The Foundation Mineral and Energy Law Newsletter

Pennsylvania- Oil & Gas

(By Joseph K. ReinhartSean M. McGovernMatthew C. Wood and Gina N. Falaschi)

On October 5, 2021, Pennsylvania Attorney General Josh Shapiro announced that the Environmental Crimes Section had charged Energy Transfer, L.P. (Energy Transfer), parent company of Sunoco Pipeline, L.P. (Sunoco), with 46 counts of environmental crimes. The charges stemmed from an investigation by the Forty-Fifth Statewide Investigating Grand Jury (Grand Jury), which concluded that Sunoco had violated Pennsylvania law in connection with its construction of the Mariner East 2 pipeline, a project that crosses 17 counties in the commonwealth. Two charges were later added from a criminal referral from the Pennsylvania Department of Environmental Protection (PADEP), bringing the total charges to 48. Among other things, Attorney General Shapiro and the Grand Jury alleged that Sunoco had repeatedly allowed—and failed to report to PADEP, as required by law—spills, leaks, and losses of drilling fluid during horizontal directional drilling (HDD) activities. The Grand Jury also heard testimony from landowners complaining of impacts to their properties, including to drinking water sources, and found that Sunoco’s HDD activities had impacted multiple recreational lakes in different counties. See generally Police Criminal Complaint, Commonwealth v. Energy Transfer, L.P., No. CR- 302-2021 (Pa. Commw. Ct. Oct. 5, 2021); Grand Jury’s Presentment (Oct. 5, 2021).

On December 6, 2021, two months after Attorney General Shapiro announced the criminal charges, PADEP and the Department of Conservation and Natural Resources (DCNR) announced that it had reached a settlement with Sunoco that requires the company to address impacts from releases of drilling fluid and mud that occurred in August 2020 at Marsh Creek Lake State Park in Chester County, Pennsylvania. Specifically, the settlement requires Sunoco to (1) dredge the top six inches of sediment from approximately 15 acres of Ranger Cove (which was closed due to the impacts); (2) replace fish, turtle, and bird habitat structures impacted by the dredging; (3) dewater/transport all dredged material from the lake and restore shoreline and streamside forest buffers; (4) post a $4 million bond (to ensure completion of the remediation); (5) pay $4 million for natural resource damages to be used by DCNR for the benefit of the state park (e.g., an accessible boat launch, stream and shoreline restoration, invasive species suppression, efficiency measures that will take the park to net-zero energy, and a public visitor center); and (6) pay a civil penalty of $341,000 to the Clean Water Fund for permit violations. See News Release, PADEP, “Wolf Administration Requires Sunoco to Restore Lake at Marsh Creek State Park in Chester County” (Dec. 6, 2021); Consent Order and Agreement, In re Sunoco Pipeline, L.P. (PADEP Dec. 6, 2021).

Concurrent with executing the settlement, PADEP approved major amendments to Sunoco’s chapter 102 (Erosion and Sediment Control) and chapter 105 (Water Obstruction and Encroachments) permits for construction of the pipeline at Marsh Creek Lake. The amendments provide Sunoco an avenue to complete construction of the pipeline using a separate route and the open-cut method (as opposed to HDD, meaning no drilling fluids will be used). More information and documents about the Marsh Creek Lake impacts and settlement are available at Community%20Information/Pages/Marsh-Creek-Lake-HDD-290. aspx. Construction of the Mariner East 2 pipeline is expected to be completed in the first quarter of 2022. A preliminary hearing in the criminal case against Energy Transfer is scheduled for March 1, 2022.

Pennsylvania Supreme Court Holds That Eminent Domain Power Need Not Be Property-Specific to Invoke Inverse Condemnation Liability

On November 29, 2021, the Pennsylvania Supreme Court overturned a decision by the Pennsylvania Commonwealth Court, ruling that UGI Storage Company (UGI) could be held liable for taking oil and gas drilling rights in a proposed protective buffer zone around the Meeker natural gas storage field in Tioga County, Pennsylvania. In 2009, UGI, a quasi-public entity with the power of eminent domain, sought from the Federal Energy Regulatory Commission (FERC) a certificate of public convenience and necessity to acquire and operate certain facilities related to the interstate transportation and sale of natural gas owned by UGI Central Penn Gas, Inc. (CPG), including a 1,216- acre underground storage field in Tioga County and an additional 2,980-acre protective buffer zone around the storage field.

