Wednesday, March 19, 2014

March 17th letter to MEC/Schedule for MEC rules and missing pieces

NC Conservation Network ● NC League of Conservation Voters ●

Southern Environmental Law Center

March 17, 2014
Mr. James Womack, Chair

North Carolina Mining and Energy Commission

N.C. Department of Environment and Natural Resources

1601 Mail Service Center

Raleigh, N.C. 27699-1601

RE: Schedule for MEC rules and missing pieces

Dear Chair Womack:

We write to ask how the NC Mining & Energy Commission plans to manage several critical issues that have not been covered by the Commission’s current draft rules, and which the Commission’s rulemaking schedule does not appear to leave time to address adequately.

Commissioners and legislators have promised that North Carolina will have a strong state regulatory program. If the elements outlined below are omitted, North Carolina’s fracking rules will be fundamentally incomplete. Yet, these are all complex topics and sensible rules to address them will take more time to draft than the current rulemaking schedule allows.

Enforcement. Rules are only as strong as the enforcement that backs them up. The Commission’s draft rules set a host of standards and requirements, but none provide for enforcement. Instead, the Commission has indicated that all the enforcement provisions will be lumped into a single rule drafted and adopted late in the process. We understand that placement on the schedule, but are concerned that the time allotted is insufficient.

An effective enforcement regime requires carefully chosen penalties. Crafting appropriate penalties demands consideration of such factors as:

 the expected benefit to firms of noncompliance;

 the chance that various forms of noncompliance will be detected;

 the costs of accurate monitoring and self-reporting;

 which actors in the drilling process have the practical power to prevent violations;

 whether to apply penalties to companies or to individual actors or to owners; and
 whether alternative enforcement measures could better address the damage caused by a violation.1

1 See, for example, Mark Cohen, Monitoring and Enforcement of Environmental Policy, International Yearbook of Environmental and Resource Economics 1999/2000, 44 (discussing these factors as a basis for setting enforcement mechanisms and penalty amounts).

These factors deserve nuanced policy judgments. Yet, the Commission’s current workplan does not list enforcement as a topic of any of the remaining meetings.

Gathering lines. Gathering lines are the temporary pipelines that carry gas from a well to midstream infrastructure. They are an integral part of shale gas development; without them, wells may be drilled, but no royalties will ever reach lessors. The federal Pipeline and Hazardous Materials Safety Administration has issued standards for gathering lines; in general, they range from somewhat weaker to vastly weaker than standards for transmission or distribution lines.2 Moreover, federal requirements are generally implemented by state regulators. In North Carolina, that is the Public Utilities Commission (PUC), but the PUC lacks statutory authority or resources to oversee gathering lines.3 Worse, in the absence of clear regulations by the Commission, operators may be able to use the power of eminent domain to run lines across private property, causing distress to landowners and local governments.4 Finally, as a recent analysis from Pennsylvania has shown, an unscrupulous operator can take advantage of lack of state regulation of gathering lines to strip lessors of most of their royalties.5

2 Transportation of Natural and Other Gas by Pipeline: Minimum Safety Standards, 49 CFR 192, Subpart A, §192.9 - What requirements apply to gathering lines?

3 NCGS §62-50.

4 Holly Bannerman, Fracking, Eminent Domain, and the Need for Legal Reform in North Carolina, 14 N.C. Journal of Law & Technology 35 (2012), at 52 – 58.

5 Abrahm Lustgarten, Chesapeake Energy’s $5 Billion Shuffle, ProPublica, March 13, 2014.

6 NCGS §113-391(a)(14).

7 See, for example Tyler Wilson, GasFrac: A Cost-Benefit Analysis of Hydraulic Fracturing with Liquefied Petroleum Gas Gel, 14 J. of Technology Law & Policy 142, Fall 2013 (discussing GracFrac, with suggestions for technology-specific regulations at 154- 155).

8 James Boyd, Financial Responsibility for Environmental Obligations: Are Bonding and Assurance Rules Fulfilling Their Promise?, Resources for the Future, Discussion Paper, August 2001.

The Commission’s authority to establish a ‘modern regulatory program’ equips the Commission to address this critical issue.6 It cannot simply be left for the future; omitting it from the package of fracking rules will either create an unworkable framework for industry, or leave North Carolinians unprotected from invasions of their private property and from inadequate oversight of gathering lines.

Well stimulation. The Commission has draft well stimulation rules in process. Unfortunately, these seek to establish a set of generic provisions seemingly intended to apply uniformly to all types of well stimulation. As currently drafted, the set of proposed regulatory requirements is not sufficient to provide clear guidance to well operators, identify leading practices, or establish minimum safety standards for well stimulation techniques beyond hydraulic fracturing. Across the nation, operators are experimenting with non-water fracking fluids or foams, including propane gel, carbon dioxide, and nitrogen.7 Injection of acids into well bores to increase reservoir productivity is also a common practice. The rules currently being developed by the Commission provide none of the method-specific controls needed for the state to properly oversee these methods – and yet, the statute and draft rules do not prohibit an operator from using one of these technologies. That gap places communities, public health, and the environment at risk.

