State Shale Gas Regulation in the Appalachian Basin:

State Shale Gas Regulation in the Appalachian Basin: Recent Enhancements, Remaining Gaps, and Opportunities for Change Hannah J. Wiseman Assistant Professor, Florida State University College of Law hwiseman@law.fsu.edu

Road map of presentation 1. Introduction to the types of state (and federal, regional, and local) regulatory categories and enforcement strategies aimed at preventing or mitigating environmental risks, community impacts 2. Examples of recent changes to substantive regulation 3. Examples of recently modified enforcement approaches 4. Brief introduction to gaps in regulation and enforcement

1. Regulatory categories: the types of regulations that governments deploy to prevent and mitigate risks

Soil and surface water quality, groundwater quality impacts of well sites Impact or activity State regulation Federal regulation Flowback and produced water storage Well construction and casing; blowouts Spills of on site materials; erosion Requirements for pit lining or tanks; freeboard; secondary containment; well and site setbacks; WV impoundment and pit safety study; PA updated lining requirements Well casing standards: type of casing material and cement, time for which cement must set, required depth of casing, logs and other documents verifying adequate cementing; bonding requirements Blowout prevention equipment; pre-frac well pressure testing Spill prevention and control plans; spill reporting; secondary containment requirements; well and site setbacks; erosion and sediment control plans; chem. disclosure Baseline testing: Some states (WV & PA) incentivize baseline testing by presuming contamination; others (OH) require baseline testing. Clean Water Act prohibits direct discharge east of 98 th meridian Draft standards for fracturing with diesel Clean Water Act stormwater permitting U.S. Geological Survey studies in Arkansas and elsewhere

Soil and surface water, groundwater quality impacts of waste disposal Impact or activity State regulation Federal regulation Underground injection control (UIC) Class II disposal wells Wastewater treatment Ohio updated UIC well permitting to require testing and monitoring for potential seismicity problems; investigated induced seismicity incidents. Pennsylvania has informal agreement that waste will not go to plants and requires waste management plan, including reuse strategies. Much progress needed to ensure that plants can adequately treat waste. Safe Drinking Water Act permitting; EPA draft doc. on minimizing and managing seismicity EPA drafting wastewater treatment standards Centralized E&P disposal sites; road application of brine Regulations for groundwater monitoring; states such as Ohio restrict locations where brine may be spread on roads and allow municipalities to prohibit road spreading. Ohio St. 1509.226 --

Water quantity: regulating water withdrawals for fracturing State regulation Some states require permit and water withdrawal or management plan showing that aquatic resources will not be negatively impacted. WV: For surface water withdrawals, must demonstrate that sufficient instream flow will be available immediately downstream of the point of withdrawal and methods to minimize adverse impact to aquatic life. W. Va. Code 22-6A-7 Regional regulation Water withdrawal permits required within watersheds of Susquehanna and Delaware Rivers. Minimum passby flow requirements in Susquehanna River Basin some withdrawals for fracturing suspended during drought.

Air quality Impact or activity State regulation Federal regulation Conventional and hazardous air pollutants Methane emissions Minor source permitting for conventional pollutants from wells, storage tanks, equipment at sites often general permits Partially covered, indirectly, by rules in some states limiting venting and flaring and gas leaks Some equipment (wells, storage vessels) covered by New Source Performance Standards as of 2015 and other equipment (glycol dehydrators, e.g.) covered by Hazardous Air Pollutant regulations Partially covered, indirectly, by New Source Performance Standards for volatile organic compound emissions from fractured and refractured wells, storage vessels

Wildlife and landscape impacts, habitat fragmentation State regulation Express prohibition against pits, tanks, waste sites or waste facilities impacting endangered species or their habitats (Kentucky) Federal regulation Fish and Wildlife Service listing of the diamond darter (Marcellus) as endangered; designation of critical habitat Little regulatory activity directly addressing habitat fragmentation and landscape impacts. But see Maryland s Department of the Environment and Department of Natural Resources proposed [c]omprehensive gas drilling plans to minimize the amount of surface disturbance and prohibition against well pads in certain sensitive areas.

Landowner and community impacts Activity/impact State Local Roads: damage, traffic Surface damages Noise, dust, air pollution, aesthetics other nuisancetype impacts Higher demands on public services; impacts on local economies Ohio requires operators to submit agreement with local officials concerning maintenance and safety of roads (added 2012) Oh. Stat. 1509.06 Some states, such as West Virginia, require operator to provide surface use and compensation agreement. W. Va. Code 22-6A-16 Ohio Division of Mineral Resources includes noise mitigation best management practices in permits, as required by Oh. Stat. 1509.03. Road use agreements and road use maintenance agreements -- Where allowed, zoning: limiting location of gas sites; enforcement of noise and other nuisance-based ordinances. Trends toward preemption, however. Economic studies, but few comprehensive approaches. Some limited reinvestments of impact fees and severance taxes in local infrastructure.

