and liabilities to the state.

REGISTERED SUPPORT / OPPOSITION:

Support

Amigos del Aire Libre

Coalition for Enhanced Marine Resources

Deep Blue Scuba & Swim Center

Hubbs-SeaWorld Research Institute

Ocean Conservancy

San Diego County Wildlife Federation

Sportfishing Conservancy of California

United Anglers

Opposition

California Coastal Protection Network

Citizens Planning Association

Congressman Salud Carbajal, 24^th Congressional District, California

Defenders of Wildlife

Environment California

Environmental Caucus, California Democratic Party

Environmental Defense Center

Friends of the Earth

Fund for Santa Barbara

Hands Across the Sand

Heal the Ocean

Ocean Conservation Research

Ocean Foundation, The

Ocean Protection Coalition

Pacific Coast Federation of Fishermen’s Associations

Redwood Coast Watersheds Alliance

Safe Energy Now

Santa Barbara Channelkeeper

Santa Barbara County Action Network

Santa Barbara County Board of Supervisors

Sierra Club California

Surfrider Foundation

Western Alliance for Nature

Analysis Prepared by: Ryan Ojakian / W., P., & W. /

 THIRD READING  

Bill No: SB 588

Author:

:

Vote:

SENATE NATURAL RES. & WATER COMMITTEE: 8-1, 3/28/17

AYES: Hertzberg, Stone, Allen, Atkins, Hueso, Monning, Stern, Vidak

NOES: Jackson

SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/25/17

AYES: Lara, Bates, Beall, Bradford, Hill, Nielsen, Wiener

SUBJECT:

SOURCE: Author

DIGEST:

This bill substantially revises the existing state rigs-to-reefs program that allows for the partial removal of oil and gas platforms in state or federal waters if the remaining portion is converted into an artificial reef and certain conditions are met.

ANALYSIS: Existing federal law requires that decommissioned oil and gas platforms be removed at the end of production, and the surrounding marine environment be cleaned up and restored to a natural condition.

Existing state law:

1. Provides primary authority to the Department of Fish and Wildlife (department) to accept and approve rigs-to-reefs applications submitted by authorized parties. The department is required to develop application materials, determine when an application is complete, develop a reef management plan, review and provide conditional and final approval to an application, and manage and operate an approved artificial reef, among other things.
2. Provides that:
   1. A rigs-to-reefs project is a project for the purposes of the California Environmental Quality Act (CEQA) and the California Natural Resources Agency is lead agency.
   2. The Ocean Protection Council (council) determines whether a net benefit to the marine environment from partial decommissioning compared to full decommissioning exists. This includes establishing appropriate criteria to make this evaluation, as specified.
   3. The State Lands Commission (commission) determines the cost savings, as specified.
   4. The State Coastal Conservancy (conservancy) creates an advisory spending plan for the cost savings deposited in the endowment.
   5. The authority of the California Coastal Commission (coastal commission) in the coastal zone as well as the authority of local and federal regulatory entities within their respective jurisdictions is acknowledged and protected.
3. Establishes minimum standards for application materials including, in addition to the determination of the costs savings and net environmental benefit described above, a plan and schedule for partial decommissioning, and an identification of all necessary permits, leases and approvals needed, among other things. An application is not complete until an applicant provides certain financial assurances that funds are available to pay for application processing. The first rigs-to-reefs applicant is also required to pay the program’s set-up costs, although those are reimbursable.
4. Authorizes the department to issue a conditional approval for a partial decommissioning project if specific criteria are met including all applicable laws are followed and necessary permits, leases and approvals obtained, there is a cost savings and net marine environmental benefit from partial decommissioning, the applicant has provided appropriate funding, as specified, for application evaluation, an agreement on reef management has been reached, and the applicant and the department have entered into an indemnification agreement to protect the state from liability and reached an agreement for the department to take title to the reef.
5. Requires, when the department issues a conditional approval for partial decommissioning, the owner of the platform to transmit a portion of the total cost savings to the state on the following schedule – 55% before January 1, 2017, 65% from January 1, 2017 to before January 1, 2023, and 80% afterwards. The department shall not grant final approval until the full amount of applicable cost savings has been transmitted.

Existing state and federal offshore oil leases generally require or can in certain circumstances require (e.g. if it is in the state’s best interests) the removal of decommissioned oil platforms after the lease ends. Both federal regulations and provisions in state and federal leases allow the federal government to consider and approve alternative decommissioning methods other than complete platform removal.

This bill substantially revises the state’s existing rigs-to-reefs program while maintaining certain key elements, including the department’s lead role in the partial decommissioning process. Specifically this bill:

