PIOGA Press
As we begin the New Year, many of us in the environmental sector automatically look at our new calendars and realize that this is the beginning of a new season of annual regulatory requirements. These requirements range from annual emissions statements and waste reporting to various certification and registration renewals. For those that have containers at one or more sites, you may be (or should be) asking yourself whether any of those containers must be registered pursuant to Pennsylvania’s Storage Tank and Spill Prevention Act, 35 P.S. § 6021, et seq.
What is the Tank Act?
The Tank Act was enacted on July 6, 1989, to: (i) protect surface waters and soil from releases of regulated substances from storage tanks; (ii) provide a statutory mechanism for the cleanup of such releases; and (iii) provide a statutory mechanism to fund the cleanups of releases from underground storage tanks. The regulations promulgated pursuant to the Tank Act can be found in 25 Pa. Code Chapter 245. These regulations cover both aboveground storage tanks (ASTs) and underground storage tanks (USTs).
How the Tank Act applies
Like many environmental statutes, applicability of the Tank Act is dependent on definitions, most notably the definitions of an AST and a UST. Without directly quoting 25 Pa. Code Chapter 245.1 for the definition of an AST, which is too long for this article, there are five main requirements to meet the definition of an AST. The tank must: (i) be aboveground; (ii) be stationary; (iii) have a capacity greater than 250 gallons; (iv) contain a regulated substance; and (v) the tank does not meet any of the 19 exemptions from the definition of an AST.
Similarly, the four main requirements in the definition of a UST are: (i) the tank must be below ground; (ii) the tank must have a capacity greater than 110 gallons; (iii) the tank must contain a regulated substance; and (iv) the tank must not meet any of the 19 exemptions from the definition of a UST.
Confusion has surfaced regarding several potential issues with these definitions, such as whether an AST is considered to be stationary or if a tank located within a vault below ground is considered a UST. But in general, if a tank appears as though it may meet either of these definitions, it may be subject to the Tank Act and applicability should be closely evaluated.
Exemptions for oil and gas operations
Typically, there are four exemptions that are applied to oil and gas operations. These exemptions include:
- Pipeline facilities, including gathering lines, regulated under the Natural Gas Pipeline Safety Act of 1968, 49 U.S.C.A. App. § 1671 et seq. (NGPSA.)
- A nonstationary tank liquid trap or associated gathering lines directly related to oil and gas production or gathering operations.
- A flow-through process tank, including, but not limited to, a pressure vessel and oil and water separators.
- Tanks used to store brines, crude oil, drilling/frac fluids and similar substances or materials and are directly related to the exploration, development or production of crude oil or natural gas regulated under the Oil and Gas Act, 58 P. S. § 601 et seq.
All four of these exemptions can be found under the definition of an AST, whereas only the first three of these exemptions can be found under the UST definition.
It can be troublesome to determine whether any of these exemptions apply at a given facility. For example, the determination of whether or not all equipment at a pipeline facility regulated under the NGPSA is covered by the first exemption listed above often is a fact-specific determination based on the nature of the equipment and how it is connected to the transmission lines. Further, although oil/water separators are exempted from the definitions of an AST and UST, tanks connected to oil/water separators that are used to store the oil are not exempted.
In addition, questions have surfaced regarding the phrases, “directly related to oil and gas production or gathering operations,” in the second exemption and “directly related to the exploration, development or production of crude oil or natural gas,” in the fourth exemption.
The Department of Environmental Protection has provided some guidance on the applicability of the Tank Act to oil and gas operations. Based on presentations and discussions with the Storage Tank Advisory Committee, DEP has maintained a rule of thumb that tanks located on a well pad are not subject to the Tank Act. However, DEP has indicated that ASTs or USTs located at an ancillary facility, such as a site used only for storage of frac fluid or a compressor station, may be subject to the Tank Act. With that being said, it is still possible for tanks at ancillary facilities to meet one or more of the remaining exemptions from the definitions of an AST and UST.
For tanks that are regulated by the Tank Act, there are a host of requirements that must be met depending on the capacity, contents and use of the tank. Some of these requirements, such as registrations and inspections, are recurring requirements that should be reviewed and scheduled on your 2017 calendars.
Currently, DEP is considering widespread changes to the storage tank regulations including, but not limited to, what modifications may be performed on tanks based on specific tank handler certifications, the permitting process and permit-by-rule requirements, and leak detection and prevention requirements. DEP is working with the Storage Tank Advisory Committee, and the revisions are anticipated to be proposed in the Pennsylvania Bulletin in 2017.
For additional information about developments described in this article, contact Timothy S. Bytner at 412-394-6504 or tbytner@ babstcalland.com or Jean M. Mosites at 412-394-6468 or jmosites@babstcalland.com.
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PIOGA Press
On the eve of Thanksgiving, the Pennsylvania Department of Environmental Protection released two draft general permits that, if finalized, would result in significant changes to the air permitting regime for oil and gas industry sources.
The first general permit is a revised version of the existing plan approval/operating permit known as GP-5 for compressor stations and processing facilities. Although the draft revised GP-5 includes a number of conditions that would create more burdensome obligations for industry, midstream operators are already accustomed to dealing with a general permit. GP-5 (in some form) has been around for a decade. The second draft general permit, known as GP-5A, represents an even greater departure from the status quo, as it would require operators to obtain an air permit for production facilities for the first time. Production facilities are currently authorized pursuant to an air permitting exemption known as Exemption 38.
DEP released the draft permits in anticipation of an Air Quality Technical Advisory Committee (AQTAC) meeting scheduled for December 8. AQTAC advises DEP on the technical, economic and other social impacts of major program changes like this one, and typically reviews a DEP proposal before the formal public comment period begins.
A lot can be said about how this program shift may impact day-to-day operations and possibly increase the cost of doing business in Pennsylvania. But keep things in perspective: these permits are still in draft form and therefore remain subject to change. Although major concepts such as whether to even have a general permit for well sites are unlikely to change, the finer details of the permits will be worked out through a future public comment process. Nevertheless, operators would be wise to obtain a copy of the permits (available at www.dep.pa.gov/Business/Air/BAQ/AdvisoryGroups/AirQuality-Technical-Advisory-Committee/Pages) and take a closer look at the proposed conditions. This article highlights just a handful of the issues that warrant further review.
How did we get here?
Under the current permitting framework, minor source compressor stations and processing facilities are eligible for authorization under GP-5. DEP issued GP-5 for the first time in 2006 and issued revised versions of the permit in 2011, 2013 and 2015. Exemption 38 was substantially revised as of August 10, 2013, to require that unconventional well sites demonstrate compliance with certain criteria in order to qualify for the exemption. In contrast, DEP treats unconventional well sites established prior to August 10, 2013 and conventional well sites as unconditionally exempt from the obligation to obtain an air permit.
On January 19, Governor Tom Wolf announced a sweeping new regulatory strategy for reducing methane emissions from oil and gas operations. The methane reduction strategy anticipates that DEP will, among other things, revise GP-5 to impose more stringent requirements and also develop a new general permit for unconventional well sites. The release of the draft general permits means DEP is making good on its pledge to regulate methane emissions. At the same time, DEP seems to be taking advantage of this opportunity to address some of the GP-5 and Exemption 38 implementation issues that have surfaced over the years.
New scope and applicability
The revised GP-5 and GP-5A share many of the same or similar conditions, such as new requirements for truck load-outs, but differ in scope and applicability. In general, the revised GP-5 would be available for natural gas compressor stations, processing plants and, for the first time, transmission stations. GP-5A would authorize “unconventional natural gas well site operations” and “remote pigging stations.” DEP has indicated it will amend Exemption 38 as part of the transition to GP-5A. When revised, according to DEP, Exemption 38 would apply to unconventional well sites that were constructed between August 10, 2013, and the effective date of the amendment to the exemption list. Presumably, Exemption 38 would not change for conventional well sites.
What will happen to existing facilities? Under the proposed permitting scheme, existing facilities would continue to comply with the requirements of Exemption 38 and earlier versions of GP-5, and new or modified facilities would need to meet the requirements of the new general permits. This means facility changes (engine swap, anyone?) and ownership changes may have the effect of “upgrading” a facility to the new GP-5/GP-5A.
Methane controls
The most significant policy change in the proposed permitting scheme is DEP’s new focus on methane emissions. DEP previously did not specifically regulate methane for air permitting purposes. As proposed, both general permits would, for example, require that glycol dehydration units and storage vessels reduce methane emissions by 98 percent or more if uncontrolled potential emissions are greater than or equal to 200 tons per year.
Noise, dust and pigging
DEP is using the draft permits to address three topics that have caused quite a stir in recent years: noise, dust and pigging. As a practical matter, operators are already subject to noise and fugitive dust limitations, namely those found in local ordinances and the generally applicable regulations at 25 Pa. Code Chapter 123 (Standards for Contaminants). It is, however, unusual that DEP would attempt to regulate noise under the Air Pollution Control Act. The general permits expand on existing obligations by requiring operators to document the measures used to minimize noise and dust, and by requiring specific measures for dust control.
Perhaps the more significant change is with respect to pigging, which until now was not clearly subject to permitting. Emissions from pigging are generally considered to be de minimis, but may vary based on the nature of the gas (wet versus dry), frequency of pigging activity and other factors. Both the revised GP-5 and GP-5A identify “pigging operations” as a source subject to detailed requirements, including equipment specifications.
Expanded monitoring, recordkeeping and reporting
In addition to more stringent air pollution control standards, the draft general permits are also replete with new monitoring, recordkeeping and reporting requirements. For example, both permits would require operators to notify DEP at least 24 hours before any scheduled blowdown or venting, and within 24 hours after an unscheduled event. There are many new provisions relating to electronic reporting and email submissions. Permittees under GP-5 and GP-5A would be required to certify and submit an annual compliance report, which would be an entirely new exercise for production facilities.
Where do we go from here?
Pay attention to what is said at December’s AQTAC meeting and, if you have not already done so, start digging into the draft permit materials. DEP’s timeline for the formal comment period should become clear after the AQTAC meeting. In the meantime, watch for updates from PIOGA’s Environmental Committee and plan to participate in the public comment process. Pursuant to 25 Pa. Code §127.612, DEP must provide a minimum of 45 days for the public to comment on a proposed general permit.
Many practical questions will need to be answered in the days ahead. For instance, which general permit will apply when a well site is co-located with a compressor station? Are the general permit conditions consistent with overlapping federal requirements? Dig in, stay tuned and be prepared to provide input.
