DLA Piper Energy Alert: With Revised Proposed Regulations, 'Fracking' Returns to the Fore of New York State's Energy Policy

DLA Piper Energy Alert: With Revised Proposed Regulations, 'Fracking' Returns to the Fore of New York State's Energy Policy

By Robert J. Alessi and Jeffrey D. Kuhn

New York Governor Andrew M. Cuomo's administration has issued revised proposed regulations for high-volume hydraulic fracturing (fracking or HVHF) in New York State, a move that will avoid sending the entire process back to the drawing board.

Issuance of these revised proposed regulations is among recent developments in New York State that are of interest to all stakeholders in the natural gas market.

On November 29, 2012, the state met a statutory deadline for issuing revised proposed regulations and thereby secured a 90-day extension of the rulemaking process.

According to the New York State Department of Environmental Conservation (NYSDEC), the 90-day extension was necessary to allow the New York State Commissioner of Health, Dr. Nirav Shah, to complete a health impact study before NYSDEC takes final action on the proposed HVHF regulations. The 90-day extension and release of the revised regulations, which are subject to a 30-day public comment period (December 12, 2012 to January 11, 2013), means that New York State's current HVHF rulemaking process will at the very least continue to move forward, albeit at the same fitful and ponderous pace which has bedeviled the environmental review and rulemaking processes in New York State from its inception.

While the revisions to the proposed regulations include new restrictions on HVHF (discussed below), industry and HVHF proponents generally reacted positively to the continuation of the current rulemaking process by the Cuomo administration. According to a statement released by the Joint Landowners Coalition of New York, Inc., the organization is "cautiously optimistic that Governor Cuomo's recent announcement signals an end in sight to the over four and a half year long regulatory process for high-volume hydraulic fracturing. We are encouraged that the Governor and [NYSDEC] have a plan to avoid expiration of the regulatory review process."

In contrast, Kate Sindling, a senior attorney for the anti-HVHF Natural Resources Defense Council ("NRDC"), called the Cuomo administration's decision to secure the 90-day extension by proposing the revised regulations "a foolish and irresponsible move" and "a monumental error," while characterizing the governor himself as "the Grinch who stole yet another Christmas from New Yorkers by delivering a set of unfinished revised rules." HVHF opponents had urged the governor to allow the November 29 deadline to expire and then wait until completion of Dr. Shah's health impact study (currently expected in February 2013) before deciding whether to initiate a new HVHF rulemaking process.

Overview of NYSDEC's HVHF rulemaking and environmental review

HVHF consists of pumping fluids and propping materials (such as sand) down a well under high pressure to create and expand fractures in gas-bearing rock formations, including shale. The propping material holds the fractures open, which allows greater volumes of gas to flow into the well. Starting in 1998, HVHF (together with other technologies, such as horizontal directional drilling) began to be used to economically produce gas from tight shale formations. One such formation, the Marcellus Shale, contains hundreds of trillions of cubic feet of untapped natural gas reserves and extends under several northeast states, including a large swath of central and southern New York.

Unlike other states with abundant Marcellus Shale gas reserves, New York has effectively banned shale gas production utilizing HVHF since 2008. In that year, NYSDEC began the process of drafting a supplemental generic environmental impact statement (SGEIS) analyzing shale gas production utilizing HVHF. Because under New York State law no governmental action (e.g., issuance of HVHF well permits) can be taken until the State Environmental Quality Review Act (SEQRA) review process is complete, New York has imposed a de facto moratorium on HVHF since the start of the SGEIS process.

In September 2009, NYSDEC released a draft SGEIS on HVHF for public review and comment. In December 2010, then-Governor David Paterson issued Executive Order No. 41 which banned HVHF until July 2011 and directed NYSDEC "on or about June 1, 2011... to publish a revised SGEIS, accept public comment on the revisions for a period of not less than thirty days, and... schedule hearings on such revisions to be conducted in the Marcellus Shale region." In September 2011, NYSDEC released the complete revised draft SGEIS. Later that month, NYSDEC released its proposed HVHF regulations. In addition to receiving over 80,000 comments on its proposed HVHF regulations, NYSDEC conducted several public hearings, with the last one taking place on November 29, 2011.

