Loopholes, End-Runs and Planning Ahead: EPA Initiatives to Narrow E

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Loopholes, End-Runs and Planning Ahead EPA
Initiatives to Narrow EP Environmental
Exemptions

• Pat Larkin
• Strasburger Price, LLP
• Gulf Coast Environmental Affairs Group
• January 12, 2012

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Overview Loopholes, End Runs and Planning Ahead

• Loopholes for Polluters" (as characterized by in
  testimony at DOE hearings)
• EPA's strategies to narrow/end-run EP industry
  exemptions
• Practical considerations for EHS Management in
  context of enforcement and transactions.

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Loopholes for Polluters (Earthworks Oil Gas
Accountability Project)

• Loopholes The oil and gas industry is exempt
  from key provisions of seven major federal
  environmental laws allowing practices that
  would otherwise be illegal. Its essential to
  reverse these federal loopholes.
• EOGAP testimony before the Secretary of Energy
  Advisory Board (SEAB) Natural Gas Subcommittee.

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Loopholes for Polluters

• 1. The Safe Drinking Water Act SDWA
• The Energy Policy Act of 2005 exempted fracking
  from the SDWA, leaving drinking water sources in
  oil and gas producing states unprotected from the
  toxic chemicals used during fracking. Congress
  qualified this exemption to regulate diesel fuel
  additives used during fracking, which requires
  industry to apply for a SDWA permit if they are
  using diesel fuel to hydraulically fracture a
  well.
• 2. The Clean Air Act CAA
• Major air sources must meet NESHAPS by installing
  the Maximum Achievable Control Technology (MACT)
  for each source.
• The CAA exempts oil and gas wells, and some
  pipeline compressors and pump stations, from
  aggregation. This exemption allows the oil and
  gas industrywhich often operates many small
  facilities, to avoid regulation as a cumulative
  source.
• In addition, in 1991 hydrogen sulfide (H2S) was
  removed from the CAA list of Hazardous Air
  Pollutants.
• 3. Clean Water Act CWA
• In 1987, Congress amended the CWA to require EPA
  to develop a permitting program for stormwater
  runoff but exempted oil and gas production.
• 4. Resource Conservation and Recovery Act RCRA
• In 1980, Congress exempted oil field wastes
  (which includes waste from natural gas
  production) from RCRA. EPA ceded authority to
  regulate these wastes to the states.
• This allows unsafe handling of toxic substances,
  including their conventional transport on roads
  and treatment in municipal rather than
  specialized facilities.

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Loopholes for Polluters

• 5. Comprehensive Environmental Response,
  Compensation, and Liability Act CERCLA
• CERCLA excludes oil and natural gas from the term
  hazardous substance. Consequently, industry has
  little incentive to clean up its hazardous waste,
  or to minimize leaks and spills, in part because
  the exemption allows companies to escape
  liability when these problems occur.
• 6. National Environmental Policy Act NEPA
• The Energy Policy Act of 2005 established
  Categorical Exclusions exempting certain oil
  gas activities from Environmental Assessment (EA)
  or Environmental Impact Statement (EIS) under
  NEPA. In addition, a CE does not allow for any
  public comment. In 2006 and 2007, the BLM granted
  CEs for about 25 percent of oil and gas wells
  approved on public land in the West.
• 7. The Toxic Release Inventory of EPCRA
• The Toxic Release Inventory17 (TRI) regulations
  require most industries to report significant
  uses and releases of toxic substances to the EPA,
  which then aggregates and disseminates the
  information to the public.
• But despite their use of toxic chemicals
  throughout production, oil and gas facilities are
  not required to report to the TRI. This exemption
  leaves communities in oil and gas producing areas
  in the dark about what chemicals are being
  releasedmaking it difficult to attribute
  responsibility and seek remedy for resulting
  health and environmental problems.

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Range Resources v. EPA

• Range and the Sackett Supreme Court cases are
  important because they will decide whether
  Defendants can challenge EPA Unilateral Orders.
• The Range SDWA Order is important because it
  reflects EPAs strategy to regulate SDWA-exempt
  underground injection and RCRA-exempt EP wastes.
• Even if the Courts allow some pre-enforcement
  review, EPA has made it clear that emergency
  orders will be a key tool in EPA regulation of
  the EP industry.