For additional information about developments described in this article, contact Meredith Odato Graham at 412-773-8712 or mgraham@babstcalland.com, or Michael H. Winek at 412-394- 6538 or mwinek@babstcalland.com.
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They already are the safest way to transport energy – and getting safer
Pittsburgh Post-Gazette
By Keith J. Coyle
In a recent op-ed published in the Post-Gazette, “Gas Pipelines Represent Prosperity” (Sept. 5 Perspectives), David Spigelmyer and James Kunz described the many benefits that Pennsylvanians could see from the expansion of natural-gas pipelines and related energy infrastructure in the commonwealth. That op-ed prompted a response from Art Wegweiser (Oct. 3), who wrote that Mr. Spigelmyer and Mr. Kunz “seem[ed] to deftly dance around the issue of safety, with only a passing reference to this vitally important aspect” of natural-gas development.
Mr. Wegweiser is right to draw attention to pipeline safety. There are thousands of miles of pipelines in Pennsylvania, and the people of the commonwealth expect these lines to operate safely. He also is right to remind the industry about the effect that significant pipeline accidents can have on people, property and the environment. These events, while extremely rare, demonstrate the importance of continuing to pursue the industry’s goal of zero incidents.
The good news, according to a 2015 report from the American Gas Foundation, “Natural Gas Pipeline Safety and Reliability: An Assessment of Progress,” is that pipelines are safe — and getting safer. As the AGF observes:
• Pipelines are the safest means of transporting energy products. Data compiled by the Bureau of Transportation Statistics show that pipelines have been the cause of fewer fatalities and injuries than the trucking and rail industries over the past decade. Data compiled by the Pipeline and Hazardous Materials Safety Administration show a significant reduction in the number of pipeline incidents involving fatalities or injuries over the past two decades. Reports from the U.S. Government Accountability Office and nongovernmental entities reach similar conclusions.
• The natural-gas industry invests more than $19 billion annually in pipeline safety and reliability. The industry is pursuing a number of pipeline-safety research and development initiatives, and a number of states, including Pennsylvania, have special programs in place to accelerate the repair and replacement of higher-risk pipeline infrastructure. The Federal Energy Regulatory Commission recently launched a similar initiative to modernize the nation’s interstate gas transmission lines.
• Industry has played a leading role in the development of pipeline-safety standards for more than six decades. The American Society of Mechanical Engineers released the first set of comprehensive safety standards for gas pipelines in the early 1950s, establishing the framework that state and federal pipeline-safety regulators adopted in the years that followed. Today, PHMSA and its state partners incorporate dozens of industry codes and standards for pipeline design, construction, operation and integrity management.
• PHMSA has made significant changes to the nation’s pipeline-safety regulations in the past 15 years, and Congress recently increased the amount of funding available for the federal pipeline-safety program, including for grants awarded to state pipeline-safety regulators such as the Pennsylvania Public Utility Commission. PHMSA also is pursuing new regulatory initiatives, and the pipeline industry is participating in the rulemaking process.
Mr. Spigelmyer and Mr. Kunz made a strong case in presenting the benefits of gas-pipeline and energy-infrastructure development, and Mr. Wegweiser added an important cautionary note about pipeline safety. My hope is that your readers will review the AGF report and other available sources of information to learn more about the industry’s efforts to improve pipeline safety.
Keith J. Coyle, an attorney with the law firm of Babst Calland and a shareholder in the firm’s Energy and Natural Resources Group, recently served on Gov. Tom Wolf’s Pipeline Infrastructure Task Force. He leads the Marcellus Shale Coalition’s Pipeline Safety Workgroup and is a former PHMSA adviser. He also participated in the development of the AGF report.
As discussed in Babst Calland’s Employment Bulletin on May 20, 2016, the United States Department of Labor (DOL) published a Final Rule titled Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees (the “Final Rule”). Among other things, the Final Rule more than doubled the salary threshold required for employees to qualify for the executive, professional, or administrative exemptions allowed by the Fair Labor Standards Act (FLSA) and contained automatic updates to the salary thresholds. The Final Rule was set to go into effect on December 1, 2016.
On November 22, 2016, however, the United States District Court for the Eastern District of Texas granted an emergency injunction to enjoin the application of the Final Rule. The injunction was filed against the DOL by twenty-two states and requested that the DOL be enjoined from enforcing the Final Rule. In granting the injunction request, the district court reasoned that the DOL was without statutory authority to issue and implement the Final Rule. Accordingly, the court enjoined application of the Final Rule, on a nationwide basis. Specifically, the court ruled that the DOL is enjoined from implementing and enforcing the Final Rule. Accordingly, until further notice, employers do not have to change overtime practices to comply with the DOL’s Final Rule.
Babst Calland’s Employment and Labor Group will continue to keep employers apprised of further developments related to this and other employment and labor topics.If you have any questions or need assistance in addressing the above-mentioned area of concern, please contact John A. McCreary, Jr. at (412) 394-6695 or jmccreary@babstcalland.com, Stephen A. Antonelli at (412) 394-5668 or santonelli@babstcalland.com, or Christopher M. Helms at (412) 394-6477 or chelms@babstcalland.com.
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The Legal Intelligencer
Employers who are currently negotiating an initial collective bargaining agreement should be mindful that the National Labor Relations Board (NLRB) recently reaffirmed its analysis in Alan Ritchey, 359 NLRB 396 (2012), regarding an employer’s obligation to bargain before disciplining individual employees when a union has been certified, but has not yet entered into a collective bargaining agreement with the employer.
On Aug. 26, in Total Security Management Illinois 1 & International Union Security Police Fire Professionals of America (SPFPA), 364 NLRB 106 (2016), the NLRB reiterated that an employer may not impose discretionary discipline when it is engaged in negotiations for an initial collective bargaining agreement with a recently certified union. Rather, the NLRB held, before imposing discipline on an employee within the bargaining unit, an employer must provide the union with notice and an opportunity to bargain unless the employee’s continued presence on the job presents a serious, imminent danger to the employer’s business or personnel. The NLRB’s ruling in Total Security essentially revived the legal principles asserted in Alan Ritchey, which the U.S. Supreme Court invalidated on procedural grounds in 2014.
In Total Security, the employer, a provider of security planning and security services, discharged three of its security guards without providing their union any notice or opportunity to bargain. The union had been certified as the exclusive representative of a bargaining unit that included the three discharged guards. At the time of the discharges, the employer and the union had not reached an initial collective bargaining agreement. As a result of the discharges, the employer was charged with allegedly violating Section 8(a)(5) of National Labor Relations Act (NLRA), which makes it an unfair labor practice for an employer to refuse to bargain collectively.
The NLRB administrative law judge, relying on Alan Ritchey, found the employer’s discharge of the guards to be unlawful. However, Alan Ritchey was subsequently invalidated by the Supreme Court in National Labor Relations Board v. Canning, 134 S.Ct. 2550 (2014), because the Ritchey board included two members whose appointments had been constitutionally infirm. Accordingly, the NLRB was tasked in Total Security with re-examining de novo whether an employer has a statutory obligation to bargain before imposing discretionary discipline on unit employees, when a union has been certified or lawfully recognized as the employees’ representative but has not yet entered into a collective bargaining agreement with the employer.
The NLRB concluded that: the imposition of discipline on individual employees alters their terms or conditions of employment and implicates the duty to bargain if it is not controlled by preexisting, nondiscretionary employer policies or practices; discretionary changes to the terms or conditions of employment cannot be unilateral; and employers would not face an unreasonable burden if they needed to bargain before imposing discipline. Consequently, the NLRB held that unless an employer has a reasonable, good-faith belief that an employee’s continued presence on the job presents a serious, imminent danger to the employer’s business or personnel, an employer may not unilaterally impose discipline on bargaining unit employees when the union and the employer have yet to agree on a grievance process governing disciplinary disputes. Instead, the employer must provide the union with notice and an opportunity to bargain before imposing discipline on bargaining unit employees.
Fortunately for employers, recognizing the possible delay that a bargaining obligation might cause in implementing discipline, the NLRB minimized the burden on employers to the “greatest extent possible.”
First, the NLRB held that the pre-imposition obligation attaches only with regard to the discretionary aspects of those disciplinary actions that have an inevitable and immediate impact on an employee’s tenure, status, or earnings, such as suspension, demotion, or discharge. Accordingly, warnings, corrective actions, counseling, and the like do not require pre-imposition bargaining so long as they do not automatically result in more serious discipline.
Second, where the pre-imposition duty to bargain exists, the employer’s obligation is simply to provide the union with notice and an opportunity to bargain before discipline is imposed. This requires the employer to give sufficient advance notice to the union, and provide the union with relevant information, if a timely request is made. The employer is not required to bargain to agreement or impasse before imposing discipline, so long as it exercises its discretion within existing standards. If the parties do not reach agreement, the employer may impose the selected disciplinary action and then continue bargaining to agreement or impasse.
Furthermore, as mentioned above, the pre-imposition duty to bargain is not triggered where an employer has a reasonable, good-faith belief that an employee’s continued presence on the job presents a serious, imminent danger to the employer’s business or personnel. In this situation, an employer may act unilaterally and impose discipline without providing the union with notice and an opportunity to bargain.
Lastly, an employer has no duty to bargain over those aspects of its disciplinary decision that are controlled by nondiscretionary elements of existing policies and procedures. For example, the NLRB indicated that in a workplace where the employer has an established practice of disciplining employees for absenteeism, the decision to impose discipline for this conduct would not give rise to an obligation to bargain over whether absenteeism is generally an appropriate grounds for discipline. If the employer consistently suspended employees for absenteeism but the length of the suspension was discretionary, then bargaining would be limited to only the length of the suspension.
The NLRB applied its decision prospectively, because the uncertainty about the validity of Alan Ritchey, and dismissed the complaint against the employer. However, the NLRB noted that if its ruling was applied retroactively, the employer’s failure to provide notice to the union and bargain over the discharges would have amounted to a violation of Section 8(a)(5) of the NLRA. Accordingly, employers must be aware that they risk violating the NLRA if they take disciplinary actions that alter the terms or conditions of an employee’s employment (e.g. discharge) while initial negotiations with a recently certified union are ongoing. If disciplinary action is necessary, the employer must be cautious in providing the union with notice and an opportunity to bargain.
