On July 22, 2019, Pennsylvania’s Commonwealth Court invalidated a natural gas well site restoration requirement set by the Department of Environmental Protection in 2016, ruling it is unenforceable.  Here’s what it means and what happens next.

​If the Appalachian region were a country, it would be the world’s third-largest producer of natural gas.  Pennsylvania is at the epicenter of the Marcellus and Utica Shale formations and leads the region in natural gas production.  In 2016, the Pennsylvania Department of Environmental Protection (PADEP), through the Environmental Quality Board, updated its regulations related to unconventional natural gas wells (i.e., wells drilled into a shale formation below the base of the Elk Sandstone or its geologic equivalent stratigraphic interval).  Geology!  The Marcellus Shale Coalition filed suit challenging a number of the new requirements in October 2016, and in the almost three years that have followed, Pennsylvania courts have generally upheld the regulations with some exceptions.

On July 22, 2019, the Pennsylvania Commonwealth Court issued a 91-page opinion addressing cross motions for summary relief filed by the parties.  The opinion, available here, generally addressed whether the 2016 rules fell within the scope of authority granted to PADEP under state law, and whether the regulations were consistent with state law.

Here’s what the court decided, and what happens next.

Site Restoration Rule Invalidated

The Commonwealth Court ruled invalid and unenforceable PADEP’s regulation that requires operators to restore sites “to approximate original conditions” within nine months of drilling.  See 25 Pa. Code § 78a.65(a)(1) and (b)(1).  The court ruled that this provision conflicts with the post-drilling site restoration requirements set forth in Pennsylvania’s Oil and Gas Act (frequently referred to as Act 13).  The court interpreted Act 13 as requiring restoration to approximate original conditions only when an operator seeks an extension of the nine-month restoration period.  See 58 Pa.C.S. § 3216(g).  The court reasoned that the General Assembly chose to require prompt post-drilling site restoration (within nine months), while also allowing PADEP to extend the time for post-drilling site restoration, “but only if the well operator agreed to meet a heightened site restoration standard—i.e., [approximate original conditions].”

The Impact

While the court invalidated this requirement, its immediate impact may be limited because the ruling focused only on restoration that occurs within nine months of drilling.  Operators routinely seek an extension of the nine-month restoration period.  Further, the ruling does not impact PADEP’s stormwater control regulations.  This means that operators that restore well sites within nine months of drilling have the flexibility to restore portions of the site not needed for production in any way that ensures compliance with stormwater regulations, even if the restoration results in contours that vary from pre-construction conditions.  Notably, the validity of PADEP’s post-production restoration requirement (which also requires restoration to “approximate original conditions”) was not addressed by the court.  The ruling could form the basis for future challenges to the post-production restoration requirement.  Perhaps the biggest takeaway, however, is that when a statute includes detailed and prescriptive requirements, agencies must carefully consider whether their regulatory proposals are consistent with those requirements.

PADEP Must Prove That It Has Authority to Enact Certain Well Monitoring and Plugging Requirements

The Commonwealth Court concluded that PADEP failed to identify any statutory authority to justify regulations that:

• Impose entry, inspection, and monitoring obligations with respect to wells on lands of others and over which the operator has no control.  25 Pa. Code § 78a.52a(c)(3).
• Require operators to plug or adopt orphaned or abandoned wells that are altered by hydraulic fracturing activities. 25 Pa. Code § 78a.73.

As a result, the industry’s challenge to these regulatory provisions will proceed to trial before the  Commonwealth Court absent an appeal.

PADEP Must Explain Why the Natural Gas Industry Warrants Different Treatment Than Other Industries

The Commonwealth Court concluded that PADEP failed to explain why the natural gas industry warranted more specific regulation than other industries with respect to rules pertaining to impoundments.  The court’s decision focused on “well development impoundments” (i.e., lined earthen structures that hold surface water, fresh groundwater, or other fluids approved by PADEP for multiple wells), see 25 Pa. Code § 78a.59b, but the industry has also challenged new regulations regarding centralized wastewater impoundments.  25 Pa. Code § 78a.59c.

As a result, the industry’s challenge to these regulatory provisions will proceed to trial before the  Commonwealth Court to determine whether any of these regulations represent an unconstitutional “special law.”

PADEP Has Clear Authority to Issue Certain Regulations

The Commonwealth Court held that PADEP had the authority to issue regulations addressing the following issues:

• Implementing a requirement for operators to survey the area around proposed well paths for other wells, including orphaned and abandoned wells.  25 Pa. Code § 78a.52a (Area of Review).
• Implementing requirements for well development impoundments and centralized impoundments.  25 Pa. Code § 78a.59b (Well Development Impoundments); 25 Pa. Code § 78a.59c (Centralized Impoundments).
• Implementing requirements for site restoration.  25 Pa. Code § 78a.65 (Site Restoration).
• Implementing requirements for waste reporting.  25 Pa. Code § 78a.121 (Production Reporting).

As noted by the Commonwealth Court, however, having authority to promulgate regulations doesn’t eliminate the need for the regulations to be consistent with state law and other constitutional requirements. 

Certain Regulations Are Not Subject to Pre-Enforcement Review

The Commonwealth Court declined to conduct a pre-enforcement review of the following rules:

• Regulations that address the on-site processing of residual waste.  25 Pa. Code § 78a.58(f).
• Regulations that impose particular and unique spill remediation requirements.  25 Pa. Code § 78a.66(c).

As a result, any challenge to these regulations will be limited to situations in which an operator challenges PADEP’s use of the regulation in the field (i.e., an “as-applied” challenge).

What Comes Next?

The open issues associated with the Marcellus Shale Coalition’s challenge to the 2016 rules will proceed to trial before the Commonwealth Court, absent an appeal.  The court’s inquiry will be focused on whether the regulations were (1) adopted within PADEP’s granted power, (2) issued pursuant to proper procedure, and (3) reasonable.  The July 22, 2019 decision specifically left open the question of whether some of the 2016 rules, such as the “Area of Review” and waste reporting requirements, are reasonable.