Financial assurances. Financial assurances – bonding, liability pools, insurance – serve at least two vital purposes. First, even in industries with excellent attention to safety, accidents are statistically inevitable. Adequate financial assurances make certain that, when an accident happens, money is available to compensate the injured and repair damage to public resources.8 Second, adequate

assurances help exclude fly-by-night drillers from the market by screening out companies that lack the capital to operate safely.9 In North Carolina, given the apparent small size of our shale gas resource, that second function is especially important.

9 Lucas Davis, Modernizing Bonding Requirements for Natural Gas Producers, The Hamilton Project, Discussion Paper 2012-02, June 2012, at 15 – 17 (noting the significant number of small players in the gas industry).

10 See, for example, David Gerard, The law and economics of reclamation bonds, Resources Policy 26, 2000, 189 (discussing practical complexities of bonding for hard rock mining).

11 See, for example, PennEnvironment, Who Pays the Cost of Fracking: Weak Bonding Rules for Oil and Gas Drilling Leave the Public at Risk, July 2013 (suggesting various approaches to structuring bonds for fracking operations).

12 Lucas David, Bonding Requirements for Natural Gas Producers, February 2014, at 19 ("the fact that bonding requirements impose [transaction and administrative] costs means that optimal bond amounts will necessarily be less than maximum potential damages").

13 Draft 15A NCAC 05B .0XX3, 2.0-AOG-1st Review 06Mar2014.

14 Government Accountability Office, Oil and Gas Bonds: Bonding Requirements and BLM Expenditures to Reclaim Orphaned Wells, GAO-10-245, at 13.

15 Id., at 16.

16 Robert Jackson et al., Increased stray gas abundance in a subset of drinking water wells near Marcellus shale gas extraction, PNAS, June 2013 ("Overall, our data suggest that some homeowners living <1 km from gas wells have drinking water contaminated with stray gases").

The choice of what assurances to use and the best way to structure them is no simple matter.10 The tiny size of North Carolina’s play likely makes a liability pool or insurance market nonviable. A bonding rule will need to set a relatively high bar for all operators, or enumerate a detailed list of factors to match bonds to the risks of specific projects, perhaps giving credit for safeguards built into an operation.11 Keying bonds to worst case costs could make them very expensive, but if the Commission lets them fall short, it will need another mechanism to address disasters.12

Unfortunately, the draft financial assurance rule tentatively approved by the Administration of Oil & Gas Operations Committee on March 6 does not appear to grapple with these core policy issues. The draft rule sets the bond for well closure at $5000 plus $1 per foot of drilled well, adding up to just $10,000 for a 5,000 foot well.13 For comparison, individual wells on public lands were required to post a $10,000 bond in 1960;14 if adjusted for inflation, this would be over $80,000 per well now. The U.S. Government Accountability Office notes that the cost of reclaiming a single well site can range to over $500,000.15 The draft rule says the Commission will issue a schedule for reclamation costs, something that would appear to function as a rule, although it has not been proposed as such. The rule does not assure compensation for injury to neighbors’ properties, or to natural resources. Yet, the Commission’s workplan allots just one meeting to discussion of the rule, offering little time to fix these shortcomings.

Long term remedies. The Commission’s draft financial assurance rule indicates that bonds could be gradually released as various wells on a single pad are closed and abandoned. Other mechanisms are needed to provide long term remedies to neighbors when injuries become apparent many years after the operator has closed up shop and left North Carolina – even, potentially, after the surface has been closed out and sold for another use.

Fracking combined with horizontal drilling has been widely used for only about a decade. The industry asserts vigorously that fracking fluids have not appeared in nearby drinking wells. However, methane and other gases have.16 We might expect those to show up years before heavier fluids follow the same

pathways to nearby wells.17 Fracking operations that leave up to 60% of toxic fluids in the ground, with casings or plugs that will eventually break down, are creating a long term pollution problem. The statute establishes a presumption of operator liability for nearby contamination, but that will not help when the responsible parties are long gone. The problem is created by actions on the front end, and the remedy needs to be established here too. The Commission’s rule package is inadequate on this point, and the workplan does not appear to provide an opportunity to address this deficiency.

17 Id., at 5. See also Nathaniel Warner et al., Geochemical evidence for possible natural migration of Marcellus Formation brine to shallow aquifers in Pennsylvania, PNAS, May 2012 (traces of deep brine in shallow groundwater suggests the existing of pre-existing conductive pathways that could allow stray gas or fracking fluids to eventually reach shallow groundwater also).

