WATER AND WASTEWATER ISSUES IN CONDUCTING OPERATIONS IN A SHALE PLAY - - PDF document

Rocky Mountain Mineral Law Foundation Development Issues in Major Shale Gas Plays December 6, 2010

WATER AND WASTEWATER ISSUES IN CONDUCTING OPERATIONS IN A SHALE PLAY – THE APPALACHIAN BASIN EXPERIENCE

• R. Timothy Weston

K&L Gates LLP Harrisburg, PA

This article is for informational purposes only and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with a lawyer. This paper represents an updated edition of Water Supply and Wastewater Challenges in Marcellus Shale Development, which was originally published in 30 ENERGY & MINERAL LAW INSTITUTE Ch. 15 (2009), which is reprinted by permission from the Energy & Mineral Law Foundation.

Table of Contents 1. Introduction to the Water Supply, Water Resource Impact and Wastewater Challenge.....1 2. The Water Resource Challenge in Perspective....................................................................2 3. Water Rights and Water Withdrawal Regulation ................................................................6 3.1 Overview – What Is the Meaning of Water Rights?................................................7 3.2 “Water Rights” Granted Under Mineral Leases ......................................................9 3.3 Basis of “Water Rights” Under State Law – Common Law and Regulatory Programs ..................................................................................................................9 3.4 Common Law Principles Applicable to Water Withdrawals.................................10 (a) Classifications of Water.............................................................................10 (b) Riparian Rights in Surface Streams, Lakes and Subterranean Streams.....12 (c) Common Law Rights in Percolating Groundwater....................................16 (d) The Restatement Rules for Surface Water and Groundwater....................18 (e) Interaction Between Surface and Ground Water .......................................19 3.5 Regulated Riparian Regimes..................................................................................22 (a) Kentucky....................................................................................................22 (b) New York...................................................................................................24 (c) Ohio............................................................................................................26 (d) Pennsylvania ..............................................................................................27 (e) Virginia ......................................................................................................33 (f) West Virginia.............................................................................................35 (g) The Delaware River Basin Commission....................................................36 (h) Susquehanna River Basin Commission .....................................................41 (i) Great Lakes – St. Lawrence River Basin Water Resources Compact .......46

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4. Protection of Water Supplies .............................................................................................48 4.1 Regulation of the Fracing Process and the Proposed FRAC Act...........................48 4.2 Liability of Gas Well Operators for Impacts on Other Water Users .....................50 (a) Liability for Impacts Caused by Water Supply Development...................50 (b) Liability for Impacts Caused by Gas Well Development and Operation....................................................................................................51 5. The Flowback / Wastewater Challenge .............................................................................55 5.1 Scope of the Challenge ..........................................................................................55 5.2 Overview of Wastewater Management Issues.......................................................56 5.3 Requirements for Characterizing Flowback Wastewater ......................................56 5.4 Assuring Delivery to Appropriate Facilities..........................................................58 5.5 Treatment, Reuse and Disposal Technology Choices............................................59 (a) Natural pond evaporation...........................................................................59 (b) Direct reuse for drilling and fracing...........................................................59 (c) Underground injection of flowback & production brines..........................59 (d) Conventional treatment technologies.........................................................60 (e) TDS reduction via reverse osmosis............................................................60 (f) TDS reduction via evaporation..................................................................61 (g) TDS reduction via crystallization ..............................................................62 (h) Key regulatory questions affecting selection.............................................62 5.6 Regulatory Drivers to Technology Selection – Impending Restrictions on Surface Water Discharges......................................................................................63 (a) Overview....................................................................................................63 (b) The PA TDS Strategy and Pending Regulations .......................................63 6. Legal and Regulatory Issues in Implementing Treatment and Disposal Facilities............66 6.1 Treatment Facility Siting .......................................................................................66

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(a) Zoning and land development regulations.................................................66 (b) State siting restrictions for certain treatment facilities ..............................67 6.2 NPDES Permit Issues ............................................................................................68 (a) Establishing effluent limits ........................................................................68 (b) Special protection waters...........................................................................69 (c) Impaired waters..........................................................................................70 6.3 Water Quality Construction Permits for Wastewater Facilities.............................72 (a) Pennsylvania ..............................................................................................72 (b) Ohio............................................................................................................72 (c) Delaware River Basin Commission...........................................................72 6.4 Air Emission Issues for Water Treatment Facilities..............................................73 (a) What counts as a “source” in defining “major source”..............................74 (b) Potentially applicable air emission regulations..........................................74 6.5 Underground Injection of Wastewater or Treatment Residuals ............................76 (a) Acquiring Rights to Allow Underground Injection ...................................76 (b) Federal Safe Drinking Water Act – Underground Injection Control (“UIC”) Program........................................................................................77 (c) Pennsylvania ..............................................................................................79 (d) Ohio............................................................................................................79 (e) West Virginia.............................................................................................80 (f) New York...................................................................................................80 (g) DRBC.........................................................................................................80 6.6 Residuals Management & Disposition...................................................................81 (a) What are the treatment residuals?..............................................................81 (b) Categorization of residuals ........................................................................81

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(c) State regulation of residual or industrial waste or beneficial reuse of residuals .....................................................................................................82 6.7 Implementing Wastewater Projects – Transactional Issues...................................84 7. Summarizing Key Challenges to Wastewater Management.............................................84 8. Final Words........................................................................................................................85

1. Introduction to the Water Supply, Water Resource Impact and Wastewater Challenge Shale formation development across varying regions of the United States presents both water supply and wastewater challenges of considerable dimensions, whose scope and intensity may depend upon the region involved and competition for associated water

• resources. This paper focuses on one of those regions – the Appalachian Basin and the

current challenges confronting those exploring and developing the Marcellus Shale. Many of the issues discussed, however, will resonate in other parts of the country and similar unconventional development of shale formations wherever they occur. Development of the extensive natural gas reserves contained in the Marcellus Shale deposits promises to be one of the most important opportunities for the United States for the next several decades. At the same time, exploitation of this gas resource poses interesting water supply, water resource impact, and wastewater challenges which the oil and gas industry has rarely faced before in the Appalachian Basin or elsewhere in the country. While some traditional oil and gas development has utilized, to a modest extent, water supplies in the drilling and fracing processes, Marcellus Shale exploitation involves

• rders of magnitude greater water resource requirements. Horizontal drilling techniques,

coupled with hydraulic fracturing of deep horizontal extensions, entails water use multiple times greater than traditional wells. Based on experience in the Barnett Shale and developing experience in the Marcellus Shale play, approximately one to five million gallons of water are required for fracing each gas well, with slickwater frac techniques utilizing as much as 500,000 to 1,000,000 gallons of fluid in each of multiple stages. Over the past year, recycling of flowback water has shown considerable promise in terms of reducing disposal requirements, thereby reducing somewhat the draft on freshwater supplies. But the technology allowing for large-scale reuse of water has encountered some technical and logistical limitations, and it is clear that substantial volumes of fresh water will continue to be required. Thus, the challenge will be to secure adequate and reliable sources of water with appropriate quality characteristics in reasonable proximity to proposed well sites to meet the gas well development requirements. Whether or not warranted, the fracture stimulation process itself has raised concerns regarding the potential impacts to public and private water supplies. Although the fracing process has enjoyed exemptions from underground injection control regulation, environmental and citizen organizations have posed repeated questions regarding disclosure of chemicals used in the process, leading to proposals for repeal or replacement of the current exemption with some form of fracing process regulation at the federal and/or state level. At the same time, the fracture stimulation of Marcellus and other shale wells results in substantial volumes of flowback wastewaters containing high salt contents and

