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Responses to the Aliso Canyon Leak: Senate Bill 380 and Related Measures Ensuring Continued Reliability of Gas and Electric Services

Posted by Dustin Davis in Blog | Gas Storage

The Aliso Canyon underground natural gas storage facility, operated by Southern California Gas Company (“SoCalGas”), has garnered national attention as a result of a substantial gas leak that drove thousands of neighboring residents from their homes. One of the California government’s responses was the enactment of Senate Bill (“SB”) 380 (Pavley, D-Agoura Hills), which effectively placed a moratorium on the injection of natural gas into Aliso Canyon. The bill created a stringent integrity testing protocol SoCalGas must meet before the moratorium on natural gas injection can be lifted.

The leak, which was detected on October 23, 2015, and sealed on February 18, 2016, spurred several emergency orders by the Department of Conservation’s Division of Oil, Gas, and Geothermal Resources (“DOGGR”) prior to the enactment of SB 380. DOGGR also adopted emergency regulations that imposed testing requirements to ensure well integrity on all gas storage facilities in the State, not only on Aliso Canyon.

Aliso Canyon stores gas that gas utilities and electric generators purchase and store for use primarily during periods of high—or “peak”—energy demand. As a result of the moratorium, customers that would normally withdraw gas from Aliso Canyon are searching for alternatives to meet peak demand. Several California agencies are also working together to ensure reliable gas and electric services in southern California continue.

Emergency Orders, Emergency Regulations, and Senate Bill 380
While the California Public Utilities Commission (“CPUC”) regulates gas storage utility services, such as gas storage rates and gas deliveries, DOGGR regulates physical operations of gas storage facilities. Under the California Code of Regulations (“CCR”), Title 14, sections 1724.6–1724.10, DOGGR already requires gas storage operators to conduct mechanical integrity tests and pressure tests on gas storage wells, to ensure safe and leak-free operations, and to provide gas injection plans to DOGGR. On November 18, 2015, DOGGR issued its first emergency order, requiring SoCalGas to provide well logs and pressure data to better inform DOGGR of the severity of the situation.1 On December 10, 2015, DOGGR issued a second emergency order, which officially placed a moratorium on gas injections. The December 10 emergency order also required SoCalGas to plug the well responsible for the leak and ordered SoCalGas to provide updates to DOGGR on the progress of relief efforts to both slow and stop the leak.2 Even though a moratorium on injections is in place, Aliso Canyon continues to hold 15 billion cubic feet of working natural gas that SoCalGas will use to maintain the structural integrity of the reservoir.

On January 6, 2016, Governor Brown issued an emergency proclamation declaring a state of emergency because natural gas escaping from the leak could not be contained.3 The proclamation extended DOGGR’s moratorium on injections, directed DOGGR to promulgate emergency regulations that address safe and reliable operations for all underground storage facilities, and called for an interagency task force to address gas and electric reliability issues. The proclamation also ordered the CPUC to ensure SoCalGas covers the costs related to the gas leak and responsive efforts surrounding the leak.

In response to the emergency proclamation, DOGGR then issued a set of emergency regulations approved by the Office of Administrative Law.4 They took effect on February 5, 2016, and will expire on August 4, 2016, if no further action is taken. As currently written, the emergency regulations amend CCR, title 14, section 1724.9 and, unlike DOGGR’s previous emergency orders, apply to all underground storage facilities. The amended section 1724.9 directs operators of gas storage facilities to submit in-depth operational studies and detailed data on existing wells, conduct additional testing on wells and valves, perform monitoring aimed at leak detection, assess the mechanical integrity of each well, submit an inspection and leak detection protocol for approval, and submit a risk management plan for approval that must identify and prescribe preventative and monitoring requirements to mitigate against potential threats, among other requirements. While the emergency regulations are not permanent, DOGGR has opened a rulemaking that could make the amendments permanent or make further changes to gas storage regulations.