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EPA Front-Line Strategy to Limit EP Exemptions
Statutory ISE Orders (May, 2011 Briefing to SEAB)
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EPA Strategies to Narrow SDWA Exemption

• Emergency Orders to protect Drinking Water
  Resources
• Range Resources scenario if contaminated water
  wells are discovered, EPA will consider fracking
  operations as a source.
• Guidance to define UIC permitting for Diesel
  Fracking
• EPA stakeholder QA documents point to a broad,
  rulemaking-type EPA action
• What should the permit duration be, considering
  the intermittent nature of HF and Class II
  plugging and abandonment provisions? 
• What well construction requirements should apply
  to HF wells using diesel fluids?
• What well operation and mechanical integrity
  requirements should apply to HF wells using
  diesel fuels?
• What well monitoring and reporting requirements
  should apply to HF wells using diesel fuels?
• How do Class II financial responsibility (FR)
  requirements apply to wells using diesel fuels
  for hydraulic fracturing?
• What information should be submitted with the
  permit application?
• Diesel Fracking Guidance stakeholder discussions
  have not addressed key issues
• How/will EPA further define Diesel in the
  Guidance?
• Will State UIC programs develop a new permit
  Class?
• Will past Diesel frack sites have to obtain
  permits?

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CWA Storm Water Permitting -Oil and Gas
Operations Exemption

• The Administrator shall not require a permit
  under this section for discharges of stormwater
  runoff from . . . oil and gas exploration,
  production, processing, or treatment operations
  or transmission facilities, composed entirely of
  flows which are from conveyances or systems of
  conveyances used for collecting and conveying
  precipitation runoff and which are not
  contaminated by contact with, or do not come into
  contact with, any overburden, raw material,
  intermediate products, finished product,
  byproduct, or waste products located on the site
  of such operations.
• Section 402(l)(2) of the Clean Water Act
• Two Part Exemption
• Discharges from operations
• That are not contaminated

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CWA Storm Water Permitting -Oil and Gas
Operations Exemption

• Phase I II Storm Water Rules
• In 1990, EPA issues its Phase I Storm Water rule
• Phase I rule applied to storm water run off from
  construction sites over 5 acres in size
• EPA finds that construction activities are not
  included in the oil and gas operations
  exemption from permitting
• 55 Federal Register at 48,033-34.
• 1999 Phase II Rules an estimated 30,000 EP
  construction sites of 1 - 5 acres became subject
  to CWA permitting.
• Energy Policy Act of 2005
• Clarifies oil and gas exemption and explicitly
  includes oil and gas construction activities
  within the definition of operations covered by
  the exemption.

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CWA Storm Water Permitting -Oil and Gas
Operations Exemption

• EPA 2006 Storm Water Rule-Making
• Implements changes in the Energy Policy Act,
• EPA proposes to amend the federal rules to
  specifically exempt discharges of sediment at oil
  and gas operations from any permitting
  requirements, whether they resulted in a
  violation of water quality standards or not.
• 2006 - NRDC Sues EPA
• Ruling in NRDC v. EPA
• May 2008, the 9th Circuit Court of Appeals rules
  that the 2005 CWA amendments contained in the
  Energy Policy Act did not exempt sediment
  contaminated storm water from permitting.
• Current Rule? Return to CWA Statutory Exemption
  if Storm Water not contaminated
• EPA Definition of Uncontaminated Storm Water
• The operator . . . is not required to submit a
  permit application . . . unless the facility
• Has had a discharge of storm water resulting in
  the discharge of a reportable quantity for which
  notification is or was required pursuant since
  November 16, 1987 or
• Contributes to a violation of a water quality
  standard (WQS).
• 40 Code of Federal Regulations
  122.26(c)(1)(iii).

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CWA Storm Water Permitting -Oil and Gas
Operations Exemption

• EPA 2008 Interpretation of EP Exemption
• EPA presumes that operators who select, install,
  and maintain control measures that minimize
  pollutant discharges will be able to meet
  applicable water quality standards in most
  instances.
• minimize, in the context of storm water
  controls means to reduce and/or eliminate to the
  extent achievable (including best management
  practices) in light of best industry practice.

