In the Energy Policy Act of 2005 (Pub. L. No. 109-58), Congress
exempted hydraulic fracturing from Underground Injection Control
(UIC) regulation under the Safe Drinking Water Act (SDWA). The U.S.
Environmental Protection Agency (EPA) retained authority, however,
to regulate hydraulic fracturing when diesel fuels are injected
into the well. In 2010, EPA posted a policy statement on its
website requiring that any service company performing hydraulic
fracturing using diesel fuel receive prior authorization from the
UIC program and further stating that injection wells receiving
diesel fuel as a hydraulic fracturing additive be considered Class
II wells under the UIC program. Although this statement appeared to
be binding and express EPA's interpretation of the UIC
regulations under the SDWA, the agency did not, however, follow the
notice and comment requirements of the Administrative Procedures
Act (APA) before adopting these policies.
The Independent Petroleum Association of America and the U.S.
Oil & Gas Associations (Industry Associations) filed an August
2010 petition for review claiming that the statements posted on
EPA's website constituted a "final agency action" in
which EPA overstepped its authority to regulate the use of diesel
fuel as a hydraulic fracturing additive. The Industry Associations
and the EPA reached a settlement late last week of this petition.
The February 23, 2012 settlement requires EPA to modify the
informal policy language posted on its website concerning the need
for prior authorization under the UIC program and eliminate
entirely the statement that wells receiving diesel as a hydraulic
fracturing additive will be considered Class II wells. Although
this settlement does not signify that EPA and the Industry
Associations have reached agreement on the substantive issues
regarding the regulation of hydraulic fracturing under the SDWA, it
likely does reflect EPA's reluctance to be found to have again
transgressed on its obligations under the APA regarding notice and
comment before adopting binding rules.1
Among the issues left to resolve is how to categorize wells
receiving diesel fuel under the UIC program. The policy statements
retracted by EPA sought to require that all wells receiving diesel
fuel be categorized as Class II wells. The oil and gas industry is
concerned that subjecting drillers to the extensive requirements
for Class II wells would impose additional costs and potentially
unnecessary requirements on hydraulic fracturing operations.
The agency is expected to issue guidance for public comment that
will formally articulate how the SWDA applies to the use of diesel
as a hydraulic fracturing additive. Nothing in the settlement
restricts the ability of the Industry Associations who filed the
lawsuit to provide comments in connection with EPA's
development of the guidance. The new EPA guidance will hopefully
provide the oil and gas industry with some much needed and highly
anticipated clarity with respect to the use of diesel, presumably
answering important questions such as what EPA considers to be
"diesel," and whether EPA will seek to retroactively
apply permit requirements in instances where diesel is already
being used as a hydraulic fracturing additive. Interested parties
should watch for EPA's issuance of the guidance and comment as
they deem appropriate.
1 See National Mining Ass'n v. Jackson, 2011 WL
4600718, *7–9 (D.D.C. 2011) (invalidating the
Multi-Criteria Resource Assessment policy adopted by EPA for
failure to follow notice and comment requirements).
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Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
The Mintz Levin Energy & Clean Technology practice group worked on over 45 transactions in 2013 and helped energy and clean technology clients on a wide range of matters, including financing transactions, joint ventures and other arrangements with investors and global corporations from the United States, China, Russia, Europe, India and Japan.