*Reprinted with permission from the 11/9/16 issue of The Legal Intelligencer. © 2016 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
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The Legal Intelligencer
In Pennsylvania, municipal governing bodies and zoning hearing boards are entitled to considerable deference when interpreting and applying their own zoning ordinances. This deference is based largely on the premise that municipal bodies and boards charged with drafting and administering zoning ordinances possess an unparalleled knowledge of and expertise in their own ordinances, as in In re Thompson, 896 A.2d 659, 669 (Pa. Commw. Ct. 2006). However, this deference is not without limit. The General Assembly and Pennsylvania courts have established the following statutory construction standards to guide municipal bodies and boards in their interpretations:
• Governing bodies and boards must construe the words and phrases of a local zoning ordinance according to rules of grammar and according to their common and approved usage, Section 1903(a) of the Statutory Construction Act, 1 Pa.C.S. Section 1903(a).
• Governing bodies and boards have an obligation to construe the words of an ordinance as broadly as possible to give the landowner the benefit of the least restrictive use, as in Albert v. Zoning Hearing Board of North Abington Township, 854 A.2d 401, 405 (Pa. 2004).
• Any doubt as to undefined words or terms in a local zoning ordinance must be resolved in favor of the landowner and the least restrictive use of the land, as in Kissell v. Ferguson Township Zoning Hearing Board, 729 A.2d 194, 197 (Pa. Commw. Ct. 1999).
• When attempting to define an undefined ordinance term, governing bodies and boards may look to statutes, regulation or dictionaries for assistance, as in Hartman v. Zoning Hearing Board of Cumru Township, 133 A.3d 806, 810 (Pa. Commw. Ct. 2016).
• A ordinance’s plain language generally provides the best indication of legislative intent and thus statutory construction begins with an examination of the text itself, as in Malt Beverages Distribution v. Liquor Control Board, 918 A.2d 171, 176 (Pa. Commw. Ct. 2007).
• Although the legislative intent of the governing body that enacted the ordinance is of primary concern, the letter of the ordinance is not to be disregarded under the pretext of pursuing its spirit, as in Borough of Fleetwood v. Zoning Hearing Board of Borough of Fleetwood, 649 A.2d 651, 656 (Pa. 1994).
As evidenced by the Commonwealth Court’s recent decisions in Marchenko v. Zoning Hearing Board of Pocono Township, 2016 Pa. Commw. LEXIS 401 (Pa. Commw. Ct. 2016), and Balady Farms v. Paradise Township Zoning Hearing Board, 2016 Pa. Commw. LEXIS 416 (Pa. Commw. Ct. 2016), if a local governing body or zoning hearing board fails to observe the above standards, Pennsylvania courts will find the body or board abused its discretion and/or committed an error of law and will not hesitate to substitute its judgment for that of the body’s or board’s.
The threshold issue in both Marchenko and Balady Farms was whether the respective zoning hearing boards erred in interpreting their zoning ordinances. In both cases, the Commonwealth Court concluded that the boards had.
In Marchenko, on an appeal of a notice of violation, the Pocono Township Zoning Hearing Board had to determine whether the definition of “single-family dwelling” in its zoning ordinance included or was intended to include short-term rentals. The property subject to the notice of violation was located in the township’s R-1 low density residential zoning district and contained a single-family dwelling, which the property owner used as her primary residence 62 percent of the time. The remaining 38 percent of the time the property owner, in an attempt to help defray her housing costs, rented the dwelling to families visiting the area. Due to the use of the property for commercial purposes (i.e., short-term rentals), a use not expressly permitted in the R-1 zoning district, the township’s zoning officer issued the property owner a notice of violation.
The property owner appealed the notice to the zoning hearing board. On appeal, the zoning hearing board acknowledged that although the zoning ordinance defines “single-family dwellings”, neither that definition nor any other defined term in the ordinance specifically addressed short-term rentals. The zoning hearing board turned to the text of the zoning ordinance and the dictionary for guidance in interpreting the ordinance. After doing so, the zoning hearing board concluded that: (1) the property owner’s rental activity constituted a transient “lodge” use, an undefined use that is not permitted in the R-1 zoning district; (2) the definition of “single family dwelling” did not include rental activity; and (3) the property owner’s periodic use of her single-family dwelling for short-term rentals was prohibited.
The property owner appealed the zoning hearing board’s determination to the trial court, which affirmed. The property owner next appeal to the Commonwealth Court, arguing that the zoning hearing board erred in concluding that her rental activity was prohibited in the R-1 district and not consistent with the single-family dwelling use. Finding the zoning hearing board failed to observe the second standard above—that zoning hearing boards have an obligation to construe the words of an ordinance as broadly as possible to give the landowner the benefit of the least restrictive use—the Commonwealth Court reversed. In doing so, it explained that the zoning ordinance’s definition of “single-family dwelling” does not prohibit short-term rental activity and such rental activity is not encompassed by any other use defined by the ordinance. Moreover, the court explained that the zoning hearing board should have taken into account the fact that the property owner resides at the dwelling 62 percent of the time and thus broadly interpreted the term “single-family dwelling” to allow the property owner to continue her rental activity.
Less than one month later in the Balady Farms case, the Commonwealth Court again concluded that a zoning hearing board abused its discretion and committed an error of law while interpreting its zoning ordinance for failure to adhere to the above-referenced standards. In Balady Farms, the owner of a farm located on a 23-acre lot in Abbottstown Township’s RC Rural Conservation District asked the township’s zoning hearing board whether the zoning ordinance’s definition of “agriculture,” a use permitted by right in the township’s RC zoning district, encompassed or was intended to encompass the processing (i.e., slaughtering, cutting and cleaning) of chickens in preparation for market.
In an effort to interpret its zoning ordinance, the zoning hearing board examined: the zoning ordinance’s definition of agriculture, which includes “an enterprise that is actively engaged in the commercial production and preparation for market … livestock, including poultry”; the purpose of the RC zoning district in general, which is to preserve the quality of agricultural lands; and whether the processing of chickens is consistent with the procedures that are normally engaged in by farmers in the township. As a result of its examination, the zoning hearing board concluded that the definition of “agriculture” did not encompass the commercial processing of chickens on the basis that: there is no mention of a slaughter house in the zoning ordinance; the zoning ordinance does not specifically permit, nor deny, the processing operation in the RC zoning district; the commercial processing of chickens is not consistent with the township’s definition of agriculture because it does not constitute the production and preparation for market of livestock; the processing of chickens is a commercial endeavor that is not normally engaged in by farmers in the township.
On appeal, the trial court affirmed. Disagreeing with the zoning hearing board’s and trial court’s conclusions, however, the Commonwealth Court reversed. In doing so, the court explained that the key to interpreting the ordinance’s definition of “agriculture” is determining what the township intended by the terms “commercial,” “production” or “preparation” in the definition. The court further stated that in accordance with the fourth standard above, the zoning hearing board should have looked to statutes, such as the Pennsylvania Right-to-Farm Act, and dictionaries for assistance with its interpretation. Moreover, the court concluded that the zoning hearing board also failed to observe standards 5 and 6 above—related to the use of an ordinance’s plain language to determine legislative intent—because the plain language of the ordinance illustrates that the governing body did not intend to require that proposed uses to be consistent with the procedures and activities normally engaged in by other farms in the township. The Commonwealth Court noted that had the governing body intended such a restriction, it could have expressly imposed it. Finally, the Commonwealth Court found nothing in the record to support the zoning hearing board’s conclusion that the inclusion of chicken processing within the definition of “agriculture” offends the RC zoning district’s purpose.
The Commonwealth Court’s decisions in Marchenko and Balady Farms are excellent reminders for local governing bodies, zoning hearing boards and landowners that when local governing bodies and zoning hearing boards are called upon to interpret and apply their zoning ordinances, governing bodies and zoning hearing boards may not take it upon themselves to deviate from the zoning ordinance’s express terms and impose their own unexpressed policies on landowners.
*Reprinted with permission from the 10/20/16 issue of The Legal Intelligencer. © 2016 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
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The PIOGA Press
After years of rulemaking activity, the Pennsylvania Department of Environmental Protection’s new Chapter 78a regulations for surface activities associated with unconventional wells became effective on October 8. This article will review the status of the regulations and the next steps for implementing Chapter 78a across the Commonwealth.
Timing
The Chapter 78 (conventional wells) and 78a (unconventional wells) Subchapter C rulemaking was adopted in February by the Environmental Quality Board (EQB). However, as discussed in the July issue of The PIOGA Press, the passage of Act 52 of 2016 abrogated the portion of rulemaking applicable to conventional oil and gas development. After review by the Attorney General’s Office and the Commonwealth Joint Committee on Documents, DEP withdrew all proposed amendments applicable to conventional oil and gas wells, making changes in Chapter 78 only to clarify its scope and remove all references to unconventional wells. Chapter 78a will be published in substantially the same form as approved by EQB in February and the Independent Regula – tory Review Commission in April.
DEP published the final Chapter 78a rules, titled “Environmental Protection Performance Standards at Oil and Gas Well Sites,” in the Pennsylvania Bulletin on Saturday, October 8. The new rules became effective upon publication, with some provisions for future registration and modification of permitting facilities, such as fresh water and centralized impoundments. DEP was required to complete all the new forms and guidance referenced in Chapter 78a before publication.
Training
In August and September, DEP presented training webinars on topics associated with the final Chapter 78a rulemaking for operators, contractors and any other interested parties. Training topics included pipelines and horizontal directional drilling, waste management, emergency response, secondary containment, spills and releases, well permits and reporting, water management plans, area of review, erosion control, and site restoration. Audio recordings of the webinars, along with DEP’s slideshows, are available for reference on DEP’s website. DEP has also created frequently asked questions (FAQ) documents for each webinar topic, covering matters that were raised by participants during the live training sessions. Full-day training sessions conducted by DEP in September covered the same material as the webinars.
Implementation
To implement Chapter 78a, DEP has prepared or updated more than 20 forms for unconventional operations. Many provisions of the new rules allow the agency to request information in addition to what is specified in the regulations, making the forms themselves a critical part of rule implementation. The new forms include a monthly tank maintenance checklist, well site restoration reporting forms, requests for approval of alternative waste management practices and well site restoration extensions, and a variety of forms related to the Area of Review requirements in § 78a.52a. All of the new forms are available on DEP’s eLibrary, www.elibrary.dep.state.pa.us/dsweb/HomePage.
