California Independent Petroleum Association



California Independent Petroleum Association

Rock Zierman, Director of Public Affairs

1112 “I” Street, Suite 350

Sacramento, CA 95814

Direct Line: (916) 447-1185

Fax: (916) 447-1144

E-Mail: rock@

January 15, 2003

Sonya Blake, Chair

Governor’s Small Business Reform Task Force

1400 Tenth Street

Sacramento, CA 95812-3044

Dear Ms. Blake:

We are writing on behalf of the California Independent Petroleum Association (CIPA) and the California Natural Gas Producers Association (CNGPA) to share our thoughts with the task force on how to improve the state’s business climate for small energy producers. We appreciate the Governor’s desire to improve the state’s business climate and are especially appreciative of his focus on assisting small businesses. As you may be aware, CIPA is a non-profit trade association representing over 450 independent producers of oil and natural gas, service companies, and royalty owners in California. The CNGPA is a non-profit association with over 50 members dedicated exclusively to the interests of California’s natural gas producers.

Collectively, California is the fourth largest oil and gas producing state in the nation behind only Louisiana, Texas, and Alaska, and has the largest untapped reserve base for oil and natural gas production in the lower 48 states. While the majority of the CNGPA and CIPA’s members are small businesses that maintain very small operations, they are an important part of the state’s overall energy supply picture.

Reliable and affordable energy is one of the major keys to economic development in the state. The state, in its pursuit of cleaner power, has switched nearly exclusively to natural gas for power plants over the last 20 years. While this trend has resulted in the development of cleaner, efficient power supplies, the state’s power supply is also more susceptible than ever to supply disruptions along the state’s interstate pipeline systems and price fluctuations in the natural gas commodities market.

In order to provide for a more stable energy market in California, we must tap in-state natural gas reserves by streamlining the process of bringing new wells on line. According to the California Division of Oil, Gas, and Geothermal Resources, proved reserves of over 21 trillion cubic feet (tcf) have been identified along the West Coast of the United States while over 4.7 tcf of proved onshore reserves have been identified to date. With the advent of new,

increasingly accurate technology, new reserves of oil and gas are being found throughout the state in areas previously thought to be uneconomic.

Despite the presence of such substantial natural reserves and the state’s rapidly growing demand for increased supplies of natural gas, in-state production in California today accounts for only 10 to 15% of the state’s total annual natural gas needs. In contrast, California production has historically accounted for as much as 25% of the state’s total needs. Given the proper combination of regulatory relief and incentives, California producers believe we can increase our natural gas production to a point more reflective of historical production levels.

Strong evidence suggests that simply expanding production and reforming the regulatory process of bringing new wells on line could address a significant portion of California’s long-term gas needs. This could be achieved by doing the following:

• Maximize the usage of all gas produced in California by providing incentives for the development and permitting of blending facilities designed to bring gas inventories that fall below utility pipeline specifications into compliance.

• Create a tax credit to California producers and/or generators where gas produced in California is used to generate electricity in California.

• Create financial incentives to encourage expanded capital investment in new energy development projects.

• Standardize the city and county permitting process for natural gas wells, pipeline installation, and well interconnections by requiring all permit applications to be acted on within three weeks.

By making some of these minor changes and facilitating the ability of California oil and gas producers to expand their operations and get their products to market, we believe we can help mitigate at least one element of the problems driving our state’s current crisis.

On a related note, CIPA and the CNGPA believe that federal and state policymakers should make it a high priority to eliminate policies that discourage co-generation, self-generation and distributed generation. While California’s oil and gas producers are some of the heaviest industrial users of electricity in the state, they are also uniquely situated to generate their own electricity. Uncertainty over permitting, exit fees, standby and utility connection policies, and siting restrictions, however, discourage many of our smallest members from actively pursuing self-generation projects.

We encourage the task force to take a strong, active policy position in support of self-generation, and to work with the Governor’s office, California Energy Commission (CEC) and Public Utilities Commission (PUC) in finding ways to make self-generation more feasible and economic. Reducing demand on the state’s electricity grid, and diversifying our state’s energy supply, will ultimately prove beneficial for all aspects of California’s business community.

Thank you in advance for your consideration of our comments and the opportunity to comment in these proceedings. We stand ready to work with the task force in any manner necessary, and to offer ourselves, our associations, and our members as resources. In the meantime, please do not hesitate to contact either of us at (916) 447-1177 should you have any questions or need more information as to the issues we have raised.

Sincerely,

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John Martini Rock Zierman

CEO, CIPA Executive Director, CNGPA

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