Displacement of needed innovation and investment in more sustainable energy resources Very little regulatory activity in this area, aside from existing state renewable portfolio standards, energy efficiency programs, and integrated resource planning. For a study regarding the likely negative impact of shale gas on other energy innovations, such as carbon capture and sequestration, see Henry Jacoby et al. (MIT), The Influence of Shale Gas on U.S. Energy and Environmental Policy (2012). For a study describing the need for renewable energy resources and other lower-carbon alternatives if we are to stabilize global temperature rise to 2 degrees Celsius, see International Energy Agency, Are We Entering A Golden Age of Gas? (2011).

Enforcement policies and strategies Ensuring minimum inspector qualifications, and salaries to encourage retention Funding inspections and other agency activities through permitting fees, well fees, fines and penalties, forfeited bonds Identifying the types of actions agencies may take without approval from other institutions: suspension of well operations, revocation of bond, issuance of compliance orders and administrative orders, issuance of penalties, denial of well permit Ensuring sufficiently large penalty and fine amounts, length of potential prison time for egregious violations Prioritizing certain inspections and enforcement Ensuring that inspectors uniformly look for and report problems and receive notice before well operations occur Informing and updating industry actors regarding rules

2. Recent substantive regulatory changes in select Appalachian states

Enhancing environmental protections: well setbacks and water quality West Virginia Natural Gas Horizontal Well Control Act, HB 401, effective December 14, 2011 Regulatory provision Before December 14, 2011 As of December 14, 2011 Distance between gas well and water well Distance between well pad or well and stream Distance between well pad or well and trout stream Distance between well pad and public water supply Rebuttable presumption that oil and gas operations caused water contamination 200 ft. W. Va. Code 22-6-21 no regulation identified no regulation identified no regulation identified w/in 1,000 ft. of site W. Va. Code 22-6-35 250 ft. W.Va. Code 22-6A-12 100 ft. W. Va. Code 22-6A-12 300 ft. W. Va. Code 22-6A-12 1,000 ft. W. Va. Code 22-6A-12 w/in 1,500 ft. of site W. Va. Code 22-6A-18

Enhancing environmental protections: well setbacks and water quality Ohio statutory revisions Regulatory provision Before (see dates) After (see dates) Distance between gas well and water well Distance between well pad or well and stream Pre-drill water testing no regulation identified before June 30, 2010 no regulation identified before June 30, 2010 no regulation identified before effective date of September 10, 2012 50 ft. Oh. Stat. 1509.021 (effective June 30, 2010) 50 ft. Oh. Stat. 1509.021 (effective June 30, 2010) w/in 1,500 ft. of proposed horizontal wellhead (urbanized areas 300 ft.) Ohio Stat. 1509.06 (effective Sept. 10, 2012)

Enhancing environmental protections: well setbacks and water quality Pennsylvania Act 13, effective Apr. 16, 2012 under review Regulatory provision Before Apr. 16, 2012 As of Apr. 16, 2012 Distance between gas well and water well 200 ft. 58 Pa. C.S. 601.205 500 ft. 58 Pa. C.S. 3215 Distance between well site or well and stream 100 ft. 58 Pa. C.S. 601.205 300 ft. 58 Pa. C.S. 3215 Distance between well pad and public water supply Rebuttable presumption that oil and gas operations caused water contamination no regulation identified 1,000 ft. for contamination within 6 months of operations 58 Pa. C.S. 601.208 1,000 ft. 58 Pa. C.S. 3215 2,500 ft. for contamination within 1 year of operations 58 Pa. C.S. 3218

Casing requirements example Ohio SB 165, effective June 30, 2010 Before June 30, 2010 As of June 30, 2010 [G]ood and sufficient wrought iron or steel casing so as to exclude all surface, fresh, or salt water from any part of such well. Method of placing casing approved by Chief of Division of Mineral Resources Management. In lieu of casing, Chief could accept adequate mudding methods. Oh. St. 1509.17 [S]ufficient steel or conductor casing that protects unconsolidated sediments and water. Materials must comply with industry standards for the type and depth of the well and the anticipated fluid pressures that are associated with the well. Sour gas and gas bearing zones must be isolated. Well shall not be perforated in zones of water protection. Well owner shall notify mineral resources inspector each time the owner or representative notifies someone to perform casing. Oh. St. 1509. 17