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EPA Strategies to Narrow CWA/Storm Water Exemption

• Under EPAs 2008 interpretation, EP operators
  must meet industry best practices to control
  sediment
• Uncontrolled sediment discharges at EP sites
  would trigger permit duty
• Storm Water Permit required if Discharges
  Contribute to a Water Quality Standard
  Violation
• Any sediment discharge to impaired waters, esp.
  if a TMDL is in effect, would risk WQS violation
  
• E.g., several Pennsylvania rivers have
  Chlorides/TDS-related TMDLs
• State Local Government Regulation and SW
  Permitting
• EPA is actively supporting local regulation,
  e.g.,
• In 2005, the Environmental Protection Agency
  awarded a grant to the City of Denton, Texas, to
  monitor and assess the impact of gas well
  drilling on stormwater runoff, and to provide, if
  necessary, regulatory and management strategies
  for these activities.
• Region 6 CWA Direct Discharge (Brine Spill)
  Initiative
• Few cases to date
• Cases seem to focus on sites with measurable
  surface water impacts

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Expansion of CWA Regulation Pretreatment
Standards for Flowback Water

• Critics have voiced concerns about the potential
  for drilling wastewater to overwhelm treatment
  plants and adversely affect their treatment
  systems.
• Concern over POTW/municipal plants ability to
  manage salinity and potential radioactivity of
  flowback water was reported by the New York Times
  in Spring 2011
• In April 2011, PA DEP directed several POTWs to
  cease disposal of flowback water.
• The following month EPA issued information
  requests to PA EP companies to disclose flowback
  disposal and recycling practices.
• EPA announced on October 20, 2011, that, by 2014,
  it will impose federal pre-treatment standards
  for all operations disposing of wastewater from
  shale gas fracking operations. 76 Fed. Reg. 66286
  (10/26/2011).
• Pretreatment standards will focus on Total
  Dissolved Solids/Chlorides and Radionuclides.

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Expansion of CWA Jurisdiction EPA Guidance on
Waters of The US

• Guidance issued by EPA and Corps in response to
  Supreme Court Split Decision in U.S. v. Rapanos
•  The following waters are protected by the Clean
  Water Act
• Traditional navigable waters
• Interstate waters
• Adjacent Wetlands
• Non-navigable tributaries of traditional
  navigable waters
• Wetlands that directly abut relatively permanent
  waters
• Other waters are protected by the Clean Water Act
  if a fact-specific analysis determines they have
  a "significant nexus" to a traditional navigable
  water or interstate water.
• Including Waters that are not proximate to
  jurisdictional waters if similar waters have a
  cumulative impact creating such nexus.

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Expansion of CWA Jurisdiction EPA Guidance on
Waters of The US

• EPA Rapanos Guidance challenged as an illegal
  rulemaking
• Courts may void Guidance if it imposes
  unequivocal requirements
• Two-part criteria in Guidance tracks the two
  approaches in Rapanos
• Uninterrupted surface water connections clear
  jurisdiction
• other significant nexus exists where subject
  wetlands or waterways affect the chemical,
  physical, and biological integrity of downstream
  waters.
• EPA actions using these criteria have been upheld
  in post-Rapanos enforcement cases.
• Cumulative Impacts findings creates great risk
  of unexpected jurisdiction and permit obligation
• Corp/EPA may have made a nexus determination
  regarding similar but distant waters in the
  watershed, or even for the entire watershed.

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Expanded Regulation of EP Air Emissions

• Region 6 - General Duty Clause Enforcement
  Initiative
• Compliance Orders issued under Section 112(r)(1)
  of the CAA for "failing to maintain a safe
  facility and taking such steps as are necessary
  to prevent releases of an extremely hazardous
  substance - methane."
• Vent and Connection Leaks InfraRed Camera
  Inspections
• 20 Cases Listed on Region 6 website in past 18
  months
• In Re American Acryl
• Explosion and fire at American Acryls Harris
  County, Texas plant destroying a tank storing
  toluene and  sending two employees to the
  hospital for observation. 
• EPA issued an Administrative penalty order on
  December 8, 2010 alleging that Respondent failed
  to comply with the "general duty clause" of
  Section 112(r)(1) of the CAA by "failing to
  maintain a safe facility and taking such steps as
  are necessary to prevent releases of an extremely
  hazardous substance."
• Acryl denied it violated the general duty clause,
  stating that toluene is not an extremely
  hazardous substances, and that the accidental
  release of this chemical was a result of an
  explosion, not the cause of it. 
• A 37,500 penalty was proposed.
• American Acryl challenged General Duty as
  unconstitutionally vague and moved to dismiss the
  penalty Order.
• EPA Chief ALJ rejected motion. Sets stage for ALJ
  hearing on facts, probable appeals.

