Dear DRBC: Pass Natural Gas or Get Out of the Way!
In the northeast corner of Pennsylvania in the DRBC region, sits Wayne County; a beautiful landscape with rolling hills, bountiful farmland, and quaint towns. Underneath this pristine countryside is the mighty Marcellus Shale formation. Unfortunately, this article is not about the safe and responsible development of natural gas or the vast economic prosperity that comes with its development. Instead, this article is about the unneeded, and possibly unconstitutional, de facto moratorium currently handcuffing the region.
Natural gas, oil, and even mining have always been regulated by the states. Pennsylvania, for instance, has had very long history of safely developing these resources. This of course is evident across the state as operators such as Chesapeake Energy, Cabot Oil & Gas, and Chief Oil & Gas, continue to cultivate natural gas from shale.
Some water sources in Pennsylvania are the responsibility of organizations established by interstate compacts. Since Wayne County is part of the Delaware River watershed, the Delaware River Basin Commission (DRBC) governs all water withdrawals and helps define natural resource regulations. This particular watershed feeds down-river metropolitan areas like Philadelphia and is responsible for sourcing power plants, golf courses, municipalities, etc. with clean water. The DRBC is staffed by representatives of New York, New Jersey, Pennsylvania, Delaware and U.S. Army Corps of Engineers.
In May, 2010, the commission decided to draft its own regulations to govern natural gas development, instead of using the already proven and reliable state regulations as the Susquehanna River Basin Commission (SRBC) does. The commission identified three major areas of concern:
- Natural gas projects in the Marcellus Shale, or other formations, may have a substantial effect on the water resources of the basin by reducing the flow in streams and/or aquifers used to supply the amounts of fresh water needed in the natural gas mining process.
- Natural gas operations may potentially add, discharge or cause the release of pollutants into ground water or surface water.
- The recovered “frac water” must be treated and disposed of properly.
Since May 2010, the commission has developed its own set of regulations, but continuously delays their adoption. Why?
Individual members politics may have something to do with the situation. Delaware has, temporarily at least, bought in to the anti- natural gas agenda, choosing propaganda and emotion over facts and science. In addition, while the commission could have proceeded with a majority vote of its members, New York’s own regulatory heartache is messing up the process. New York State is currently redefining its natural gas guidelines to control Marcellus Shale development. Because of this New York has, to date, refused to take action. Meanwhile, thousands of residents in Wayne County are suffering as their constitutional rights are suspended.
The DRBC failure to act on its own regulations is preventing Wayne County residents from developing the natural gas reserves underneath their feet. Without DRBC approval, landowners are not receiving royalties, communities are not receiving tax revenue, businesses are not experiencing growth and the unemployed cannot find industry jobs. Does this seem fair? Of course not, especially when the rest of Pennsylvania is developing the Marcellus shale safely. Even counties in the Susquehanna River watershed – subject to another interstate compact governing waterways – are benefiting.
While Wayne County continues to be left behind the residents within the County are growing disgusted. So much so in fact they are now taking action. Just last week the Northern Wayne Property Owners Alliance (NWPOA) sent a powerful letter to DRBC asking the commission to pass the regulation or let Pennsylvania take over. The letter is below in its entirety for you to review. Rest assured the residents of Wayne County will not sit idly by while their rights are sacrificed by a quasi-governmental agency which has zero elected members. This letter is likely the first of many steps NWPOA, and others, will take this year to unlock the resources beneath their feet.
DRBC LetterMs. Carol R. Collier Executive Director Delaware River Basin Commission 25 State Police Drive P.O. Box 7360 West Trenton, NJ 08628-0360
Re: Lifting the Postponement on the Commission’s Consideration of Natural Gas Well Pad Dockets
As you know, this firm represents the Northern Wayne Property Owners’ Alliance (“NWPOA”), an organization of approximately 1300 families that leased approximately 100,000 acres of their land in northeastern Pennsylvania for natural gas development. Most of that land is within the Delaware River Basin. I write to ask the Delaware River Basin Commission either (a) to begin consideration of natural gas well pad projects under the Executive Director’s Determination of May 19, 2009 (“EDD”), and the Supplemental Executive Director’s Determination of June 10, 2010 (“SEDD”), or (b) to suspend those Executive Director’s Determinations until such time as the Commission adopts governing regulations. I ask that you transmit this request to the Commissioners and their staffs.
The Commission has no regulations governing natural gas well pad development specifically, and construction of a gas well pad has not, until recently, required any approval from the Commission. That changed when you issued the EDD subjecting “natural gas extraction project[s] located in shale formations within the drainage area of Special Protection Waters” to Commission review and approval. On May 5, 2010, the Commission adopted the following resolution:
- We direct staff to develop draft regulations on well pads in the shales for notice and comment rulemaking;
- we will postpone the Commission’s consideration of well pad dockets until regulations are adopted;
- we will move forward with water withdrawal dockets in due course.