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• ther constituents of potential concern. Of the volumes pumped downhole for fracing, a

portion (ranging from 25-50%) emerges from the well over time as flowback water, followed by additional production brines. Efforts to obtain representative characterization of Marcellus Shale flowback and produced waters are continuing, and it appears that some variability occurs between different parts of the plan and even between wells in particular areas. Generally, such flowback waters contain 4-25 percent salts (including constituents from the underground formations), plus oil and gas, and chemicals added during the frac. Typical total dissolved solids (“TDS”) concentrations in Marcellus flowback may exceed 100,000 milligrams per liter (“mg/l”) – higher than experienced in some other regions and shale plays. These high-TDS wastewaters pose a substantial challenge, both in terms of volume and concentrations. A number of eastern streams are already burdened with high TDS concentrations, largely from abandoned mines and acid mine drainage, with limited capacity to assimilate additional loadings, particularly during low flow periods. Other streams, particularly in rural watersheds across the northern portions of Pennsylvania and southern New York, are subject to special protection for their high quality, with discharges strictly regulated under “anti-degradation” standards. Some States, such as Pennsylvania, have moved to impose stringent restrictions on new or increased loadings

• f TDS from Marcellus Shale development, pointing the way to effective “zero

discharge” scenarios for wastewater management. At the same time, environmental

• rganizations have petitioned the U.S. Environmental Protection Agency (“EPA”) to

restrict introduction of gas well wastewaters to publicly-owned treatment works (that is, sewage treatment plants) and to establish new effluent guidelines for the oil and gas sector, establishing a no discharge limit for central wastewater treatment facilities receiving oil or gas-related wastewaters.1 Thus, the entire “water balance” of Marcellus Shale development is a critical element to successful pursuit of this play. Concurrently, the acquisition of adequate and reliable supplies of water, coupled with the treatment, reuse and disposition of wastewater, pose key technical, regulatory and legal challenges requiring concerted attention. 2. The Water Resource Challenge in Perspective From a statewide or basin perspective, water requirements for Marcellus Shale development might appear comparatively modest. The Susquehanna River Basin Commission, for example, estimates that annual consumptive water use for all gas well development, once full-scale development has been reached, will equate to approximately

1 Letter from EarthJustice, et al., to Carey A. Johnston, Water Docket, U.S.

Environmental Protection Agency, re: Comments on Final 2008 Effluent Guidelines Program Plan and Suggestions for the 2009 Annual Review: Oil and Gas Exploration, Stimulation, and Extraction, Docket EPA-HQ-OW-2008-0517 (April 7, 2009).

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28 million gallons per day (“mgd”),2 representing approximately three percent of total basin consumptive water use.3 By comparison, the total Marcellus Shale gas well water demand equates to about one-half the basin-wide water use by the recreational sector (golf courses and ski resorts), and less than one nuclear power plant.4 However, in some basins, cumulative consumptive water use (from all uses) poses concerns during drought and low flow events, as eastern States and water management agencies attempt to balance demands by upstream users versus needs for downstream flows to maintain wastewater assimilative capacity, fisheries, salinity control in estuaries, and other environmental conditions.5 At the same time, much of the Marcellus Shale development occurs in areas with smaller headwater streams, many with high quality and cold-water fisheries, where concerns are raised as to the impact of large withdrawals leading to significant streamflow reductions or even depletion. Thus, the location, amount, timing, and conditions of withdrawals, and whether multiple withdrawals are occurring in the same watershed, are a matter of considerable focus. Although eastern States have traditionally been viewed as water “rich,” particularly by those coming from drier regions, the Appalachian Basin States are not without their own significant water supply challenges and concerns. While supplies are relatively plentiful in “normal” years, the fact is that recurrent droughts have resulted in sometimes painful shortage conditions affecting, to various degrees, the region’s streams and groundwater aquifers, leading to sometimes heated controversy, conflict and litigation. The Marcellus Shale spans the upper Appalachian Basin, cutting across several important watersheds, including the Delaware, Susquehanna, Ohio, and Great Lakes-St. Lawrence systems.

2 Thomas R. Beauduy, Accommodating a New Straw in the Water: Extracting Natural

Gas from the Marcellus Shale in the Susquehanna River Basin, SRBC White Paper available at http://www.srbc.net/programs/projreviewmarcellus.htm.

3 SRBC reports that current “approved” consumptive use totals approximately 563 mgd

(id.), but the total current maximum consumptive use in the basin (including both grandfathered uses and those approved by SRBC) has been estimated 882.5 mgd. SRBC, CONSUMPTIVE USE MITIGATION PLAN, SRBC Pub. No. 253 (March 2008) at 5 (available at http://www.srbc.net/planning/CUMP.htm).

4 T. R. Beauduy, supra. 5 The Susquehanna River Basin likewise faces challenges in balancing growing

consumptive water use with maintenance of flows in the lower river and into the upper Chesapeake Bay, where such flows are important to both migratory fish habitat and Bay

• salinity. SRBC, Consumptive Use Mitigation Plan, SRBC Pub. No. 253 (March 2008)
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The eastern side of the Marcellus Shale lies within the upper Delaware Basin, in northeastern Pennsylvania and southern New York. The Delaware Basin watershed forms the major water source for some 15 million residents of the Northeast Metropolitan Corridor from New York City to Wilmington, Delaware, roughly five percent of the nation’s

• population. In relative terms, the Delaware is a small watershed, encompassing only 13,539

square miles, draining one percent of the United States. The basin encompasses four states, 42 counties, and some 838 municipalities, while its service area extends to encompass the entire New York City and northern New Jersey region. Substantial portions of the upper Basin, including much of the area underlain by the Marcellus Shale, provide the headwaters

• f high quality streams valued for their trout fisheries, which flow into sections of the River

mainstem designated as part of the National Wild and Scenic Rivers System. The juxtaposition of streams with high environmental qualities coupled with stresses placed by an intense and growing population has provided fodder for ample conflict, including several trips by the Basin States to the U.S. Supreme Court6 prior to enactment of a comprehensive multi-state regional water management regime. In the Delaware River Basin, cumulative consumptive water use is a key issue, with drought management programs targeted to maintain river flows during critical periods in order to repel salinity intrusion into the lower Delaware River, in order to protect water supply intakes used by the City of Philadelphia and avoid salt water infiltration into the important Potomac-Raritan-

6 New Jersey v. New York, 283 U.S. 336(1931); New Jersey v. New York, 347 U.S. 995

(1954). For a review of the Delaware River’s water management litigation and regulatory history, see R. T. Weston, Interstate Watershed Management – The Delaware and Susquehanna Basin Experience, ABA Eastern Water Resources: Law, Policy and Technology Conference, Hollywood, Florida (May 6-7, 2004).

