A Look at Legislation
By Kensie Hamilton
A battle has been brewing in West Virginia for years over the regulations and litigation that surround the energy sector. This battle is an important aspect of life in the Mountain State and affects the level of success to which our state can rise. The battle is being fought year-round but increases in velocity during legislative sessions.
Now that the West Virginia Legislature’s 2012 session has come to a close, there is new information that affects the natural gas and coal industries in West Virginia. Energy leaders from each sector have weighed in about these changes and the opportunities that lay ahead.
New State Law Governs Horizontal Drilling
by Dave Drennon
ONE OF THE most widely cussed and discussed pieces of legislation in recent memory, the Natural Gas Horizontal Well Control Act, was passed in a special session of the West Virginia Legislature and signed into law by Governor Earl Ray Tomblin this past December—with much fanfare, consternation and outright disappointment. Rarely are all stakeholders unanimously happy with the results of a major piece of legislation and this bill is no different. In this event there seemed to be no declared winner other than the State of West Virginia because as a whole the state needed to present itself as a viable marketplace for the development of the Marcellus Shale and the industries that are attached thereto, in particular the chemical industry. Surface and mineral owners, members of the industry and the various regulatory agencies were each partially pleased and displeased with the final work of the Legislature: a comprehensive bill that addressed most of the hot buttons that have developed as the Marcellus industry has expanded in West Virginia.
How did the State of West Virginia come out of this as the winner if, indeed, all stakeholders are unhappy with various aspects of the bill? The answer lies in the issue of regulatory certainty. For at least a couple of years the Marcellus Shale has been widely recognized as a world-class natural gas resource. Most studies easily place it in the top five known natural gas reservoirs, not just in the United States or North America but on the planet. Because the Marcellus Shale is a world-class natural gas resource, it is attracting world-class companies and it requires world-class capital to develop it fully and properly. The Marcellus Shale extends across multiple states, and each of those states has different laws, rules, regulatory bodies and taxes and fees for businesses that operate within their borders. When these companies, many of which are international corporations, are looking to invest in the Marcellus Shale, they need to know the ground rules prior to spending hundreds of millions, if not billions, of dollars in each of the states where the shale play exists. Taxes, fees and compliance with regulatory burdens are all real costs of doing business and each company will evaluate and compare those costs in each of the states before and during their investments. There was a general and common belief that West Virginia in particular needed to get its regulatory house in order in a number of areas before those companies would risk their capital in West Virginia. After a failed attempt to pass legislation in the regular session of the Legislature earlier in 2011, the legislators were able to pull it all together in relatively short order in December.
The major points of impact for this wide-ranging act include the following:
- Permit fees are now set at $10,000 for the first horizontal well on a pad and $5,000 for each subsequent well on the same pad. Prior to this, the permit fee for any well was $400.
- There is new required compensation of $2,500 to the surface owner of disturbed land. A one-time payment is described as a reimbursement for future property taxes of this disturbed land.
- A $50,000 single well and $250,000 blanket bond is now required, versus the previous $5,000 single and $50,000 blanket requirements.
- Significantly increased well permit application requirements will include:
- Detailed water management, site construction, well site safety and certified erosion and sedimentation plans;
- A list of fracture additives to be used and
- A letter of certification from the Department of Highways (DOH) that the applicant is in compliance with the DOH road use regulations.
- New conditions are required for horizontal well permits covering such things as disposal of well cuttings, location reclamation, surface water runoff and the testing of water wells within 1,500 feet.
- The application and approval of large water impoundments and fees.
- Multiple notice requirements for surface and mineral owners and coal owners or lessees for the public and water source owners.
- Various well placement restrictions that include:
- The center of a well pad must be at least 625 feet from an occupied dwelling or large cattle or poultry barn;
- No well may be within 250 feet of a water well or spring and
- Well pads and wells must be at least: – 100 feet from a perennial stream, lake, pond, reservoir or wetland; – 300 feet from a naturally reproducing trout stream and – 1,000 feet from a public water supply intake.
- Each of the above restrictions can be waived by the Department of Environmental Protection (DEP) under certain circumstances.
- Expanded presumption of liability of a gas well operator for contamination or deprivation of water supply located within 1,500 feet of a well site.
- Increased casing and cementing standards.
Beyond these physical requirements put on the well operators, the act also placed a burden on the DEP to conduct various studies and issue various reports to the public and the governor. The DEP is tasked with the responsibility of promulgating the actual regulations that will prevail over the industry’s day-to-day operations. We are only a few short months into life with the act; only time will tell whether or not it is inadequate, sufficient or overbearing for an industry of this great magnitude and promise.
