The Energy and Environment Committee of the City of Los Angeles City Council considered Friday an amendment proposed by the Fire Department to dramatically increase bonding requirements for oil wells within city limits.
Currently, companies must bond wells at $10,000 per well or provide a blanket bond of $50,000 for all their wells. The amendment would have increased the per-well bonding requirement to $200,000, a 2,000% increase, and eliminated the blanket bond option. As a result, a company that currently maintains a $50,000 blanket bond for 100 wells would now be required to bond for $20,000,000, a 40,000% increase.
CIPA, Californians for Energy Independence, and individual CIPA members opposed the amendment and met with each of the members of the E&E committee. In a letter to the Council, CIPA points out that the amendment is illegal since it is preempted by state law, is arbitrary, fails to take into account the state’s programs for idle and orphan wells, and failed to do the required CEQA analysis.
The amendment also failed to recognize such large bonds are not commercially available and, as a result, would simply cause currently compliant companies to suddenly and arbitrarily become uncompliant, threatening to shut-in domestic oil production which would then need to be offset by increased foreign imports into the state’s crowded ports. This would also result in higher gasoline prices.
CIPA states in its letter, “The state maintains bonding and idle well management plans to ensure operators properly retire their assets. Bonds are only utilized in the event that a well or facility is deserted by an operator because they went out of business. In the case of orphan wells, the state currently has access to nearly $300 million in funds to plug orphan wells. Industry statewide is also required by law to backfill any unmet need the state has regarding remediating orphan wells and facilities. In the case of real estate development, the developer takes on the responsibility of plugging and remediating any orphaned wells. There is no exposure to the city. As a result, there is no nexus between the proposed bond and the city’s land-use interest.”
The E&E committee agreed that the proposal needed more review and that the fire department had failed to interact with industry. The committee directed the fire department to do more analysis and come back later with an alternative proposal.