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Magothy Aquifer that supplies much of southern New Jersey.7 The Delaware River is at

• nce one of most intensely developed and intensely regulated watersheds in the United

States. Moving westward, the Susquehanna River Basin, which drains 27,500 square miles (including one-half of the land area of Pennsylvania, plus portions of New York and Maryland), represents the longest commercially non-navigable river in North America, and the 16th largest river in the United States. The basin hosts a population of some 4.1 million and supports a service area that extends to the City of Baltimore and many northern Maryland counties outside the basin. The Susquehanna Basin comprises 43 percent of the Chesapeake Bay’s drainage area, supplying a normal flow of about 18 million gallons per minute at Havre de Grace, Maryland. That flow represents 90 percent of the fresh water flow to the upper half of the Bay, and 50 percent of the Bay’s overall fresh water inflow. The basin is experiencing growing volumes of consumptive use. The basin is a major center

• f electric energy production, from a combination of hydroelectric facilities in the lower

basin, and both nuclear and fossil fuel fired steam electric stations throughout the drainage

• area. Without consideration of Marcellus Shale development, consumptive use of all forms

was projected by SRBC to increase to over 645 mgd by the year 2010. The Ohio River Basin, and its major tributary components (including the Monongahela and Allegheny Rivers) which traverse much of the Marcellus Shale area, may be seen by some as less challenged from a water resource perspective. That perception may be based, in part, on the fact that recent decades have not witnessed droughts across the region anywhere near the intensity of either seen in the basins to the east or encountered in the earlier part of the 20th Century. Yet evaluations conducted by the recently completed West Virginia Water Use Survey and Pennsylvania State Water Plan highlight that the Ohio River watershed likewise faces some significant water resource challenges. With more than a few streams and aquifers affected by acid mine drainage, supplies of potable water are

• limited. In many areas, tight hard rock formations provide limited groundwater storage and

transmissive capabilities, further limiting the ability to successfully develop large volume wells or providing highly variable yields between normal and dry years. During the late summer and fall of 2008, these factors were highlighted when extreme low flow in the Monongahela River was accompanied by rising total dissolved solids (“TDS”) concentrations, to the point that instream TDS values exceeded State water quality criteria and secondary drinking water standards. While the major source of the high TDS concentrations derived from acid mine drainage, particularly from abandoned mines in West

7 DRBC, WATER RESOURCES PLAN FOR THE DELAWARE RIVER BASIN (2004), at 17-28

(available at http://www.state.nj.us/drbc/BPSept04/index.htm); see, R.T. Weston, supra.

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Virginia and Pennsylvania,8 some media and public agencies mentioned Marcellus Shale gas development as a potentially contributing factor.9 Western New York, northwestern Pennsylvania, and northern Ohio all lie within the Great Lakes-St. Lawrence Basin. While the Great Lakes are noted as representing the largest single fresh water resource in the world, nevertheless serious water resource controversies have arisen concerning the impacts of interbasin and interlake diversions and large consumptive uses, leading to the recent proposal of a regionwide compact to enact much more stringent water withdrawal regulation. 3. Water Rights and Water Withdrawal Regulation Those engaged in Marcellus Shale and other shale development activities in the eastern U.S. confront common law water rights issues and water withdrawal regulatory regimes unlike those encountered in most historic oil and gas plays in the southwestern

• region. Clearly, understanding the applicable legal and regulatory questions and

processes will be essential to charting a course to successful implementation of Marcellus development projects. Against the backdrop described above, we face the key questions:  What “water rights” may shale natural gas developers acquire, either in conjunction with mineral leases or otherwise, to procure the necessary water supplies to support well development? What do those “water

8 Tetra Tech NUS, Inc., Evaluation of High TDS Concentrations in the Monongahela

River (January 2009) (available at http://www.pamarcellus.com/Mon%20River%20High%20TDS%20Study%20Report%20 (Final).pdf)

9 PaDEP News Release, DEP Investigates Source of Elevated Total Dissolved Solids in

Monongahela River, October 22, 2008, available at http://www.ahs2.dep.state.pa.us/newsreleases; Don Hopey, DEP hopes a flush cleans Mon water, PITTSBURG POST-GAZETTE, October 24, 2008, available at http://ww.post- gazette.com/pg/08298/922462-113.stm; Don Hopey, Drillers, sewer authority want state to lift waste limits, PITTSBURGH POST-GAZETTE, November 22, 2008, available at http://www.post-gazette.com/pg/08327/929978-113.stm; Don Hopey, Drill press: Environmental, sportsmen’s groups want stricter regulation of natural gas projects, PITTSBURG POST-GAZETTE, November 28, 2008, available at http://www.post- gazette.com/pg/08333/931286-113.stm; Don Hopey, Area gas deposits reported to be nation’s largest, PITTSBURG POST-GAZETTE, December 14, 2008, available at http://www.post-gazette.com/pg/08349/935140-113.stm; Don PITTSBURG POST-GAZETTE, December 21, 2008, available at http://www.post-gazette.com/pg/08356/936646- 113.stm.

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rights” mean in practical terms of what you can withdraw, how much you can withdraw, and where the water can be used?  What regulatory and permitting programs affect the procurement and development of water supplies to serve gas well drilling and operations?  If water supply withdrawals (either via groundwater wells or surface water intakes) associated with Marcellus Shale developments adversely impact

• ther water users, what liabilities will be imposed on the gas well

developer?  If development of a gas well affects the quantity or quality of water supplies used by third parties, what are the gas well operator’s responsibilities? 3.1 Overview – What Is the Meaning of Water Rights? The concept of “water rights” in the east is subject to many misperceptions. The best way to define “water rights” is to ask two questions: (1) What can I do? (2) What can someone else do to me? Consider a hypothetical potential well site development:  Marcellus Development Co. (“MDC”) has acquired a mineral lease on the 200 acre Green Lease. MDC drills Water Well 1 on the Green Lease, but Water Well 1 yields an insufficient supply. Further, operation of Water Well 1 causes interference with the well on the neighboring AABC Manufacturing property, causing the AABC well to produce less than AABC needs to

• perate.
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Spring Creek

West Run

East Run

Forest Farms High Acres Estates Water Well 2 ☼ MDC Green Lease

MDC Gas Well

☼ Water Well 1

AABC Manufacturing

☼ AABC Well

 MDC seeks an additional source on the 100-acre Forest Farms property about two miles away in the upper watershed of Spring Creek. The Forest Farms property overlies an aquifer known to produce very high quality water with substantial yields. MDC’s plan is to install a 200-foot deep well, with a capacity to extract up to 300,000 gpd.  Forest Farms adjoins West Run, which joins East Run about two miles below Forest Farms to form the mainstem of Spring Creek. The bedrock aquifer underlying Forest Farms provides the source for a number of springs and baseflow in the West Run watershed.  High Acres Estates, a 300-home development, obtains its water supply from a series of springs that are fed by the aquifer underlying the Forest Farms and High Acres area. High Acres is concerned that withdrawals by MDC’s Water Well 2 could reduce the flow of water in the High Acres springs.  The upper and middle portion of Spring Creek is inhabited with varying populations of brook and brown trout, and sections of Spring Creek are frequented by recreational fisherman during the permitted fishing season.  Ripa Environmental Defenders & Development Opposition Group (“REDDOG”) is concerned that the withdrawal and transfer of groundwater from Forest Farms to the East Spring Borough will (1) reduce stream flows in

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In this setting, who has what “water rights” and how are those “water rights” to be reconciled? 3.2 “Water Rights” Granted Under Mineral Leases At the outset, with respect to the extraction of surface or groundwater from the mineral lease premises to support drilling operations, one must look to the terms of the lease to determine what “rights” (as between the surface owner and mineral rights holder) the well developer may exercise. The specific lease terms will govern the relationship between the surface fee owner and mineral rights holder. A “typical” lease may have only general language on the topic, such as a clause granting the Lessee “the privilege of using sufficient … water for operating on the premises ….” Ostensibly, such generalized language may accord the Lessee with the right to drill wells and extract water from the leased land for use in drilling and operating a well. Given the large volumes of water involved in Marcellus Shale development, however, it may be wise to consider utilizing more specific and broader provisions. Notably, a “typical” lease refers to the right to use water “for operating on the premises” – that is, for use on the leasehold. Such a “right,” by its terms, does not authorize extraction of water from one leased parcel for use on another leased parcel. If a developer wishes to obtain the right to withdraw water from one property and move it for use in drilling on another property, different and more explicit provisions must be crafted. The lease is, of course, just a starting point. Whatever “water rights” may be granted via a lease, those rights will be no greater (although they may be less) than the “water rights” of the landowner granting the lease. Whether operating as a fee owner or a tenant, the scope and nature of rights to withdraw and utilize water will depend on the nature and scope of “water rights” as defined under applicable state law. 3.3 Basis of “Water Rights” Under State Law – Common Law and Regulatory Programs The law governing withdrawal and use of water in the eastern United States has substantially evolved from principles of common law, particularly riparian rights law,