An EPA Assault on Appalachian Coal
by Jason Bostic
THE DECISION announced on March 23, 2012 by U.S. District Court Judge Amy Berman Jackson to overturn the Environmental Protection Agency’s (EPA) veto of the Spruce Mine in Logan County is yet another vindication of our contention that the EPA is engaged in an unlawful war against the Appalachian coal industry.
This war is being waged on many fronts—air, water and land—all with the same goal: the destruction of the coal industry in Appalachia.
In her decision, Jackson wrote, “The EPA’s position is that the 404(c) grants it plenary authority to unilaterally modify or revoke a permit that has been duly issued by the Corps. This is a stunning power for an agency to arrogate to itself when there is absolutely no mention of it in the statute.”
While this statement was specifically about the veto of the Spruce Mine permit and the EPA’s constitutional relationship with Congress and other agencies, it could just as well have been about a host of other actions by the Obama EPA.
The EPA has become radicalized and has attempted to gather to itself power never envisioned by Congress. It has made decisions that are destructive to our nation’s economy and to the balance of power between the executive and legislative branches of government as well as its relationship with state governments and state regulatory agencies. A primary case in point is the intrusion of the EPA into the decision-making process of state agencies on water quality issues.
The primary responsibility for maintaining water quality standards in a state rests with the state and its regulatory agencies. The EPA does have an oversight role, but as long as the state standards meet or exceed the federal standards, the EPA has no direct authority to intrude upon the state’s decision-making authority.
The EPA notes in its guidance documents that its role pertaining to water quality is “To protect human health and aquatic life, states, territories and authorized tribes establish water quality standards regulating how clean their water bodies should be. The Environmental Protection Agency reviews these water quality standards and approves them if they meet the requirements of the Clean Water Act and EPA’s water quality standards regulations.”
And yet, the current regime at EPA is attempting to transform the federal Clean Water Act (CWA) Section 404 permitting program of the U.S. Army Corps of Engineers into an ad-hoc water quality standards permit by demanding the assignment of limits for which no federal or state water quality standards exist and assigning penalties in the form of conditions that call for suspension of the permit for excursions of these non-regulated parameters.
The EPA is also ignoring the conclusions of the U.S. Fourth Circuit Court of Appeal’s February 2009 decision and its own 2009 joint rulemaking with the Corps regarding mitigation in its comments and demands relative to mining-related CWA Section 404 permits. The EPA’s recent demands with respect to mining-related mitigation mirror the impossible expectations imposed by since-reversed federal district court decisions.
The agency is also ignoring the existence of other environmental programs that carefully evaluate the potential for cumulative impacts from mining operations. Additionally, the EPA is seeking to regulate water quality discharges for which no water quality standards exist under the veil of cumulative impacts.
These actions are all part of the agency’s ongoing effort to grab power away from the states.
As Congressman Nick Rahall, who represents the 3rd District of West Virginia, said during a recent House Committee hearing, “This nation is ill-served by an agency that is so driven by ideology that it cannot even follow the law. It is disconcerting that we are here in this committee, once again, appealing to the Environmental Protection Agency to work with the Congress, our state regulatory agencies and other federal agencies. But it is absurd that, for the sake of the environment, the economy and our national energy needs, we are calling on this agency to simply adhere to the law.
“The EPA had an opportunity to help achieve a center point that would provide for both energy development and environmental preservation. But it has utterly failed. Instead, this EPA took an extra-legal approach, choosing to step over the bounds of the law to promote an ideological agenda and, in so doing, to push opposing parties even further from the balance we have all sought for so long.”
Rahall also acknowledged the exonerating nature of the court’s decision by saying, “It is not just politicians and not just coal miners and coal executives, now it is the courts who are saying that in its treatment of coal mining in the Appalachian states the EPA has twisted the law, circumvented the Congress and trampled on the right of the people to know what their government is doing.”
Jackson’s decision on the Spruce Mine delivers independent confirmation that the EPA’s assault on the Appalachian coal industry demands congressional action. The EPA’s willingness to ignore established boundaries to its authority was confirmed by the Spruce decision and earlier decision from D.C. District Court Judge Reggie Walton. These rulings should serve as more than enough evidence that the U.S. Senate needs to act on HR 2018, also known as the Clean Water Cooperative Federalism Act. HR 2018, co-sponsored by Rahall and supported by West Virginia’s entire House delegation, was passed by the U.S. House of Representatives on July 13, 2011 and awaits action in the U.S. Senate. The legislation would prevent the very abuses of authority by the EPA that has now been confirmed by the courts.
Photography by Brian Jarrell and Rick Lee