The Staff has since that time developed regulations, publishing drafts on December December 9, 2010, and then again, after some postponements, on November 8, 2011. The Commission, however, has not adopted the regulations, it cancelled its November 21, 2011, meeting set to do so, and no other meeting has been set for the purpose of considering the regulations.
Based upon the advocacy surrounding consideration of those regulations and certain public statements, at least some of the Commissioners oppose adoption of regulations not for technical reasons, but instead because adoption of regulations would allow at least some natural gas development to proceed in the drainage area of the Special Protection Waters. Opponents to all natural gas development would prefer adoption of the regulations to be postponed indefinitely because the absence of regulations precludes all natural gas development under the Commission’s May 5, 2010, resolution. Those opponents to natural gas development have apparently persuaded some Commissioners, indefinitely postponing natural gas projects.
The Commission is Imposing a Ban or Prohibition on Natural Gas Development, Not a Hiatus for the Purpose of Developing Regulations.
What the Commission is now imposing amounts to a permanent – or at least indefinite – ban on natural gas development. NWPOA acknowledges that regulatory approval programs typically involve delays during which the development may not proceed while the regulator considers an application for approval. Further, some planning programs impose temporary development moratoria while the regulator adopts a plan. But that is not what has happened here. The Staff has developed regulations. The Commission will not adopt them. The motivation of at least some Commissioners for not acting on the regulations is that action might lift the complete ban. That is not a hiatus for planning. That is a prohibition.
As we have pointed out before, merely by making development in the Basin more costly and less certain, these actions effectively preclude natural gas development for the foreseeable future. All of NWPOA’s members owned unsevered natural gas rights, and then leased them for development. As you know, a natural gas lease is best understood as an agreement under which the owner of the gas rights conveys them by fee simple determinable to a developer. The property owner typically has neither the capital nor the expertise profitably to develop the natural gas. Accordingly, it joins with the developer through the lease in a joint effort to produce gas at a profit. They share the proceeds. Importantly, the natural gas estate is real estate; it cannot move. The developer’s capital and expertise are very mobile, and will move to the most profitable place.
The lease protects against that sort of speculative fickleness by including an express or implied covenant of production. The lessee has agreed to try to produce the gas. But the lessee cannot produce gas if regulators do not permit it. If a lessee cannot hold the lease by production and no other alternative exists, the lessee’s interest will terminate, its capital will move elsewhere, and no one else will fill that void. The landowners will be deprived of the benefit of the bargains that they struck well before the Commission decided to regulate this activity, quite possibly for decades.
Under current conditions, other nearby jurisdictions – from Pennsylvania counties in the Susquehanna River Basin to Ohio – impose far less regulatory burden on natural gas development. Unless the Commission allows development to begin in Wayne County soon, leases will be abandoned, drill rigs will move, and the question of natural gas development in the Basin will be, as a practical matter, answered for a long time. And that is precisely what the delay is about.
The Delaware River Basin Compact Does Not Authorize Categorical Prohibitions, but Instead Requires Individualized Approvals.
The Commission’s approach to natural gas development does not comport with the Delaware River Basin Compact. Natural gas well pads are not “projects” within the regulatory oversight of the Commission. Moreover, the regulations the Staff has proposed are arbitrary and capricious and overstep the bounds of the authority conferred by the Compact.
Nevertheless, assuming that the Commission could properly regulate natural gas development, it cannot do what it is doing now under the Compact or under the Constitution. The Commission is not now regulating natural gas development; the Commission is banning it.
The Compact authorizes the Commission to approve “projects.” Nothing in the Compact allows the Commission categorically to ban otherwise lawful projects simply because they fall within a particular industry. If the Commission perceives a risk from a specific project, it can deny that project an approval. The Commission may adopt standards under which it will conduct that review. It may not, however, use a resolution such as that adopted on May 5, 2010, to prohibit a lawful activity without any project-specific consideration or project-specific rights of review. Nothing in the Compact can be read to authorize a ban.
Section 3.8 applies to individual projects, not entire industries:
No project having a substantial effect on the water resources of the basin shall hereafter be undertaken by any person, corporation or governmental authority unless it shall have been first submitted to and approved by the commission, subject to the provisions of Sections 3.3 and 3.5. The commission shall approve a project whenever it finds and determines that such project would not substantially impair or conflict with the comprehensive plan and may modify and approve as modified, or may disapprove any such project whenever it finds and determines that the project would substantially impair or conflict with such plan. The commission shall provide by regulation for the procedure of submission, review and consideration of projects, and for its determinations pursuant to this section. Any determination of the commission hereunder shall be subject to judicial review in any court of competent jurisdiction
Delaware River Basin Compact § 3.8 (emphasis added). Section 1.2(g) defines “project”1 clearly to apply to individual facilities, not whole industries:
“Project” shall mean any work, service or activity which is separately planned, financed, or identified by the commission, or any separate facility undertaken or to be undertaken within a specified area, for the conservation, utilization, control, development or management of water resources which can be established and utilized independently or as an addition to an existing facility, and can be considered as a separate entity for purposes of evaluation . . . .
