Headwaters Purchase:
|
Chapter 615, Statutes of 1998, appropriated funds for the purchase of the Headwaters Forest and certain other forest properties, under specified conditions. The Wildlife Conservation Board plans to authorize the purchase of the Headwaters in late February 1999, provided that the conditions of Chapter 615 are met. The acquisition of this property, however, could be delayed by legal challenges.
Background
The Headwaters Forest, located in Humboldt County, is one of the largest stands of old-growth redwoods left in private ownership. Environmentalists, the state and federal governments, and PALCO (the current landowner) have been at loggerheads over its fate for over a decade. In September of 1996, the state and federal governments and PALCO entered into an agreement which committed the state and federal governments to provide $380 million ($250 million from the federal government and $130 million in state funds) for the purchase of the Headwaters Forest.
State Committed Funding and Specified Conditions for Purchase of Headwaters Forest. In 1998-99, the Legislature enacted Chapter 615, Statutes of 1998 (AB 1986, Migden), which appropriated the following from the General Fund:
- $130 million to purchase the Headwaters Forest (approximately 4,500 acres). The amount is available until July 1, 1999, when it will revert to the General Fund.
- Up to $80 million to purchase the Owl Creek property owned by PALCO. The amount is available from July 1, 1999 until June 30, 2001, when it will revert.
- Up to $20 million to purchase the Grizzly Creek property, also owned by PALCO.
- $15 million for economic assistance to Humboldt County. This amount was subsequently reduced to $12 million by the Governor.
Under Chapter 615, the state funds are available only if the following conditions are met. First, the federal government provides $250 million as matching funds for the Headwaters purchase. Second, the final approved federal environmental document issued for other PALCO-owned lands, specifically a Habitat Conservation Plan (HCP) must include certain restrictions established in Chapter 615. The HCP would allow PALCO to log on the approximate 200,000 acres it owns outside of the Headwaters Forest, with certain restrictions to ensure the long-term preservation of endangered species. Chapter 615 specifies additional restrictions relating primarily to the establishment of no-cut buffer zones along watercourses in order to protect fish and birds.
The Wildlife Conservation Board (WCB) is the state agency responsible for acquiring the properties. However, Chapter 615 does not specify which state agency is responsible for determining whether the final HCP approved by federal authorities meets the specified conditions.
Current Status of HCP. On January 22, 1999, the final Environmental Impact Statement/Environmental Impact Report on the HCP was put on public review for a 30-day comment period. It is anticipated that the plan will be approved by federal authorities at the end of that period. The federal approval of the HCP would make federal funds available for the acquisition of the forest.
At the time this analysis was prepared, WCB indicated that it plans to authorize the $130 million expenditure for the Headwaters purchase (provided the conditions of Chapter 615 are met) at a February 24, 1999 board meeting following federal approval of the final HCP. This action will also make $32 million dedicated for Humboldt County and for the Grizzly Creek property available in the current year, and $80 million for the Owl Creek purchase available beginning July 1, 1999.
Implications for State
Legal Challenge Could Delay Acquisition. While both the state and federal governments are proceeding with the Headwaters purchase, the final HCP could be challenged in court, thereby delaying or derailing the acquisition of the forest. Because the $250 million in federal funds is available only until March 1, 1999, if the final approval of the HCP is delayed past that time, then the federal funds would expire. (However, the federal budget for the 2000 fiscal year--proposed in early February 1999--provides that the previously appropriated funds for the Headwaters purchase remain available for expenditure.) If the federal funds expire, the state funds would also revert to the General Fund. If the final HCP is successfully challenged after WCB has taken action to purchase Headwaters, it is unclear how this would affect the validity of any previous disbursement of funds for the Owl Creek and Grizzly Creek properties and for economic assistance to Humboldt County.