1. Provides a process for an authorized entity to offer to transfer title to a partially decommissioned platform in state or federal waters to the department, and for the department to take title. This offer/transfer process replaces the existing application process. All of the following conditions, many retained from existing law, must be met for the department to accept title:
   1. All necessary federal authorization and permits are obtained and the transfer is consistent with all applicable laws.
   2. The transferor has initiated the decommissioning process with any applicable lessor.
   3. The transferor has received a consistency determination and any necessary permits from the coastal commission, and complied with any terms of a commission lease, as applicable.
   4. The transferor has provided funding for all program costs.
   5. The council has determined partial decommissioning provides a net environmental benefit.
   6. The transferor drafts and the department approves a management plan for the artificial reef, as described.
   7. The commission has made a final determination of the estimated costs savings, as specified.
   8. The transferor provides indemnification, as specified, to the state.
   9. The department holds a public meeting in the county nearest to the proposed artificial reef.
   10. Review of the project under CEQA and/or the National Environmental Policy Act (NEPA) is completed and certified. The commission is the lead agency for CEQA.
   11. Any judicial challenge has been fully and finally exhausted.
2. Requires, upon acceptance of the transfer by the department, the transferor to apportion and directly transmit the cost savings to the state as specified in existing law.
3. Provides that the transfer of title to the department is not effective until the final management plan, payment of funds, and full compliance with the program’s provisions is achieved.
4. Requires the department to revise its existing Artificial Reef Plan, as specified.
5. Authorizes the full funding of program start-up costs, as specified, for the department, the council, the commission and the coastal commission.
   1. Start-up costs may be deposited into a Special Deposit Fund.
   2. At the time startup costs are provided, one proposed platform transfer shall be identified that will be subject to 55% cost share with the state regardless of the date of the transfer (if partial decommissioning is approved).
   3. An offerer is required to wait 2 years after full start-up cost funding is provided to propose a transfer of title to a partially decommissioned platform.
6. Allows the transferor to withdraw its offer of transfer at any time prior to title transfer and requires the return by the department of any unexpended/committed funds. Additionally if a transfer is stopped, any received cost savings must be returned, as specified.
7. Revises the calculation of the net environmental benefit by the council to specify that the calculation shall be incorporated in the preparation of environmental documentation, credible science shall be used to determine the appropriate weight to be assigned to each of multiple factors to be taken into consideration comparing partial decommissioning to full decommissioning. Air quality and greenhouse gas emissions are added to the existing list of factors.
8. Updates and revises appropriate and relevant definitions and legislative findings, and makes additional technical clarifying changes to the program and the endowment. Shell mounds and drilling muds are excluded from the definition of an offshore oil and gas platform.
9. Removes the conservancy’s requirement to create an advisory spending plan for the cost savings deposited in the endowment.

Background

There are 27 oil and gas platforms offshore California. Four of these platforms are in state waters at relatively shallow depths. The remaining 23 platforms are over 3 miles from shore in federal waters at depths ranging to nearly 1200 feet. Additionally, there are five more offshore “islands” (which are also platforms) in state waters. Platforms are located off the coasts of Los Angeles, Ventura and Santa Barbara counties. The useful production lifetimes of the platforms is estimated to end between 2017 and 2055.

At least five offshore platforms, including one island, off the coast of California have been decommissioned and removed. In at least one instance, hazardous and accumulated materials in the remaining shell mounds surrounding the legs of a decommissioned platform have presented an ongoing issue that remains unresolved over 20 years post-decommissioning.

Partial decommissioning or “rigs-to-reefs” programs are widely used in the Gulf of Mexico, and Louisiana, Texas and Mississippi. Partial decommissioning generally means removing the top part of the platform while leaving the lower portion behind to act as a subsurface “reef.” Cost savings to the platform owners from partial decommissioning compared to full decommissioning are estimated to be on the order of tens to hundreds of millions of dollars.

Since the state’s rigs-to-reef law (AB 2503, Pérez, Chapter 687, Statutes of 2010) went into effect, no rigs-to-reefs applications under its auspices have been filed with the state. It is a fair point, however, that any interested platform owner had no state-developed application materials with which to apply.

Comments

Air quality and the net environmental benefit. The consideration of air quality, including greenhouse gas emissions, in decommissioning is a required element of the CEQA environmental analysis. While air quality and greenhouse gas emissions were not an explicit element for consideration in the existing net environmental benefit analysis, the existing language is broadly written and these considerations could, at the council’s discretion, have been included in the calculation. This bill while adding air quality and greenhouse gas emissions to the calculation retains the broad language allowing for additional unspecified impacts.

Platform Holly. Recently, Venoco, the owner and operator of Platform Holly, located in state waters in the Santa Barbara Channel, declared bankruptcy. The commission is taking over operations of the platform as it moves to plug and abandon 32 offshore wells prior to decommissioning the platform (the deepest in state waters). Current estimates are that decommissioning of the platform and related facilities will be at least $44.5 million.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Senate Appropriations Committee, this bill will result in unknown state costs, in the mid- to high-millions per year, as outlined below, and an unknown amount of revenue from the program, potentially in the hundreds of millions over time. (See staff comments in the Senate Appropriations Committee analysis)

• Approximately $1.5 million annually (Special Deposit Fund) to the department for staffing.
• Approximately $440,000 in year 1, and ongoing cost of $540,000 (special fund), to the council for staffing and contracting costs.
• Approximately $3 million to $3.75 million (Fee-for-Service) to prepare the first Platform-specific Decommissioning Environmental Impact Report (EIR), and up to $2.25 million to prepare the programmatic EIR for all remaining structures.
• Unknown, likely in the low hundreds of thousands annually (special fund), costs to the coastal commission for permitting.
• Unknown, likely minor, costs to the Air Resources Board.

SUPPORT: (Verified 5/26/17)

Amigos del Aire Libre

Coalition for Enhanced Marine Resources

Deep Blue Scuba & Swim Center

Hubbs-SeaWorld Research Institute

San Diego County Wildlife Federation

Sportfishing Conservancy of California

United Anglers

OPPOSITION: (Verified 5/26/17)

The Honorable Salud Carabajal, Member of the U.S. Congress

California Coastal Protection Network

Citizens Planning Association

Defenders of Wildlife

Environment California

Environmental Defense Center

Friends of the Earth

Fund for Santa Barbara

Hands Across the Sand

Heal the Ocean

Ocean Conservation Research

Ocean Protection Coalition

Pacific Coast Federation of Fishermen’s Associations

Rachel Binah, Chair Emeritus, Environmental Caucus, California Democratic Party

Redwood Coast Watersheds Alliance

Safe Energy Now

Santa Barbara Channelkeeper

Santa Barbara County

Santa Barbara County Action Network

Sierra Club California

Surfrider Foundation

The Ocean Foundation

Western Alliance for Nature

ARGUMENTS IN SUPPORT: According to the author, fossil fuels have been produced from wells located on offshore oil and gas platforms for a considerable time and that “[d]uring that time, the structures have become habitat used by a wide variety of marine life, including many species of fish, sea mammals, and invertebrates – some of which are at-risk species.”

