We are submitting comments on the Mining and Energy Commission’s proposed fracking rules. Specifically, our organization focused on the enforcement and permitting rules. Feel free to use in order to submit your own comments!

Overview

The NC Mining and Energy Commission (MEC) has requested public comment on a package of 120+ rules establishing an entirely new regulatory and permitting program for hydraulic fracturing (fracking) operations in the state. The success of those rules in protecting public health and the environment will depend in part on how well they can be enforced. The proposed enforcement rules in North Carolina are only moderately strong and rely heavily on operator self-inspection and self-correction. This factsheet describes the enforcement provisions of the rules and suggests needed improvements.

Below are some areas of concern that the Commission needs to address.

Funding:

The Energy Modernization Act (S786) assigns funding from a variety of sources to cover costs. There is concern that funding may not be adequate to cover all the costs associated with fracking. Missing from the funding package are impact fees and sufficient severance taxes. Currently, there are several sources of funding for enforcement:

• $3,000 fee per well drilled. Each additional well drilled on the same well pad must pay a fee of $1,500
• $450 fee per abandoned well (a well that is no longer in production)
• Severance tax of 2% on oil and condensates
• Severance tax of 0.9% for natural gas (0.4% for marginal gas wells)

Relying solely on these fees and taxes will result in a lag between wells permitted and staff employed. There needs to be adequate staff before the first permit is assigned and staff employment needs to be maintained ahead of permits. This is especially concerning considering that fracking staff will not receive any additional funding according to theAppropriations Act of 2014 (S744).

Additionally, the MEC recommended higher levels of funding to support the program. A MEC study group proposed a 1.5% severance tax on natural gas along with a 5% severance fee on produced natural gas liquids (condensates). These funding levels are significantly higher than those approved by the NC General Assembly (listed above). By implementing a lower severance tax there it is likely that funding levels will not be adequate to maintain necessary enforcement staff.

Potential for Inconsistent Enforcement:

In their current form the rules allow for inconsistent enforcement actions. While there are rules in place guiding the assignment of civil penalties, there is significant room for inconsistent enforcement action. For example, an internal investigation conducted by the Texas State Auditor’s Office found that there were “significant differences” in the way violations were handled . Similarly, in Pennsylvania, there are many instances of different enforcement actions taken against different operators for the same violation. If North Carolina is to avoid similar problems, then there needs to be guidelines in place to ensure penalties for violations are consistently enforced regardless of who is conducting the inspection.

Potential for Conflicts of Interest:

The proposed rules do not explicitly prohibit enforcement staff from holding conflicts of interest. In states where holding conflicts of interest was not explicitly prohibited, it was found that some enforcement staff received gifts from well operators and had friends/family with vested interests in gas or oil operations that staff were inspecting. In Texas this problem was combated by requiring enforcement staff to disclose any conflict of interest or perceived conflict of interest.

Wording of Rules NCAC 05H.0901:

Several parts of the enforcement subchapter are worded in such a way that enforcement actions do not have to be taken against an operator beyond written documentation of a violation. Having the wording phrased in this way does not provide enough incentive for following rules and regulations. Specifically, 15A NCAC 05H.0901(b)(1) should change the word “may” to “shall.” Then, penalties will be assigned for any violation that is not corrected. Additionally, NCAC 05H.0901(a) needs to include language that allows for penalties to be assigned concurrently with a notice of violation. As the rules currently stand, it is unclear if this is an option available to enforcement staff.

Lack of Local Government Control:

Currently, local municipalities have minimal enforcement options. Local government officials cannot investigate oil and gas wells even if local constituents file complaints. Local governments should have some enforcement capabilities. Joint jurisdictional control between local municipalities and the NC Department of Environment and Natural Resources (DENR) is recommended. This would mean that DENR would have ultimate enforcement authority, but it would allow local government inspectors to investigate a well site and report back to DENR. This would make the enforcement process more responsive and adaptable. Joint jurisdictional control should also be granted as the Division of Energy, Mining and Land Resources (DEMLR) does not have staffed regional offices that could operate in a fungible manner.

Inspections and Inspection Frequency:

The rules only require departmental inspection during well installation (15A NCAC 05H .1607), construction of containment pits (15A NCAC 05H .2004), and closing of wells (15A NCAC 05H .1406). There are no required well inspections by enforcement staff. In theory the rules allow for departmental staff to conduct inspections at their discretion. However, to conduct such an inspection requires that enforcement staff give notice in advance (15A NCAC 05H .0203 (a)). This effectively eliminates the possibility of surprise inspections and the associated incentive. Eliminating surprise inspections gives an unfair advantage to the oil and gas industry.

The rules also require that permittees conduct various self-inspections. These self-inspections include monthly site inspections (15A NCAC 05H .1620), yearly inspection of shut-in wells (15A NCAC 05H .1620), and inspection of pits and open tanks after every rain event of one half inch or more (15A NCAC 05H .2007). If violations or problems are discovered during these self-inspections, they are required to notify the Department. However, it is unclear if informing the Department of a violation results in a notice of violation, which is required to pursue further penalties. The heavy reliance on self-inspection is problematic. It is good that the rules require operators to report problems and violations to the Department, but this should not be a substitute for Departmental inspection. Self-inspection presents a natural conflict of interest to operators and as such has great potential for abuse.

Stop Work Authority:

Stop work authority is notably absent from the rules. There is limited stop work authority through the sedimentation and erosion permitting during construction of wells. Beyond this, the ability to halt drilling due to infractions is limited to afiling a lawsuit or attempting to revoke the permit. These options to stop work are slow and can allow detrimental practices to continue until the lawsuit is filed or the permit is revoked. Enforcement staff need the authority to stop work immediately to prevent environmental damage.

Recommendations:

• Require annual inspections of both active and shut-in wells at a minimum. These inspections are in addition to those already proposed by the MEC. However, in order to guarantee adequate environmental protection, inspectors should be present for all drilling and fracking activities. Furthermore, once a well is actively extracting natural gas, inspections ought to be conducted every two months as established in North Dakota
• Establish a maximum ratio of wells to enforcement staff to ensure that wells are inspected within a prescribed goal. In order to meet our recommended inspection rate the ratio of wells to staff should never exceed 35. We believe that this recommendation is reasonable as many states have a ratio lower than our recommendation.
• Raise the severance taxes to the levels recommended by the study group to maintain appropriate enforcement staff funding. The study group proposed a 1.5% severance tax on natural gas along with a 5% severance fee on produced natural gas liquids (condensates)
• Clarify enforcement procedures. Policies should be established so that enforcement actions taken beyond a notice of violation are based on guidelines and not the discretion of individual enforcement staff. These should be written in a way that prescribes the action to be taken for each type of violation. These policies will ensure that violations receive the same penalty regardless of enforcement staff conducting the inspection.
• Require enforcement staff to disclose all potential conflicts of interest. The rules should also cross-reference the State Government Ethics Act G.S. 138A under the enforcement subchapter (15A NCAC 05H.0901) to help address conflicts of interest.
• Incorporate stop work authority into the rules. These need to be inserted into the enforcement subchapter (15A NCAC 05H.0901) in a manner similar those seen in the Sedimentation Pollution Control Act of 1973 § 113A-65.
• Rewrite section 15A NCAC 05H.0203 (a) so that inspection officials can investigate a well pad without giving prior notice to the well operator. The possibility of unannounced inspections should provide stronger incentive to ensure rules and regulations are followed.
• Establish joint jurisdictional control between local governments and DENR. This joint control is necessary so local government officials can respond to and investigate complaints filed within their authority without being charged for trespassing.

Feel free to download the entire fact sheet here.