State Will Bear Some Ongoing Costs When Properties Are Acquired. According to WCB, upon the acquisition of Headwaters, the federal Bureau of Land Management will take title of the property and will be responsible for the operations and maintenance of the property. PALCO has agreed to pay $250,000 annually for the state to monitor the company's compliance with the HCP. However, given the number of requirements specified in Chapter 615 and the potential number of requirements in the HCP, it is not clear whether this amount would be sufficient to accommodate the enforcement workload to the state.
Upon purchase of the Owl Creek and Grizzly Creek properties, the state as sole owner would be responsible for the operation and maintenance of these properties. At this time, the magnitude of these costs has not been determined.
State Regulation of Petroleum
|
Commercial oil production began in California in 1876. Since that time, California has become the nation's fourth largest oil-producing state. The state has an estimated reserve of about three billion barrels, and produces almost one million barrels each day.
Despite the maturity and scale of California's petroleum industry, state regulation of pipelines and associated infrastructure was minimal until the early 1980s. Most pipelines were operated and maintained largely at the discretion of private operators. While many operators employed what were at the time considered to be prudent industry practices, there have been numerous instances of petroleum leaks and spills contaminating groundwater, damaging wildlife habitats, and washing onto shores. The full extent of damage caused by these past incidents is unknown, as some underground spills can go undetected for decades.
This write-up separately addresses active pipelines and abandoned pieplines. First, we review the current regulatory environment and discuss problems associated with the regulation and permitting process for active pipelines. Second, we discuss the potential threat of abandoned pipelines and undetected past leaks, and provide recommendations on how to reduce them.
Regulation and Permitting of Petroleum Pipelines
Regulatory Environment Recently Developed
Legislation and regulatory changes over the past two decades have greatly enhanced the regulation of pipelines and associated infrastructure.
California's pipeline infrastructure has developed over the past century. Today, the state has about 10,000 miles of various petroleum pipelines. Although much of this infrastructure is modern and well-maintained, the lack of age-based replacement requirements has allowed 50- and even 70-year-old pipeline segments to remain in use. In response to several dramatic spills and growing awareness of the environmental and health risks posed by the transportation of petroleum, the regulation of pipelines was expanded considerably in the 1980s and 1990s. Figure 1 highlights the key provisions of major state laws enacted since 1981.
| Figure 1 | |
| Key Provisions
Major State Laws Concerning Pipeline Operations | |
| 1981 Through 1998 | |
| Legislation | Key Provisions |
| Inspection, Testing, and Safety | |
| Chapter 861/1981 (AB 911, Elder) |
|
| Chapter 1222/1983 (AB 1171, Elder) |
|
| Chapter 1277/1989 (SB 268, Rosenthal) |
|
| Chapter 395/1991 (AB 718, Elder) |
|
| Research and Data Collection | |
| Chapter 1252/1989 (AB 385, Elder) |
|
| Chapter 523/1994 (AB 3261, O'Connell) |
|
| Chapter 731/1994 (AB 3521, McDonald) |
|
| Chapter 611/1996 (SB 562, Thompson) |
|
| Continued | |
| Chapter 973/1996 (AB 349, Escutia) |
|
| Chapter 814/1997 (AB 592, Kuehl) |
|
| Chapter 815/1997 (SB 1189, Hayden) |
|
| Spills and Leaks | |
| Chapter 1248/1990 (SB 2040, Keene) |
|
| Chapter 979/1995 (AB 1868, Katz) |
|
| Chapter 605/1996 (AB 1376, Bustamante) |
|
| Miscellaneous | |
| Chapter 863/1986 (SB 1978, Campbell) |
|
| Chapter 765/1996 (AB 1487, Pringle) |
|
| Chapter 1068/1998 (SB 1763, Costa) |
|
These statutes have considerably expanded and strengthened the laws governing pipelines, which previously had tended to be sketchy and haphazard. The statutes establish testing criteria, create monitoring and response programs, impose fees to fund safety and environmental protection efforts, and establish reporting requirements. For instance, Chapter 731, Statutes of 1994 (AB 3521, McDonald) requires the State Fire Marshal (SFM) to issue a report every five years that reviews current regulatory effectiveness with regard to pipeline safety, identifies pipeline leak incident rate trends, and recommends necessary changes to the Legislature. The first such report must be submitted in 1999.