Health studies and regulatory delays

On September 20, 2012, NYSDEC Commissioner Joseph Martens announced that he had asked Dr. Shah, the state health commissioner, to assess NYSDEC's review of the health impacts of HVHF and to appoint "the most qualified outside experts to advise him in his review." Commissioner Martens's announcement represented a compromise, as the administration rejected calls by HVHF opponents for an independent health impact review by non-governmental experts. Governor Cuomo backed Commissioner Martens's decision by stating, "Government is the independent objective reviewer." Cuomo also added that "it makes no sense" to assign the work to private entities that may have prejudged opinions or conflicting economic interests.

Although some HVHF proponents expressed discouragement at the delays likely to result from Dr. Shah's health impact study, Governor Cuomo and Commissioner Martens countered that the internal health review could actually accelerate eventual HVHF permitting in New York State by reducing the risk of future litigation.

"You can actually be expediting the process," said Cuomo, because years of protracted litigation could be "avoided."

Commissioner Martens expressed similar sentiments: "I believe it is highly likely that some of these groups will pursue litigation following the conclusion of the departmental process if they do not agree with the outcome." Martens added that Dr. Shah's HVHF health impact review "will ensure the strongest possible legal position for [NYSDEC] given the near certainty of litigation."

Governor Cuomo's talk of "expediting the process" notwithstanding, it took the Department of Health until November 15, nearly two full months, to name the experts to assist Dr. Shah in his review of the health impacts of HVHF. The experts chosen for the health review were John Adgate, chairman of the Environmental and Occupational Health Department at the Colorado School of Public Health; Lynn Goldman, dean of George Washington University's School of Public Health and Health Services; and Richard Jackson, chairman of the Department of Environmental Health Sciences at the University of California Los Angeles' Fielding School of Public Health. Ms. Goldman has stated that her contract with the state set February 12, 2013 as the deadline to complete the review, but she had been told in an email that officials wanted the review complete by December 3, 2012.

HVHF proponents immediately criticized the choice of the health experts as biased against HVFH. "Each of these experts has shown a troubling willingness to speak publicly about supposed dangers and risks of hydraulic fracturing," said Lee Fuller, executive director of the Energy In Depth. "While voicing concerns is an understandable and at times necessary function of scientific progress, these experts have been chosen to make statements that contradict well established scientific conclusions about both hydraulic fracturing and shale development."

While the selection of Drs. Adgate, Goldman and Jackson was initially applauded by opponents of HVHF, that early enthusiasm appears to have cooled. Anti-HVHF advocates have recently begun to criticize the process by which the experts will review NYSDEC's analysis of health impacts. Riverkeeper's website questioned whether its members can "trust" the experts, while also complaining that "of the three experts, one is working pro bono and the other two will be compensated for only 25 and 50 hours of work respectively." Riverkeeper also protested that Dr. Goldman indicated that her review would be complete by December 3 despite the fact that "as of Thanksgiving she hadn't even received the documents she was charged with reviewing."

Riverkeeper's criticism of Dr. Goldman in particular could result from her recent public expressions of a relatively moderate stance on HVHF. For instance, Dr. Goldman has indicated that her analysis of the health issues arising from HVHF will include a comparison of the health impacts of combusting natural gas versus coal: "We know that emissions from burning coal cause tremendous damage to health... A decision not to frack is a decision to use more coal." Dr. Goldman also stated that the health impacts review would concentrate on the question of whether New York can "do this in a way that is safe - understanding that safety has to be in the context of in comparison to what?" According to Dr. Goldman, "We're continuing to demand a lot of energy in our economy. There's no such thing as an absolutely safe way of generating energy at this point."