Under Chapter 78a, almost all operator submissions are required to be electronic. The rules require unconventional operators to submit notifications, requests, well permits and reports electronically, and DEP states that it has updated its Greenport system to accept these submissions. The Greenport system has a revised version of “eWell” for electronic submissions of unconventional well permits and an updated “DEP Notifications” application for well operator and pipeline operator notifications to the department. DEP also created a new application, “eSubmission,” for reports and requests under other sections of Chapter 78a. For example, eSubmission will be used to request extensions for the well site restoration period, to register borrow pits or underground tanks and to submit pre-drill survey sample results. DEP is providing webinars about the eWell, DEP Notifications and eSubmission applications in October, and the recorded webinars will be available on the agency’s website for future reference.
Pipeline operators in particular may be new to DEP’s electronic reporting system because pipelines have never been within the scope of Chapter 78 until now. Under Section 78a.68a, pipeline operators conducting horizontal directional drilling (HDD) beneath a body of water or a watercourse are subject to notification requirements. As a result, pipeline operators intending to use HDD beneath water must register as users on Greenport if they are not currently registered. The rule requires such operators to use the DEP Notifications application in Greenport to notify DEP at least 24 hours prior to beginning HDD beneath a body of water or watercourse and, in the case of a water supply complaint, to report the complaint to DEP within 24 hours of receipt. DEP will also be issuing several technical guidance docu ments (TGDs) associated with the Chapter 78a rules, including guidelines for implementing the Area of Review regulatory requirements and a policy on replacing and restoring private water supplies. Draft guidance documents on those two topics were provided for public review at the Oil and Gas Technical Advisory Board meeting in June and also were published in the October 8 Pennsylvania Bulletin as interim final rules, with a 60- day comment period. Industry representatives have participated in the workgroups for these TGDs, but the final policies could reflect additional public comment at the end of the comment period.
Major components of Chapter 78a
Unconventional well operators should look closely at provisions affecting well permitting, site construction, PPC plans, prefracturing diligence, waste handling, secondary containment, impoundments, pipelines, borrow pits, site restoration, water replacement and spill remediation. Each of these has a substantive change from existing law that will affect operations over the life of the well.
One major revision to the rules arises in sections 78a.15(f) and (g), which set out the pre-application requirements for a well permit at a location that “may impact a public resource.” This provision requires operators who propose to drill a well in such locations to notify the public resource agency, which now by definition includes schools, municipalities and owners of playgrounds or water supplies, and to provide additional information to DEP. The regulation applies if the limit of disturbance of the well site is located in any of eight specified areas, including “in a location that will impact other critical communities” and “within 200 feet of…a playground.” The public resource agency must be notified at least 30 days prior to the submission of the well permit application to DEP to allow the agency to provide written comments to DEP and the applicant. The applicant may provide a response to the comments. DEP will then consider various factors, including the comments submitted by both the public resource agency and the applicant, before setting conditions for the well permit based on impacts to public resources.
PIOGA has challenged EQB’s authority to promulgate the new rules related to public resources in light of two Pennsylvania Supreme Court decisions holding and clarifying that the statutory authority for such rulemaking has been enjoined. Robinson Township, et al. v. Commonwealth of Pennsylvania, 623 Pa. 564, 83 A.3d 901(Pa. 2013); Robinson Township, et al. v. Commonwealth of Pennsylvania, —- A.3d —- (Pa. Sept. 28, 2016). PIOGA filed an appeal of the Commonwealth Court decision in PIOGA v. DEP, No. 321 MD. 2015, —-A.3d —- (Commw. Ct., Sept 1, 2016) in the Supreme Court on September 29.
DEP has altered the water replacement/restoration standard in Section 78a.51(d)(2) to require replacement water supplies to meet or exceed Safe Drinking Water Act (SDWA) standards, whereas the prior regulation required replacement water supplies to meet SDWA standards or be comparable to the water quality prior to impact if those supplies did not meet that standard. In effect, the SDWA is now the floor, rather than the ceiling for the water quality standard of replacement water supplies. As PIOGA has noted in its comments on the rulemaking, this obligation may create costly obligations, and in some cases, obligations that cannot be met even with the provision of a public drinking water supply. In its comments, PIOGA has disagreed with DEP that the new rule is the correct interpretation of Act 13, Section 3218(a).
An entirely new obligation is the Area of Review provision in Section 78a.52a, which requires operators to submit a report identifying the surface and bottom hole locations of active, inactive, orphan, abandoned, and plugged and abandoned wells within 1,000 feet of both the vertical and horizontal wellbores. Operators must review DEP’s well databases, review historical sources of information and mail a questionnaire to landowners within the specified area in order to gather information. Operators must create a monitoring plan and provide notice, as now required in Section 78a.73, to owners and operators of nearby wells that may penetrate the same formation being stimulated in the new well. Operators must cease operations if communication occurs and may not resume without DEP authorization.
The revised Section 78a.58 allows operators to conduct processing of fluids (including mine-influenced water) and drill cuttings on the well site with DEP approval, similar to the existing OG-71 approval process. In addition, operators may mix fluids with freshwater, aerate fluids and filter solids from fluids without DEP approval, provided that the activities are conducted within secondary containment. For any onsite processing activities, the operator must develop an action plan for monitoring and responding to radioactive materials.
The new rules completely overhaul the requirements for reporting and remediating spills. Section 78a.66 requires immediate reporting of spills that cause or threaten to pollute waters of the Commonwealth and requires reports within two hours for any spill or release of 5 gallons or more over a 24-hour period that is not completely contained on secondary containment. Remediation procedures for spills of at least 42 gallons (or spills that threaten to pollute waters of the Commonwealth) require attainment of Act 2 standards within new reporting and time limits that are not required within Act 2 or applied to any other industry.
Finally, the use of pits for temporary storage on unconventional well sites is entirely prohibited under section 78a.56, and three new provisions establish rules for off-site impoundments. Section 78a.59a sets requirements for impoundment embankments. Section 78a.59b provides for the registration, location and construction of well development impoundments (freshwater impoundments). The bottom of well development impoundments must be at least 20 inches above the seasonal high groundwater table, as certified by a soil scientist or similarly trained person. Section 78a.59c requires the closure of all centralized impoundments within three years, unless a permit is obtained under the Solid Waste Management Act. Closure plans must be submitted within six months.
The department plans to begin revisions to Subchapter D of Chapter 78a, Well Drilling, Operations and Plugging, sometime later this year.
For additional information about developments described in this article, contact Jean M. Mosites at 412-394-6468 or jmosites@babstcalland.com or Abigail F. Jones at 814-235-8430 or ajones@babstcalland.com.
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Oil and Gas Committee Newsletter
(ABA Section of Environment, Energy, and Resources)
The growth of the U.S. economy in recent decades, along with contemporaneous expansion in industrialization and energy use abroad, has caused an explosion in demand for oil and natural gas. During that same time, oil and natural gas exploration and production companies have innovated new methods and techniques for extracting natural resources that were once considered inaccessible. New geologic reserves of hydrocarbons are being discovered at a rapid pace and the ability to develop new reserves has improved dramatically.
Read more.
The Foster Report
As opponents of oil and gas development increasingly look for ways to exert local control, key state court rulings over the last few years have attempted to clarify, in so-called preemptive challenge cases, what the role of local governments actually is in regard to regulating oil and natural gas activities, explained panelists at the recent Shale Insight Conference in Pittsburgh, Pennsylvania.
Driven by citizen pressure or their own volition, local governments throughout the Appalachian Basin in West Virginia, Ohio, and Pennsylvania are increasingly attempting to limit or ban unconventional shale development through the adoption of ordinances or referenda.
The question in West Virginia and Ohio appears to be a bit clearer, due to court rulings confirming that local governments do not have the authority to regulate oil and gas activities. However, in Pennsylvania, a state that may one day be the nation’s largest producer of gas, the legal authority remains murky, said conference presenter Krista-Ann Staley, an attorney at Babst Calland.
Staley told the Foster Report October 5, that the Pennsylvania Supreme Court’s ruling on September 28 didn’t change the scope of local authority to regulate oil and gas development. Rather, the court ruled to strike provisions concerning the PUC’s and Commonwealth Court’s ability to review ordinances and related penalty provisions. With those provisions of Act 13 stricken, along with the related provisions stricken in the Robinson II decision, the scope of local regulatory authority and the ordinance review process fall back to existing statutes. The existing statutes, interpreted in the 2009 Huntley and Range cases, allow local governments limited powers to regulate oil and gas development in MPC (i.e., zoning, subdivision and land development) and floodplain ordinances. The local ordinances still cannot supersede state regulation of oil and gas development.
West Virginia. Two court cases in West Virginia with “clear outcomes,” according to Staley, confirmed the stance of the state’s existing Oil and Gas Act (in Code 22-6) that there is no local authority to regulate oil and gas development in the state. In the first case, Northeast Natural Energy, LLC v. City of Morgantown(No. 6285), Judge Susan Tucker of the Monongalia County Circuit Court on 8/12/11 ruled in favor of exploration and production company Northeast, and overturned an ordinance from the City Council of Morgantown that banned drilling and fracking of natural gas. The court held the ban was unconstitutional and preempted by the state code, which provides for the exclusive control of the state’s Department of Environmental Protection (DEP) to regulate oil and gas development. There is no exception in the law to allow the City of Morgantown’s ordinance imposing a ban on fracking.
The city contended it had the authority to enact and enforce the ordinance. Nonetheless, Judge Tucker found that the legislative purpose of the DEP was clear: and it has the primary responsibility to protect the state’s environment. “The exclusive control of this area of the law is within the hands of the DEP,” said Tucker. The ordinance encroached on the state’s all-encompassing authority regarding oil and gas development, and therefore, is invalid.
In the second, more recent case, EQT Production Company v. Wender (Case 2:16-cv-00290), Fayette County Commissioners Matthew Wender, Denise Scalph, and John Lopez sought a permanent injunction to enforce a county ordinance banning the storage, disposal, or use of oil and natural gas waste (including waste water from underground injection control wells). On 6/10/16, U.S. District Judge John Copenhaver confirmed that County commissions are artificial entities created by state statute and as such, possess only the powers expressly granted to them by the state constitution or laws. The county commissioners claimed that the ordinance was an exercise of the county commission’s sovereign powers. The court ruling found, however, that local ordinances are subordinate to state laws. Where an activity, such as oil and gas development, is sanctioned by the state, a local government cannot legislate independently to prohibit or impede that activity. All authority to oversee gas and oil exploration and production in West Virginia resides with the DEP, and at no point is any power to regulate such matters expressly granted to the county commissions.
