Tuesday, March 11, 2014

LGCR Overview: State's New Storage Tank Regulatory Bill And Impacts On Natural Gas

The W.Va. Legislature passed a comprehensive bill (SB 373) in the last hours of the 2014 regular session in an attempt to address the causes of a recent chemical spill in West Virginia that contaminated the water supply of 300,000 people.  The bill will put into place new regulatory requirements on aboveground storage tanks and, hopefully, will prevent similar incidents from occurring again.  The bill had a tumultuous journey from its initial introduction, going through five committees, undergoing debate of more than 100 amendments and working of several drafts before reaching its final configuration. 

Although the official language of the bill has not been formally finalized (as it takes a few days to prepare the enrolled bill for the Governor’s signature), the bill and last-day amendments can be pieced together for a final analysis of what SB373 ultimately entails.
The bill creates a broad and expansive regulatory program that covers many industries beyond the oil and natural gas industry.  What follows is a summary of the provisions most likely having a direct impact on oil and natural gas operations:

1. The bill consists of three distinct parts.  The first amends the Water Resources Protection and Management Act (W. Va. Code 22-26-1, et seq.) to update the reporting of water usage throughout the state.  This part will have little, if any, impact on oil and natural gas operations because those operations using large amounts of water are already required to use water management plans by the Horizontal Well Act and therefore is not discussed further.  The other two parts however may have an impact upon oil and gas operations.  The second consists of a new regulatory program for aboveground storage tanks, The Aboveground Storage Tank Act (“ASTA”), similar to the existing program for underground storage tanks.  The third and final creates The Public Water Supply Protection Act (“PWSPA”) and expands upon the Bureau of Public Health’s source water assessment protection program (W. Va. Code 16-1-1, et seq.).
2. The ASTA requires registration of every AST, whether operational or nonoperational, within the state.  Implementation of the registration will begin soon after the effective date of the legislation which is June 6, 2014 and all ASTs must be registered by October 1, 2014.  Additionally, WVDEP will likely begin the rulemaking process promptly because any rules, if to be reviewed by the Legislature during the 2015 regular session as required by the Act, will need to be initially filed sometime in June or July.  The rules will provide additional detail on the implementation of SB373 and will include the amount of the fees, permitting procedures, applicable standards, requirements for installation, inspection and monitoring and permit exemptions.
3. Whether an AST is subject to registration under the Act is dependent upon the definition of AST.  Beyond the basic definition that the tank’s capacity be 90% aboveground and constructed to contain fluids that are liquid at standard temperature and pressure, the definition excludes: tanks that are 1320 gallons or smaller; process vessels; temporary or mobile tanks that are on location for less than 60 days; railroad freight cars, barges and boats; and swimming pools.  Note that the definition for ASTs attempts to incorporate EPA’s Spill Prevention, Control and Countermeasure (“SPCC”) regulation’s applicability threshold of greater than 1320 aggregate gallons of oil.  In the ASTA, the definition states that ASTs are defined as containing more than 1320 gallons of fluid per tank, not in the aggregate and not just limited to oil.  Smaller aboveground storage tanks are thus excluded from regulation under the ASTA.  
4. In addition to registration under the ASTA, a permit may be required.  Although an oil and gas operation may need to register the AST it may not have to obtain a permit because the following are exempted from the ASTA’s permit requirements: pipeline facilities; liquid traps or associated gathering lines; surface impoundments, pits, ponds or lagoons; and ASTs required to have spill prevention control and countermeasure plans pursuant to EPA’s SPCC regulation (40 CFR 112).  Furthermore, WVDEP is granted explicit authority to designate additional categories of ASTs as exempt from the permitting requirement, if the ASTs are sufficiently regulated under another program; or WVDEP can incorporate the ASTA’s requirements into existing NPDES permits and well work permits to alleviate the need for a separate permit.  The permit exemption most likely to be of benefit to oil and gas producers is the EPA SPCC regulation exemption as many of the new, larger horizontal well sites with several tanks are more likely to be required to have a spill prevention control and countermeasure plan.  Otherwise, practically speaking, the new AST standards set forth in the ASTA will likely be incorporated by WVDEP into existing programs, including the Office of Oil and Gas’s well work permits, because those programs generally have few, if any, specific AST requirements. 
5. If required to obtain a permit under the ASTA, additional regulatory requirements apply including: performance standards developed by WVDEP or nationally-recognized tank standards; annual inspections by certified personnel; annual inspections by WVDEP of ASTs in zones of critical concern; monitoring, testing and leak detection; records and reporting requirements; corrective action plans; spill prevention response plans; notice to public water systems, including those that use groundwater; signage; and fees.
6. The PWSPA, along with amendments to the Bureau of Public Health’s source water assessment protection program,  applies to ALL potential sources of significant contamination (“PSSC”), regardless of how they are stored, located in a zone of critical concern above a public water system’s surface water intake or groundwater intake where the groundwater is influenced by surface water.  The PWSPA is limited geographically by the zone of critical concern, which is defined as ¼ mile downstream from an intake and upstream of the intake a distance calculated by the time it takes water in the principal stream to travel five hours plus 1000’ measured horizontally from each bank of the principal stream and 500’ from each bank of tributaries to the principal stream.  However, it extends beyond ASTs by requiring registration of all PSSC which are defined as facilities or activities that store, use or produce compounds with potential for significant contaminating impact if released into the source water of a public water supply.  Note that PSSC is not limited to fluids, but any compound with the potential to significantly contaminate a source water.
7. The PWSPA also has a two-step process.  First, all PSSC must be registered.  Therefore, if an oil and gas operation in a zone of critical concern currently stores, uses or produces a compound that could significantly contaminate a public water supply if released into the source water, then that compound must be registered.  Second, if WVDEP determines that additional regulation is in the public interest in protecting source waters and the PSSC is not currently permitted or subject to regulation under another WVDEP program, then WVDEP has the discretion to require a permit.  Given that most, if not all, oil and gas operations are subject to regulation, those operations will likely find it rare to be subjected to the PWSPA’s permitting requirement.  However, there are few specifics regarding the permitting program, which WVDEP will need to fill in the gaps via rulemaking, and since this is a new program, only time will tell on how the WVDEP fully implements the PWSPA.
8. Of significant importance is the requirement within the PWSPA to obtain an individual permit in lieu of a general permit if the permittee has an AST, as defined by the ASTA, on a site located within a zone of critical concern.  Two general permits associated with oil and gas operations may be affected by this requirement: the general permit for stormwater associated with oil and gas construction activities and the general permit for hydrostatic testing of pipelines.
9. Additional provisions in both acts provide for administrative, civil or criminal penalties for violations of the acts and for an appeal process to the Environmental Quality Board if a person is aggrieved or adversely affected by an order of the WVDEP under the acts.