The mid-November empanelling of the three experts to review the health impacts of HVHF made it functionally impossible for the Cuomo administration to meet a statutory deadline of November 29 to complete the rulemaking process. Under Section 202 of the New York State Administrative Procedures Act, the notice of proposed rulemaking for the proposed HVHF regulations would expire and become ineffective on November 29, 2012, which was one year from the last public hearing on the regulations. As November 29 approached, opponents of HVHF urged Governor Cuomo to let the deadline pass and start the contentious rulemaking process over from scratch, and then only if the health impact review found that HVHF can be done safely. Starting the rulemaking process over again in 2013 (which would include, among other things, new public comment periods, hearings and written responses to comments) would have meant that New York's current moratorium on HVHF would last at least until 2014, if it was ever lifted at all. Rather than allow this to occur, the Cuomo administration published a revised version of the proposed HVHF regulations, which allowed for a 90-day extension of the rulemaking process until the end of February 2013.

NYSDEC's statement announcing publication of the revised regulations and 90-day extension declared:

This extension is necessary, in part, because Commissioner Martens requested and Dr. Shah agreed to provide an additional review, in consultation with outside experts, of whether [NYSDEC] has adequately addressed potential impacts to public health. This filing with the Department of State merely extends the rulemaking period to enable Dr. Shah to complete his review and [NYSDEC] time to take into account the results of Dr. Shah's review and continue to consider the potential impacts of high-volume hydraulic fracturing.

NYSDEC's statement concluded by noting that if the agency "decided that hydraulic fracturing cannot be safely done in New York, these regulations will not have any practical effect and the process will not go forward."

Despite this caveat, NRDC's Senior Attorney Kate Sindling claimed that the "anger" provoked among opponents of HVFH by the administration's decision to issue the revised regulations and thereby continue the rulemaking process was "very significant."

Another anti-HVHF group, the New York Water Rangers, accused the Cuomo administration of "Ignoring the ongoing health and environmental review processes by rushing new rules that have to be finalized by the end of February [which] appears to be either politically motivated or messy administration at the expense of all New Yorkers."

Revised proposed HVHF regulations

The revised proposed HVHF regulations are not radically different from the original proposed regulations published in September 2011 (the regulations to be amended are 6 NYCRR Parts 52, 190, 550-556, 560, and 75). NYSDEC will accept public comments on the revised proposed regulations from December 12, 2012 until January 11, 2013. NYSDEC will not respond to reiterations of prior comments, which should effectively limit comments to the newly revised language.

One of the primary objections by environmentalist groups was that the original regulations did not mandate disposal practices for fracturing fluids. While the revised regulations do not mandate particular disposal practices, state pollution discharge elimination system permits for HVFH will now require drillers to submit "an approvable plan identifying the ultimate disposition of HVHF wastewater (Fluid Disposal Plan)."

The revised rules preserve the key restrictions on HVHF included in the original regulations, including a ban on the practice in the New York City and Syracuse watersheds and within 500 feet of the state's 18 primary aquifers. Well pads remain prohibited within 4,000 feet of watersheds of unfiltered surface drinking water supplies; within 2,000 feet of other public drinking water supplies; and within 100-year floodplains. However, the regulations have been revised to now prohibit HVHF drilling within 500 feet of inhabited dwellings and places of assembly.

While under the original proposed regulations the financial security that well operators needed to provide to cover the cost of plugging and abandoning wells was capped at US$250,000 (for wells deeper than 6,000 feet) or US$2 million for multiple wells, the revised proposed regulations remove these caps. Financial security requirements will now reflect "the true cost of plugging a deep well."

As the foregoing demonstrates, the process of finalizing New York State's HVHF regulations continues to involve a complex interplay of legal, technical and policy considerations and advocacy by various groups of stakeholders. Entities planning to take part in shale gas production utilizing HVHF when it is finally permissible in New York State should keep actively apprised of relevant developments. DLA Piper will continue to monitor the legal, regulatory, technical and policy landscape associated with HVHF and shale gas production in New York State and internationally.

For further information about the contents of this publication, please contact Robert J. Alessi or Jeffrey D. Kuhn.

This client alert is part of an ongoing series by DLA Piper lawyers on the legal, regulatory and policy issues related to hydraulic fracturing and shale gas production in New York State and internationally. See the complete series on this page.

This information is intended as a general overview and discussion of the subjects dealt with. The information provided here was accurate as of the day it was posted; however, the law may have changed since that date. This information is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. DLA Piper is not responsible for any actions taken or not taken on the basis of this information. Please refer to the full terms and conditions on our website.

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