SB 380, an urgency bill signed into law on May 10, 2016, is the first legislative response to the Aliso Canyon leak.5 It had overwhelming support from the Legislature, unanimously passing the Senate and passing the Assembly with a 70-2 vote. While DOGGR’s emergency orders and SB 380 both address Aliso Canyon, they do so in different ways. The emergency orders used DOGGR’s existing authority to direct how SoCalGas should respond to the leak.

SB 380, instead, adds section 3217 to the Public Resources Code, which authorizes DOGGR to exercise greater oversight at Aliso Canyon. The statute continues the moratorium on injections until DOGGR verifies well integrity exists across the entire facility. DOGGR is to create a “comprehensive safety review” that SoCalGas must complete to lift the moratorium. The safety review is a multi-step process that requires SoCalGas to inspect and test all wells at the facility, to stop and remediate any other identified leaks, and to isolate any hazardous wells from the rest of the facility if they cannot be remediated. The statute outlines the procedural requirements for the comprehensive safety review while respecting DOGGR’s discretion to set the substantive requirements SoCalGas must meet to establish well integrity. SoCalGas has already engaged with DOGGR to begin the safety review.

SB 380 also adds sections 714 and 715 to the Public Utilities Code. Those statutes require the CPUC to open a proceeding by July 1, 2017, to determine the feasibility of future Aliso Canyon operations while balancing greenhouse gas emission concerns, cost issues, and reliability planning. The CPUC’s Executive Director also must work with DOGGR’s Oil and Gas Supervisor to help determine the range of working gas necessary to continue using Aliso Canyon for gas and electric system reliability while still ensuring the facility operates safely.

Agency Actions to Ensure Gas and Electric Reliability
The inability to use gas from Aliso Canyon has required action by state agencies to ensure reliability of the gas and electric systems. The Governor’s emergency proclamation put an interagency task force in place to address gas and electric system reliability in the wake of the leak. The electricity planning authorities of California—the California Independent System Operator (“CAISO”), the California Energy Commission (“CEC”), and the CPUC—have been in close communication to better understand the impacts of the loss of Aliso Canyon. One of the interagency collaborative efforts between the CAISO, CPUC, CEC, Los Angeles Department of Water and Power (“LADWP”), and SoCalGas was the “Aliso Canyon Risk Assessment Technical Report,” released on April 5, 2016. It assesses southern California gas supply and electric generation needs for summer 2016 and the risks associated with gas curtailments and service interruptions if the entire Aliso Canyon facility is unavailable. A second collaborative effort, this one between the CAISO, CPUC, CEC, and the LADWP, was the “Aliso Canyon Action Plan to Preserve Gas and Electric Reliability for the Los Angeles Basin,” originally released on April 6, 2016 with an update released on May 27, 2016. The Action Plan also recognizes the possibility of gas service interruptions and suggests planning efforts to keep the Los Angeles Basin from experiencing any electricity outages, i.e., blackouts.

The CAISO, in consideration of its collaborations with the CPUC, CEC, LADWP, and SoCalGas, then initiated a stakeholder process that led to the publication of the “Aliso Canyon Gas-Electric Coordination” on May 4, 2016. This document addresses what gas scheduling and gas shipping changes need to be made now that Aliso Canyon is essentially out of service as a gas storage resource. It also proposes changes designed to improve market mechanisms, such as increasing the amount of information available to stakeholders in the gas markets, using more accurate price and market information, and implementing constraints on the market that would allow dispatches to be more consistent with current gas system limitations.