The author continues, “[o]il companies have expressed an interest in decommissioning the aging platforms, but the current process for fully decommissioning and removing oil rigs in their entirety will destroy this valuable habitat. In addition, full removal of platforms is extremely expensive. Since federal law requires operators to continue pumping oil and gas until they have a decommissioning permit, there is an economic incentive for oil companies to keep pumping offshore oil. The longer this continues the more oil is pumped. Unfortunately, [the existing rigs-to-reefs law] did not specify several important steps in the permitting process and no funding has been appropriated to [the department] for the program. As a result, no operator has applied for a partial decommissioning permit, despite the interest to begin shuttering offshore rigs.”

ARGUMENTS IN OPPOSITION: According to a joint sign-on letter in opposition, the Environmental Defense Center and others write:

“SB 588 would clearly weaken existing law by explicitly increasing the bias towards partial removal of spent oil and gas rigs by focusing on short-term impacts of full removal and ignoring the benefits of fully removing oil platforms and restoring the marine environment. In addition, SB 588 would expose the State to substantial liability as the owner of the partially decommission[ed] platforms.”

“SB 588 would absolve oil companies of their contractual obligations to fully remove offshore platforms and reduce the cost of oil drilling. In doing so, SB 588 will encourage more oil leasing and development that puts the California coast at risk. Accordingly, this bill will undermine the State’s opposition to federal offshore oil leasing and the threats presented by the President’s recent Executive Order. SB 588 runs directly counter to Senate Resolution 35, which states the Senate’s strong and unequivocal opposition to new oil and gas development offshore California, and which passed the Senate overwhelmingly on a bipartisan 29 – 5 vote.”

“Allowing platforms to be abandoned at sea raises numerous environmental and safety concerns. Seafloor discard of all of even portions of spent offshore drilling platforms present entanglement issues for commercial fishing gear, perpetuation of toxic drilling waste, and new migratory pathways for the unwanted spread of invasive marine species. Objective science does not support claims that platforms function as productive habitat.”

Prepared by:

5/30/17 10:43:02

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

SB 588 (Hertzberg) - Marine resources and preservation

This bill meets the criteria for referral to the Suspense File.

Bill Summary: SB 588 substantially revises the existing state Rigs-to-Reefs program that allows for the partial removal of oil and gas platform in state or federal waters if the remaining portion is converted into an artificial reef.

Fiscal Impact: This bill will result in unknown state costs, in the mid- to high-millions per year, as outlined below, and an unknown amount of revenue from the program, potentially in the hundreds of millions over time. (See staff comments)

• Approximately $1.5 million annually (Special Deposit Fund) to the Department of Fish and Wildlife (CDFW) for staffing.
• Approximately $440,000 in year 1, and ongoing cost of $540,000 (special fund), to the Ocean Protection Council (OPC) for staffing and contracting costs.
• Approximately $3 million to $3.75 million (Fee-for-Service) to prepare the first Platform-specific Decommissioning Environmental Impact Report (EIR), and up to $2.25 million to prepare the programmatic EIR for all remaining structures.
• Unknown, likely in the low hundreds of thousands annually (special fund), costs to the Coastal Commission for permitting.
• Unknown, likely minor, costs to the Air Resources Board.

Background:

Existing law. Existing federal law requires that decommissioned oil and gas platforms be removed at the end of production, and the surrounding marine environment be restored to a natural condition. Existing state and federal offshore oil leases generally require, or can in certain circumstances require, (e.g. if it is in the state’s best interests) the removal of decommissioned oil platforms after the lease ends.

Both federal regulations and provisions in state and federal leases allow the federal government to consider and approve alternative decommissioning methods other than complete platform removal. Partial decommissioning or “Rigs-to-Reefs” programs are widely used in the Gulf of Mexico, and Louisiana, Texas and Mississippi. Partial decommissioning generally means removing the top part of the platform while leaving the lower portion behind to act as a subsurface “reef.” Cost savings to the platform owners from partial decommissioning compared to full decommissioning are estimated to be on the order of tens to hundreds of millions of dollars.

The CDFW administers the Rigs-to-Reefs program, and per statute, is required to develop a reef management plan, hold a public hearing in the county nearest to the proposed reef, review and provide conditional and final approval to an application, and manage and operate an approved artificial reef, among other things.

In addition to the CDFW’s obligations, existing Rigs-to-Reefs law provides that:

• A Rigs-to-Reefs project is a project for the purposes of the California Environmental Quality Act (CEQA) and the California Natural Resources Agency is lead agency.
• The OPC determines whether a net benefit to the marine environment from partial decommissioning compared to full decommissioning exists. This includes establishing appropriate criteria to make this evaluation.
• The State Lands Commission (commission) determines the cost savings, as specified, and develops EIRs, as needed.
• The California Coastal Commission’s (coastal commission) authority in the coastal zone as well as the authority of local and federal regulatory entities within their respective jurisdictions is explicitly protected.

An application is not complete until an applicant provides, among other things, certain financial assurances; a plan and a schedule for partial decommissioning; and a schedule to obtain all necessary permits, leases, and approvals.