• riginally borrowed from English precursors. Over the past 250 years, such common

law precedent has undergone considerable adjustment and refinement, reflecting the differing circumstances of hydrology in the new world, evolving understanding of hydrologic science, the pressures of the 19th Century’s industrial revolution and

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development through the 20th Century. In a number of eastern states overlying the Marcellus Shale deposits, common law has been supplemented, and to a significant degree supplanted by, statutory enactments establishing regulatory permitting systems (so called “regulated riparian” regimes). In addition to State level legal regimes, a management of water withdrawals and uses is substantially affected by several existing and proposed interstate compacts. Thus, the following overview water rights law is, at best, a synopsis of major themes and concepts, providing an introduction to a framework

• f laws which is subject to numerous exceptions and nuances between jurisdictions.

3.4 Common Law Principles Applicable to Water Withdrawals In large part, water rights in both surface and groundwaters in the eastern states

• verlying the Marcellus Shale are governed by common law, composed of the doctrines and

precedents established by courts in cases decided over the past two plus centuries. Although regulatory programs adopted by some states or basin jurisdictions, such as the Susquehanna and Delaware River Basin Commissions, have displaced the courts as the arbiters of many water rights disputes, common law doctrines and traditions remain strong. Because common law rests on individual cases read together, rather than a cohesive code, gaps remain in the court decisions governing water rights, and the common law is always subject to refinement or modification as new cases are litigated. (a) Classifications of Water Scientists generally consider all water as part of a unitary hydrologic cycle, and in general, most eastern basin’s ground and surface waters are hydrologically connected and

• interdependent. However, for purposes of water rights and allocation, the common law of

many states attempts to distinguish four different categories of water: (1) diffused surface waters (the sheet flow from rainfall); (2) surface waters in defined streams and lakes; (3) groundwaters in well-defined subterranean streams; and (4) percolating groundwaters.10 Different rules have been developed for each classification in governing the diversion and use of such waters. As aptly observed by one set of commentators: Man has coped with the complexity of water by trying to compartmentalize it. … [T]he legal profession … has on occasion borrowed from the criminal code to term some waters “fugitive” and

• thers a “common enemy.” The legal classification of water includes

“percolating waters,” “defined underground streams,” “underflow of

10 WATERS AND WATER RIGHTS §§6.02, 19.05 (R.W. Beck and A. K. Kelly eds., 3rd Ed.

LexisNexis/Matthew Bender 2009); R.T. Weston and J.R. Burcat, Legal Aspects of Pennsylvania Water Management, WATER RESOURCES IN PENNSYLVANIA: AVAILABILITY, QUALITY AND MANAGEMENT (1990).

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surface streams,” “watercourses,” and “diffuse surface waters”, [even though] all these waters are actually interrelated and interdependent.11 These classifications developed in the nineteenth century because of an early lack

• f adequate hydrogeologic knowledge, and particularly a perceived inability to predict

groundwater behavior. Some courts went so far as to describe the movement of water to and within groundwater aquifers as “secret,” “occult,” and “concealed,”12 reflecting the view of the English court in Acton v. Blundell13 that there could be no liability for interference with percolating groundwater, since “the percolation and flow of underground water are out of sight and are not susceptible of actual observation and proof.”14 Although hydrologic science has progressed substantially, legal doctrines have been slow to accommodate to the now not-so-new knowledge. Some courts have acknowledged, if not embraced, the development of modern hydrogeologic science. For example, even before the beginning of the twentieth century, a Pennsylvania court observed: It is therefore clear, from the principles and reasoning of all the cases, that the distinction between rights in surface and in subterranean waters is not founded on the fact of their location above or below ground, but on the fact of knowledge, actual or reasonably acquirable, of their existence, location, and course. Geology is a progressive, and now, in many respects, a practical science; and … since the decisions in Acton v. Blundell, and Wheatley v. Baugh, probably more deep wells have been drilled in Western Pennsylvania than has previously been dug in the entire earth in all time. And that which was then held to be necessarily unknown, and merely speculative, as to the flow of water underground, has been, by experience in such cases as this, reduced almost to a certainty.15 Improved scientific knowledge has led some eastern State courts to substantially modify, if not abandon, prior distinctions in the classification of surface and ground waters.16 Yet many other jurisdictions, even where courts recognize the much changed

11 Harold E. Thomas and Luna B. Leopold, Ground Water in North America, 143

SCIENCE 103 (1964).

12 Chatfield v. Wilson, 28 Vt. 49, 54 (Vt. 1856); Frazier v. Brown, 12 Ohio St. 294, 311

(1861).

13 12 Mees. and Wels. 324, 152 Eng. Rep. 1223 (Ex. 1843). 14 Forebell v. City of New York, 164 N.Y. 522, 525, 58 N.E. 644, 645, citing Acton,

supra.

15 Collins v. Chartiers Valley Gas Co., 131 Pa. 143, 159, 18 A. 1012 (1889) 16 See, e.g., Cline v. American Aggregates Corp., 15 Ohio St. 3d 384, 474 N.E.2d 324

(1984) (abandoning the absolute dominion rule that had been adopted in Frazier v. Brown

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status of hydrologic science, still reflect outdated classifications of water developed in another era. While little hydrologic or other scientific justification can be offered today for the distinctions between these various artificial classifications of water, a significant plurality, if not majority, of courts and legislatures have continued to adhere to distinctions developed in the nineteenth century. (b) Riparian Rights in Surface Streams, Lakes and Subterranean Streams Under the common law of eastern states, rights to withdraw and use waters in surface streams is generally governed by the “riparian rights” doctrine. Although subterranean streams are a very rare occurrence in most jurisdictions, where they exist, the use of water in such subterranean streams, like its surface stream counterpart, is almost always treated under the “riparian” doctrine.17 The details of riparian doctrine vary somewhat from jurisdiction to jurisdiction, and while many of the fundamental principles are shared, subtle but important nuances exist between the laws of eastern states. The fundamentals of a riparian right is the right of an owner of land adjoining a stream (a “riparian” landowner) to extract and use water from that stream on the adjoining “riparian” land. Each adjoining or overlying landowner has an equal and correlative right to make reasonable use of the water on the land which adjoins a stream. A riparian right is a right of “use” – not ownership of the water, but a right to use the water, subject to the rights of other riparian owners (upstream and downstream) to likewise use the water. (i) Measure of a Riparian Right – How Much Water Can Be Used Two main common law doctrines have developed for dealing with riparian water rights in the east: the English common-law rule, also known as the natural flow doctrine, and the reasonable use doctrine.18 The prior appropriation doctrine, prevalent in the western U.S., has basically no application to water law in states east of the Mississippi. Under the natural flow doctrine, each riparian proprietor of a watercourse has a right "to have the body of water flow as it was wont to flow in nature," qualified only by the right of other riparian proprietors to make limited use of the water.19 Put another based upon the unknowable and occult nature of percolating groundwater, and shifting to the principles of the RESTATEMENT (SECOND) OF TORTS §858).