The county commissioners also challenged EQT’s use of underground injection wells under the federal Safe Water Drinking Act (SWDA), which established a national program for regulating injection wells in order to protect drinking water (known as the UIC Programs). The EPA issued standards for the programs and states must meet minimum requirements to be granted primary enforcement authority. West Virginia, as approved by the EPA, has primacy over its UIC Program and vested the DEP with the authority for its implementation. The permitting program allows for the underground injection of wastewater, and the proposed ordinance attempting to prohibit permanent disposal of wastewater directly violates the statutory requirement, the court said. The state has undertaken to allow UIC wells, an action that operates to diminish a county’s powers to prohibit them. The county commissioners cannot unilaterally prohibit conduct that federal and state law both expressly permit.
Furthermore, the existing regulatory scheme demonstrates that wastewater injection as permitted is a heavily regulated activity in West Virginia, contrary to the commissioners’ claims. Wastewater properly injected into UIC wells pursuant to state and federal law “does not become pollution simply because the county commissioners say so,” the court ruling indicated.
West Virginia has concluded that oil and gas extraction is a highly valuable economic activity subject to centralized environmental regulation by the DEP, the court said, and the county commissioners therefore cannot interfere or impeded with the state’s goals.
Ohio. The preemption of ordinances from municipalities or local governments in regard to oil and gas activities in Ohio is less clear than in West Virginia, Staley said. Based on state court rulings in Ohio, “there is likely no local authority” to regulate oil and gas activities. The outcome of state court rulings in regard to five ordinances did leave the door open for the next case, the attorney warned.
In State ex rel. Morrison v. Beck Energy Corp., the Ohio Supreme court ruled in a 4-3 decision on 2/17/15 that the City of Munroe Falls, near Akron, could not discriminate against, unfairly impede or obstruct oil and gas activities and operations. Beck Energy obtained a permit in 2011 from the Ohio Department of Natural Resources (DNR) to drill an oil and gas well on property in Munroe Falls. The city attempted to stop the energy company from drilling based on five of its own municipal ordinances. The issue in the case was whether Munroe Falls had the power to enforce its own permitting scheme atop the state’s system. The court held that the city did not have that power.
Similar to West Virginia, Ohio’s Chapter 1509 centralizes regulatory authority to state government, entrusting the DNR with sole and exclusive authority to regulate the permitting, location, and spacing of oil and gas wells and production operations within Ohio, except for certain activities regulated by federal laws. The DNR promulgated regulations regarding wells and well permitting, including standards that address the safety of drilling and operations, well spacing requirements, protection of water supplies, surface facilities, waste containment and disposal, access roads, and noise mitigation. Beck Energy’s state permit to drill in Munroe Falls included 67 conditions.
While the state’s laws do preserve regulatory powers granted to local governments — including the power to control public highways, streets, sidewalks, public grounds, bridges, and aqueducts – Chapter 1509 expressly prohibits a local government from exercising those powers against oil and gas activities.
Soon after Beck Energy began drilling, Munroe Falls issued a stop-work order and filed a complaint seeking injunctive relief in the Summit County Court of Common Pleas, alleging that Beck Energy was violating multiple provisions of Munroe Falls ordinances, and that it had powers to self-govern under the so-called Home Rule Amendment to the state’s constitution. Beck argued that the city’s ordinances conflicted with the statewide regulatory scheme.
In determining whether or not the city’s ordinances represented a valid exercise of its home-rule power, the court found that the Home Rule Amendment does not allow municipalities to exercise their powers in a manner that conflicts with general laws. A municipal ordinance must yield to a state statute if: (1) the ordinance is an exercise of the police power, rather than of local self-government, (2) the statute is a general law, and (3) the ordinance is in conflict with the statute. The court ruled that the ordinances constituted an exercise of the police power, restricted an activity that a state license allows, and therefore could not be enforced.
One of the judges, Judge J. O’Donnell, concurred in the judgment only on the issue that the statute preempted local permitting ordinances applicable to the construction and operation of oil and gas wells within the municipality. The judge emphasized that the decision was limited in scope, holding to the five municipal ordinances at issue in the case. The case did not present the question whether Chapter 1509 conflicted with local land use ordinances that only address the traditional concerns of zoning laws without imposing a separate permitting regime applicable only to oil and gas drilling. “Thus, in my view, it remains to be decided whether the Ohio General Assembly intended to wholly supplant all local zoning ordinances limiting land uses to certain zoning districts without regulating the details of oil and gas drilling expressly addressed by Chapter 1509,” O’Donnell said.
Not deterred by the Ohio Supreme Court’s decision, Munroe Falls then attempted to pursue the matter through traditional zoning ordinances, Staley explained, and filed suit on 5/27/16 in the lower Summit County Court, in Kostoff v. Beck Energy. The city sought a declaratory judgement on its right to enforce its zoning ordinances. A ruling from that court on 7/14/16 upheld the state’s sole authority to enforce regulations in regard to oil and gas development.
Pennsylvania. The situation is less clear in Pennsylvania, Staley observed. The statutes do allow for local authority, but in areas where oil and gas activities occur, municipals cannot regulate the features of a well. As companies in the state quickly expanded into oil and gas development, local governments responded with ordinances directed at zoning, streets, bridges, noise, air pollution, and civil disobedience, among other things. The number of ordinances have grown dramatically: localities issued 96 ordinances in 2014, 105 in 2015, and, so far in 2016, issued 62.
Starting with arguments in 2008, courts began to try and flesh out the role of local governments. The first ruling came in Range Resources-Appalachia, LLC v. Salem Township (964 A.2d 869 (Pa. 2009), decided on 2/19/09. On appeal from the Commonwealth Court, the Pennsylvania Supreme Court ruled that the ordinances issued by Salem Township to regulate many aspects of oil and gas drilling (including strict requirements for well permitting) are preempted by the Pennsylvania Oil and Gas Act.
Next, the same court’s decision in Huntley & Huntley, Inc. v. Borough Council of the Borough of Oakmont(964 A.2d 855, 2009 WL 413723 (2009)) confirmed the preemption issue to some extent, concluding that the Oil and Gas Act’s preemptive scope is not total in the sense that it does not prohibit municipalities from enacting traditional zoning regulations that identify which uses are permitted in different areas of the locality. This would apply only to the technical aspects of oil and gas well functioning, rather than a well’s location. The court clarified that the holding is not suggesting that all or any zoning regulations of oil and gas development would be allowable.
Then, on 2/8/12, the state passed legislation to overhaul the Oil and Gas Act to increase the oversight and development of oil and natural gas resources in the state. Among other things, Act 13 placed limits on the regulatory authority of local governments in regard to the development. A year later, however, parts of the statute were challenged by seven municipalities, two local elected officials, the Delaware Riverkeeper Network, and a physician. Since then, state courts have issued four rulings in Robinson Township v. Commonwealth, starting with the Commonwealth Court in Robinson I rejecting some of the various challenges to Act 13.
In the latest ruling on September 28, known as Robinson IV, the court, led by four Democrat judges, struck down more of Act 13 (see related article in this Foster Report).
Regarding the preemption issues, the Robinson IV ruling decided that the state’s Public Utility Commission (PUC) has no authority to review municipal land use determinations to determine consistency with the requirements of Act 13. The Supreme Court found that provisions of Act 13 “severely curtailed” the ability of local municipalities to regulate the oil and gas industry. The Act prohibited municipalities from enacting any local ordinance via the state’s Municipalities Planning Code (MPC) or the Flood Plain Management Act, which is the Supreme Court deemed unconstitutional.
Act 13 had provided a mechanism for the PUC and the Commonwealth Court to determine whether a local ordinance violated the MPC or state law, with the PUC either reviewing proposals from municipalities to implement an ordinance or reviewing requests from oil and gas operators aggrieved by the enactment/enforcement of a local ordinance, and allowing a de novo review in the Commonwealth Court. The law also included penalties for municipalities if their local ordinances failed to comply with the requirements of the MPC or state laws, and made local governments liable to pay reasonable counsel fees and costs of a prevailing plaintiff in an action seeking to invalidate or enjoin an ordinance if the Commonwealth Court determined that the ordinance was reckless.
The Robinson II decision in December 2013 found that these sections of Act 13 violated state law guaranteeing the right of the people to directly enforce obligations to natural resources. The General Assembly, in creating Act 13, did not have the authority to abrogate, via legislation, the duties and responsibilities owed by municipalities to their citizens under the Pennsylvania Constitution. In the Robinson IV decision, the Pennsylvania Supreme Court agreed that the portions of Act 13 were not severable from the sections of the act that were invalidated by the Robinson II decision, including the portions giving the PUC the jurisdiction to review local zoning ordinances.
By Kimberly Underwood KUnderwood@fosterreport.com
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The PIOGA Press
By now you have probably heard that on December 1 the salary threshold required for employees to qualify for the executive, professional or administrative exemptions allowed by the Fair Labor Standards Act (FLSA) will double. While certainly significant, this recent update to the overtime regulations was not unexpected, as the salary threshold has not been increased since 2004.
This change is of course not the only recent wage and hour development of which oil and gas employers must be aware. In addition to the fact that Wage and Hour Division of the United States Department of Labor (DOL) has been specifically targeting the oil and gas industry since 2012, there are other, far less distinct trends that have been taking shape over the past year. The DOL and the National Labor Relations Board (NLRB) have announced new rules and cases that could increase employee headcounts and expand the concept of joint employment. In short, for purposes of the FLSA, some oil and gas employers may actually have more employees than their payrolls indicate.
Determining whether independent contractors are actually employees
In response to the trend of increasing employee misclassification investigations and private wage and hour lawsuits, last summer the DOL issued a 15-page interpretative memorandum with an aim to provide “additional guidance” for determining who is an employee and who is an independent contractor under the FLSA. Although classification as an independent contractor can be advantageous (or even preferable) for workers and businesses alike, improperly classified workers do not receive certain workplace protections such as the minimum wage, overtime compensation, unemployment insurance and workers’ compensation. Improper classification also frequently results in lower tax revenues for the government and an unfair advantage against those employers that do properly classify their workers.