Since AB 2503 became law in 2011, no Rigs-to-Reefs applications have been filed with the state, though notably, no state-developed application materials are available. Three bills unsuccessfully attempted address programs perceived shortcomings. (See Legislative History)

The rigs. Twenty-seven oil and gas platforms are sited off the California shore. Four of these platforms are in state waters at relatively shallow depths (approximately 200 feet or less); the remaining 23 platforms are more than 3 miles from shore in federal waters at depths ranging to nearly 1200 feet. Additionally, there are five more offshore “islands” (which are also platforms) in state waters. The platforms are located off the coasts of Los Angeles, Ventura, and Santa Barbara counties. At least five offshore platforms, including one island, off the coast of California have been “decommissioned” and removed.

According to the Ocean Science Trust, the oldest of the state’s offshore platforms was installed in the early 1960s. The latest estimates suggest that the state’s offshore platforms will reach the end of their useful production lifetimes and need decommissioning between 2017 and 2055.

The reefs. AB 2503 established the California Artificial Reefs Program that allowed, on a case-by-case basis, the partial decommissioning of offshore oil and gas platforms.

The program established a basic framework for a platform owner to secure state approval for partial decommissioning if specified conditions were met. These include, among others, that the reef result in a net environmental benefit and that a portion of the owner’s cost savings (the difference between the cost of partial and full decommissioning) go to the state to fund projects that benefit coastal marine resources.

Proposed Law:

This bill:

1. Defines terms for the purposes of the program.
2. Establishes a program and a process for the transfer of the title of an eligible artificial reef converted from an oil and gas platform.
3. Specifies that partial remove an offshore oil and gas platform is a project under CEQA.
4. Designates the SLC as the lead agency for all environmental reviews of any project proposed under this program for purposes of CEQA.
5. Requires the CDFW to revise the Artificial Reef Plan originally prepared for the California Artificial Reef Program, and specifies that the CDFW may adopt regulations to implement.
6. Authorizes the CDFW, through contracts and memoranda of agreement, to enlist the expertise of entities or individuals necessary to assist in any aspect of the CDFW’s implementation or administration of the program.
7. Authorizes the CDFW to accept gifts, subventions, grants, rebates, reimbursements, and subsidies from any lawful source for the administration of the program.
8. Authorizes the CDFW, the SLC, and the OPC to enter into any contracts, memoranda of understanding, and any other agreements necessary to effectuate their roles and responsibilities.
9. States that funding sufficient to fully fund program startup costs for the state, as determined by the CDFW, may be provided for deposit in the Special Deposit Fund, and specifies that these funds are available to the CDFW, the OPC, the SLC, and the Coastal Commission for startup costs.
10. Allows an entity that provides startup funding to designate one platform to receive an additional share of the decommissioning cost savings.
11. Clarifies that the bill does not relieve an owner of requirements of The Comprehensive Environmental Response, Compensation, and Liability Act.
12.  Specifies requirements for and processes through which, an offer to transfer an artificial reef converted from a decommissioned oil and gas platform for incorporation into the California Artificial Reef Program must occur.
13. Requires the OPC to make and submit a determination, based on science, whether partial removal of the platform would provide a net benefit to the marine environment compared to full removal of the platform, and specified six factors the OPC must consider when making this determination.
14. Requires the transferor to, in consultation with the CDFW, prepare a management plan for the artificial reef, and specifies plan requirements and processes.
15. Requires the transferor to enter into an indemnification agreement with the CDFW that indemnifies the state and the CDFW, to the extent permitted by law, against any and all liability.
16. Outlines a declining schedule of benefit (share of decommissioning cost savings) to the platform owner, based on application date, and specifies how funds must be transferred to the state.
17. Specifies that the CDFW’s must return funds if approval required for the partial removal of the offshore oil platform is permanently enjoined, vacated, invalidated, rejected, or rescinded by a court or governmental agency as the result of litigation challenging the acceptance.
18. Outlines allocation of the state’s share of the cost savings transmitted under the program as follows:(1) Eighty-five percent to the California Endowment for Marine Preservation; (2) Ten percent to the General Fund; (3) Two percent to the Fish and Game Preservation Fund to be spent as specified; (4) Two percent to the Coastal Act Services Fund; and (5) One percent to the board of supervisors of the county immediately adjacent to the location of the facility prior to its decommissioning.

Related Legislation:

SB 233 (2015) would have modified the California Marine Resources Legacy Act regarding applications to allow the partial removal of an offshore oil structure. Held in Assembly Appropriations Committee.

AB 207 (Rendon, 2013) would have added air quality and greenhouse gas emissions to the net environmental benefit calculations, among other things. Held in Assembly Appropriations Committee.

AB 2267 (Hall, 2012) would have added air quality and greenhouse gas emissions to the net environmental benefit calculations and revised the calculation and sharing of cost savings from partial decommissioning Held in Senate Appropriations Committee.

AB 2503 (Perez, Statutes of 2010, Chapter 687) established a program to allow for the partial removal of existing off-shore oil platforms. Any cost savings realized from partial removal would be split between the state and the platform owner. This bill specifies that any state proceeds would largely be provided to a new endowment corporation and would be used for various ocean-related purposes.

Staff Comments:

Purpose of the bill. According to the author, fossil fuels have been produced from wells located on offshore oil and gas platforms for a considerable time and that “[d]uring that time, the structures have become habitat used by a wide variety of marine life, including many species of fish, sea mammals, and invertebrates – some of which are at-risk species.”