17 "Ripa" is Latin for river bank. A "riparian" owner is a person who owns the land

along or under a defined stream.

18 WATER AND WATER RIGHTS § 7.02; STOEBUCK & WHITMAN, THE LAW OF PROPERTY

(3d ed), §7.4, pp. 422-425.

19 RESTATEMENT (SECOND) OF TORTS, introductory note to §§ 850 to 857, p. 210.

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way, under the natural flow theory, each riparian owner along a waterbody is entitled to have the water flow across the land in its natural condition, without alteration by others of the rate of flow, or the quantity or quality of the water.20 The doctrine permits every owner to consume as much water as needed for "domestic" purposes, which generally means for personal human consumption, drinking, bathing, etc., and for watering domestic animals. Beyond this, the owner may use the water for "reasonable" artificial or commercial purposes, subject to the very large proviso that he may not substantially or materially diminish the quantity or quality of water. Certainly no water may be transported to land beyond the riparian land.21 While the natural flow theory may have served well in the agrarian society and areas of plentiful rainfall where it originated, the rule’s proscription against alteration or diminution of flow was not found well suited when faced with the demands of the industrial revolution – where dams were erected to harness water power, and irrigation and industrial enterprises arose involving consumptive diversions that could measurably change flow volumes. As a result, courts evolved various exceptions and adjustments to the natural flow theory, sometimes retaining reference to its words, while failing to follow its explicit tenants.22 Faced with the realities of industrial and commercial development, many states moved from the strictures of the natural flow theory to what became known as the “American rule” or “reasonable use” doctrine. Under the reasonable use doctrine, “a riparian owner may make any and all reasonable uses of the water, as long [as] they do not unreasonably interfere with the other riparian owners' opportunity for reasonable use.”23 Whether and to what extent a given use is allowed under the reasonable use doctrine depends upon the weighing of factors on the side of the prospective user, and balancing those considerations against similar factors on the side of other riparian

• wners. No list of factors is exhaustive, because “the court will consider all the

circumstances that are relevant in a given case.”24 While in theory no single factor is conclusive, domestic uses are strongly favored and will generally prevail over other uses. Further, while the reasonable use doctrine as applied in some states may allow water to

20 1 WATERS AND WATER RIGHTS § 7.02(c), and cases cited therein at footnote 180. 21 STOEBUCK & WHITMAN at 422, quoted in Michigan Citizens for Water Conservation v.

Nestlé Waters North America Inc., 269 Mich. App. 25, 54-55, 709 N.W.2d 174, 194 (2005).

22 1 WATERS AND WATER RIGHTS § 7.02(c); see, e.g., Dimmock v. City of New London,

157 Conn. 9, 245 A.2d 569 (1968) (reciting to the natural flow theory, but refusing to issue injunction prohibiting city’s diversion based upon a balancing of equities).

23 1 WATERS AND WATER RIGHTS § 7.02(c), and cases cited therein at footnote 180. 24 STOEBUCK & WHITMAN at 423; accord 1 WATERS AND WATER RIGHTS § 7.02(d)(3).

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be transported and used on non-riparian lands, such uses may be disfavored over uses on riparian land.25 Thus, under the reasonable use doctrine, each adjoining or overlying landowner has an equal right to make reasonable use of the water on the land which adjoins a surface stream, or overlies the subterranean stream.26 As the reasonable use doctrine was explained by the Michigan Supreme Court, as between two riparian owners, the natural flow rule did not strictly apply because “it is manifest it would give to the lower proprietor superior advantages over the upper, and in many cases give him in effect a monopoly of the stream.”27 Thus, under the reasonable use theory, it is not a diminution in the water quantity or flow that will provide a right of action, if in view of all the circumstances, the withdrawal and actions that cause alleged injury “is not unreasonable.”28 What constitutes a reasonable use is determined on a case-by-case basis, weighing a myriad of factors.29 The weighing of those factors may depend upon whether the dispute involves (1) two competing non-consumptive users; (2) a consumptive user (e.g., agricultural irrigation or industrial withdrawal) competing with

• ne or more non-consumptive users (e.g., downstream boat liveries); or (3) competing

consumptive users of similar or different nature.30

25 STOEBUCK & WHITMAN at 424; see also RESTATEMENT (SECOND) OF TORTS,

introductory note to §§ 850 to 857, pp. 211-212.

26 1 WATERS AND WATER RIGHTS § 7.02(d). 27 Dumont v. Kellogg, 29 Mich. 420, 422 (1874). 28 Id. 29 The RESTATEMENT (SECOND) OF TORTS §850A attempts to lay out those factors to be

weighed in determining a reasonable use, including (1) its purpose; (2) its suitability to the water body; (3) its economic value; (4) its social value; (5) the harm it causes; (6) the potential for coordination with competing uses; (7) its temporal priority relative to competing uses; and (8) the justice of imposing a loss on the use. It should be noted that considerable debate has occurred among legal scholars as to whether the “reasonableness” test is to be determined in the abstract, based upon some form of “objective” standard (as advocated by Frank Trelease, Associate Reporter for the RESTATEMENT (SECOND) OF TORTS), or is fundamentally grounded upon determination of reasonableness as a relative relationship between disputing parties. See 1 WATERS AND WATER RIGHTS § 7.02(d)(1)-(2). As noted by Professor Joe Dellapenna in his insightful summary of the issue, the determination of reasonableness in individual cases almost necessarily requires courts to compare the benefits and costs of one use against the benefit and costs of another, incompatible use, to determine which use is “reasonable.”

• Id. §7.03(d)(3). Such relative economic comparisons may include additional

considerations of the costs to the plaintiff caused by the defendant’s conduct, compared to the cost to the defendant of modifying that conduct to accommodate or mitigate impacts upon the plaintiff. Id.

30 Id. § 7.03.

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Further, the courts in some states, faced with a choice between the English version of riparian doctrine (which favors protecting the natural flow of a stream), and the American rule (which focuses on the reasonable use of the actor, and the reasonable needs of others), have adopted a fusion (or perhaps confusion) of the two rules. For example, Pennsylvania precedent holds that a riparian owner may divert, use, and consume all of the water necessary for household and general domestic uses on the land, even if the flow of the watercourse/subterranean stream is measurably and materially diminished.31 If there is insufficient flow to maintain such domestic uses and other types

• f use, domestic uses have priority. Other uses, however, are classified as

“extraordinary,” including diversions for manufacturing, power generation and recreational use. Under Pennsylvania case law, a riparian owner's use of water for such extraordinary purposes is limited to that quantity which is reasonable in view of the rights

• f other riparian owners, and which will not materially or perceptibly diminish the flow
• f the surface or subterranean stream.32

(ii) Can Water Be Transferred Off Riparian Land? Depending on the jurisdiction, the right to transfer water off of the land adjoining the stream may be limited or even entirely proscribed. Some State cases treat off-land transfers of water withdrawn from a stream to be per se unreasonable,33 while others view such uses as merely disfavored or less favored than on land uses.34 However, the common law in virtually all states limits the “riparian right” to use of water within the same watershed from which it was extracted. For example, in Pennsylvania, a series of cases have ruled that withdrawals for uses off the land of origin (e.g., for a nearby city) are not ordinary and natural.35 At a common law approach where off-land uses are considered “unreasonable” and “unlawful,” liability for damages will be imposed if the withdrawal interferes with

31 Palmer Water Co. v. Lehighton Water Co., 280 Pa. 492, 124 A. 747 (1924) (domestic

uses superior to mechanical and manufacturing uses); Philadelphia v. Philadelphia Suburban Water Co., 309 Pa. 130, 163 A. 297 (1932) (diversion for domestic uses superior to public right to navigation).