We expect that the regulatory framework established by the above statutes will continue to evolve as new pipeline data are made available pursuant to statutory requirements, and as technological improvements allow better testing and maintenance of pipelines. Nevertheless, our review has identified two major regulatory issues which warrant legislative attention: jurisdictional boundaries among regulatory agencies, and consequences of permit requirements imposed on pipeline modification proposals.
Many Regulatory Agencies Have Jurisdiction
The petroleum production and transportation infrastructure is regulated by a multitude of state and federal agencies. We find that this results in jurisdictional conflicts and regulatory ambiguity. To some extent, these problems are being addressed through interagency agreements.
The physical infrastructure of the petroleum industry comprises a range of production and transportation elements. A number of regulatory agencies exercise primary jurisdiction over most of those elements. Figure 2 depicts the major components of the petroleum production and transportation infrastructure, along with the primary state agencies that regulate them. Regulations typically concern scheduled testing and inspection of pipelines for leaks or weakness, operating practices (including operational temperatures and pressures), and installation and maintenance of safety devices.
Three state agencies are most directly involved in the regulation of petroleum pipelines. They are:
- State Fire Marshal (SFM). Within the Department of Forestry and Fire Protection, SFM is responsible for regulating "transportation" pipelines. These pipelines generally are pressurized, and carry petroleum (and other) products across the state. For those portions of interstate pipelines within California, SFM acts as the agent for the federal Office of Pipeline Safety in enforcing federal safety standards. The pipelines under SFM's jurisdiction total about 6,000 miles in length. On the basis of its extensive jurisdiction and the numerous powers and responsibilities imposed on it by state law, SFM is one of the major pipeline regulators in the state and even the nation.
- Division of Oil, Gas, and Geothermal Resources (DOGGR). The DOGGR is a division of the Department of Conservation and is primarily concerned with oil production operations in on-shore oilfields and, to a lesser extent, within state waters. Pipelines associated with on-shore operations are typically smaller "production" lines that carry crude oil from wells to on-site storage tanks or to larger lines. Oilfields also frequently make use of diluent (a petroleum product that thins crude oil) to assist in extracting oil from the ground, and this diluent is pumped to wells through pipelines for that purpose.
- State Lands Commission (SLC). The SLC leases out the state's submerged lands for oil drilling and other mineral resource activities. As part of its associated responsibilities, SLC (along with DOGGR) regulates oil wells (platforms) in state waters. The SLC also regulates marine terminals (where oil is transferred to or from vessels). Although pipelines connecting offshore platforms to the mainland are transportation lines (and thus under SFM's jurisdiction), SLC also possesses authority over these lines by virtue of their passing through state waters. At the time this analysis was prepared, SFM, SLC, and other agencies were working to clarify their respective authority over these lines.
Other state agencies become involved in pipeline regulation in less direct ways, such as through the regulation of petroleum storage tanks (State Water Resources Control Board--SWRCB) or in responding to spills (the Department of Fish and Game's Office of Spill Prevention and Response). Federal agencies, such as the U.S. Minerals Management Service and the Department of Transportation, also have roles. Further, various local agencies issue permits for the construction of new pipelines or the modification or repair of existing lines. Figure 3 provides a list of agencies involved in the regulation of pipelines.
Agencies Grapple With Jurisdictional Issues. As Figure 3 shows, there is a large number of local, state, and federal agencies with regulatory responsibilities for different aspects of the oil production and transportation infrastructure. Occasionally, this leads to jurisdictional conflicts and ambiguity. This is partly because the criteria for defining an agency's jurisdiction differ among agencies. Some jurisdictions are based on location of the pipelines (onshore or offshore, for example), some are based on the type of facility being regulated (such as production or storage), and some are based on the type of resource being protected (such as public health or wildlife habitat). As a result, it is not always clear where one agency's jurisdiction begins and another's ends. This can lead to overlapping jurisdictions or jurisdictional "gaps," where no regulatory agency assumes responsibility for particular segments of pipeline infrastructure.
