Sunday, July 6, 2014

What is in 2014 Fracking Law: S786 Energy Modernization Act by D.H.

I am so thankful for folks like Diana Hales for taking the time to break these rules down into common sense . 

Session Law 2014-4 (formerly S786; ratified May 29 and signed by Governor McCrory June 4, 2014). 
Here is summary of important changes/additions in this 26-page bill. 
 
TRADE SECRETS
1. State Geologist to hold Trade Secrets for fracking chemicals, which can be disclosed to other agencies for Emergency Response, Fire Chiefs, and “treating” emergency health providers (not medical investigators), who must sign a confidentiality agreement.  Penalties for “knowingly and willfully” disclosing is a Class I misdemeanor.  Burden is on the “owner” of the info to show why it is entitled to confidentiality protection; and State Geologist must ensure compliance with state/fed law on prohibited chemicals, and certify compliance. [The State Geologist physically holding Trade Secret documents is an improvement...DENR did not want to possess any actual document, just rely on people’s memories]. 
2.  Authorizes the State Geologist to consult with State Health Director if “local health departments” should be advised of confidential hydraulic fracturing fluid info relating to “testing” parameters for private drinking water wells. 
3.  Appeals procedure is through the Business Court within 30 days for the release/withhold of info.
 
ADMINISTRATIVE CHANGES
1. Extend rule adoption deadline to January 1, 2015. There is a procedure for any Leg member to introduce a bill to disapprove any rule within 30 calendar days of the beginning of the 2015 Legislative session.  If no action, the rules are effective on the 31st calendar day after session begins, sometime mid-February 2015.
 
2. Repealed the requirement for Legislature to vote before first drilling permit is issued.  New law says permits can be issued on 61st calendar day after rules adopted:  MARCH 1, 2015 if rules adopted by Jan 1.
 
3. GS 113-391 Jurisdiction and Authority is amended to allow entry of rules into the NC Administrative Code and “create a rebuttable presumption” that rules are sufficient to meet the requirements for development of a modern regulatory program.  Also gives Commission authority to develop rules and requirements for permits, permit transfers, permit durations, suspensions, revocations, and release.
 
4.  MEC rules are exempt from new state law that says regulations cannot exceed minimal federal environmental standards [§150B-19.3. Limitation on certain environmental rules.]
 
COMPULSORY POOLING and SEVERED MINERAL RIGHTS, AGAIN
1.  The Mining and Energy Commission delivered a Compulsory Pooling study report to DENR by January 1, 2013.  DENR did not agree with the report and submitted their own recommendations to the Legislature, specifically wanting to complete the rules (which were not written) relating to drilling units, spacing requirements, setbacks. 
2.  DENR also wanted to amend the current dormant mineral statutes regarding extinguishment of old mineral claims, and other consumer protection issues, PRIOR to making any recommendations.  [Note, this is a political hot potato in an election year, if the Leg says the gas industry can TAKE your property].  This new study by DENR, Mining & Energy Commission (MEC), Attorney General’s Office, due October 1, 2014.
 
ENTRY TO PROPERTY
1.  For operations [such as measurements, inspections, surveys] that do NOT disturb surface the gas operator must provide written notice to Surface Owner 14 days before entering property. Surface owner has no rights to deny access if another party owns the sub-surface mineral rights.
2.  For operations [such as roads, pipelines, drill pads] that WILL disturb surface, the gas operator must provide written notice to Surface Owner 30 days before entering property; Surface owner must be consulted, but can’t say no if someone else owns the mineral rights.  If notice is NOT given, Surface owner can seek relief in county Superior Court for damages.  People entering land must carry identification that identifies their employer, BUT surface owner is responsible to protect those people against “personal injury or property damage” while they are on the land.
3.  Seismic/geophysical data collection:  Operator can undershoot from off-site location without physical entry to private land, OR, if enter onto private land, must have landowner’s written consent. Gas operators are civilly liable for any physical or property damage that is a “direct result” of seismic or geophysical data collection.
 
ENVIRONMENTAL COMPLIANCE and BAD ACTORS
1.  Environmental compliance “history” will be reviewed for each permit applicant (and joint ventures), going back 5 years.  The review will include information from each facility owned and/or operated.  The review will consider compliance with federal, other state laws, NC laws to see if there is history of repeated violations of statutes, rules, orders, or permit terms.
2.  NC DENR can deny a permit application if it determines the owner/operator did not protect the environment OR conserve natural resources.
3.  If a permit holder changes the identity of owner, or operator for purposes of environmental review, DENR can modify, or revoke permit.
[Per PA property owner who spoke at June MEC Meeting...all operators have numerous violations, therefore everyone is a “bad actor”]
 
INJECTION OF WASTEWATER PRODUCTS INTO SUBSURFACE IS PROHIBITED
 
LOCAL GOVERNMENT LOSES CONTROL
1.  Towns/counties cannot use ordinances (even those regulating land use), resolutions, property restrictions, zoning regulations to prohibit siting of wells and production facilities; cannot prohibit use of horizontal drilling or hydraulic fracturing for oil and gas exploration; NOR place ANY restriction or conditionon the exploration, development and production of oil and gas. 
 
