Legislature Approves $1 Billion Drought Spending Bills; Governor’s Approval Pending

On Wednesday and Thursday this week, the California Senate and Assembly approved Assembly Bill 91 (“AB 91”) and Assembly Bill 92 (“AB 92”), both which are part of the Budget Act of 2015.  The legislation allocates $1 billion for emergency response to the state’s ongoing drought.  The drought is in its fourth year and Governor Jerry Brown declared the drought a state emergency in January 2014.

Among other spending measures, AB 91 allocates $15,560,000 for “maximizing water delivery and efficiency to key endangered species habitats,” $3,250,000 for drought emergency response measures through June 30, 2016, and $2 million to assist local communities in implementing emergency water supply projects.  Further, AB 91 apportions about $660 million to flood prevention projects in the state.  AB 91 passed in the Senate 35 to 1, and in the Assembly 74 to 0.

The accompanying bill, AB 92 was more controversial, passing 24 to 14 in the Senate, and 50 to 27 in the Assembly.  Primarily, Republicans were concerned about provisions authorizing fines for those who engage in unauthorized stream diversion or harm fish passage. Violators may be fined up to $8,000 per day, and each day that a violation continues without a good faith effort to cure constitutes a separate violation.  A major of goal of AB 92 is to combat illegal marijuana grows and water diversions related to the practice.

The Governor’s office reports that the “package will expedite bond funding to make the state more resilient to the disastrous effects of climate change and help ensure that all Californians have access to local water supplies.”  The legislation is awaiting final approval from Governor Brown.

By Mike Mills (michael.mills@stoel.com) and Shannon Morrissey.  Ms. Morrissey is a Law Clerk with Stoel Rives LLP and is not currently licensed to practice law in California.

U.S. Supreme Court Hears Oral Arguments on EPA’s Mercury and Air Toxics Standard

Yesterday the U.S. Supreme Court heard oral argument in Michigan v. EPA, a Clean Air Act case involving hazardous air pollutant regulations, with implications for fossil fuel-fired power plant owners and operators in California and across the country.  Below you’ll find guest blogger Tom Wood‘s insight into the case and the arguments:

On Wednesday, the U.S. Supreme Court heard arguments from a large group of states challenging EPA’s approach in developing the Mercury and Air Toxics Standard (MATS) rule. The MATS rule imposes stringent hazardous air pollutant (HAP) standards on coal-fired and oil-fired power plants. The rule is expected to cost the industry nearly $10 billion per year to comply. 21 states and a variety of impacted industries argued to the court that EPA had not appropriately accounted for cost in determining whether to regulate hazardous air pollutants from these power plants.

In considering the Supreme Court case, it is important to understand that Congress established a different regulatory approach for power plants than for other industries. EPA regulates HAPs emitted from other industries by determining Maximum Achievable Control Technology (MACT) and requiring that it be implemented within a relatively short time frame (typically 3 years). After MACT is established, EPA is supposed to perform a residual risk determination and consider whether the risk after implementing MACT justifies additional requirements. Continue Reading

Regulators Confirm: No Drinking Water Contamination from Oil & Gas Disposal Wells

On Tuesday, March 10, California Environmental Protection Agency Secretary Matthew Rodriquez and California Natural Resources Agency (“CNRA”) Secretary John Laird testified before a joint State Senate committee hearing.  At the hearing before the Natural Resources & Water Committee and the Environmental Quality Committee, Rodriguez and Laird confirmed that there has been no drinking water contamination due to oil and gas disposal well injection.  This finding is reiterated in a memo from the California EPA: “To date, preliminary water sampling of select, high-risk groundwater supply wells has not detected any contamination from oil production wastewater.”  (Memo from Cal. EPA, at p. 1 (Mar. 2, 2015).)

DOGGR and USEPA Correspondence

On Monday, March 9, the U.S. Environmental Protection Agency (“USEPA”) sent a letter to California’s Division of Oil, Gas and Geothermal Resources (“DOGGR”) approving DOGGR’s plan to regulate Class II underground injection control (“UIC”) wells.  The USEPA’s letter responds to DOGGR’s letter to the USEPA which presented California’s plan to revamp its regulatory scheme for Class II UIC wells in order to come into compliance with the federal Safe Drinking Water Act (“SDWA”).  The USEPA stated that they are “pleased that you [California] have initiated action to implement the plan.”  (USEPA Letter to DOGGR, at p. 1 (Mar. 9, 2015).)