Regulatory Agencies
Among state agencies, many of these potential conflicts have over the past several years been addressed through the development of
memoranda of understanding (MOUs). An MOU signed between SLC and SFM in 1994, for instance, identified the precise points where
their respective jurisdictions met at every marine terminal in the state. While MOUs help to better define jurisdictional boundaries, they are
administratively inefficient in that they require staff time and costs for their negotiation. In addition, notwithstanding the jurisdictional
clarification provided by some MOUs, other areas of jurisdictional ambiguity remain. It is doubtful that all jurisdictional issues could be
fully resolved through the development of MOUs.Figure 3 Pipeline Operations and Maintenance
State
Federal
Local
Another potential problem arising from regulation by multiple agencies concerns inconsistent testing and maintenance standards. For example, our review found examples of pipeline operators having to meet two different sets of testing standards (for example, differences in testing method and frequency of testing) for the same pipeline. Some state and federal agencies have responded to this type of situation by either adjusting their standards so that they are consistent, or by accepting a test certification or inspection by specified regulatory agencies. However, industry still feels that this problem has not been fully addressed.
We believe that state and federal agencies are making good faith efforts to mitigate multijurisdictional problems. We recommend that these efforts continue. In addition, as detailed in a later section of this write-up, we believe multijurisdictional issues could be further mitigated by the designation of a single lead agency to oversee the regulation of pipeline operations.
Permitting Process May Discourage Pipeline Repair and Replacement
Under the existing permitting process, a pipeline operator wishing to modify or replace an oil pipeline may have to wait months or even years and incur substantial costs to be authorized to make such improvements. This may create disincentives to repair pipelines.
As pipelines age they may become more susceptible to leaks, less capable of handling flow demands, and technologically obsolete. However, securing the authorizations necessary to alter or replace pipelines can be expensive and time consuming.
The first step in repairing, replacing, or installing a pipeline or pipeline segment is to ensure that the project complies with the California Environmental Quality Act (CEQA). Projects which involve a segment of pipeline longer than eight miles are subject to CEQA. This involves preparing an environmental impact report, holding public hearings, and providing for necessary environmental mitigation measures. According to representatives from industry, this process generally takes one to three years to complete.
Although projects affecting less than eight miles of pipeline are exempt from CEQA, only one-half mile of pipeline may be excavated at a time. This adds to the time needed to complete a project. It can also add to the costs of the project.
After a project meets CEQA requirements, or is exempted from them, the permitting process begins. Figure 4 highlights some of the
permits that may be required of industry in order to install, repair, or replace a pipeline, and the estimated time needed to obtain these
permits. The permits and times listed in Figure 4 were provided by various representatives of industry. The number of permits required
varies depending on the pipeline's location.
State and Local Permitting Agencies Public works agency Public works agency and/or local designee
Permitting Processes Create Disincentives to Repair Pipelines. Pursuant to Chapter 532, Statutes of 1994 (AB 3261, O'Connell), SFM
investigated incentives that would encourage pipeline replacement or improvements. The report, which was completed in 1997, surveyed
the industry and found that the most commonly cited barriers to replacing or improving pipelines involved the permitting process.
Specifically, operators indicated that the permitting process was lengthy and expensive. Additionally, the process could have adverse
effects on public safety and health. Figure 4 Installation, Repair, or Replacement of Pipelines
Pipeline Location
Permit Agency
Estimated Time to
Issue Permit
Over 8 miles long
Local planning agency, various
state agencies (CEQA)
1 - 3 years In a city
Planning department
6 - 12 weeks In an unincorporated area
Planning department
6 - 12 weeks On the coast
California Coastal Commission
6 - 12 weeks In a flood control district
County flood control district
8 - 12 weeks Crossing a city/county road
City/county transportation
department
NA Crossing over aqueducts
Department of Water Resources
NA San Francisco Bay Area
Bay Area Conservation and
Development Commission
NA Ports of Los Angeles/ Long Beach/San
Francisco
Port authorities
7 - 12 weeks On state property
Affected state agency
2 - 4 weeks On wildlife habitat
Department of Fish and Game
6 - 8 weeks Railroad rights-of-way
Agreement with railroad owners
Varies On private property
Agreement with landowners
Varies In state waters
State Lands Commission
NA
Note: Some permits may be applied for simultaneously.