FERC granted UGI’s application for the storage field but denied its request for the full buffer zone (citing issues with notification and property rights requirements in accordance with applicable federal regulations). The decision resulted in only parts of the buffer zone being certificated. In 2015, certain property owners sought the appointment of a board of viewers to assess damages for de facto condemnation of their properties under section 502(c) of the Eminent Domain Code, 26 Pa. Cons. Stat. § 502. The property owners claimed that although only certain segments of the buffer zone had been certificated, UGI was treating the properties within the uncertificated segments in the same manner as those within the certificated are- as as protection for the integrity and security of the storage field. As such, the property owners alleged that UGI had deprived them of the financial benefits of utilizing natural gas underlying their properties by effectively prohibiting hydraulic fracturing activities, thus resulting in a de facto condemnation. The case moved between the trial and appellate courts over the next few years.

On appeal to the Commonwealth Court of Pennsylvania in 2020, the court applied the three-prong test for determining whether a de facto condemnation had occurred (but disagreed as to whether the owners needed to prove that UGI had proper- ty-specific powers of eminent domain in order to prove same). See generally Hughes v. UGI Storage Co., 243 A.3d 278 (Pa. Commw. Ct. 2020), vacated and remanded, 263 A.3d 1144 (Pa. 2021). Under the test, the property owners had to show that (1) the condemnor had the power to condemn the land under eminent domain procedures; (2) the property owner was substantially deprived of the use and enjoyment of the property through exceptional circumstances; and (3) the damages  sustained were an immediate, necessary, and unavoidable consequence of the condemnor’s exercise of its eminent domain power. Id. at 284. A majority of the members of the court concluded that failing to obtain FERC’s certification for segments of the buffer zone precluded UGI exercising its eminent domain power. As such, the court found that the property owners could not establish that “that any purported deprivation of the beneficial use and enjoyment of their properties ‘is the immediate, necessary and unavoidable consequence of the exercise of the power to condemn,’ the third prong necessary to find a de facto taking.” Id. at 289 (quoting In re Condemnation by Commonwealth, 805 A.2d 59, 68 (Pa. Commw. Ct. 2002)). The property owners appealed to the Pennsylvania Supreme Court.

In Hughes v. UGI Storage Co., 263 A.3d 1144 (Pa. 2021), the court looked to the text of the Eminent Domain Code, concluding that nothing therein indicated a requirement of a relation- ship between the eminent domain power and a specific property. Id. at 1156. Instead, the court reasoned that an actionable taking only required that the condemnor proceeded by authority of law for a public purpose. Id. Relying on its interpretation of the Eminent Domain Code and a string of U.S. Supreme Court decisions that found no requirement of a relationship between the eminent domain power and a specific property, the court held that “a public or quasi-public entity need not possess a property-specific power of eminent domain in order to implicate inverse condemnation principles.” Id. at 1158. The court vacated the commonwealth court’s order and remanded to that court for further proceedings consistent with its opinion and to address a waiver issue previously raised at the trial court level.

Pennsylvania General Permit for Short Duration Processing and Beneficial Use of Oil and Gas Liquid Waste Available for Public Comment

On January 15, 2022, the Pennsylvania Department of Environmental Protection (PADEP) published draft General Permit WMGR163 (Draft Permit) in the Pennsylvania Bulletin for public comment. See 52 Pa. Bull. 419 (Jan. 15, 2022). PADEP created the Draft Permit as a result of the July 9, 2021, passage of Act 70, which amended the Administrative Code of 1929. As pro- posed, the Draft Permit would authorize the short-term processing, transfer, and beneficial use of oil and gas liquid waste to hydraulically fracture or otherwise develop an oil or gas well under the authority of the Solid Waste Management Act, 35 Pa. Stat. §§ 6018.101–.1003, and the Municipal Waste Planning, Recycling and Waste Reduction Act, 53 Pa. Stat. §§ 4000.101–.1904. The Draft Permit covers facilities that process and beneficially reuse oil and gas liquid waste for no longer than 180 consecutive days.