The author continues, “[o]il companies have expressed an interest in decommissioning the aging platforms, but the current process for fully decommissioning and removing oil rigs in their entirety will destroy this valuable habitat. In addition, full removal of platforms is extremely expensive. Since federal law requires operators to continue pumping oil and gas until they have a decommissioning permit, there is an economic incentive for oil companies to keep pumping offshore oil. The longer this continues the more oil is pumped. Unfortunately, [the existing Rigs-to-Reefs law] did not specify several important steps in the permitting process and no funding has been appropriated to [the department] for the program. As a result, no operator has applied for a partial decommissioning permit, despite the interest to begin shuttering offshore rigs.”

Fiscal impact. The Rigs-to-Reefs program is administered by CDFW, in cooperation with the OPC, the SLC, and the Coastal Commission. The bill also requires consultation with ARB for certain activities. Fiscal impacts for each department are discussed below. Revenue from the state’s portion of decommissioning cost savings, potentially in the hundreds of millions over time, will more than offset costs, though staff notes that the current program erroneously made the same assumption.

Department of Fish and Wildlife

As the program administrator, CDFW staff will be responsible for revising the program to reflect statutory changes; updating all processes necessary to manage the program (e.g., application process, and transfer of title after all requirements are met); reviewing and approving/denying applications; determining transferred artificial reefs’ long-term management needs; undertaking environmental reviews; and, in the initial years, devising and implementing continuous improvements to the program as issues are identified.

For the first proposed conversion, the CDFW would also be responsible developing and implementing a process to allocate funds to the OPC, the SLC, the Coastal Commission, and the ARB.

The Department indicates the need for nine permanent staff positions and a one-time equipment cost of $93,000.

Ocean Protection Council

The OPC is responsible for determining if the partial decommissioning results in a net benefit to the marine environment compared to full decommissioning. The OPC indicates the need for two permanent staff positions and a one-time equipment cost of $10,000. It also anticipates $250,000 per application in contract costs.

Air Resource Board

The ARB will consult with OPC as it develops the criteria used to evaluate the net environmental benefit of partial decommissioning of an oil platform. ARB indicates an unknown, likely minor, fiscal impact. However, notes that up to one position may be required if the OPC requests assistance on each proposed project. This is consistent with the average staff time spent on environmental impact reports that ARB reviews.

State Lands Commission

The SLC will prepare the EIR for the initial platform, the programmatic EIR for the remaining platforms, and other site specific environmental reviews necessary. It will also determine the cost savings used to determine the fee for participation (i.e., the state’s portion). SLC estimates the following costs:

• $1 million to $1.5 million to prepare the first Platform-specific Decommissioning EIR depending upon on project complexity.
• $1.5 million to $2.25 million to prepare the “Programmatic EIR” for all remaining structures in State waters could cost about 50% more
• Subsequent environmental reviews for future oil and gas platform decommissioning projects would likely be lower as we would likely be able to incorporate analyses by reference.

Coastal Commission

The Coastal Commission will review and approve permits for platforms subject to their jurisdiction. The Coastal Commission anticipates the need for one to two Senior Environmental Scientists and a part-time attorney position.

The bill retains existing cost savings schedule deadlines and apportionments.

AB 2503 provided six years for an oil platform owner to go through its application process to receive the best deal (the platform owner would retain 45 percent of the cost savings). Though this deadline has passed, the bill leaves the AB 2503 deadlines unchanged. However, the bill does allow one platform to retain 45 percent if designated by the entity that funds program start-up costs. Additionally, the bill retains the existing distribution of cost savings from partial decommissioning (85% to the endowment, 10% to the General Fund, 2% to the Fish and Game Preservation Fund, 2% to the Coastal Act Service Fund, 1% to the county nearest the reef are existing law).

-- END --

SENATE COMMITTEE ON NATURAL RESOURCES AND WATER

Senator Robert Hertzberg, Chair

2017 - 2018 Regular

Bill No: SB Hearing Date: March 28, 2017

Subject: Marine resources and preservation

BACKGROUND AND EXISTING LAW

There are 27 oil and gas platforms offshore California. Four of these platforms are in state waters at relatively shallow depths (approximately 200 feet or less). The remaining 23 platforms are over 3 miles from shore in federal waters at depths ranging to nearly 1200 feet. Additionally, there are five more offshore “islands” (which are also platforms) in state waters. The platforms are located off the coasts of Los Angeles, Ventura and Santa Barbara counties. At least five offshore platforms, including one island, off the coast of California have been “decommissioned” and removed.

According to the Ocean Science Trust, the oldest of the state’s offshore platforms was installed in the early 1960s. The latest estimates are that the state’s offshore platforms will be reaching the end of their useful production lifetimes and need decommissioning between 2017 and 2055.

Existing federal law requires that decommissioned oil and gas platforms be removed at the end of production, and the surrounding marine environment be cleaned up and restored to a natural condition. Existing state and federal offshore oil leases generally require or can in certain circumstances require (e.g. if it is in the state’s best interests) the removal of decommissioned oil platforms after the lease ends.

Both federal regulations and provisions in state and federal leases allow the federal government to consider and approve alternative decommissioning methods other than complete platform removal. Partial decommissioning or “rigs-to-reefs” programs are widely used in the Gulf of Mexico, and Louisiana, Texas and Mississippi. Partial decommissioning generally means removing the top part of the platform while leaving the lower portion behind to act as a subsurface “reef.” Cost savings to the platform owners from partial decommissioning compared to full decommissioning are estimated to be on the order of tens to hundreds of millions of dollars.