NA - Not Available.
In our review of that report and in subsequent discussions with SFM and industry representatives, we found the following to be the most significant barriers presented by the permitting process:
- Time Delays. Depending on the number of permits required for a given project, the permitting process could take a couple of weeks to several months, or more. In some cases, requirements can be duplicative. In many of those cases, it also appears that the sequencing of the required permits contribute to the length of time required to obtain all permits. For example, one company noted that while the California Coastal Commission's coastal development permit is essentially the same as the County Coastal Development Permit, the state permit cannot be applied for until the county permit is approved. Additionally, the U. S. Army Corps of Engineers would not issue its required permit until after the state's permit was approved. In addition, some permitting agencies may add requirements to the project such as additional mitigation or shut-off valves. Complying with these additional requirements could further delay the project.
- Increased Costs. In some cases, the cost of repairing pipelines is prohibitive due to the number of permits required, the mitigation efforts required by CEQA, and the necessary planning documents. One company claimed that it had started to abandon some of its pipelines that needed repair because it was too costly to prepare the required development plans and obtain all of the necessary permits. This company found it to be more cost-effective to begin transporting oil via tanker trucks. In addition, some permitting agencies may impose requirements beyond the scope of the immediate project as a condition of issuing a permit. These additional requirements, among other things, could include mitigation beyond CEQA requirements. Additional requirements will increase the cost of the pipeline project as well as cause time delays as mentioned above.
Disincentives to Repair Pipelines Could Jeopardize Public Health. As a result of the length and expense of the permitting process, pipelines are not replaced as quickly as they should be and could pose a health and safety hazard to the public and the environment. A number of representatives from industry have indicated that it often takes one to two years to obtain permits to replace or repair pipeline segments they know to be substandard. This delay presents a risk to the health and safety of the surrounding communities as well as to wildlife habitat. Furthermore, permitting costs increase the expense to repair pipelines, making pipeline transportation more costly than alternative means. As a result, more oil is being transported on the highways. According to the SFM, transporting oil via highways is over 400 times more likely to result in fatalities than via pipelines.
Additionally, many of the permitting agencies do not have the technical expertise to determine the need for certain safety features associated with pressurized pipelines. As a result, some of their efforts to improve the safety of the pipelines could actually increase the health risks to the public and environment. An example of this could be a local fire department requiring shut-off valves to be accessible to them as a condition of receiving a permit. Given that most petroleum pipelines are pressurized, shutting off the flow without notifying the operator could cause elevated pressures, leaks, and even structural damage to the pipelines.
Lead Agency Would Help Resolve Jurisdictional Issues And Streamline Permitting Process
We recommend the enactment of legislation to designate a single lead state agency to (1) coordinate testing and maintenance requirements and (2) streamline the permitting process.
As discussed above, the respective jurisdictions of regulatory agencies are not always clear. Additionally, pipeline operators are subject to inconsistent requirements imposed by these regulatory agencies. In order to help clarify jurisdictions and to make testing and maintenance criteria more consistent, the Legislature should designate a lead agency among pipeline regulators. This lead agency should be responsible for coordinating all state agencies and working with federal and local agencies to better delineate each agency's jurisdiction and how they can work to reduce potential duplication and uncertainty for the regulated community. The lead agency should also be required to make recommendations to the Legislature on statutory changes necessary to address any jurisdictional issues.