If finalized as proposed, any company interested in using the Draft Permit will have to register its authorized activities with PADEP pursuant to 25 Pa. Code § 287.643. PADEP will be prohibited from requiring an applicant to obtain a determination of applicability from the agency (25 Pa. Code § 287.641(c)) prior to the issuance of the final permit as authorized under 25 Pa. Code § 287.641(d) for the land application of material. Key provisions in the Draft Permit include:

  1. Facilities are authorized to process and transfer oil and gas liquid waste for no more than 180 consecutive days during the permit’s one-year coverage
  2. The permittee may not store more than 1,000,000 gallons of oil and gas liquid waste on-site at any one
  3. Oil and gas liquid waste is not subject to concentration limits or chemical testing in order to be stored in an impoundment (unlike General Permit WMGR123).
  4. The applicable facility must meet the siting requirements set forth in the permit (e.g., it must not be located within a 100-year floodplain or within certain distances of an exceptional value wetland, dwelling, or property line, subject to certain exceptions).
  5. The permittee must develop and make available at the facility a Preparedness, Prevention and Contingency Plan that is consistent with applicable PADEP guidance.

The Draft Permit is available for review and comment through March 15, 2022, and Act 70 requires PADEP to submit the general permit to the Pennsylvania Legislative Reference Bureau by July 1, 2022, for publication in the Pennsylvania Bulletin. 71 Pa. Stat. § 510-39.

PADEP Releases Draft 2022 Integrated Water Quality Monitoring and Assessment Report

On January 15, 2022, the Pennsylvania Department of Environmental Protection (PADEP) released in the Pennsylvania Bulletin, and requested public comment on, its draft 2022 Integrated Water Quality Monitoring and Assessment Report (2022 Integrated Report). See 52 Pa. Bull. 418 (Jan. 15, 2022). The draft 2022 Integrated Report, which PADEP is required to produce biennially pursuant to sections 303(d) and 305(b) of the Clean Water Act (CWA), 33 U.S.C. §§ 1313(d), 1315(b), and 40

C.F.R. pt. 130, identifies state waters that do not meet applicable water quality standards. Waters fall into three general statuses—attaining, impaired, or unassessed—and are further categorized according to uses, data, and whether a total maximum daily load (TMDL) is necessary (e.g., Category 1 waters are attaining for all uses, while Category 5 waters are impaired for one or more uses by a pollutant that requires a TMDL).

Pursuant to applicable regulations, PADEP assessed waters throughout the commonwealth for four uses: drinking water, fish consumption, aquatic life, and recreational use. 25 Pa. Code § 93.3. Similar to the 2020 Integrated Report, see Vol. XXXVII, No. 3 (2020) of this Newsletter (Pennsylvania—Mining report), PADEP identified acid mine drainage, agriculture, and stormwater runoff as the top known sources for waters impairment. PADEP conducted initial assessments on 5,844 stream miles and 25,742 public lake acres in addition to reassessing an additional 5,334 stream miles and 14,262 public lake acres. Waters were reassessed for a variety of reasons, including removal of potential discharge sources, identification of new

discharge sources, or verification that source and cause of impairment are unchanged. The draft 2022 Integrated Report identified 27,886 impaired stream miles, 2,418 more than documented in the 2020 Integrated Report. The draft 2022 Integrated Report reflects the cumulative assessment of 99% (84,977 miles) of stream miles and 97% (109,819 acres) of lake acres statewide and is the fifteenth in a series of reports prepared and submitted to the U.S. Environmental Protection Agency (EPA) pursuant to the CWA.