Partial offshore platform decommissioning has been of ongoing Legislative interest for almost 20 years. There were at least two unsuccessful attempts (SB 241, Alpert, 2000, and SB 1, Alpert, 2001) prior to the successful passage of the state’s rigs-to-reefs law (AB 2503, Pérez, c. 687, Statutes of 2010).

According to a commentary a few years ago in the Proceedings of the National Academy of Sciences, each particular offshore platform has a unique set of circumstances depending on its location, water depth, platform size and other factors. Simple generalizations about rigs-to-reef “working” in some locations with the implication that partial decommissioning will necessarily provide net environmental benefits and cost savings in other locations are inappropriate. However, in 2014, a paper in the same peer-reviewed academic journal found that certain oil platforms located off the state’s coast are among the most productive ecosystems for marine life, as described.

AB 2503 established state policy to allow, on a case-by-case basis, the partial decommissioning of offshore oil and gas platforms. Its basic framework established a process with specified requirements for a platform owner to apply to the state for approval of partial decommissioning. AB 2503 recognized the multi-jurisdictional nature of platform decommissioning and the need for a viable rigs-to-reefs program to utilize the established expertise and authority of different state entities. All applications may not be successful, however, as certain conditions must be met. These include, among others, that there be a net environmental benefit from the “reef” and that a portion of the cost savings to the platform owner from partial, as opposed to full, decommissioning be shared with the state and deposited in an endowment (the California Endowment for Marine Preservation) whose moneys would be used to the benefit of coastal marine resources. AB 2503’s “rigs-to-reefs” program is voluntary and platforms in both state and federal waters are eligible to participate, and its legislative findings included that program costs should be borne by the applicants.

Existing law provides primary authority to the Department of Fish and Wildlife (department) to accept and approve rigs-to-reefs applications submitted by those authorized to do so. The department is required to develop application materials, determine when an application is complete, develop a reef management plan, hold a public hearing in the county nearest to the proposed reef, review and provide conditional and final approval to an application, and manage and operate an approved artificial reef, among other things.

In addition to the department’s obligations, existing rigs-to-reefs law provides that:

• A rigs-to-reefs project is a project for the purposes of the California Environmental Quality Act (CEQA) and the California Natural Resources Agency is lead agency.
• The Ocean Protection Council (council) determines whether a net benefit to the marine environment from partial decommissioning compared to full decommissioning exists. This includes establishing appropriate criteria to make this evaluation, including, among other things, any contribution to fish and marine life productivity, any impacts on biological resources or water quality and other aspects of the marine environment, and any necessary constraints on reef management to assure any beneficial effects.
• The State Lands Commission (commission) determines the cost savings, as specified.
• The State Coastal Conservancy (conservancy) creates an advisory spending plan for the cost savings deposited in the endowment.
• The authority of the California Coastal Commission (coastal commission) in the coastal zone as well as the authority of local and federal regulatory entities within their respective jurisdictions is explicitly acknowledged and protected.
• Minimum standards for the application materials are established including, in addition to the determination of the costs savings and net environmental benefit described above, a plan and schedule for partial decommissioning, and an identification of all necessary permits, leases and approvals needed and a schedule to obtain them, among other things. An application is not complete until an applicant provides certain financial assurances that funds are available to pay for application processing. The first AB 2503 applicant is also required to pay the program’s set-up costs, although those are reimbursable.

Existing law authorizes the department to issue a conditional approval for a partial decommissioning project if specific criteria are met including all applicable laws are followed and necessary permits, leases and approvals obtained, there is a cost savings and net marine environmental benefit from partial decommissioning, the applicant has provided appropriate funding, as specified, for application evaluation, an agreement on reef management has been reached, and the applicant and the department have entered into an indemnification agreement to protect the state from liability and reached an agreement for the department to take title to the reef.

When the department issues a conditional approval for partial decommissioning, existing law requires the owner of the platform to transmit a portion of the total cost savings to the state on the following schedule – 55% before January 1, 2017, 65% from January 1, 2017 to before January 1, 2023, and 80% afterwards. The department shall not grant final approval until the full amount of applicable cost savings has been transmitted.

Since AB 2503 became law, no rigs-to-reefs applications under its auspices have been filed with the state. It is a fair point, however, that any interested platform owner had no state-developed application materials with which to apply. There have been three attempts to alter the state’s rigs-to-reefs law and address perceived shortcomings in its requirements (AB 2267 (Hall, 2012), AB 207 (Rendon, 2013) and SB 233 (Hertzberg, 2015)) since 2010.

PROPOSED LAW

This bill would substantially revise the state’s existing rigs-to-reefs program while maintaining certain key elements, including the department’s lead role in the partial decommissioning process; the determination of the net environmental benefit and cost savings from partial decommissioning by the council and the commission, respectively; the sharing of the cost savings associated with partial decommissioning with the state; the indemnification of the state for the partially decommissioned reef by the platform owner; the guarantee of funding, as specified, of state costs to evaluate a potential transfer by the platform owner; and the consideration of start-up funds provided by the platform owner in the calculation of the cost share; among other things. Specifically this bill would:

1. Provide a process for an authorized entity to offer to transfer title to a partially decommissioned platform in state or federal waters to the department. If certain criteria are met, the department may accept title to the reef. This offer/transfer process replaces the existing application process. All of the following conditions, many retained from existing law, must be met for the department to accept title:
   1. All necessary federal authorization and permits are obtained and the transfer is consistent with all applicable laws.
   2. The transferor has initiated decommissioning process with any applicable lessor.
   3. The transferor has received a consistency determination and any necessary permits from the coastal commission.
   4. The transferor has complied with any terms of a commission lease, as applicable.
   5. The transferor has provided funding for all program costs.
   6. The council has determined partial decommissioning provides a net environmental benefit.
   7. The transferor drafts and the department approves a management plan for the artificial reef.
   8. The commission has made a final determination of the estimated costs savings.
   9. The transferor provides indemnification, as specified, to the state.
   10. The department holds a public meeting in the county nearest to the proposed artificial reef.
   11. Review of the project under CEQA and/or the National Environmental Policy Act (NEPA) is completed and certified.
   12. Any judicial challenge has been fully and finally exhausted.
2. Upon acceptance of the transfer by the department, require the transferor to apportion and directly transmit the cost savings to the state as specified in existing law.
3. Provide that the transfer of title to the department is not effective until the final management plan, payment of funds ,and full compliance with the program’s provisions is achieved.
4. Designate the commission as the lead agency for CEQA.
5. Require the department to revise its existing Artificial Reef Plan, as specified.
6. Authorize the full funding of program start-up costs, as specified, for the department, the council, the commission and the coastal commission.
   1. Start-up costs may be deposited into a Special Deposit Fund.
   2. At the time startup costs are provided, one proposed platform transfer shall be identified that will be subject to 55% cost share with the state regardless of the date of the transfer (if partial decommissioning is approved).
7. Require an offerer to wait 2 years after full start-up cost funding is provided to propose a transfer of title to a partially decommissioned platform.
8. Add the federal Comprehensive Environmental Response, Compensation, and Liability Act to the laws a transfer is subject to in addition to other specified laws as well as the requirement that all applicable laws be adhered to.
9. In addition to existing law stating that rigs-to-reefs does not establish any new state liability, specify that the state does not waive any applicable immunities under the Government Claims Act.
10. Allow the transferor to withdraw its offer of transfer at any time prior to title transfer and require the return by the department of any unexpended/committed funds.
11. Require that if the transfer is stopped, cost savings are returned by the department or endowment.
12. Revise the calculation of the net environmental benefit by the council as follows:
    1. The calculation shall be provided to the commission to be incorporated in the preparation of the environmental documentation.
    2. The council shall use credible science and shall determine the appropriate weight to be assigned to each of multiple factors to be taken into consideration comparing partial decommissioning to full decommissioning. Air quality and greenhouse gas emissions are added to the existing list of factors.
13. Revise the cost savings calculations to take into consideration funding provided by the offeror for the evaluation of the transfer.
14. Require the offerer (not the department) to prepare a reef management plan in consultation with the department, and require the department to respond to any public comments received on the draft plan.
15. Update and revise appropriate and relevant definitions and legislative findings.
    1. Shell mounds and drilling muds are excluded from the definition of an offshore oil and gas platform.
16. Remove the conservancy’s requirement to create an advisory spending plan for the cost savings deposited in the endowment.
17. Make additional technical clarifying changes to the program and the endowment.

ARGUMENTS IN SUPPORT

According to the author, fossil fuels have been produced from wells located on offshore oil and gas platforms for a considerable time and that “[d]uring that time, the structures have become habitat used by a wide variety of marine life, including many species of fish, sea mammals, and invertebrates – some of which are at-risk species.”

The author continues, “[o]il companies have expressed an interest in decommissioning the aging platforms, but the current process for fully decommissioning and removing oil rigs in their entirety will destroy this valuable habitat. In addition, full removal of platforms is extremely expensive. Since federal law requires operators to continue pumping oil and gas until they have a decommissioning permit, there is an economic incentive for oil companies to keep pumping offshore oil. The longer this continues the more oil is pumped. Unfortunately, [the existing rigs-to-reefs law] did not specify several important steps in the permitting process and no funding has been appropriated to [the department] for the program. As a result, no operator has applied for a partial decommissioning permit, despite the interest to begin shuttering offshore rigs.”

ARGUMENTS IN OPPOSITION

None received

COMMENTS

This bill is double-referred to the Senate Judiciary Committee. Issues under that Committee’s jurisdiction are included here for completeness, but are not evaluated here in detail.

This bill builds upon earlier work by the author. This bill reflects ongoing discussions between state agencies and certain stakeholders regarding the existing rigs-to-reefs program in an effort to create an improved rigs-to-reefs process (for example, changing the method for start-up cost funding) that started with the introduction of SB 233 (2015) in the last legislative session.

Air quality and the net environmental benefit. The consideration of air quality, including greenhouse gas emissions, in decommissioning is a required element of the CEQA environmental analysis. While air quality and greenhouse gas emissions were not an explicit element for consideration in the existing net environmental benefit analysis, the existing language is broadly written and these considerations could, at the council’s discretion, have been included in the calculation. This bill requires the inclusion of air quality and greenhouse gas emissions in the net environmental calculation, and retains the broad language incorporating other additional unspecified impacts. It is highly likely that there will be a significant difference in total air emissions between partial and full decommissioning to the advantage of partial decommissioning. That written, the direct and indirect impacts from air emissions to the proposed reef and the surrounding marine environment and their duration are unclear. The council will have to determine how to appropriately weigh these impacts in its calculations based upon credible science. This includes a determination by the council on the appropriate way to account for the temporal and spatial variability of impacts.

For example, in late 2015, the world’s largest ship – the Pieter Schilte – was commissioned. It is designed to be capable of removing North Sea platforms – where full platform decommissioning is required – by itself. While it is unclear if that ship would be available or useful to platform decommissioning here in California, its use could yield different cost savings and environmental impacts compared to more traditional decommissioning approaches. The larger point is that the continuing evolution of available technology also necessitates the case-by-case analysis of the particular factors relevant to the net environmental benefit calculation for any decommissioning.