Based on our review of the roles of various state agencies in the regulation of pipelines, we believe that it would be reasonable to designate SFM as the lead agency. The SFM's jurisdiction currently covers a larger geographical area than other likely candidates. In addition, SFM is currently required by various statutes to produce reports on pipeline issues and maintain databases of pipeline information. Finally, SFM has already made considerable progress in coordinating jurisdictional issues with other state and federal agencies through MOUs.
The current permitting process creates a number of disincentives to pipeline operators who may otherwise have voluntarily replaced or upgraded pipelines. In order to help eliminate those disincentives associated with cost and time delays, the Legislature should charge the same lead agency to work in partnership with other federal, state, and local permitting agencies. This lead agency should evaluate the current permitting process to standardize and eliminate redundancies where possible. It should also be required to make recommendations to the Legislature on statutory changes that would streamline the permitting process.
Abandoned Petroleum Pipelines
Abandoned Pipelines and Past Leaks Pose Unknown Threat
While the nature, extent, and threat of undetected petroleum leaks are not clear, we find that the potential for long-term damage warrants further investigation of this problem and its implications for the state. We recommend the enactment of legislation appointing a lead agency to collect, integrate, and utilize data to identify sites that are especially likely to have had past petroleum leaks and are unusually susceptible to human health risks or environmental damage.
While the regulation of operational pipelines, as well as the state's ability to respond to new oil spills, has improved markedly in recent years, there is a continuing, unknown threat posed by past leaks and abandoned pipelines. This threat was dramatically illustrated a decade ago, when extensive underground pools of petroleum products were discovered under the town of Avila Beach. (Please see our December 1998 California Update, Oil Pipeline Spills: The Avila Beach and Guadalupe Experience.) The leaks had occurred over many years. The discovery of the leaks has led to a major clean-up effort involving the demolition of at least 21 buildings and the excavation of 100,000 cubic yards of contaminated soil.
As we noted in our December 1998 report, experts in industry and in the regulatory agencies believe that there are additional instances of past leaks still to be discovered in the state. The nature and extent of such leaks are currently unknown, and it is not even clear whether they pose any immediate threats to public health and safety. The level of threat would depend on a number of factors, including the proximity of drinking water supplies, the composition of the surrounding soil, the volume and age of the spill, and other considerations. Notwithstanding this uncertainty, we believe that the potential for long-term damage posed by undetected past leaks warrants further investigation of this problem. Existing data held by industry and governmental agencies will aid this investigation, as will several new reports and databases that SFM and other agencies are required to make available over the next two years.
We recommend, therefore, the enactment of legislation appointing a lead agency to collect, integrate, and utilize available data sources to identify sites that are (1) highly likely to have had past petroleum leaks and (2) unusually susceptible to environmental damage or human health risks. We believe the following data sources, among others, could be helpful in this effort:
- Comprehensive GIS-compatible database of pipeline information (including pipeline locations, age, reported leak incidences, and inspection history), to be developed by SFM as required by Chapter 814, Statutes of 1997 (AB 592, Kuehl). The SFM expects to make this database available later this year.
- Database of cases involving discharges of petroleum from underground storage tanks, created and maintained by SWRCB as required by Chapter 611, Statutes of 1996 (SB 562, Thompson) and Chapter 814. The SWRCB is required to report to the Legislature by July 1, 1999 on the feasibility of expanding this database to a statewide GIS system.
- State Energy Map, developed by DOGGR, identifying locations of known active and abandoned pipelines, as well as other associated infrastructure. The department expects an updated, computer-based map to be available later this year.
After assessing available information, the lead agency should be authorized to obtain other information it deems necessary to complete an inventory of high-risk sites. We further recommend that the Legislature require that a sample of sites from this inventory be tested for evidence of past petroleum leaks. Results of these tests should then be used to determine whether further testing (and possible remediation) is warranted. These conclusions should be submitted in a report to the Legislature and Governor.
Return to 1999-00 Budget Analysis Resources Table of Contents
Return to 1999-00 Budget Analysis Table of Contents
Return to LAO Home Page