The FLSA broadly defines the word “employ” as “to suffer or permit to work.” According to the United States Supreme Court in U.S. v. Rosenwasser, 323 U.S. 360 (1945), and as acknowledged in the DOL’s interpretive memorandum, the “suffer or permit” standard is the broadest definition that has ever been included in any one act and it was designed to ensure as broad a scope of statutory coverage as possible.
The economic realities test determines whether an individual is an employee or an independent contractor. It involves a balancing of several factors, including whether the potential joint employer controls the supposed independent contractor and the employment conditions; the permanency of the relationship; the repetitiveness of the work being performed; whether the work is integral to the potential joint employer’s business; whether the work is performed on the potential joint employer’s premises; and whether the work qualifies as routine administrative work. According to the DOL, these factors should not be analyzed “in a vacuum, and no single factor, including control, should be over-emphasized.” The ultimate determination to be made is whether the individual at issue is in business for him or herself or is instead economically dependent on the employer. According to the DOL, many companies misapply this “broader concept” of the economic realities test and as a result “most workers are employees under the [FLSA].”
NLRB’s expanded joint employer test
Just over one year ago, in August 2015, the NLRB applied an expanded joint employer test in Browning Ferris Industries, et al., 362 NLRB No. 186 (2015), a case in which it held that, for the purpose of a union representation election, Browning Ferris Industries was a joint employer with Leadpoint, a staffing agency. The decision was based upon the concept that it is the “existence, extent and object” of the putative joint employer’s control that matters, not whether that control is actually exercised. Though the Browning Ferris decision is limited to union representation elections, regulatory agencies and the plaintiffs’ bar may attempt to apply a similarly expansive joint employer concept for purposes beyond collective bargaining, such as wage and hour matters. Moreover, many temporary employee and contractor arrangements have been structured in reliance of the NLRB’s pre-Browning Ferris emphasis on the actual exercise of control as the determinative factor rather than the potential for such control. Those arrangements may now be susceptible to attack under the more expansive Browning Ferris test.
DOL’s joint employment guidance
Earlier this year, the DOL issued enforcement guidance on the topic of joint employment. Many employers have decreased the size of their workforce in recent years by relying upon staffing firms to provide temporary employees or by outsourcing certain job functions entirely through contracts with independent businesses. Despite this, employers may still face potential liabilities under the joint employment doctrine. As the traditional direct employment model has changed, these so called “fissured workplaces” have been targeted as alleged joint employers. As a result, traditional labor and employment laws and regulations might be applied to businesses that do not view themselves as the “employer” of temporary or contracted employees.
Many oil and gas employers may be surprised to know that they may be jointly responsible for paying workers overtime along with the entity that actually issues the workers a Form W2. Regardless of whether the potential joint employment involves a horizontal or vertical arrangement, joint employers are jointly responsible for adhering to wage and hour laws. Horizontal joint employment involves workers who are employed by two technically separate yet related or intermingled entities. Vertical joint employment, on the other hand, is the classic staffing agency model.
Very recently, oil and gas workers have begun to file complaints against only one (but not all) of the alleged joint employers. For instance, one plaintiff recently alleged that an operator “or its client” violated a wage and hour law. Another alleged that an operator “or its contractor” misclassified the plaintiff. Perhaps this strategy is the result of genuine confusion as to which entity was the plaintiff’s actual employer. A more likely conclusion may be that plaintiffs are targeting the entity they presume to have deeper pockets. Regardless of plaintiffs’ intentions, oil and gas employers should be aware of the possibility that, for purposes of the FLSA, they may be responsible for workers who do not appear on their payrolls.
Stephen A. Antonelli is a shareholder in the Employment and Labor Practice Group of law firm Babst Calland. For more information about employment and labor challenges in the oil and gas industry, contact Stephen A. Antonelli at 412-394-5668 or santonelli@babstcalland.com.
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The Legal Intelligencer
On July 14, the Commonwealth Court rendered a decision in Hunterstown Ruritan Club v. Straban Township Zoning Hearing Board, 2016 Pa. Commw. LEXIS 327 (Pa. Commw. Ct. 2016), confirming that a property owner’s failure to register a nonconforming use with a municipality and obtain a nonconforming use certificate is not fatal to the continuance of the use.
The law in Pennsylvania regulating legal, nonconforming uses is well settled. A nonconforming use is a use that predates a prohibitory zoning regulation; it constitutes a vested, constitutional property right that may be continued unless the use is a nuisance, abandoned, or extinguished by eminent domain, as in Hafner v. Zoning Hearing Board of Allen Township, 974 A.2d 1204, 1210 (Pa. Commw. Ct. 2009). For example, an existing legal auto body shop does not have to move upon the adoption of a zoning ordinance that prohibits the shop in its present location. Rather, the shop can continue to operate as a nonconforming use.
The burden of proving the existence of a nonconforming use falls upon the property owner. In order to establish a nonconforming use, a property owner must present objective evidence that the subject property was devoted to such use at the time the prohibitory zoning regulation was enacted, as in Appeal of Lester M. Prange, 647 A.2d 279, 281 (Pa. Commw. Ct. 1994). Finally, property owners with a legal, nonconforming use have a constitutionally protected right to expand the use, notwithstanding its status as nonconforming, as in Lench v. Zoning Board of Adjustment of the City of Pittsburgh, 852 A.2d 442, 444 (Pa. Commw. Ct. 2005). This right of natural expansion is not, however, unlimited. Pennsylvania courts have consistently concluded that while a property owner may increase the intensity of a nonconforming use (e.g., an increase in the number of users or an increase in the frequency of the use), a nonconforming use may not be expanded if it would be: inconsistent with the public interest; not an expansion of the current use, but rather an addition of a new use; or excessive, as in Domeisen v. Zoning Hearing Board, 814 A.2d 851, 856 (Pa. Commw. Ct. 2003).
In order to document legal nonconformities, many municipalities require property owners to register them pursuant to a procedure set forth in the municipality’s zoning ordinance. Upon registration, a municipality will typically issue a certificate of nonconformance acknowledging the existence of the nonconformity. Many zoning ordinances state that failure to comply with the registration procedure extinguishes the right to continue the use. However, such provisions are inconsistent with Pennsylvania case law. Most recently in Hunterstown the Commonwealth Court rejected a municipality’s attempt to partially extinguish a nonconforming use because the property owner’s nonconforming use certificate did not fully describe the extent or scope of the vested nonconformity.
In Hunterstown, the Hunterstown Ruritan Club in 1955 purchased 14 acres of property located in Straban Township for the purpose of providing the community with recreational opportunities. The property is partially surrounded by homes and at the time of purchase the township did not have a zoning ordinance. After purchasing the property, the club began to informally use the property for go-cart racing and in 1982 formalized the use by entering into a written lease with Hunterstown Kart Club. Ten years later, the township adopted its first zoning ordinance. Under the new zoning ordinance, go-cart racing was not a permitted use on the property. Nevertheless, the township verbally acknowledged the existence of the go-cart operation and agreed it could continue to operate as a nonconforming use. At that time, go-cart racing primarily took place on Saturdays, but races also were held occasionally on Sundays.
Over time, the club incrementally increased the intensity of the use of the property for go-cart racing and expanded its hours of operation. In 2011, due to this increased utilization, the township’s zoning officer issued a notice of violation to the club. In response, the club applied for a certificate of nonconformance, requesting the township’s formal recognition of the use of the property for racing on Saturdays and Sundays. The township issued the requested certificate, but limited the existing nonconforming use to Sunday racing. The township informed the club that in order to expand the use of the property to permit go-cart racing on Sundays, the club would need to seek special exception approval from the township zoning hearing board.
Disagreeing with the township’s exclusion of Sunday racing from the certificate of nonconformity, the club, pursuant to the township’s direction, sought special exception approval to expand the existing nonconforming use. To prove that Sunday go-cart racing predated the adoption of the zoning ordinance, the club produced a treasurer’s report from 1972 that showed racing took place on at least two Sundays that year. Additionally, the president of the kart club testified that: while Saturday racing was more popular in the 1990s, Sunday is now the more popular day; the ability to hold races on Sundays is essential to the continued existence of the kart club; approximately 250 people raced on the Sunday before the board hearing; alcohol is not permitted on the property; trash is picked up the day after every race; the kart club oversees parking of cars, trucks and trailers and patrons are directed to parking places; if patrons park on the street, they are asked to move their cars; and all audio speakers face the track. In opposition to the club’s request, two township residents who live adjacent to the property testified that Sunday racing did not begin to take place until after 2000.
The board was unpersuaded by the club’s evidence. While acknowledging that the club was a pre-existing nonconforming use, the board concluded that the club failed to satisfy the standards for a special exception and denied the application. The board found that: the proposed use did not meet applicable buffering or parking requirements; the proposed use will significantly devalue neighboring properties; the club did not establish planning with respect to environmental issues and the manner in which it would mitigate the increased noise, traffic, parking needs and pedestrian use of the property; the club did not provide fencing or screening; the club did not establish the number of parking spaces required or mark the parking spaces for standard vehicles and handicapped parking; and the club did not establish the adequacy of illumination of the property or its effects on adjacent properties.
The club appealed the board’s denial to the trial court, arguing that it was not proposing to change or expand the nonconforming use, but sought only to conduct the same racing that had occurred on the property for the past several years. In response, the board argued that the issue was not whether there was a prior nonconforming use for Sunday racing, but whether the club was able to meet the special exception requirements under the zoning ordinance to expand racing to include Sundays. Agreeing with the board, the trial court concluded that the club was not challenging the limitation of its nonconforming use certificate to Saturday only, but was seeking to expand the use to include Sundays, and dismissed the club’s appeal.
Before the Commonwealth Court, the club again argued that it never abandoned the nonconforming use of go-cart racing on Sundays and its nonconforming use includes racing on both Saturdays and Sundays. Agreeing with the club, the Commonwealth Court concluded that Sunday racing was entitled to constitutional protection and reversed. In doing so, the court found, among other things, that the board erred in concluding that the club was not entitled to continue its nonconforming use because the use was not adequately described in the township’s certificate of nonconformance. After summarizing applicable Pennsylvania case law related to nonconforming uses, the court explained that the granting or denial of a nonconforming use certificate, the purpose of which is merely to document the existence of a nonconforming use, has no bearing on an individual’s constitutionally protected property rights. Thus, the court reiterated that the issuance of a nonconforming use certificate does not grant a landowner any additional property rights, nor does the absence of a certificate deprive the landowner of the right to continue a lawful nonconforming use. Accordingly, the court found that the club’s failure to appeal the terms of its certificate of nonconformance resulted only in a procedural disadvantage and not in a restriction or limitation on its constitutionally protected property right to continue the use on Sundays.