Recent platform decommissioning. According to the commission, Belmont Island off the coast of Los Angeles County was decommissioned in the early 2000s and was the last offshore oil facility to be removed from California’s waters. The commission found that complete removal of the island was the environmentally preferred option because there was no evidence that the island provided unique habitat in the area. Additionally, the Coast Guard determined, given the shallow depth, that leaving the base of the island behind would create a navigational hazard.

Prior to the Belmont Island decommissioning, the Chevron 4-H platforms off the coast of Carpenteria and Summerland were decommissioned in 1996. The commission acted as CEQA lead. During the platforms’ operation, “shell mounds” built up under each one. The mounds are composed of materials from the periodic cleaning of the platform legs of marine life as well as other marine organisms. Additionally drilling fluids and drill cuttings were deposited on the sea floor underneath the platforms prior to this practice being banned. The drilling materials contain contaminants such as PCBs, hydrocarbons and metals. All of these materials are now bonded together in the mounds which were left in place when the platforms were decommissioned. The mounds are 25 – 28 feet high, and 200 – 250 feet in diameter. Decommissioning requirements at that site included the full removal of the shell mounds and all site debris, and that a “trawl test” with standard equipment be performed. According to reports, the site is untrawlable. A decision has been made to leave the mounds in place, but the status of the shell mounds remains not fully resolved some twenty years later. The mounds have a partial commission lease, for example. This bill’s definition of offshore platform specifically excludes shell mounds and drilling muds.

The net environmental benefit calculation is not a substitute for CEQA or NEPA. In particular, any mitigation that may be required to address findings in the Environmental Impact Report/Statement would still be required. The calculation of the net environmental benefit does not provide any relief from required mitigation.

The commission has experience as a CEQA lead agency for platform decommissioning. Even in the event of an application for a rigs-to-reefs conversion in federal waters, it is likely that substantial elements of the decommissioning would be under the commission’s jurisdiction.

The bill retains existing cost savings schedule deadlines and apportionment of the cost savings. AB 2503 provided six years for an oil platform owner to go through its application process to receive the best deal (the platform owner would retain 45% of the cost savings). The bill leaves those deadlines unchanged, and, in fact, the deadline to receive the best deal expired at the first of the year. The sole change is that one platform may be designated in this bill to receive the best deal by whomever funds program start-up costs. (Committee staff note that the bill is silent on how the one platform would be designated if more than one platform owner provided program start-up funding.) Additionally the bill retains the existing distribution of cost savings from partial decommissioning (85% to the endowment, 10% to the General Fund, 2% to the Fish and Game Preservation Fund, 2% to the Coastal Act Service Fund, 1% to the county nearest the reef are existing law). While outside the jurisdiction of this committee, estimates suggest rigs-to-reefs conversions may yield as much as $1 billion in revenue to the state.

Factors affecting platform lifetime. The economic viability of any offshore platform and its oil and gas wells is a function of many factors. Recent relatively low benchmark crude oil prices (about $50/barrel) after several years of prices regularly exceeding $100/barrel (from 2011 to mid-2014) may have affected the outlook for the state’s offshore platforms. Additionally, the state’s offshore fields have been in production for decades and the most readily-recoverable/least expensive oil resources likely already have been produced. As noted in the author’s statement, existing leases generally require that platforms must be removed or partially decommissioned when oil and gas production from wells located on a platform ceases. All of the legislative efforts to provide for partial decommissioning of oil platforms have stated that decommissioning of numerous platforms is imminent.

Coincidence? In mid-March, the department announced its intent to hold public meetings in April and May 2017 to begin the process of updating its existing artificial reef plan. Among other things, the department seeks to address the need for a baseline assessment of existing artificial reefs in California to inform a statewide scientifically based artificial reef plan. Existing language regarding artificial reefs in state law has obsolete sections and does not specifically incorporate certain changes in the Fish and Game Code (FGC), such as the requirement that assessed fees cover program costs (not an issue for rigs-to-reefs, but likely to be for other artificial reefs) or the importance of adaptive management (see FGC §§6420 et seq.). The author may wish to update this language as the bill moves forward.

Most of the offshore platforms are in federal waters and will need federal permits. While close coordination and communication may be able to facilitate the necessary state permits for partial decommissioning, the state cannot compel the relevant federal entities to issue the applicable federal permits in a timely manner.

Is a reef a donation? Implicit in the list of authorities for the commission to consult with in the determination of the cost savings (for example, the Internal Revenue Service and the Franchise Tax Board), is an evaluation of any tax implications to the offeror by the rigs-to-reefs conversion and its transfer to the state.

Do rigs-to-reefs automatically mean there will be more fishing opportunities? Not necessarily. The department is authorized to limit fishing in the vicinity of the reef, if warranted.

Recent related legislation

SB 233 (Hertzberg, 2015) would have substantially revised the state’s rigs-to-reefs program (held on suspense in the Assembly Appropriations Committee).

AB 207 (Rendon, 2013) would have added air quality and greenhouse gas emissions to the net environmental benefit calculations, among other things (held on suspense in the Assembly Appropriations Committee).

AB 2267 (Hall, 2012) would have added air quality and greenhouse gas emissions to the net environmental benefit calculations and revised the calculation and sharing of cost savings from partial decommissioning (held on suspense in the Senate Appropriations Committee).

SUPPORT

Amigos del Aire Libre

Coalition for Enhanced Marine Resources

Deep Blue Scuba & Swim Center

Hubbs-SeaWorld Research Institute

Sportfishing Conservancy of California

United Anglers

OPPOSITION

None Received

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