2.  If county or town ordinance does prevent construction thru zoning or land-use ordinances establishing setbacks, buffers, storm water requirements, the operator can petition the Mining & Energy Commission to hold a hearing to decide whether to “preempt” a local ordinance based on findings that (a) the ordinance would prohibit oil and gas exploration, (b) all State and federal permits conditions have been satisfied; (c) that local citizens and officials had adequate opportunity to participate in the permitting process; and (d) that the operation will NOT pose an unreasonable health or environmental risk to the surrounding locality and the operator will take reasonable measures to avoid risks. The Commission makes the decision, which can be appealed in Administrative Court.
 
3.  Prohibits collecting local taxes:  Counties/towns cannot apply franchise, privilege license, income, or excise tax on any elements of this industry, including ownership/maintenance of facilities, machinery, pipelines, gathering lines.    
 
PERMITS, FEES and BONDS
1.  Permit application fee:  $3,000 for first well, $1,500 for each additional well on a well pad [expect multiples].
2.  Abandoned wells and dry holes to be plugged with cement:  $450 fee.
3.  Bond to State of NC:  To “register” a drilling operation:  $5,000, plus $1.00 per linear foot to be drilled [G.S. 113-278]
4.  Bond to State of NC:  Sufficient to cover potential environmental damage:  $1,000,000; and more if in “environmentally sensitive” area.
 
RECLAMATION OF SURFACE
1.  Reclaim within TWO YEARS following completion of drilling operations.
2.  Mining and Energy Commission sets the bond amount to the surface owner on case-by-case basis, based on number of wells, amount of acreage, condition of surface before drilling. [G.S. 113-378-421 (a3)].  Operator or surface owner may appeal this decision to modify bond.
 
TAXES
Severance tax is imposed on all energy minerals severed from State when sold in market. One expectation is to provide enough money to staff and run this gas program in DENR. Many pages on what is included:  rate calculations, 2% for oil and condensates, if marginal gas well, 4/10s of one percent; cost to deliver gas to market; record keeping; exemption for on-site use of gas; returns and quarterly payment of tax to State.  Royalty owner’s records must also be provided to DENR.  NO local taxes can be collected[see LOCAL GOVERNMENT LOSES CONTROL]
 
WATER CONTAMINATION
1.  Reduced the distance for “presumptive liability” of water contamination by fracking activities, from5,000-ft. of a wellhead to just a one-half mile radius (2.640-ft.). Water wells within this radius will be tested before drilling, and at 5 subsequent intervals as specified in the rules.  The operator will pay for all testing, and results are public record.    If contamination is the operator’s fault, they must provide replacement water supply for each person’s use [forever??].
2.  Operators can share water well test results with other operators that overlap the same wells in the radius of a second operation.
3.  Actions brought for recovery of clean-up costs, damages, or civil penalties may be brought against the operator or anyone having control over the activities that contributed to the contamination.
 
MORE STUDIES, report to Legislature by January 1, 2015, or March 1, 2015
1. Dept of Revenue to study how other states “value” energy minerals for purpose of property taxation
2. The Joint Legislative Commission on Energy Policy to study how development of oil and gas industry would affect property tax revenues of local government...in present-use value system...and limit growth of property tax revenues resulting from increased property valuations because of oil and gas industry extraction.
3.  Dept of Commerce: Desirability and feasibility of siting, construction, operating a liquefied natural gas export terminal in NC.
4.  Dept. of Transportation: Study statutory authority for energy-related traffic, fees; performance bonding; separate permits to industry; road-use agreements; size/weight proposed vehicles and number of trips.
5.  Board of Community Colleges: Study preparation for employment opportunities.
6.  MEC, DENR, and UNC: Study midstream infrastructure needed to facilitate exploration, pipelines, gathering lines, compressor stations to attract this industry.
7.  DENR: Make legislative recommendations on comprehensive long-range State energy policy (even renewables and alternate energy)
8.  Dept of Administration and Dept of Public Instruction:  Include LNG as fuel option for school buses, and fueling stations.  Note:  It takes 5.66 pounds of compressed natural gas to equal the energy equivalent of one gallon of gasoline.
 
 
RESTRUCTURE and RENAME MINING & ENERGY COMMISSION
1. New Oil and Gas Commission created within NC DENR to regulate spacing of wells, establish drilling units and classify wells for taxing purposes.  Also gives them authority to develop rules.  All current MEC member terms will expire July 31, 2015. 
 
2. Oil and Gas Commission, (9 members), will serve 3-year terms, beginning August 1, 2015:
One elected official from Municipal government from “gas potential” area
One elected official from County government from “gas potential” area
Two non-governmental environmental interests
One gas engineer
One publically traded gas company 
One licensed attorney experienced in gas exploration and development
One public health
One geologist from gas exploration industry  
Chair and vice chair will be selected from among the members.
Will meet quarterly, and can hold special meetings.
 
3.  Civil Penalty Remission Committee created from 5 Oil and Gas Commission members to assess DENR’s penalties for violations when operator petitions for relief (you can bet on that!)
 
4.  NC Mining Commission re-established within NC DENR with 8 members; meets twice a year, and is advisory to Governor, hears permit appeals and conducts hearings, can modify/overrule permit decisions made by the Department; can make rules. They handle all mining, EXCEPT gas/oil.
 
  
Diana Hales, retired

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