CHAPTER 6 HYDRAULIC FRACTURING AND WATER SUPPLY PROTECTION--FEDERAL REGULATORY DEVELOPMENTS

• Jurisdiction: United States

Water-Energy Nexus: Acquisition, Use, and Disposal of Water for Energy and Mineral Development
(Sep 2012)
CHAPTER 6
HYDRAULIC FRACTURING AND WATER SUPPLY PROTECTION--FEDERAL REGULATORY DEVELOPMENTS
Rebecca W. Watson
Welborn Sullivan Meck & Tooley, P.C.
Denver, Colorado
Nora R. Pincus
Crowley Fleck PLLP
Bozeman, Montana

REBECCA WATSON is a shareholder with the law firm Welborn Sullivan Meck and Tooley, P.C. Ms. Watson has more than 30 years of legal and policy experience in the fields of conventional and renewable energy, natural resources and federal environmental law. As Assistant Secretary of the Interior Department, she had oversight of 12,000 employees of the Bureau of Land Management, Minerals Management Service and the Office of Surface Mining. Ms. Watson also served as the Assistant General Counsel for Energy Policy at the U. S. Department of Energy. Ms. Watson is a graduate of the University of Denver Law School (D.U.), began her practice of law in Wyoming and practiced in Washington, DC and Montana before returning to Colorado. Ms. Watson is a Trustee of Rocky Mountain Mineral Law Foundation and was the 2011 Distinguished Natural Resource Practitioner-in-Residence at D.U. Law School.

NORA R. PINCUS is a natural resource and energy law attorney with the Salt Lake City, Utah office of Snell and Wilmer. Ms. Pincus graduated in 2008 from the University of Denver Sturm College of Law. Following graduation, Ms. Pincus served as a judicial law clerk to the Honorable Justice Alex J. Martinez at the Colorado Supreme Court. Prior to joining Snell and Wilmer, Ms. Pincus practiced natural resource litigation with a boutique energy law firm in Denver, Colorado.

Hydraulic Fracturing and Water Supply Protection--Federal Regulatory Developments

Rebecca W. Watson and Nora R. Pincus

RMMLF Special Institute on the Water-Energy Nexus--Acquisition, Use, and Disposal of Water for Energy and Mineral Development

September 13-14, 2012, Denver, Colorado

I. Introduction

Regulation of the technical aspects of oil and gas operations has historically been left largely to the states.¹ However, with recent technological advances allowing the development of significant new reserves of shale oil, including the Bakken formation in Montana and North Dakota, and of shale gas in Texas, West Virginia, New York, and Pennsylvania, regulation of oil and gas production activities, and specifically hydraulic fracturing, has become a hot button issue for a number of federal agencies. Thirty-three states are home to major shale plays.² The recent boom in shale gas, particularly in the major population centers of Pennsylvania and New York, has resulted in significant media attention being paid to the hydraulic fracturing process and concerns that the process negatively impacts water quality.³ In response, the federal government is showing an increased will to enact regulations aimed at regulating oil and gas exploration and production activities, with a focus on hydraulic fracturing, or "fracing."⁴ This has led to a groundswell of new and proposed federal statutory and administrative enactments from a number of different, and in many cases surprising, sources. Not surprisingly, the oil and gas industry and states are objecting loudly to this regulatory power grab.

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Some thirty years ago, a similar heated debate about the proper role for state versus federal regulation arose in the surface coal mining industry. In the 1970s and 1980s, surface coal mining became a hot-button environmental issue with environmental groups arguing for federal regulation of surface stripmining. At that time, regulation of surface coal mining was largely left to the states.⁵ The lack of "one size fits all" regulation of surface coal mining led to "a mosaic of diverse standards and, oftentimes, timidity in enforcement."⁶ With the increasing number of large scale surface coal mines, in the context of the 1970s era "boom" in federal environmental regulation, congress, after years of struggle, took regulatory aim at the surface coal mining industry with the enactment of the Surface Coal Mining and Reclamation Act of 1977 ("SCMRA").⁷ The aim of the SCMRA was to include states in the regulation of coal mining, but to do so in the context of a robust federal regulatory scheme and oversight. SMCRA's implementation was not without controversy, and involved a decade-long debate involving principles of federalism and the proper role of the federal government in development of natural resources.