The import of Hunterstown is that while a nonconforming use certificate is a useful tool for municipalities to document nonconforming uses and for property owners to defend against zoning enforcement actions, the absence of or an inaccuracy in a certificate does not negate the right of a property owner to continue a nonconforming use. Rather, it merely deprives a property owner of the most efficient method of proving the existence and scope of the use.
*Reprinted with permission from the 8/26/16 issue of The Legal Intelligencer. © 2016 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
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PA Law Weekly
Earlier this summer, our firm reminded you about major changes that take effect on Dec. 1, 2016, when the salary threshold required for employees to qualify for the executive, professional, or administrative exemptions allowed by the Fair Labor Standards Act (FLSA) is doubled. While certainly significant, the updated overtime regulations were not unexpected as the salary threshold has not been increased since 2004.
This sweeping change is not however, the only recent wage-and-hour development of which employers must be aware. There are other, far less distinct trends that have been taking shape over the past year. The Wage and Hour Division of the United States Department of Labor (DOL) and the National Labor Relations Board (NLRB) have announced new rules and cases that could increase employers’ head counts and expand the concept of joint employment. In short, for purposes of the FLSA, some employers may actually have more employees than their payrolls indicate.
INDEPENDENT CONTRACTORS
In response to the trend of increasing employee misclassification investigations and private wage-and-hour lawsuits, last summer the DOL issued a 15-page interpretative memorandum with an aim to provide “additional guidance” for determining who is an employee and who is an independent contractor under the FLSA. Although classification as an independent contractor can be advantageous (or even preferable) for workers and businesses alike, improperly classified workers do not receive certain workplace protections such as the minimum wage, overtime compensation, unemployment insurance, and workers’ compensation. Improper classification also frequently results in lower tax revenues for the government and an unfair advantage against those employers that do properly classify their workers.
The FLSA broadly defines the word “employ” as “to suffer or permit to work.” According to the U.S Supreme Court in United States v. Rosenwasser, 323 U.S. 360 (1945), and as acknowledged in the DOL’s interpretive memorandum, the “suffer or permit” standard is the broadest definition that has ever been included in any one act, and it was designed to ensure as broad a scope of statutory coverage as possible.
The economic realities test determines whether an individual is an employee or an independent contractor. It involves a balancing of several factors including: whether the potential joint employer controls the supposed independent contractor and the employment conditions; the permanency of the relationship; the repetitiveness of the work being performed; whether the work is integral to the potential joint employer’s business; whether the work is performed on the potential joint employer’s premises; and whether the work qualifies as routine administrative work. According to the DOL, these factors should not be analyzed “in a vacuum, and no single factor, including control, should be over-emphasized.” The ultimate determination to be made is whether the individual at issue is in business for him or herself or is instead economically dependent on the employer. According to the DOL, many companies misapply this “broader concept” of the economic realities test and as a result, “most workers are employees under the [FLSA].”
NLRB’S EXPANDED JOINT EMPLOYER TEST
In August 2015, the NLRB applied an expanded joint employer test in Browning Ferris Industries, et al., 362 NLRB No. 186 (2015), a case in which it held that, for the purpose of a union representation election, Browning Ferris Industries was a joint employer with Leadpoint, a staffing agency. The decision was based upon the concept that it is the “existence, extent and object” of the putative joint employer’s control that matters, not whether that control is actually exercised. Though the Browning Ferris decision is limited to union representation elections, regulatory agencies and the plaintiffs’ bar may attempt to apply a similarly expansive joint employer concept for purposes beyond collective bargaining, such as wage- and- hour matters. Moreover, many temporary employee and contractor arrangements have been structured in reliance of the NLRB’s pre-Browning Ferris emphasis on the actual exercise of control as the determinative factor rather than the potential for such control. Those arrangements may now be susceptible to attack under the more expansive Browning Ferris test.
DOL’S JOINT EMPLOYMENT GUIDANCE
Earlier this year, the DOL issued enforcement guidance on the topic of joint employment. In recent years, many employers have decreased the size of their workforce in recent years by relying upon staffing firms to provide temporary employees, or by outsourcing certain job functions entirely through contracts with independent businesses. Despite this, employers may still face potential liabilities under the joint employment doctrine. As the traditional direct employment model has changed, these so-called “fissured workplaces” have been targeted as alleged joint employers. As a result, traditional labor and employment laws and regulations might be applied to businesses that do not view themselves as the “employer” of temporary or contracted employees.
Many employers are surprised to know that they may be jointly responsible for paying workers overtime along with the entity that actually issues the workers a Form W-2. Regardless of whether the potential joint employment involves a horizontal or vertical arrangement, joint employers are jointly responsible for adhering to wage and hour laws. Horizontal joint employment involves workers who are employed by two technically separate yet related or intermingled entities. Vertical joint employment, on the other hand, is the classic staffing agency model.
Very recently, plaintiffs have begun to file complaints against only one (but not all) of the alleged joint employers. For instance, one the plaintiff recently alleged that a efendant “or its client” violated a wage and hour law. Another alleged that a defendant “or its contractor” misclassified the plaintiff. Perhaps this strategy is the result of genuine confusion as to which entity was the plaintiff’s actual employer. A more likely conclusion may be that plaintiffs are targeting the entity they presume to have deeper pockets.
Regardless of plaintiffs’ intentions, employers should be aware of the possibility that, for purposes of the FLSA, they may be responsible for workers who do not appear on their payrolls.
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The PIOGA Press
On June 28, the U.S. Environmental Protection Agency (EPA) published the rule “Effluent Limitation Guidelines and Standards for the Oil and Gas Extraction Point Source Category” in the Federal Register. The final rulemaking, which takes effect August 29, prohibits the discharge of unconventional wastewater pollutants from production, field exploration, drilling, well completion or well treatment to publicly owned treatment works (POTWs).
The rule amends the effluent limitation guidelines (ELGs) found in 40 CFR Part 435, which set the effluent limitations and guidelines for oil and gas extraction under the Clean Water Act. Subchapter C of Part 435, which applies to onshore production of oil and gas, already prohibits the discharge of wastewater pollutants into navigable waters from any source associated with production, field exploration, drilling, well completion or well treatment. The final rulemaking extends the Subchapter C prohibition to include the indirect discharge of unconventional wastewater pollutants through POTWs.
EPA defines unconventional wastewater pollutants, in part, to include drilling muds, drill cuttings, produced sand and produced water. EPA defines “unconventional oil and gas” as “crude oil and natural gas produced by a well drilled into a shale and/or tight formation (including, but not limited to, shale gas, oil, tight gas, and tight oil).” In the accompanying “Technical Development Document for the Effluent Limitations Guidelines and Standards for the Oil and Gas Extraction Point Source Category,” EPA notes that its final definition of unconventional oil and gas is “generally consistent with those in other readily available sources,” including the Pennsylvania Code.
EPA states in the preamble that the final rule is not projected to affect current industry practice or to result in incremental compliance costs because “the data reviewed by EPA show that the [unconventional oil and gas] extraction industry is not currently managing wastewaters by sending them to POTWs.” Nonetheless, operators might consider reviewing the U.S. Energy Information Administration list of unconventional formations that was published as a table in the “Assumptions to the 2015 Annual Energy Outlook” to better ensure compliance.
In the preamble, EPA explains that the rulemaking is in response to concern that certain constituents in unconventional wastewater, such as high concentrations of total dissolved solids (TDS), radioactive elements, metals, chlorides, sulfates and other dissolved inorganic constituents, can pass through POTW facilities untreated. Additionally, EPA states that the same constituents, when found at certain concentrations, can: (1) disrupt the operation of a POTW by inhibiting biological treatment; (2) accumulate in biosolids thereby limiting their beneficial use; and (3) facilitate the formation of harmful disinfection byproducts.
In the Technical Development Document accompanying the final rule, EPA lists the POTWs that have accepted unconventional oil and natural gas wastewater in the past. Eighteen of the 20 listed POTWs are located in the Commonwealth, and all had ceased accepting unconventional wastewater by the end of 2011. EPA credits the Pennsylvania Department of Environmental Protection’s April 2011 request that unconventional operators stop discharging extraction wastewater to POTWs with eliminating the practice.
EPA also notes in the preamble to the final rule that there are several zero-discharge alternatives for managing unconventional wastewater, such as underground injection control disposal, recycling for fracturing of other wells or transfer of the wastewater to a centralized wastewater treatment (CWT) facility. Several commenters on the proposed rule suggested that EPA establish a non-zero discharge standard similar to the one adopted in Pennsylvania in 2010 that requires pretreatment of oil and natural gas wastewaters to meet a maximum TDS concentration of 500 mg/L. EPA rejected this suggestion, in part, to achieve consistency between the direct and indirect discharge requirements in Part 435.
In the Technical Development Document, EPA explicitly states that it is aware of instances where unconventional operators discharge wastewater to CWT facilities for treatment and that certain CWT facilities discharge to POTWs. According to EPA, “such discharges may not be subject to the ELGs for the oil and gas extraction category which is the subject of the rule. Rather, discharges to POTWs from CWT facilities accepting [unconventional] wastewaters may be subject to ELGs for the Centralized Waste Treatment Category (40 CFR Part 437).”
Preliminary Effluent Guidelines Program Plan released
On June 27, EPA released the “Preliminary 2016 Effluent Guidelines Program Plan.” The Clean Water Act requires EPA to review existing ELGs annually. In even-numbered years, such as in 2016, EPA reviews hazard data sources and conducts alternate analyses to identify industrial categories for which new or revised ELGs may be appropriate.
In the “Final 2014 Effluent Guidelines Program Plan,” published in July 2015, EPA announced that it would study oil and natural gas wastewater management, including all CWT facilities accepting such wastewater. Currently, the ELGs in 40 CFR Part 437 apply to CWTs, including CWTs that accept oil and natural gas wastewaters for treatment and discharge.
EPA reports in the “Preliminary 2016 Effluent Guidelines Program Plan” that its study is “ongoing.” EPA has gathered information about CWT facilities across the country and identified those facilities that currently accept or have in the past accepted oil and gas extraction wastewater. EPA also has collected information on wastewater characteristics, wastewater treatment technology effectiveness and costs, environmental impacts of discharges, and economic aspects of the industry, and has inspected some facilities to collect additional site-specific data.