Air quality: Ohio Prior to SB 165 (effective 6/30/2010), operators could flare gas when it was lawfully produced and there was no economic market at the well for escaping gas. Post-SB 165, an alternative condition justifying flaring was added: when flaring was necessary to protect the health and safety of the public. Oh. St. 1509.20 Oct. 20, 2011, Ohio EPA completed a draft general permit for production operations at shale gas sites, which has since been finalized; covers internal combustion engines, generators, dehydration systems, storage tanks and flares. http://www.epa.state.oh.us/newsbycategory/tabid/5980/vw/1/itemid/40/ohio-epa-issues-final-air-general-permit-forproduction-operations-at-shale-gas-well-sites.aspx

Air quality: West Virginia Effective 12/14/11, Secretary of DEP shall determine whether air quality inspections and regulations are needed by July 1, 2013. DEP has finalized New Source Performance Standard 0000 for hydraulically fractured and refractured wells and drafted a general permit for minor air pollution sources associated with oil and gas, including completion combustion devices.

Air quality: Pennsylvania On August 8, 2013, the Pennsylvania DEP finalized air quality permit criteria for unconventional well sites, which include exemptions from state air quality permitting if unconventional wells meet certain criteria: gas leak detection and repair program for valves, flanges, connectors, etc. storage vessels and tanks with VOC emission controls of 95% or greater limited flaring activities, among other criteria http://www.elibrary.dep.state.pa.us/dsweb/get/document-96215/275-2101-003.pdf

Building setback and other nuisance mitigation requirements Ohio SB 165, effective June 30, 2010 New setbacks of wells, mechanical separators, and tank batteries from private dwellings and public buildings in urbanized and nonurbanized areas. Oh. St. 1509.021 Directed agency development of rules for noise mitigation during drilling and operations. Dept. of Mineral Resources now includes noise best management practices, such as mufflers on equipment, in well permits. Oh. St. 1509.03

Also note the importance of private standards Lenders and lessors increasingly require environmental protections within contracts and leases, such as lining of the entire well pad, no drilling in areas with too much surface water. Companies increasingly voluntarily disclose chemicals added to fracturing water on FracFocus, but we still do not know the composition of much of the flowback water, which contains naturally occurring substances. API standards, standards from Center for Sustainable Shale Development impact certain operators behavior.

3. Changing enforcement approaches in select Appalachian Basin states

Enhancing regulatory enforcement capacity West Virginia HB 401 Regulatory provision Before December 14, 2011 As of December 14, 2011 Well permit fees Any permit application fee required by law W. Va. Code 22-6-6 $10,000 for initial horizontal well, $5,000 for each additional well, plus an additional $150 W. Va. Code 22-6A-7 Inspector qualification and salaries Qualification requirements (2 years relevant experience in oil and gas) have not changed Salary fixed by director W. Va. Code 22C-7-2 Salary $35,000 annually, $40,000 for supervisors W. Va. Code 22-6-2a

Enhancing regulatory enforcement West Virginia HB 401, continued Regulatory provision Before December 14, 2011 As of December 14, 2011 Civil penalties for willful violations of any oil or gas rules Civil or criminal penalties for certain types of oil and gas rule willful violations $2,500 W. Va. Code 22-6-34 $5,000 or imprisonment for violations associated with manner of drilling, plugging, filling well, or waste prevention W. Va. Code 22-6-34 $5,000 W. Va. Code 22-6A-19 $5,000 fine or imprisonment retained; added $100,000 or imprisonment for willful disposal of substances or violations of other rules, which cause significant environmental impact on surface or groundwater W. Va. Code 22-6A-19

Regulatory provision Well permit fee Enhancing regulatory enforcement Ohio SB 165 Before June 30, 2010 As of June 30, 2010 $250 for permit to conduct activities in township w/ population < 5,000 $500 for permit to conduct activities in township w/ population < 10,000 $700 for population 10,000 - <15,000 Brine and other waste injection well fee $700 for population 10,000 - <15,000 $1,000 for municipal corp. or pop. 15,000 or more Ohio St. 1509.06 $100 Ohio St. 1509.22 $1,000 for municipal corp. or pop. 15,000 or more Ohio St. 1509.06 New oil and gas regulatory cost recovery assessment 0.5 cents per/1,000 cubic feet of natural gas $1,000 Ohio St. 1509.22 New fees: 5 cents/barrel of waste injected when waste produced w/in regulatory district or adjoining one, 20 cents/barrel outside of district Oh. St. 1509.221

Enhancing enforcement: Pennsylvania example Department can order an operator to cease well drilling activities if operator does not allow access to sites and provide needed documentation. Uniform inspections and reporting: Pennsylvania in 2011 conducted internal review of inspection practices. Developed new inspection report form and service activities field manual so that each inspector knows how to properly and consistently document impacts. Highest priority violations are those that result in an actual release of gas or pollutants that endanger human life or public health or safety. Initial civil penalties raised from $25,000 to $75,000; additional penalties raised from $1,000 to $5,000. Pennsylvania DEP can now directly enforce regulations; need not seek permission from DEP hearing board.