32 Palmer Water Co., 280 Pa. at 499-501, 124 A. at 750-752 ; see also generally Brown v.

Kistler, 190 Pa. 499, 42 A. 885 (1889); Clark v. Pennsylvania R.R., 145 Pa. 438, 22 A. 989 (1891).

33 See Scranton Gas & Water Co. v. Delaware L. & W. R.R., 240 Pa. 604, 88 A. 24 (1913);

Irving's Ex'rs. v. Borough of Media, 10 Pa. Super. 132 (1899), aff'd, 194 Pa. 648, 45 A. 482 (1900).

34 Michigan Citizens for Water Conservation, 269 Mich. App. at 57-58, 709 N.W.2d at

196.

35 Rothrauff v. Sinking Spring Water Co., 14 A.2d 87 (Pa. 1940); Hatfield Twp. v. Lansdale

Municipal Authority, 19 Pa. D.&C. 2d 281 (C.P. Mont. 1959), aff'd, 168 A.2d 333 (Pa. 1961); Flowers v. Northampton Bucks Cty. Municipal Authority, 57 Pa. D.&C. 2d 274 (C.P. Bucks 1972).

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• ther users, and the water transfer may be enjoined by court order. Under this approach,

development of a water supply well on one property to serve the needs of a Marcellus Shale development on another site would not be allowed, or would expose the enterprise to compensation claims or injunctive suits from other users in the area. The continued validity of this common law doctrine, however, is very much in question, particularly where basin commission permitting programs have been implemented that appear to largely displace the common law.36 (c) Common Law Rights in Percolating Groundwater Most groundwater in the states overlying the Marcellus Shale is found in aquifers consisting of fresh water within saturated zones slowly percolating through the pore spaces and rock fractures. As with riparian water law, three main common-law rights have developed with respect to groundwater withdrawal disputes: (i) the English rule of absolute ownership; (ii) the American doctrine of “reasonable use”; and (iii) the so-called doctrine of correlative rights.37 The first doctrine, referred to as the English rule or the absolute ownership rule, was first stated in Acton v Blundell.38 Under this rule, a possessor of land may withdraw as much underground water as he or she wishes, for whatever purposes desired, without liability to neighboring property owners. This absolute ownership rule ostensibly remains the law in a very small minority of states,39 and does not apply to the states encompassing the Marcellus Shale. In the eastern U.S., including all of the states overlying the Marcellus Shale, the prevalent rule applicable to groundwater disputes is the doctrine of reasonable use, also sometimes called the American Rule.40 However, as interpreted by some state courts, the

36 As a result of State College Borough Water Authority v. Board of Supervisors of

Benner Township, 645 A.2d 394 (Pa. Cmwlth. 1994) (“Benner I”), and Levin v. Board of Supervisors of Benner Township, Centre County, 669 A.2d 1063 (Pa. Cmwlth. 1995), aff’d per curium, 689 A.2d 224 (Pa. 1997) (“Benner II”), the continuing viability of the Rothrauff and Hatfield approach is in doubt. After Benner II, although not yet stated by the Pennsylvania courts, the better view may be that approval of a water allocation by the Pennsylvania Department of Environmental Protection, SRBC, or DRBC under their respective statutory powers is an action that accords an exception to the common law rule.

37 2 WATERS AND WATER RIGHTS Ch. 20-22; STOEBUCK & WHITMAN, § 7.5, p. 427. 38 12 Mees & Wels. 324; 152 Eng. Rep. 1223 (Exch, 1843). 39 See Sipriano v Great Spring Waters of America, Inc., 42 Tex. Sup. Ct. 629; 1 SW 3d

75 (Tex, 1999); Maddocks v Giles, 1999 ME 63, 728 A.2d 150, 153 (Me. 1999).

40 Wheatley v. Baugh, 25 Pa. 528, 531 (1855); Williams v. Ladew, 161 A. 283 (Pa. 1894);

Pence v. Carney, 52 S.E, 702, 706 (W.Va. 1905); Cline v. American Aggregates Corp., 474 N.E.2d 324 (Ohio 1984) (overturning the common law theory of absolute ownership

• 16 -

doctrine of reasonable use in the groundwater context is not actually dependent on the reasonableness of the use. Rather, as the doctrine has developed, it generally has been held that virtually all uses of water made upon the land from which it is extracted are “reasonable,” even if they more or less deplete the supply to the harm of neighbors, unless the purpose is malicious or the water simply wasted.41 The impact of the American Rule can sometimes be particularly harsh and surprising to laypersons. As late as 1957, for example, a Pennsylvania court ruled that a mine operator could dewater and lower water tables throughout an entire valley, with no responsibility for injuries to owners

• f domestic wells whose supply was thereby cut off.42

Under the American doctrine of reasonable use, groundwater use on overlying land is virtually unfettered, but when the question is whether water may be transported off that land for use elsewhere, this is usually found “unreasonable,” though it has sometimes been permitted. As observed recently by the Michigan Court of Appeals, “[a]uthorities are not all agreed, but a principle that seems to harmonize the decisions is that water may be extracted for use elsewhere only up to the point that it begins to injure owners within the aquifer.”43 The third doctrine is a variant of the reasonable use doctrine developed in California, often called the correlative rights doctrine.44 Under the correlative rights theory, owners of land within an aquifer are viewed as having equal rights to put the water to beneficial uses upon those lands. However, an owner's rights do not extend to depleting his neighbor's supply, at least not seriously, and in the event of a water shortage, a court may apportion the supply that is available among all the owners. Thus, for the developer of Marcellus Shale gas reserves who wishes to use groundwater as a source, the key question becomes what variant of common law does each particular state follow. If situated in a jurisdiction whose law prohibits or strongly disfavors transfer of groundwater off the land where the well is located, siting and in Frazier v. Brown, 12 Ohio St. 294 (1861) and adopting § 858 of the RESTATEMENT (SECOND) OF TORTS).

41 See, e.g., Wheatley v. Baugh, 25 Pa. 528, 531 (1855); Williams v. Ladew, 161 A. 283

(1894).

42 DiGiacinto v. New Jersey Zinc Co., 27 Lehigh L.J. 307 (C.P. Pa. 1957). With respect

to mining impacts on water supplies, the DiGiacinto approach has been explicitly reversed by subsequent legislation. For example, under the Surface Mining Conservation and Reclamation Act and the Non-Coal Surface Mining Conservation and Reclamation Act, the mine operator who contaminates or diminishes a public or private water supply must restore or replace the affected supply. 52 P.S. §1396.4b(f); 52 P.S. §3311(g).

43 Michigan Citizens for Water Conservation, 269 Mich. App. at 59, 709 N.W.2d at 197,

quoting STOEBUCK & WHITMAN at 428-429.

44 2 WATERS AND WATER RIGHTS §21.01 et seq.; STOEBUCK & WHITMAN at 429.

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development of supply sources may be challenging, unless one carefully addresses the concerns of the other stakeholders who may have standing to complain. (d) The Restatement Rules for Surface Water and Groundwater Various efforts have been made to explain, codify and reform eastern water law, as most notably reflected in the RESTATEMENT (SECOND) OF TORTS. The RESTATEMENT (SECOND) OF TORTS tracks common-law “reasonable use” principles for surface and groundwater use and withdrawal. However, the RESTATEMENT’s enunciation of the principles have not met with universal approval. Some states have cited the RESTATEMENT with approval, while other jurisdictions have either rejected its tenants or

• nly partly embraced its concepts.