Items of note in the draft 2022 Integrated Report include:

  1. Since 2004, approximately 920 stream miles and 28,000 public lake acres have been
  2. Approximately 28,000 stream miles and 69,000 public lake acres are listed as
  3. After PADEP completed the new assessments and reassessments, the percentage of impaired waters in Pennsylvania increased to 33%, up from 30% as documented in the 2020 Integrated
  4. The draft 2022 Integrated Report identified Lancaster (1,286 stream miles), Elk (1,126 stream miles), Chester (1,020 stream miles), Franklin (928 stream miles), and Allegheny (915 stream miles) as counties having the most miles of impaired
  5. PADEP delisted a total of 380 stream miles and 178 public lake acres. A total of 120 stream miles were fully restored, 78 stream miles had causes for impairment removed, and the remaining stream miles were delisted because of data refinement. Of the 178 public lake acres delisted, 95 acres were fully restored, 26 acres had causes for impairment removed, and the remaining acres were delisted because of data refinement.

PADEP is seeking general comments on the draft 2022 Integrated Report, and specific comments on waters listed as high priorities for TMDL development and on those selected for restoration through alternatives to TMDLs. PADEP is accepting comments on the draft 2022 Integrated Report through March 1, 2022. The final 2022 Integrated Report, including a list of Category 5 waters (requiring development of a TMDL), will be submitted to the EPA pursuant to sections 303(d) and 305(b) of the CWA.

PADEP to Finalize Rulemaking for Control of VOC Emissions from Existing Oil and Natural Gas Sources

The Pennsylvania Department of Environmental Protection (PADEP) is preparing to finalize a rulemaking that adopts reasonably available control technology (RACT) requirements and RACT emission limitations for existing oil and natural gas sources of volatile organic compound (VOC) emissions. This proposal is based on the U.S. Environmental Protection Agency’s (EPA) October 2016 Control Techniques Guidelines (CTG) for the Oil and Gas Industry, 81 Fed. Reg. 74,798 (Oct. 27, 2016), which provide RACT requirements for VOC emissions from existing oil and gas sources. The rule would apply to owners and operators of any of the following oil and natural gas sources of VOC emissions that were in existence on or before the effective date of this rulemaking: storage vessels (in all segments except natural gas distribution), natural gas-driven continuous bleed pneumatic controllers, natural gas-driven diaphragm pumps, centrifugal and reciprocating compressors, and fugitive emission components.

Pennsylvania’s Environmental Quality Board (EQB) first published a proposed rulemaking on May 23, 2020. 50 Pa. Bull. 2633 (May 23, 2020); see Vol. XXXVII, No. 3 (2020) of this Newsletter. The proposed rulemaking was published for public comment, three virtual hearings were held, and the comment period ended on July 27, 2020. PADEP received roughly 4,500 comments from approximately 36,000 commenters. PADEP is preparing, but has not yet released, a comment and response document for the rulemaking.

The draft final-form rule was presented to the Air Quality Technical Advisory Committee in December 2021 and was presented to PADEP’s other advisory committees in January 2022. The final-form rule incorporated public comment by making changes to improve clarity and minor edits on applicability and inspection requirements. The rulemaking will impact approximately 199 conventional wells and 4,913 unconventional wells, which will be required to implement leak detection and repair (LDAR) programs or increase the current LDAR frequency under the proposed rulemaking. Approximately 278 midstream com- pressor stations and 5 natural gas processing plants will be required to implement LDAR programs or meet new requirements.

On December 16, 2021, EPA found that Pennsylvania failed to submit state implementation plan (SIP) revisions required by the Clean Air Act (CAA) in a timely manner to address RACT requirements associated with the 2016 Oil and Natural Gas Industry CTG mentioned above. See 86 Fed. Reg. 71,385 (Dec. 16, 2021). Failure to submit SIP revisions within the next 18 months will trigger sanctions and the creation of a federal implementation plan.

PADEP anticipates advancing the draft final rule to the EQB for approval in the first quarter of 2022. The agency will finalize the rule and submit it to EPA as a SIP revision in the second quarter of 2022—within EPA’s new 18-month deadline. Compliance requirements would likely begin in January 2023.


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