There are many more specifics to the bill, and it will not be until WVDEP goes through the rulemaking process that will we have a clear picture of how everything will be implemented and potentially incorporated into existing regulatory programs. LGCR and its government relations affiliate, LGCR Government Solutions, will monitor the rulemaking process and provide additional updates as they are available.  Please contact Joseph Jenkins, LGCR’s environmental regulatory attorney, if you have any questions.     

Monday, March 10, 2014

Lawmakers Fail To Adopt Two Constitutional Amendments

Two proposed constitutional amendments that would have affected the state's natural gas industry did not make it through the Legislature's 60-day regular session.  That session ended this past weekend.

SJR 12—Proposing Water Resources Protection Amendment to the Constitution.
This proposed amendment sought to constitutionally define the state’s rights of ownership, control and regulation over water resources on and under the state.  The Senate supported this amendment, which was strongly advocated by Senate President Jeff Kessler and Majority Leader John Unger.  The House refused to support the proposed amendment on Saturday evening when the Resolution received less than a 2/3s majority.  There were significant questions raised in the House by delegates concerned over how existing property and water rights might be affected if the State were given a position of constitutional primacy over water resources.

SJR 14—Proposing the Future Fund Amendment to the Constitution. 
This proposed amendment sought to provide constitutional protections to the “Future Fund” that were strongly advocated by Senate President Kessler as a way to guarantee that future Legislatures would be restricted in their access to the assets of the Fund.  Senior House Democratic leaders and Republicans had serious concerns about enshrining such strong protections in the state Constitutions for a reserve fund that was to be built using historically inconsistent severance tax collections, and when other needs of the State may have precedence in any given year rather than building up another reserve account in state government.  The Senate did support the passage of the amendment, but the House failed by a wide margin to provide the 2/3 vote needed to place the issue on the November ballot.

Legislation Related To Solid Waste Disposal Of Drill Cuttings Fails During Session

Lawmakers failed to enact HB 4411 (acceptance of drill cuttings by commercial solid waste facilities) during the 2014 regular legislative session, which ended March 8.  This bill was necessitated by the fact that commercial solid waste facilities in the oil and natural gas producing areas of the state were operating under a special ruling from DEP, which permitted them to accept drill cuttings even if that action caused the facility to exceed its approved monthly waste cap.  Environmental groups and a number of key members of the House of Delegates targeted this bill as a way to impede the natural gas industry’s Marcellus development by seeking requirements that would have eliminated the ability of waste facilities to accept drill cuttings unless they had already applied for a new permit to construct a site specifically dedicated to the disposal of cuttings.  The Senate had a totally opposite view that took the interests of the natural gas industry and the waste disposal facilities into account.

The bill went to a conference committee of delegates and senators and an agreement was reached but not implemented on a timely basis for reasons that only the chairman of the House conference committee, Delegate Barbara Fleischauer (D-Monongalia) can explain.  As a result, no bill was passed and, while the current order of the DEP Secretary remains in place to protect the acceptance of drill cuttings by the waste disposal facilities affected by this issue, there is a fear that litigation will be brought challenging the Secretary’s authority to take this action.  There is no indication at this point whether this issue would be added to the Legislature’s agenda while they are still in town this week to complete next year’s fiscal budget.

West Virginia Legislature Enacts Future Fund

The 2014 regular session of the West Virginia Legislature completed its work this past weekend with enactment of S.B. SB 461 — Creating the Future Fund. This legislation was the pet project of Senate President Kessler, who sought for the last two legislative sessions to create a future reserve fund based on the anticipated growth in oil and natural gas severance tax revenues and modeled after a similar reserve fund operated by North Dakota.  While some in the Senate had questions about the advisability of the strict reserve fund standards sought by Kessler, the bill passed the Senate nearly unanimously.  However, House leaders from both parties took a much dimmer view of the proposal because of their belief that the law would place significant constraints on future governors and legislators in meeting the ongoing and capital needs of the state.  Republicans believed that a strict requirement to place a specific proportion of oil and natural gas severance tax revenues into the protected fund could even result in pressures to increase severance taxes if budget priorities could not be met without having access to tax revenues that were diverted into the reserve fund.

The final version of SB 461, which passed through both houses late Saturday, embodies the protections that were demanded by the House.  As such, the bill was broadened to include all forms of natural resources severance taxes in the Fund, and was also amended to establish a variety of complex mechanisms that would allow the Legislature to avoid making contributions into the Fund if the state’s revenues were in decline or if other critical priorities needed funding.  SB 461 will now go to Governor Tomblin for his review.