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Monterey County Rejects Fracking Moratorium

On Tuesday, March 17, Monterey County’s Board of Supervisors voted against a temporary ban on hydraulic fracturing.  In the 3-2 vote, the majority of Supervisors stated that there is “no evidence of an immediate threat to public health” and no pressing need to regulate fracking on the local level.  There are currently no oil and gas operations that utilize hydraulic fracturing methods in the county.

The issue came before the Board of Supervisors by recommendation from the county’s Planning Commission.  The Planning Commission proposed the moratorium as an amendment to Monterey County’s zoning code on April 30, 2014 – almost a full year before the Supervisors voted on the issue.  (County of Monterey Well Stimulation Proposed Ordinance REF130051.)

Ultimately, the Supervisors decided to hold off on local regulation and wait for the state to implement regulations under Senate Bill 4 (“SB 4”), California’s comprehensive well stimulation treatment regulation.  Permanent regulations under SB 4 go into effect on July 1, 2015.

By Mike Mills (michael.mills@stoel.com) and Shannon Morrissey.  Ms. Morrissey is a Law Clerk with Stoel Rives LLP and is not currently licensed to practice law in California.

High-Speed Rail Authority Issues Progress Report

The High-Speed Rail Authority (“HSRA”) issued a progress report for the High-Speed Rail Project (the “Project”) last week, describing the HSRA’s challenges and successes to date.

One of the highlights of the report was the HSRA’s January groundbreaking in Fresno for the first segment of the Project’s 520-mile route. The report also discusses the progress the Authority has made with hiring contractors and acquiring parcels along the first segment of the Project.

Most notably, the report describes the challenges it has overcome and the hurdles it is currently facing, particularly the continuing legal challenges to the Project and the funding issues that impede the HSRA’s progress. The HSRA also readily acknowledges the slower-than expected progress in completing environmental assessments for future segments of the project. While the initial estimates contemplated that all assessments for the Project would be completed by the end of 2014, the report now cites to a 2017 deadline.

The report can be found here.

Developer Catches a Break in California Supreme Court CEQA Ruling

In Berkeley Hillside Preservation v. City of Berkeley, No. S201116 (Cal. Mar. 2, 2015) (slip op), the California Supreme Court overturned an appeals court ruling that banned developers from using an exemption under the California Environmental Quality Act (“CEQA”) to avoid undertaking an environmental impact report (“EIR”) for the construction of a proposed two-story 10,000-square-foot home in Berkeley.

 Background

Typically, CEQA petitions are not asserted to stop the construction of single-family residences because CEQA contains a single family residence exemption that would excuse it from environmental review. However, there are exceptions to CEQA exemptions, and here, the Petitioners argued that the project proponent’s proposed two-story, 6,500-square-foot home with a 3,400-square-foot garage presented an “unusual circumstance” that would create “a reasonable possibility that the activity [would] have a significant effect on the environment,” and thus an EIR would be required.

The First District Court of Appeal held that unusual circumstances precluded reliance on the CEQA exemptions and reversed an earlier decision that found the City had correctly decided that the project was exempt from CEQA. On appeal, the California Supreme Court found that the developers could use the single-family home, as well as the infill exemption, under CEQA and thus would not need to prepare an EIR.

Court’s Analysis

This case is significant because the California Supreme Court defined the standard of review to determine whether a “categorically exempt” project is otherwise “excepted” under CEQA. The Court established a two-part test to determine whether the exception applies. First, the court must decide whether there are “unusual circumstances.” In making this determination, the “substantial evidence” standard of review applies. Second, if there are unusual circumstances, the court must decide whether, due to those unusual circumstances, there is a “reasonable possibility that the activity will have a significant effect on the environment.” In making this second determination, the “fair argument” standard of review applies. The Court in this case found that this bifurcated approach comports with the “construction of the unusual circumstances exception to require findings of both unusual circumstances and a potentially significant effect.”

The significance of this case is also a practical one in that the decision curtails the broadening effect the appeals court decision may have had on future CEQA challenges. While environmental groups may argue that CEQA is necessary to minimize the environmental impact of large scale projects like this, the Court’s opinion limits CEQA’s reach.

Oil & Gas Wastewater Injection Wells Closed Down as a Precautionary Measure to Ensure Drinking Water Protection

On Tuesday, March 3, twelve underground injection control (“UIC”) wells in California’s Central Valley, specifically in Kern County, were shut down in order to protect subsurface drinking water from potential contamination.  These shut-ins occurred just one day after a letter from Matthew Rodriquez, Secretary of the California Environmental Protection Agency, to the Governor was published, summarizing a review of the state’s UIC program.  (CalEPA Letter, March 2, 2015.)  “Where the risk of contamination is unacceptable, the State has ordered and will continue to order those wells be shut in.”  (Id. at p. 1.)

