Legislation Eliminates Conflict of Interest Within State Environmental Agency

Legislation that would keep the Department of Environmental Protection’s (DEP) hands off the money it collects by levying fines on the oil and gas industry in Pennsylvania will be introduced early in the new legislative session in Harrisburg.

The bill’s prime sponsor, Sen. Scott Hutchinson (R-Butler), explained that with the power to both levy fines and keep the revenue generated from those fines, DEP has the same “hidden incentive” as some local police departments that fatten their coffers by over-zealously enforcing minor traffic infractions – and then some.

“They (DEP) not only keep the fines, but they alone decide the amount of the fines, and don’t have to reveal the basis for how they arrive at the amount,” said Hutchinson, whose district covers all or part of five counties in the energy rich northwest corner of the state. “It’s both a philosophically and constitutionally questionable practice.”

Under the Hutchinson proposal, the revenue raised from the fines would instead be redirected to the General Fund; lawmakers would then decide how the money is spent. Hutchinson said he was alerted to the conflict of interest when Department “whined” about not getting funding from the General Fund during the budget impasse.

“I looked into it, and found that only 20 percent of their budget comes from the General Fund. The rest is federal [tax dollars] and fine revenue,” he said. “If they’re feeling pressed for money or simply want more money they can just increase the number and the amount of their fines.”

A recent, rare win in the courts for the energy industry shows how capricious and costly the DEP fines can be.  On January 11, Commonwealth Court ruled that DEP’s basis for determining the amount of the fines on natural gas producer EQT for leaking contaminants from a well pad in Tioga County “would result in potentially limitless, continuous violations.”

DEP assessed the fines based on how many days the pollution was expected to linger, rather than how many days the initial release of pollution lasted. The judges ruled that the assessment was neither legal nor did it make common sense. 

The DEP fine amount could have grown to a preposterous $157 million on a spill that the company said was caused by a third party contractor and resulted in minimal environmental damage. Calculated differently, that fine will amount to a manageable $120,000.

Kevin Moody, General Counsel for the Pennsylvania Independent Oil and Gas Association, called the case “precedent setting.”

“The rationale behind the fine over the EQT spill was absurd,” Moody said. “The ruling will hopefully embolden other companies to take DEP to court to make them justify how they are coming up with their fines.”

Some oil and gas companies, especially those drilling the smaller, conventional wells in Hutchinson’s district, lack the resources to fight the Department in court.

“We have to shut up and pay up,” said Mark Cline, President of the Pennsylvania Independent Petroleum Producers Association. “If you appeal, they simply quadruple the amount.”

Appeals are handled by the Department’s Environmental Hearing Board (EHB), where Moody said the basis for the fine could only be found through discovery process of the action – again a costly proposition for many smaller businesses.

In the EQT case, the court sided with business in this area too. DEP argued that Commonwealth Court should defer its ruling until EHB had its say on the appeal. The court rejected the argument saying the Supreme Court earlier concluded that potential exposure to EQT, particularly given the lack of an administrative remedy for challenging Respondent's interpretation when EQT filed this action, "was sufficiently direct, immediate, and substantial to create a case or controversy justifying pre-enforcement judicial review via a declaratory judgment proceeding."

On the legislative front, more help for the oil and gas industry, in the form of desperately needed infrastructure, will soon be on the way. Speaking on Monday at the “Monthly Business Briefing” hosted by PMA and the PA Chamber of Business and Industry, Speaker of the House Mike Turzai (R-Allegheny) said that legislation will soon be introduced that will set definitive timelines for building new pipeline in Pennsylvania.

“The benefits for manufacturing, commercial businesses, and homes depend on being able to get the gas to market,” Turzai said. “This will be a big improvement on that front.”

Help can’t come soon enough. PMA President David N. Taylor noted that in November, southeast Pennsylvania lost out to Texas on a Braskem USA $500 million manufacturing plant. Braskem is the nation’s largest petrochemical company. The company cited Pennsylvania’s lack of infrastructure as the most significant factor in its decision.

“We need to instill a sense of urgency in Pennsylvania that the building of new energy infrastructure is critical to bring private sector investment here,” Taylor said.

In related news, Scott Hutchinson also plans to introduce legislation that will require future oil and gas regulations be based on the 1984 Oil and Gas Act, not Act 13 of 2012, the rewrite of the Act that covered unconventional, or horizontal, wells.

“The 1984 gas act worked well for the industry,” Hutchinson said. “Act 13 sends a mixed message.”

The new legislation stems from a Hutchinson bill Governor Wolf signed last June that ordered DEP to scrap proposed Act 13 regulations that covered both convention and unconventional wells. Operating costs for the conventional drillers would have risen dramatically under the proposed language. The law also created the PA Grade Crude Development Advisory Council that gives the industry more input in the rule-making process. And it places the Council under the administration of the Department of Community and Economic Development (DCED), not DEP. DCED announced appointees to the Council just last week.

Since the turn of the century, Pennsylvania has lost hundreds of thousands of manufacturing jobs. Maximizing domestic energy production can give Pennsylvania a new competitive advantage for business to operate, expand, and hire people here, bringing jobs back from competitor states and from overseas.  But all of that potential is endangered by inconsistent enforcement and excessive fines on this emerging industry.