The current tension between state versus federal regulation of hydraulic fracturing activities bears many similarities to the controversy surrounding regulation of surface coal mining. As with the surface coal mining debate, many within the environmental community are calling for a strong federal regulatory scheme for hydraulic fracturing, while many within the oil and gas industry argue that regulation of such activities is better left to the states.⁸ In a recent New York Times op-ed piece, former White House counselor for energy and climate change Jody Freeman argued that oil and gas exploration and production activities should be regulated in the same way the federal government regulates surface coal mining.⁹

Rather than revisit many of the existing statutes and regulations that exempt or exclude oil and gas activities, such as the Safe Drinking Water Act's hydraulic fracturing exclusion and the Resource Conservation Recovery Act and Comprehensive Environmental Response, Compensation, and Liability Act's exemptions for oil and gas exploration and production wastes, discussed in detail in Section II, current recent federal regulatory efforts are largely grounded in new sources of authority or undertaken through agencies not traditionally involved in regulation of natural resource development or environmental issues. Advocates for increased federal regulation of hydraulic fracturing argue that state-by-state regulation of the process is ineffective and that a uniform federal system of oversight is necessary to provide the public with access to information and ensure that the oil and gas industry is engaging in uniform practices.

Is this new found federal interest in regulation of oil and gas only a reflection of the campaign against fracing and the concerns of citizens unused to oil and gas or is it also a recognition of the new role that gas plays in the U.S. energy future? Whether this move to federal regulation of oil and gas is temporary and stems from a predictable reaction to vocal

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public concerns, heightened media coverage over groundwater contamination or signifies a complete re-working of the regulatory framework for oil and gas production remains to be seen.

II. Existing Federal Regulation

Widely used for decades in the oil and natural gas industries, hydraulic fracturing is a process where water, sand, grains, ceramics and/or chemicals are injected underground into a wellbore at a rate sufficient to increase downhole pressure, causing the geologic formation to fracture, create fissures and release natural gas and oil. Water is the primary component of hydraulic fracturing fluids, generally accounting for approximately 99 percent of the fracturing fluid volume. "Tracing" is estimated to be used in 9 out of 10 natural gas wells worldwide and has been utilized commercially since the late 1940s.¹⁰ Although the process has been used commercially for some time,¹¹ federal regulation of hydraulic fracturing is a relatively new phenomenon. Historically, there has been little regulation specific to the hydraulic fracturing process itself and ancillary regulation of the process has occurred primarily at the state level through state oil and gas conservation commissions.¹²

For the last century, "state governments have routinely regulated development and production of oil and gas to conserve these resources and protect the correlative rights of private landowners."¹³ This regulatory authority largely applied even to oil and gas operations undertaken on federal lands, as discussed in more detail infra. State governments obtain the power to regulate oil and gas matters through their police powers, which are inherent in the states and recognized by the Tenth Amendment to the United States Constitution. Much of the regulation specific to oil and gas operations developed in order to protect correlative rights,¹⁴ a matter almost exclusively regulated by state oil and gas commissions and their own spacing unit regulations. As discussed by Professor Kramer in Federal Legislative and Administrative Regulation of Hydraulic Fracturing Operations, in the early years of oil and gas production, the federal government initially envisioned an active role in regulation of oil and gas development. However, with the early failure of several federal regulatory and legislative efforts, many states enacted their own oil and gas conservation statutes "that delegated to state agencies broadened powers to regulate the oil and gas industry."¹⁵

This traditional division of regulatory authority has, until recently, remained largely untouched, with the states retaining primary authority over oil and gas development. While some statutes enacted during the heyday of federal environmental regulation of the late 1960's and 1970's apply to certain components of the oil and gas development and hydraulic fracturing

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processes, such as the Clean Water Act and Safe Drinking Water Act discussed in detail below, in contrast to the current flood of new federal regulation, these statutes were not drafted with oil and gas production or fracing in mind and in many cases have significant exemptions and exclusions relating to E&P activities.

Many of these existing federal statutes and regulations have not traditionally been applied to hydraulic fracturing or other exploration and production activities. However, certain federal agencies are beginning to use their...