Significantly, EPA states that it is planning to augment this data through a targeted information collection request (ICR). While the agency has not provided details regarding the scope or target of the request, EPA could issue the ICR to CWT facilities and/or operators that generate oil and natural gas wastewater. EPA previously stated in the “Final 2014 Effluent Guidelines Program Plan” that its detailed study may encompass conventional and unconventional operators, zero-discharge CWT facilities, CWT facilities regulated by Part 437, and CWT facilities not regulated by Part 437.
Conclusion
EPA believes the final rulemaking prohibiting the discharge of unconventional wastewater to POTWs is unlikely to affect oil and gas operators. The agency has, however, reserved the right to begin a new rulemaking concerning the discharge of conventional wastewater to POTWs, which could affect extraction and production activities in the Commonwealth.
Additionally, CWT facilities and operators should be prepared for a possible ICR from EPA concerning the management and disposal of oil and natural gas wastewater. Irrespective of whether EPA issues the planned ICR, the data collected by the agency during its ongoing study of oil and natural gas wastewater could be used in a rulemaking to amend the ELGs in 40 CFR Part 437, which could affect the management, treatment, and disposal of conventional and unconventional wastewater at CWT facilities.
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The Legal Intelligencer
While Pennsylvania’s natural gas production is on the rise, energy lawyers in the state said that will not have an immediate impact on their practices. But, they said, the numbers forecast a bright future for multidisciplinary energy practices in Pennsylvania, as well as the overall state economy.
The Pennsylvania Department of Environmental Protection published its annual Oil and Gas Report earlier this month, which said Pennsylvania’s natural gas production rate increased to a record high, despite a nationwide downturn in oil and gas drilling activities.
“It reaffirms the idea that we have a stable and productive amount of natural gas,” said Joseph Reinhart, co-chair of Babst Calland’s energy and natural resources practice group. “That means good things for the economy including the lawyers.”
Lawyers said the production statistics will draw industry to Pennsylvania. But the positive consequences, particularly in the legal industry, may not be immediate, as infrastructure remains lacking and the industry overall is still experiencing a downturn.
“It’s going to take a few years for things to play out,” northeast Pennsylvania energy lawyer Stephen Saunders said. When it does, “people that are really committed to keeping up to the developments in the industry, they’re going to have work to do.”
According to the DEP report, more than 4.6 trillion cubic feet of natural gas was produced in Pennsylvania last year, up from about 4.1 trillion in 2014 despite a reduction in the number of natural gas wells being drilled.
Last week, acting DEP Secretary Patrick McDonnell said Pennsylvania’s Marcellus Shale natural gas wells are the most productive in the United States, according to a report in the Observer-Reporter, a southwestern Pennsylvania newspaper.
Reinhart noted that the annual report is not even up to date, since it is based on 2015 numbers. He said production rates have likely increased, and operators are indicating that their capital budgets are increasing.
But Saunders said high production alone does not have a major influence on the industry’s bottom line because natural gas prices are low.
“My clients, they’ve basically said we’re in a holding pattern right now,” Saunders said.
But, he said, when gas prices eventually rebound, energy companies’ budgets will be in shape to make investments.
“Once it does, I think there’s every reason to think that legal work, just as it would be for any other suppliers or vendors of oil and gas, will come back,” Saunders said.
Michael Krancer, chairman of Blank Rome’s energy industry team, said higher production in Pennsylvania will eventually bring more industry activity to the area, and cause a ripple effect throughout multiple legal practice areas.
Some energy-sector investment has already begun. Shell Chemical Appalachia announced in June that it was planning to build a multibillion-dollar petrochemical plant in Beaver County. The complex will use ethane from shale gas producers in the area, according to a release from Shell Global.
“That’s mega industry coming into the area,” Saunders said. “There will certainly be spin-off effects.”
Reinhart said western Pennsylvania will be of particular interest, but the whole surrounding region is likely to benefit.
As companies expand in Pennsylvania it will bring all sorts of legal work to the region, Krancer said. He noted that when he was counsel at an energy company, only 10 to 20 percent of his daily work was in energy law.
“Really the push or the bump comes well beyond energy-related work,” Krancer said. “The [firms] that are really boutique and focused are not poised to do well. They’ve got all their eggs in one basket.”
Saunders said there has been a “culling out” of lawyers who were not well situated to practice in the energy sector long-term. Regulatory and compliance as well as litigation are currently “hot” practice areas in the energy sector, he said, but others have cooled off.
Saunders helps plan the Pennsylvania Bar Institute’s annual Oil and Gas Colloquium and said attendance at this year’s event was high. It mostly consisted of lawyers on the industry side working out of western Pennsylvania, he said.
Krancer said the future for Pennsylvania’s energy industry depends upon how elected officials and regulators approach the infrastructure issues that remain. The high level of production Pennsylvania has seen, he said, underscores the need to get pipelines and other means of transport in place.
“Pennsylvania can be not only a national leader but a worldwide leader in conducting this activity,” Krancer said.
Saunders said getting the right infrastructure in place will help gas prices to rise and make the industry better able to invest in the region.
Both Krancer and Saunders said it’s possible that Pennsylvania could rise to the top of the energy industry if that happens. But Saunders noted that states like Texas and Oklahoma have had much more time to make their mark in the oil and gas industry.
Even when energy-related legal activity begins to increase, Saunders said, it will remain a difficult area to enter. The ongoing downturn has weeded out a number of lawyers whose practices were not diverse enough, making it difficult for newcomers to compete with those who remain, he said.
*Reprinted with permission from the 8/15/16 issue of The Legal Intelligencer. © 2016 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
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The PIOGA Press
On June 23, Governor Tom Wolf signed Act 52 of 2016, the Pennsylvania Grade Crude Development Act, formally Senate Bill 279. Act 52 abrogates the Environmental Quality Board’s (EQB) revisions to the Chapter 78 regulations concerning conventional oil and natural gas wells and creates the Pennsylvania Grade Crude Development Advisory Council.
In February, the EQB approved the Chapter 78 (conventional wells) and Chapter 78a (unconventional wells) Subchapter C revisions by a vote of 15-4. The Chapter 78 revisions would have altered or created new obligations for permit applications and renewals, water supply replacement, predrilling surveys and reviews, erosion and sediment control, emergency response plans, wastewater management, disposal of drill cuttings, site restorations, spills and releases, and production reporting. The revisions also included 31 different requirements for electronic applications, notifications and submittals.
Act 52 applies only to the conventional regulations. The Chapter 78a unconventional regulations are currently undergoing review at the Pennsylvania Office of Attorney General and are expected to be published in late summer.
In addition to abrogating the pending revisions to Chapter 78, Act 52 specifies that any future rulemaking concerning conventional wells must be undertaken separately and independently of unconventional wells and other subjects. Future rulemakings concerning conventional wells must include a regulatory analysis form submitted to the Independent Regulatory Review Commission (IRRC) that is restricted to the subject of conventional wells.
Act 52 addresses the primary criticism of PIOGA and other trade associations and the Department of Environmental Protection’s Conventional Oil and Gas Advisory Committee (COGAC) regarding EQB’s Chapter 78 revisions. Specifically, Act 126 of 2014 required EQB to promulgate proposed regulations relating to conventional wells separately from proposed regulations relating to unconventional wells, which should have removed pending revisions applicable to conventional operations proposed in 2013. Any regulatory revisions for conventional operations following Act 126 were required to be restarted with a new proposed rule and regulatory analysis explaining and justifying the need for the revisions.
In an October 29, 2015 resolution, COGAC stated that DEP did not adequately separate and distinguish between the two sets of proposed regulations. As noted by COGAC, merely separating the rule into two chapters (78 and 78a) was inadequate to cure several Regulatory Review Act (RRA) deficiencies, including the department’s failure to provide data, documents or evidence that describe the need for changes to the regulations; data on the cost of the proposed regulations to the conventional industry; and a regulatory flexibility analysis that considers methods of reducing the impact of the revisions on small businesses. During the IRRC review process, two of the five commissioners agreed that the department did not provide enough information on the cost of the regulations, meet its burden to show that the revisions as applied to conventional operations are necessary or conduct the required flexibility analysis for small businesses.
Act 52 responds to these and other concerns by requiring that the department submit information required by the RRA— including information related to the need for the regulations, the cost of the regulations and the effect of the regulations on small businesses—in a format solely dedicated to conventional wells, if and when the department determines that any revisions to the existing rules are necessary.
Act 52 also creates the Pennsylvania Grade Crude Development Advisory Council. The Council will consist of 17 members, including two members apiece appointed by Governor Wolf from PIOGA, the Pennsylvania Independent Petroleum Producers and the Pennsylvania Grade Crude Oil Coalition.
The council will assist the department in: (1) examining and making recommendations regarding existing technical regulations promulgated under the Oil and Gas Act; (2) exploring the development of a regulatory scheme that provides for environmental oversight and enforcement specifically applicable to the conventional oil and gas industry; (3) providing written comments on new DEP policy that will impact the conventional oil and gas industry; and (4) reviewing and commenting on the formulation and drafting of all technical regulations proposed under the Oil and Gas Act.
Beyond regulatory review and recommendations, the new council is charged with promoting the long-term viability of the conventional industry, providing institutional support for the conventional industry by ensuring effective cooperation and communication among governmental agencies and the academic and research community, and recommending appropriate measures relating to the promotion and development of the conventional industry. The council will also develop a plan to increase Pennsylvania Grade crude oil production in an environmentally responsible way and form a joint working group with the department to explore and develop an environmentally responsible and economically viable production water management option.
DEP is in the process of developing Chapter 78 Subchapter D revisions, which will address well drilling, casing, cementing, completion, operation, production, plugging and other subsurface activities. Act 52 mandates that any proposed Subchapter D revisions applicable to conventional wells be undertaken separately and independently from those regulations the department proposes for the unconventional industry. DEP has stated it anticipates proposing revisions to Subchapter D in the fourth quarter of 2016.
Both the unconventional and conventional industries should be prepared for further legislative and regulatory developments throughout 2016. ■
For more about developments described above, contact Jean M. Mosites (412-394-6468 or jmosites@babstcalland.com) or Michael K. Reer (412-394-6583 or mreer@babstcalland.com).
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