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Expanded Regulation of EP Air Emissions

• Proposed Repeal of HAP Aggregation and H2S
  Exemptions (H.R. 1204, 3/17/11)
• Current CAA exemption from aggregation of toxics
  from EP drill sites
• Various efforts to force aggregation for NSR
  permit triggers
• EPA revises Bush Admin. guidance on aggregation
• August 2011, HAP and NSPS Standards Proposed for
  EP Air Sources
• Despite the complexity of the rules, EPA projects
  a final rule to be issued by April of 2012.
• Significantly expands the universe of currently
  covered affected facilities and equipment and 
  add requirements specific to hydraulic
  fracturing.
• Emissions reductions under the proposal would be
  achieved by controlling volatile organic
  compounds (VOCs), sulfur dioxide, and other
  toxic pollutants, largely through green
  completions (new technologies and processes for
  enhanced gas recovery) and pit flaring.
• New Texas PBR for EP Facilities New
  Non-Barnett Sources Now Covered (1/5/12)

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Fracking Chemical Disclosures - Rulemaking
under TSCA Section 8

• Aug 4th 2011 petition by EarthJustice requested
  EPA rulemaking under TSCA to require fracking
  fluid manufacturers to
• (1) disclose all health effects data and studies
  related to fracking chemical substances and
  mixtures and
• (2) to intitate health and toxicity studies of
  impacts of frack fluids in the environment.
• On November 23, 2011 EPA granted Earthjustices
  section 8(a) and 8(d) requests.
• The section 8(a) component will ultimately
  require fracking chemical manufacturers and
  processors to submit broad and detailed reports
  on all aspects of chemical manufacture and use,
  including chemical names, molecular structure,
  category of use, volume, by-products, existing
  environmental and health effects data, disposal
  practices, and worker exposure.
• Section 8(d) rulemaking requires manufacturers
  and processors to submit all existing health and
  safety studies known to, or initiated by, them
  for subject substances or mixtures.
• EPA rejected the Section 4 request to require
  frack fluid manufacturers to develop
  environmental toxicity test data. EPA found that
  Earthjustice had not set forth facts sufficient
  to establish that testing was needed because oil
  and gas EP chemicals present an unreasonable
  risk of harm through substantial exposure.

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Practical Implications Proposed Regulations

• Municipal Regulation track zoning initiatives in
  other cities states, frack opponents will do
  so.
• CWA - Flowback Water Effluent Guidelines
• Municipal treatment capacity will shrink even
  further
• Evaluate recycling, commercial treatment and
  disposal alternatives
• Prepare to audit water handlers - beware
  miracle technology and low-ball brokers
• If waste mis-handled - EPAs RCRA/CWA ISE
  Authority can order cleanup of EP solid waste
• NSPS HAPs
• Audit to New Standards
• Define Capital Investments
• Continue to Develop New Work Practices
• TSCA State Disclosure Laws
• Formulators - Prepare for TSCA Frack Fluid
  Document Disclosures to EPA
• Analyze/Prepare CBI Claims - procedures will vary
  greatly.

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Practical Implications Enforcement Defense

• Document and Defend your exempt processes and
  waste streams.
• SDWA evaluate non-diesel frack fluid options
• RCRA/CERCLA
• ensure transport/disposal records clearly show
  which EP process generated wastes
• Audit to ensure no mixture with non-exempt
  sources
• CWA
• Develop and Document actual use of BMPs
• Create a record affirming no reportable releases
• Be aware of other contributing sources
• Avoid EPA Exercise of ISE Authorities
• Audit to Disprove and Prevent ISE Claims

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Practical Implications Purchase and Sale
Agreements

• Plan for Asset Buyers to Push EPAs Proposed
  Standards
• Aggressive reading of regs. reduce price, set up
  indemnity claim, used to void deals
• Buyers may assert wastes are non-exempt unless
  can document sources
• Design Your Buyer Due Diligence to Detect and
  Prevent triggers of EPA authority
• Pre-existing potential ISE conditions
• Unrelated well-water impacts,
• Air nuisances
• Other sources contribute to CWA Water Quality
  Standard Violations?
• Prior reportable releases at site - trigger storm
  water permit duty?
• Design Due Diligence to Detect Expanded CWA
  Jurisdiction
• Monitor Corps EPA Juris. Determinations in
  watersheds
• Understand connection/impact of on-site waters
  within watershed
• Assess local government permit obligations/operati
  onal costs
• Track state-wide developments Cities and
  Counties are borrowing codes used by other
  in-state governments

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QA?

• Patrick J. Larkin
• Partner, Environmental Practice Group
• Strasburger Price, L.L.P.
• 901 Main Street
• Suite 4400
• Dallas, Texas 75202
• Patrick.larkin_at_strasburger.com
• T 214-651-2132  Cell 214-770-3881  Fx
  214-659-4075