18 Lisa McKenzie, et al., Birth Outcomes and Maternal Residential Proximity to Natural Gas Development in Rural Colorado, Environmental Health Perspectives, January 2014. See also, Elaine Hill, Shale Gas Development and Infant Health, Working Paper 2012, December 2013 ("introduction of drilling increased low birth weight and decreased term birth weight on average among mothers 2.5 km of a well… These results do not differ across water source …and suggest that the mechanism is air pollution or stress from localized economic activity").

19 See, for example, Jim Morris, Lisa Song, and David Hasemeyer, Big Oil, Bad Air: Fracking the Eagle Ford Shale of South Texas, Center for Public Integrity, February 18, 2014; Bobby Magill, Few Studies on Air Safety Near Drill Sites, Coloradoan, August 11, 2012.

20 Oil and Natural Gas Sector: New Source Performance Standards and National Emissions Standards for Hazardous Air Pollutants Reviews, 77 Fed. Reg. 49490, August 16, 2012, at 49566 (definition of storage vessel).

21 Id., at 49497.

22 S.L. 2012-143(2c), codified at NCGS §113-391(a3).

Control of toxic air emissions. In states with ongoing fracking booms in settled communities, air pollution impacts to neighbors have been reported time and again. In most cases, states and the industry have declined to conduct detailed epidemiological studies – something also notably absent from the Commission’s draft rules. Yet, a recent retrospective study in Colorado found a statistically significant increased risk of congenital heart defects in infants whose residence at birth was close to ongoing fracking operations.18 Abundant anecdotal evidence connects nosebleeds, respiratory problems, and other ailments to proximity to fracking operations.19 The new federal ‘green completion’ rule, which takes effect in early 2015, will help address air pollution from wellheads, but it explicitly does not control offgassing of volatile toxics from fluid pits.20 Of particular concern, the federal rule exempts wildcat, exploratory, and delineation wells from green completion requirements; any wells in North Carolina for the foreseeable future will likely fall in this category.21

Unlike most states, North Carolina has a toxic air pollution control program that could provide some protection for neighbors of fracking operations. S.L. 2012-143 (S.820) calls for the NC Environmental Management Commission (EMC) to adopt rules "after consideration of recommendations from the Mining and Energy Commission".22 To date, the Commission has not offered formal recommendations to the EMC, and the EMC has taken no independent action to address this serious threat to public health.

Significance of the schedule

When the Commission has previously discussed its workplan, some Commissioners have suggested that if rules cannot be adequately drafted during the artificially compressed schedule, some may be dropped from the schedule and addressed in future years. There are at least three reasons why this would be irresponsible:

 Effective rules are drafted to work together – each rule is, in effect, a cog in a greater machine. Fashioning only half the parts at a time will cause failures and unintended consequences.


 Public comment opportunities are meaningless if the public cannot see the regulatory framework as it is proposed to be actually implemented. The package needs to have all its essential pieces before it is sent to public comment.

 The General Assembly promised it would review the new regulatory program before allowing fracking. For the Commission to adopt an incomplete set of rules and the legislature then lift the moratorium would beak that promise.

Why rush? No investment in North Carolina turns on the final adoption of rules this fall, or on a lifting of the moratorium on permits next spring. A failure of the Commission to meet the arbitrary October 2014 deadline for final rule will hurt no one and threaten nothing. In contrast, a failure to allot sufficient time for rule development may visit lasting harms on neighbors of fracking operations, communities, and the environment.


The Commission has worked hard over the last 18 months on a complex package of rules. For all that effort, the issues listed above – enforcement, gathering lines, well stimulation rules, financial assurances, long term remedies for legacy contamination, and control of toxic air emissions – involve the most threatening and problematic aspects of shale gas development. A package of rules that omits any of these, or gives their development inadequate attention, is a package North Carolina cannot afford. We encourage the Commission to take the time you need to do your best work, not rush to propose and finalize an incomplete set of rules.


Grady McCallie Mary Maclean Asbill

Policy Director Senior Attorney

NC Conservation Network Southern Environmental Law Center

Robin K. Smith

Enforcement Program Director

NC League of Conservation Voters

How do I think Jim will care about this letter ? The captions I added to these 2 pictures will show you .

These people think I care this much about "The Environment"

As far as their opinions and feelings go "I really care this much"  !


  1. I was almost crying by the time I got through that letter, but also so proud of the attorney and agencies who worked hard to put this together. But then I got to the photos---my laugh for the day! Terica, you are just amazing.

    1. These aren't my photos , but I was so waiting to use them after they were shared with me !

  2. Love the photos!!! Thank you, Terica!!!


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