What type of substance spilled? Where did the spill originate? PA: ER-company report of mineral oil spill on well pad access road, 1,000 ft long, 10 ft wide at greatest area, leak from skid tank hauled on flatbed truck, SWMA 301, 78.56(a)(1) & CSL 401, mineral oil contained to road surface, company response initiated to scrape road surface and contain material. How large was the spill? (volume, surface area)

Enhancing regulatory enforcement through public disclosure of violations and enforcement actions Ohio SB 165 Chief of Division of Mineral Resources Mgmt. shall maintain a publicly accessible website database that lists each final nonappealable order issued for a material and substantial violation under this chapter and the violator, the date on which the violation occurred, and the date on which the violation was corrected. Oh. St. 1509.041

Enhancing regulatory enforcement through public disclosure of violations and enforcement actions Pennsylvania s Compliance Database Lycoming Cummings Twp Viol(s) Noted & Immediately Corrected Responded to a reported spill of production water. clean-up has been completed 635490 03/19/2012 SWMA301 - Failure to properly store, transport, process or dispose of a residual waste.

West Virginia: public notification of well applications, but not (it appears) orders and other enforcement West Virginia HB 401: the secretary shall establish resources on the department's public website which will list searchable information related to all horizontal well applications filed in this state, including information sufficient to identify the county and approximate location of each horizontal well for which a permit application is filed, the referenced well application number, date of application, name of the applicant, and any written comments submitted by the public. W. Va. Code 22-6A-21

Enforcement authority example Ohio SB 165, authority of Chief of Division of Mineral Resources Mgmt. Before June 30, 2010 As of June 30, 2010 Chief may arrest for violations of this chapter involving transportation of brine by vehicle. May order immediate suspension of drilling or operation if presents imminent danger to public health or safety, results in or may cause substantial damage to natural resources. Oh. St. 1509.04, 1509.06 Chief may issue administrative order to well owner for violation of rules, order finding substantial and material violation, immediately suspend drilling or operations related to material and substantial violation (or posing imminent danger, may cause substantial damage to natural resources), issue bond forfeiture order for failure to comply w/ nonappealable order. Oh. St. 1509.04, and 1509.181(suspension of operations in coal-bearing township)

Enhancing coordination among responsible agencies Ohio Substitute Senate Bill 315, signed June 11, 2012 Added a provision stating that the Chief of the Ohio DNR Division of Oil and Gas may enter into cooperative agreements with other state agencies for advice and consultations, including visitations at the surface location of a well on behalf of the division.

4. Gaps in regulation and enforcement

Variability among regulations, even within Appalachian Basin: examples Baseline testing around wells: incentivized to 1,500 feet in West Virginia, 2,000 feet in Pennsylvania; required to 1,500 feet in Ohio. It appears that Ohio does not require testing for benzene, toluene, etc. No uniform data collection or data reporting. Bonds are often too low to cover needed restoration. Few requirements for mandatory environmental liability insurance, with the exception of Maryland. Requirements for large impoundments for storing flowback for reuse unclear in many states. But see West Virginia certification required for impoundments holding 210,000 gallons or more. W. Va. Code 22-6A-22

http://www.rff.org/centers/energy_economics_and_policy/pages/shale_maps.aspx#maps

http://www.rff.org/centers/energy_economics_and_policy/pages/shale_maps.aspx#maps

General failure to connect severance taxes or impact fees to community or global impacts If Pennsylvania Act 13 survives judicial review, impact fee funds will be redistributed to municipalities to improve social services, judicial services, environmental projects such as parks, road quality and maintenance, and other community projects with long-term benefits. Few other state severance taxes or fees appear to be directly reinvested in communities to support needed long-term projects; boom and bust cycles could continue. None appear to reinvest funds into needed sustainable energy innovation and investment.

Enforcement Not all states have updated permitting fees or penalties to fund needed inspections and other agency work and adequately deter certain industry actions. Not all states have developed adequate inspector retention policies. Not all states have clarified and made uniform the problems that inspectors should look for and report. Not all states have clarified which types of violations should be prioritized for enforcement. Need for more industry training.

Thank you. Questions?