Therefore, an indefinite ban on natural gas development is not authorized by section 3.8 or any other provision of the Compact.
The Commission’s Prohibition is an Uncompensated Regulatory Taking
The Commission is depriving NWPOA’s members of any practical ability to develop the natural gas under their properties. The combined effect of the EDD, the SEDD, the May 5, 2010, Commission resolution, and the Commission’s failure to take action on its proposed regulations bans natural gas development under NWPOA’s leases. In many cases, the value of natural gas development would dwarf the value of the surface estate. This indefinite ban is an uncompensated taking prohibited by the Fifth Amendment to the United States Constitution.
The Supreme Court’s first decision on regulatory takings dealt with a ban on development of a severed mineral. Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922)(prohibition on underground mining where it could cause subsidence is an uncompensated taking). The Supreme Court has, of course, considered whether a temporary moratorium in order to develop a plan constitutes a temporary regulatory taking. One case dealing with this issue is Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Authority, 535 U.S. 302 (2002). In that case, the plaintiffs owned real estate near Lake Tahoe that they intended to develop for individual homes. They brought a facial challenge to two moratoria imposed by the interstate compact agency charged with regulating development near Lake Tahoe. The Court declined to rule categorically that temporary bans were, or were not, regulatory takings, but instead held that individual circumstances should be evaluated under the criteria of Penn Central Transp. Co. v. New York City, 438 U.S. 104 (1978)(multi-factored approach to determining whether restriction on use of air rights over Grand Central Station constituted a regulatory taking). The Court implied that at least some of the plaintiffs might have satisfied that test. Similarly, our court of appeals recently held that a temporary action – in that case, not a regulatory taking, but a categorical taking – could nevertheless give rise to a claim for compensation. R&J Holding Co. v. Redev. Auth. of Montgomery County, No. 10-1047 (3d Cir. Dec. 9, 2011)(condemnation subsequently overturned may give rise to claim for compensation)
In Tahoe-Sierra, the Supreme Court considered the factors that might be appropriate to help characterize a moratorium as a permissible planning hiatus or a regulatory taking. In that context, the good faith of the regulator and the need for the time to develop a plan or regulations figure significantly in that evaluation. The Commission might have been on firm ground to argue that its May 5, 2010, resolution met the Tahoe- Sierra standard when originally adopted. Now, the Commission cannot make that statement. The regulations are drafted but a sufficient number of Commissioners seem to prefer not to act because acting would lift the ban. That is not a legitimate regulatory hiatus.
The Commission Should Allow Natural Gas Development to Proceed.
NWPOA respectfully suggests that the Commission must either (a) receive and in good faith consider applications for natural gas exploration projects or (b) allow those projects to proceed without review and approval. The Commission cannot use development of regulations as a rationale for further delay.
As noted above, NWPOA disagrees that these sorts of projects should be regulated at all by the Commission (except to the extent that they involve water withdrawals). NWPOA disagrees with many of the specific provisions in the regulations. But none of those disagreements mean anything if the Commission simply refuses to consider an application.
The Commission cannot justify further delay. The consequences of its prohibition are economically devastating to thousands of people and whole communities. If there is good reason not to allow a specific, individual well pad to be developed, then it should not be approved. But there cannot be good reason not to allow any well pads to be developed. To do so is unconstitutional, ultra vires, and just wrong.
I am certain that my client would be pleased to discuss this with you or the Commissioners further. Please contact me when you schedule this request for consideration by the Commission.
David G. Mandelbaum
Hon. Thomas Corbett Kenneth J. Warren, Esquire Pamela Bush, Esquire Ms. Marian Schweighofer
February 5, 2012
———1 A “project” must also have to do with “conservation, utilization, control, development or management of water resources . . . .” The Commission separately regulates water withdrawals for natural gas activities. Therefore, the development approval is for the part of the natural gas development that is not a “project.” 2 The Commission’s prohibition suffers from other Constitutional defects, including a failure to afford NWPOA or its members due process under the Fifth Amendment. I focus here on the Takings Clause, but do not intend this discussion to be exhaustive. 3 Those sorts of considerations survive Lingle v. Chevron U.S.A., Inc., 544 U.S. 528 (2005). They are part of the Penn Central analysis, not application of the purportedly categorical test of Agins v. City of Tiburon, 447 U.S. 255, 260 (1980)(“[t]he application of a general zoning law to particular property effects a taking if the ordinance does not substantially advance legitimate state interests”). Lingle rejects that formulation, but states expressly that it does not disturb Tahoe-Sierra. Lingle, 544 U.S. at 546. Follow us on Facebook and Twitter!