Editor's note: Author Jean M. Mosites of Babst Calland Clements & Zomnir represents MSC in this litigation. Matthew C. Wood, an associate with the firm, reported on the decision.

On July 22, the  Pennsylvania Commonwealth Court  issued an opinion addressing an industry trade group's challenges to parts of the state's unconventional well regulations (25 Pa. Code § 78a). The regulations impose obligations on the development of natural gas wells in unconventional formations such as the Marcellus Shale and Utica. In 2016, petitioner, the Marcellus Shale Coalition, (MSC) challenged specific portions of the new regulations governing public resources, area of review, on-site processing, well development and centralized impoundments, site restoration, spill remediation and waste reporting. Following its August 2018 decision largely invalidating the public resource provisions challenged in count one of MSC's petition, and oral argument on the remaining counts in October 2018, the court's en banc panel decided applications for partial summary relief by MSC and respondents, the Department of Environmental Protection (DEP) and the Environmental Quality Board (EQB).

In its petition, MSC contended that the DEP and EQB lacked statutory authority to adopt the rules, that the new regulations conflicted with current law and were unconstitutional special laws, and that the new regulations were unreasonable. The agencies largely countered that they derived their authority from multiple statutory sources and that the new regulations were necessary for the protection of the environment.

The court reviews the challenges to regulations under the three-part standard articulated in Tire Jockey Services v. Department of Environmental Resources, 915 A.2d 1165, 1187 (Pa. 2007). Under Tire Jockey a regulation is valid if it was adopted within the agency's granted power, issued pursuant to proper procedure, and is reasonable. Respondents moved for partial summary judgment only on the first part of the three-part test—whether the agencies had statutory authority to promulgate, implement, and enforce the regulations. On the three counts where MSC did not cross move, the court did not reach the third part of the test, whether the regulations were reasonable.

The Unconventional Well Regulations

The court's opinion is the latest in a series of decisions considering specific elements of MSC's challenge. Following the passage of Act 13 of 2012 (which enacted more stringent environmental standards regarding shale drilling), the new regulations became effective in October 2016. They amended Pennsylvania's then-current oil and gas well regulations by adding a new chapter to include additional requirements for unconventional well development. Shortly thereafter, MSC filed its eight-count petition with the court, seeking pre-enforcement review, asserting the substantial impact the new rules would have on industry operations, and requesting an order enjoining enforcement of the regulations.

MSC obtained partial interim relief on four of its counts, which the agencies appealed to the Pennsylvania Supreme Court. In July 2018, the Supreme Court affirmed in part and reversed in part. Injunctions remain in place for area of review obligations related to off-site wells and the obligation to close or re-permit centralized impoundments, which operate under existing permits to store produced water for reuse. The injunction related to public resources has been replaced by a decision on the merits when the Commonwealth Court reviewed and decided MSC's application for summary relief on count one. The court invalidated new definitions of “public resources” and confirmed the scope of DEP's consideration of public resources. The court's instant decision addressed the parties' respective applications and cross-applications for partial summary relief on counts two through seven of MSC's petition.

The Court's Decision

The decision addressed select portions of the challenge and the regulations.

In count two, the area of review regulations would obligate a well operator to identify and, regardless of access, monitor all active, inactive, orphan, abandoned, and plugged wells it does not own within 1,000 feet of its well; and plug any such wells, should they be impacted by the operator's hydraulic fracturing activities. The court held “that the agencies have failed to identify any statutory authority to justify regulations that impose entry, inspection and monitoring obligations with respect to wells on the lands of others and over which the stimulating well operator has no control, particularly in the absence of any actual pollution or threatened pollution on those lands attributable to the stimulating well operator's activities.” The court determined, however, that the agencies had legislative authority to require a well operator to conduct a survey of the area around its well, to the extent that the survey did not require access to property not owned or operated by the well operator.

On count three, the court denied MSC's application for summary relief on regulations governing on-site processing. MSC argued that subsection 78a.58(f) conflicted with an express exemption in Act 13. The court found no conflict between the parties' positions, in light of the DEP's briefing whereby it informed the court that the DEP would not require bonding or permitting under the Solid Waste Management Act (SWMA) for any onsite waste processing.

Regarding the re-permitting of centralized impoundments under the SWMA (count four), MSC's petition argued the regulation conflicted with established law, was an unconstitutional special law, and was unreasonable. The court agreed that the SWMA did not authorize the DEP to require permits for waste storage impoundments, but found broad statutory authority under the Clean Streams Law. The court reached no conclusion as to whether the new obligation to obtain new permits was reasonable. Regarding the well development impoundment requirements, MSC's petition contended that the new obligations amounted to a constitutionally prohibited special law that improperly targeted this industry without a rational basis to create higher standards than those for other industries. The court noted a lack of information comparing well impoundments across industries and denied the agencies' application for summary relief.

The court sided with MSC on its challenge to the requirement that a well operator restore areas of its well site to “approximate original conditions” within nine months of completing drilling.  MSC argued, and the court agreed, that the obligation conflicted with the restoration requirements in Act 13 and granted MSC's application for summary relief. The court otherwise denied MSC's application and granted the agencies' application for summary relief on count five.

The court declined to rule on requirements governing spill remediation (count six), which among other things, require operators to follow new and unique obligations to remediate spills or releases in areas on or adjacent to a well site or access road, concluding it was not ripe for review. Writing for the court, Judge P. Kevin Brobson stated, “Here, absent a regulated spill, no immediate obligation flows to the industry to comply with the spill remediation regulation and thus no current hardship is evident.”

Conclusion

The court's opinion provides its interpretation of the applicable law on six counts, addressing the applications for partial summary relief before it. As noted above, the court did not reach all questions presented by MSC's petition.

The case is Marcellus Shale Coal. v. Department of Environmental Protection, No. 573 M.D. 2016 (Pa. Commw. Ct. July 22, 2019).

Jean M. Mosites is a shareholder in Babst Calland Clements & Zomnir's environmental, energy and natural resources, and the public sector groups. Her practice includes client counseling on environmental compliance in the energy sector, resolving liabilities under federal and state remediation programs, as well as administrative appeals and environmental litigation in state and federal courts. Contact her at [email protected].

Matthew C. Wood is an associate in the firm's environmental group. Contact him at [email protected].