Some of the wells shut down on Tuesday are Class II UICs, classified as such by the U.S. Environmental Protection Agency (“USEPA”) because they are used to dispose of wastewater produced during hydraulic fracturing, or fracking.  The other wells are used for oil and gas production.  Operators of ten of the twelve wells stopped production voluntarily, while the operations at the other two wells were halted in compliance with a cease-and-desist order.  There are over 50,000 injection wells and 90,000 active or idle production wells in the State of California, according to DOGGR’s estimates.

These injection well shut-ins follow a letter to USEPA from the California Division of Oil, Gas and Geothermal Resources (“DOGGR”) addressing noncompliance with the federal Safe Drinking Water Act (“SDWA”).  The SDWA restricts injection by Class II wells into non-exempt aquifers because non-exempt aquifers are those that may be a source of drinking water or a source of water for public works.  As of February 2015, state agencies have identified about 2,100 active wastewater disposal wells injecting into non-exempt aquifers.  California EPA states that the noncompliance is due in part to conflicting agency documentation as to whether 11 aquifers were exempt.  (See CalEPA Letter, at p. 1.)

The California Legislature has also taken steps to obtain additional compliance measures for the SDWA by proposing Assembly Bill 356 which would require additional groundwater monitoring by oil and gas operators to further protect underground drinking water sources from potential contamination.  Steven Bohlen, Supervisor of DOGGR, reports that there has been no evidence of water contamination to date.

By Mike Mills (michael.mills@stoel.com) and Shannon Morrissey.  Ms. Morrissey is a Law Clerk with Stoel Rives LLP and is not currently licensed to practice law in California

Fracking Prohibition Challenge: Citadel Sues San Benito County over Local Fracking Ban

On Friday, February 27, 2015, Citadel Exploration, Inc. (“Citadel”) filed suit against San Benito County in the County’s Superior Court, arguing that state law preempts Measure J, a county ordinance that prohibits hydraulic fracturing.  Hydraulic fracturing, included in the definition of well stimulation treatment, is being regulated by California’s Senate Bill 4 (“SB 4”).  Also known as the San Benito County Fracking Ban Initiative, Measure J bans “high-intensity petroleum operations,” which includes fracking, acid well stimulation, and cyclic steam injection.  Additionally, it bans any new gas or oil drilling activity in residential and rural areas in the County.

Citadel’s suit comes just months after Citadel filed a claim seeking $1.2 billion in damages for lost oil extraction revenue due to Measure J.  The claim argued that Measure J constituted a regulatory taking, in violation of the Fifth Amendment of the Constitution, but Citadel did not file a lawsuit based on this claim.

Measure J was voted into law on Election Day, November 4, 2014, passing 57% to 43%.  There were two other counties with fracking prohibitions on their ballots on Nov. 4: Santa Barbara County rejected the measure, while Mendocino County passed the measure.

By Mike Mills (michael.mills@stoel.com) and Shannon Morrissey.  Ms. Morrissey is a Law Clerk with Stoel Rives LLP and is not currently licensed to practice law in California.

Status of Oil and Gas-related Bills Proposed in California’s 2015-2016 Legislative Session

February 27, 2015 was the deadline for lawmakers to introduce legislation to the 2015-2016 California Legislative Session and several bills related to oil and gas activities were introduced.  Below is a summary of those bills. Stoel Rives is monitoring these bills and will provide periodic updates as the bills move through the legislative process.

SENATE BILLS

SB-13 (Pavley):  Groundwater

This bill would specify that the State Water Resources Control Board is authorized to designate a high- or medium-priority basin as a probationary basin. This bill would provide a local agency or groundwater sustainability agency 90 or 180 days, as prescribed, to remedy certain deficiencies that caused the board to designate the basin as a probationary basin. This bill would authorize the State Water Resources Control Board to develop an interim plan for certain probationary basins one year after the designation of the basin as a probationary basin.

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Sacramento Kings – 2, Opponents – 0: Court Rules that the Downtown Arena Satisfies Environmental Review Requirements

In Saltonstall, et al. v. City of Sacramento, No. C077772 (Cal. Ct. App. 3rd Dist., Feb. 18, 2015), the Third Appellate District affirmed the judgment of the Superior Court in holding that the City of Sacramento did not violate the California Environmental Quality Act (“CEQA”) by beginning construction of the downtown arena. This appeal comes just months after the Third Appellate District rejected the same petitioners’ arguments that expedited CEQA timelines were unconstitutional. (Saltonstall et al., v. City of Sacramento, No. C077031 (Cal. Ct. App. 3rd Dist., Nov. 20, 2014) (Saltonstall I).)

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