As to uses of surface water, a “reasonable use” under the Restatement generally “depends upon a consideration of the interests of the riparian proprietor making the use,

• f any riparian proprietor harmed by it and of society as a whole.”45 The RESTATEMENT

also collects a series of common-law principles and sets forth a non-exclusive list of factors to consider in determining the reasonableness or unreasonableness of the proposed use, including: “(a) [t]he purpose of the use, (b) the suitability of the use to the watercourse or lake, (c) the economic value of the use, (d) the social value of the use, (e) the extent and amount of the harm it causes, (f) the practicality of avoiding the harm by adjusting the use or method of use of one proprietor or the other, (g) the practicality of adjusting the quantity of water used by each proprietor, (h) the protection of existing values of water uses, land, investments and enterprises and (i) the justice of requiring the user causing harm to bear the loss.”46 Similar to the American Rule, “[a] riparian proprietor is subject to liability for making an unreasonable use of the water of a watercourse or lake that causes harm to another riparian proprietor's reasonable use of water or his land.47 For “diffused” surface water, the Restatement provides that “[t]he possessor of land is not subject to liability for a use of surface water on his land that interferes with another person's use of the water, unless the use is made for the primary purpose of causing the harm.”48 Under Section 858 of the RESTATEMENT (SECOND) OF TORTS, landowners withdrawing groundwater generally have no liability for interfering with the use of water by another if the withdraw is “for a beneficial purpose.”49 Liability attaches, however, if “(a) the withdrawal of groundwater unreasonably causes harm to a proprietor of neighboring land through lowering the water table or reducing artesian pressure, (b) the withdrawal of groundwater exceeds the proprietor's reasonable share of the annual supply

45 RESTATEMENT (SECOND) OF TORTS § 850A. 46 Id. 47 Id. § 850. 48 Id. § 864. 49 Id. § 858.

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• r total store of groundwater, or (c) the withdrawal of the groundwater has a direct and

substantial effect upon a watercourse or lake and unreasonably causes harm to a person entitled to the use of its water.”50 (e) Interaction Between Surface and Ground Water The separate common law doctrines developed to deal with disputes between competing users of surface water, or between competing uses of groundwater, face a major challenge when confronted with the interplay between surface and groundwater within the hydrologic system. As noted in our hypothetical above, a withdrawal of groundwater may impact springs or the baseflow of nearby streams. Conversely, the withdrawal from some surface water may impact the recharge of groundwater aquifers, or cause salt water movement in an estuary to come in contact with the recharge of a groundwater system (as has been the case with portions of the Potomac-Raritan-Magothy Aquifer in southern New Jersey). Relatively few cases have tackled the nexus between ground and surface water, and those that have note the difficulty of reconciling sometimes diametrically inconsistent rules governing the two resources. In Pence v. Carney,51 for example, the West Virginia Supreme Court tackled claims from a landowner whose surface spring (used in a hotel spa) was materially and directly impacted by the pumping of a new well on neighboring land. The evidence of an interconnection between the groundwater and spring/surface water was virtually

• undisputed. However, the court apparently viewed the matter as involving the

application of groundwater law, and in the absence of evidence of an underground stream connecting the well and spring, the interference would not be actionable.52 In contrast, several New York cases opt for a seeming more “absolutist” view toward protecting surface waters. For example, in Stevens v. Spring Valley Water Works and Supply Company, 247 N.Y.S.2d 503 (N.Y. App. Div., 1964), the New York court found a public water supply company liable for damages where evidence indicated that the pumping wells intercepted groundwaters that had formerly fed a stream crossing the plaintiff’s property, causing it to go dry. Resting on the premise that the “right to use and enjoyment of a stream, running in a defined and natural channel, jure naturae, appertains to the riparian landowner,” the court reasoned that the fact that the diversion and

50 Id. Several states have explicitly adopted the RESTATEMENT’s version of the rule. See

State v. Michels Pipeline Construction, Inc., 63 Wis. 2d 278, 299, 217 N.W.2d 339, 349 (1974); Henderson v. Wade Sand & Gravel Co., 388 So. 2d 900 (Ala. 1980); Cline v. American Aggregates Corp., 15 Ohio St. 3d 384, 387, 474 N.E.2d 324, 327 (1984).

51 58 W.Va. 296, 52 S.E. 702 (1905). 52 The case contains a discussion of “reasonable use” in the groundwater context, but the

focus appears to be more upon the reasonableness of the well owner’s use for support of activities on his land, not the reasonableness of the interference with the spring owner’s rights of flow.

• 19 -

diminution of the stream was caused by collecting underground waters which fed the stream “does not affect the question.”53 Thus, the New York court applied the riparian doctrine of protecting a stream owner’s interest to “natural flow” to impose liability on what would otherwise have been a fully legitimate groundwater withdrawal. A 2006 decision by the Ohio Supreme Court, Portage County Board of Commissioners v. Akron,54 provides a different view of the groundwater / surface water connection issue. The court rejected claims of trespass asserted by Akron, as the holder

• f state-granted rights to take water from the Cuyahoga River. Akron complained that a

municipal well field operated by Shalersville drew from an aquifer that would otherwise flow to the river, and therefore, infringed on Akron’s water right. Reasoning that Shalersville had a property interest in the groundwater underlying its land, the court found no basis for Akron’s position that it had “ownership of the groundwater … because it eventually finds its way into the Cuyahoga River ….”55 Interestingly, the Ohio court framed the question solely in terms of “ownership” rights and trespass law, rather than relative use rights involving interconnected resources. The diametrically opposed approaches of providing essentially no protection to spring flow interferences on the one hand, or absolute protection to stream natural flows

• n the other, underscore the clash between traditional surface water and groundwater
• doctrines. On the one hand, the West Virginia and Ohio decisions provide little

recognition of the essential support provided to surface flows from groundwater

• withdrawals. Conversely, the New York and Connecticut court decisions that accord

protection against interference with natural stream flows by well pumpage seem to go beyond modern riparian doctrine – affording downstream riparian owners with more protection against stream diminution from well pumping than they might receive from diminution resulting from upstream direct surface water withdrawals. The clash of doctrines problem is highlighted in the 2005 decision in Michigan Citizens for Water Conservation v. Nestlé Waters North America Inc.,56 where

53 247 N.Y.S. 2d at 511, quoting Smith v. City of Brooklyn, 160 N.Y. 357, 260-261, 54

N.E. 787, 788 (1899).

54 109 Ohio St. 3d 106, 846 N.E.2d 478 (2006). 55 Id. at 125, 846 N.E.2d at 496, citing McNamara v. Rittman, 107 Ohio St.3d 243, 838

N.E.2d 640 (2005) (landowners have property interest in groundwater underlying their lands, and governmental interference with that right can constitute a taking).