After these cooperative efforts took place, on May 9, 2016, the CAISO filed a proposal before the Federal Energy Regulatory Commission (“FERC”) to amend CAISO tariffs, which FERC accepted, subject to conditions, on June 1, 2016 (ER16-1649/155 FERC 61,224). The proposed tariff amendments implement the changes offered in the “Aliso Canyon Gas-Electric Coordination,” including authorizing the electric planning authorities to share planning information to coordinate quick changes in gas supplies needed for electric generation. The purpose of the changes is to help ensure CAISO dispatches are better coordinated with the real-time gas market and to minimize service interruptions and maintain reliability on SoCalGas’s constrained gas system. The amendments became effective on June 2, 2016, but will expire on November 30, 2016, if no further action is taken. An amendment allowing CAISO to increase the gas price that applies to commitment cost caps and default energy bids went into effect on July 6, 2016 and will also expire on November 30, 2016, if no further action is taken.

The CPUC has also taken action to alleviate reliability concerns. On May 26, 2016, the CPUC approved Resolution E-4791, which authorizes Southern California Edison Company (“SCE”) to procure energy storage resources, such as batteries, that would reduce the risk of electricity outages. Other changes being considered by the CPUC include implementing more stringent gas balancing rules and requirements on the SoCalGas system to better ensure gas deliverability (A.15-06-020). On June 9, 2016, the CPUC adopted a settlement agreement between SoCalGas, San Diego Gas & Electric Company (“SDG&E”), and intervenors (D.16-06-021). The settlement temporarily establishes changes to SoCalGas’s and SDG&E’s Operational Flow Order procedures, allowing those utilities to order gas shippers and marketers to meet specific balancing tolerances when gas supply shortages or surpluses threaten the reliability of the gas system. The changes will be in effect until November 30, 2016, unless the CPUC orders other changes or Aliso Canyon returns to having 450 MMcfd of injection capacity and 1,395 MMcfd of withdrawal capacity. Also on June 9, 2016, the CPUC approved funding for SCE to increase its use of demand response programs to help alleviate reliability concerns due to the loss of Aliso Canyon (R.13-09-011/D.16-06-029). Demand response programs compensate large electricity customers for reducing electricity consumption during times when high demand threatens the reliability of the electric grid.

Where We Are Headed
The legislative and executive branches’ reactions to the loss of Aliso Canyon address what could be severe consequences if reliability planning is ignored. Worst-case scenarios indicate southern California could experience up to 14 blackout days this summer. Some reports from SoCalGas speculate the entire Aliso Canyon facility could be up and running by the end of the summer. However, government responses to those claims point out the rigorous tests SoCalGas must pass first. If SoCalGas cannot complete inspection and remediation of the entire facility by the end of the summer, SB 380 allows SoCalGas to plug wells used for gas storage injections and withdrawals that have not passed testing and inspection, and isolate those wells from the rest of the facility. SoCalGas could then operate the wells that do pass testing and inspection on a limited basis until the moratorium is lifted. Further impacts, if any, to the broader natural gas delivery system and electric grid remain to be identified. What would happen if Aliso Canyon permanently closed? What infrastructure changes would California need to make to increase the supply of gas to replace the loss of Aliso Canyon? Would infrastructure changes be required to import electricity if southern California gas-fired generators cannot receive the gas needed to meet electric demand? Can natural gas be replaced with other technologies or fuels for customers that currently rely on gas for heating, cooking, and commercial and industrial processes? What would the cost be to ratepayers to implement such large-scale changes? The participants in the gas and electricity markets must wait to see if the emergency regulations on all natural gas storage facilities become permanent, if new laws will impact gas storage operations at other facilities, and whether state regulators make any other changes to gas safety, balancing, and delivery requirements.

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1 http://bit.ly/29RLDvW

2 http://bit.ly/29wJMqY

3 http://bit.ly/1Rj4n67

4 http://bit.ly/29Ei4fv

5 http://bit.ly/29skpv2

The views, opinions, and errors in this blog are all solely those of the writer, John McIntyre. They are offered only to promote further thought and discussion and are not intended to be relied upon as legal advice on any matter or subject.

For more information please contact:
John McIntyre: Goodin, MacBride, Squeri & Day, LLP, San Francisco, California
415 392 7900 or jmcintyre@goodinmacbride.com

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