56 269 Mich. App. 25, 709 N.W. 2d 174 (2005), affirmed in part and reversed on other

grounds, Michigan Supreme Ct. No. 130802, 130803 (July 25, 2007). The Michigan Supreme Court recently addressed only one aspect of the Court of Appeals decision, concerning whether the plaintiffs in that case had standing to bring a claim under the Michigan Environmental Protection Act (“MEPA”) as related to certain lakes, streams and wetlands. A closely divided state Supreme Court found that while the plaintiffs had sufficient standing to assert a MEPA claim as to impacts to Dead Stream and Thompson Lake, they had failed to allege injury in fact with respect to another lake or certain wetlands because there was no evidence that they used those areas or that their

• 20 -

Michigan’s intermediate Court of Appeals was confronted with claims that groundwater withdrawals for a new bottled water facility would impact water levels in certain wetlands and the flow of the most interestingly named “Dead Stream,” to the alleged detriment of recreational and aesthetic interest of an environmental group’s members. In Michigan Citizens, the court parsed a “reasonable use balancing test” to deal with such cross-resource impacts. The court started with the observation that “in our increasingly complex and crowded society, people of necessity interfere with each other to a greater or lesser extent. For this reason, the ‘right to [the] enjoyment of . . . water . . . cannot be stated in the terms of an absolute right.’”57 The reasonable use balancing test recognizes that virtually every water use will have some adverse effect on the availability

• f this common resource. For this reason, it is not merely whether one

suffers harm by a neighbor's water use, nor whether the quantity of water available is diminished, but whether under all the circumstances of the case the use of the water by one is reasonable and consistent with a correspondent enjoyment of right by the other.58 Recognizing that the balancing test is a case-specific inquiry, the Michigan Citizens opinion suggests that under Michigan law there are three underlying principles that govern the balancing process. First, the law seeks to ensure a "fair participation" in the use of water for the greatest number of users, and accordingly, a court would attempt to strike a proper balance between protecting the rights of the complaining party and preserving as many beneficial uses of the common resource as are feasible under the

• circumstances. Second, the law will only protect a use that is itself reasonable. Third, the

law will not redress every harm, no matter how small, but will only redress unreasonable

• harms. Therefore, a plaintiff must be able to demonstrate, not only that the defendant's

use of the water has interfered with the plaintiff's own reasonable use, but also that the interference was substantial.59 Applying these principles, the balancing test would involve a weighing of numerous factors, including (1) the purpose of the use; (2) the suitability of the use to the location, including the nature of the water source and its attributes; (3) the extent and amount of the harm; (4) the benefits of the use; (5) the necessity of the amount and manner of the water use; and (6) any other factor that may bear on the reasonableness of the use, such as the impacts on the quantity, quality, and recreational, aesthetic or economic interests had been injured by the water company’s pumping activities. Mich. Supreme Ct. slip op. at pg. 31.

57 Michigan Citizens for Water Conservation, 269 Mich. App. at 69, 709 N.W.2d at 202

(quoting Hart v. D’Agostini, 7 Mich. App. 319, 321, 151 N.W.2d 826 (1967)).

58 Id. (internal quotes omitted). 59 Michigan Citizens for Water Conservation, 269 Mich. App. at 69-70, 709 N.W.2d at

202-203.

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level of the water.60 The RESTATEMENT (SECOND) OF TORTS §850A recites a similar factor based balancing approach to determination of such water use conflicts. 3.5 Regulated Riparian Regimes A number of states in eastern U.S., including several in the Appalachian Basin, have moved away from a pure common-law, water-rights arrangement to what has been termed a “regulated riparian” system of water rights management. Traditionally, not many eastern states had regulatory schemes governing water rights; most relied (and many still do) on many of the common-law principles outlined above.61 Western states typically experienced more regulation. Now, however, even eastern states have moved to regulated riparian systems. The American Society of Civil Engineers published THE REGULATED RIPARIAN MODEL WATER CODE, which provides a comprehensive code designed for adoption by state governments (particularly states east of the Mississippi) “for allocating water rights among competing interests and for resolving other quantitative conflicts over water.”62 As stated in the preface to the Model Code, a number of eastern states have adopted some type of “regulated riparian” system. An exhaustive review of regulated riparian regimes in individual states (both statutory enactments and regulatory implementation) is well beyond the scope of this

• paper. The following sections briefly review the current regulatory programs in some

jurisdictions within the Appalachian Basin. In addition to state-level regulated riparianism, the Delaware and Susquehanna river basin compacts, and the commissions created under those compacts, establish pervasive basinwide management of water quality and quantity issues, which are discussed below. Also, I have included a short discussion of the Great Lakes – St. Lawrence River Basin Water Resources Compact, which as adopted in 2008 will affect future management of the nation’s largest fresh water resource. (a) Kentucky Kentucky is, by and large, a regulated riparian state but still relies to some degree

• n common law principles.63 In Kentucky, surface water is either “diffused” (which is

not “public water” of Kentucky64) or “in a natural watercourse.”65 Groundwater is either “percolating” or is an underground stream.66

60 269 Mich. App. at 71, 709 N.W.2d at 202-03. 61 1 WATERS AND WATER RIGHTS § 9.01. 62 AMERICAN SOCIETY OF CIVIL ENGINEERS, THE REGULATED RIPARIAN MODEL WATER

CODE iii (J. Dellapenna ed. 1997) (preface to the Model Code).

63 David Edward Spenard, Kentucky, in 6 WATERS AND WATER RIGHTS 607 (R.E. Beck

• ed. 2005).

64 Ky. Rev. Stat. § 151.120(2).

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The Water Resources Division of the Kentucky Environmental and Public Protection Cabinet regulates the use and transfer of “public water.”67 “Public water” – defined as “water occurring in any stream, lake, groundwater, subterranean water or body

• f water in the Commonwealth which may be applied to any useful and beneficial

purpose”68 – is subject to permit requirements; other water is not. (i) Permit System for Water Withdrawals Since 1966, Kentucky has, by statute, required “any person, business, industry, city, county, water district or other political subdivision desiring to withdraw, divert or transfer public water” in excess of an average daily flow of 10,000 gpd69 to register with the Cabinet and apply for a permit.70 Exceptions to permit requirements include use of public waters by abutting landowners for domestic purposes71 and withdrawals for less than 10,000 gpd.72 (ii) Criteria for Granting Permits The Cabinet has a duty to issue a permit to an applicant if, after investigation, the applicant has demonstrated the following: (1) “the quantity, time, place or rate of withdrawal of public water will not be detrimental to the public interest”73 (2) the withdrawal will not be detrimental to “the rights of other public water uses”;74 (3) issuing the permit would be “consistent with the administrative regulations promulgated by the Kentucky River Authority”;75 and (4) issuing the permit would be consistent with “the long-range water resource plan and drought response plans developed by the authority.”76

65 Ky. Rev. Stat. § 151.100 (definitions). 66 Id. § 151.100(5); Commonwealth, Dep’t of Highways v. Sebastian, 345 S.W.2d 46, 47

(Ky. 1961) (groundwater presumptively is “percolating”).

67 Id. § 151.120(1). 68 Id. 69 401 Ky. Admin. Regs. 4:010 (2006). 70 Ky. Rev. Stat. § 151.150(1). 71 Id. § 151.210(1). 72 Id. § 151.140. 73 Id. § 151.170(2). 74 Id. § 151.170(2). 75 Id. § 224.70-140. 76 Id.

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(b) New York (i) Limited Statewide Permit Program for Certain Water Withdrawals New York’s state level management program with respect to water allocation and withdrawals is limited. Currently, New York’s Water Resources Law (part of the Environmental Conservation Law) requires a permit from the New York Department of Environmental Conservation (“NYSDEC”) for the acquisition, development, use and distribution of water for (i) potable purposes (public water supply), (ii) agricultural irrigation,77 (iii) projects undertaken pursuant to Article 5-D of the County Law (relating to projects by small watershed protection districts); or (iv) multi-purpose projects undertaken pursuant to N.Y. Environmental Conservation Law §15-1101 et seq.78 Such permits are required prior to acquiring water supply or additional water supply from an existing source, using eminent domain to acquire new or additional sources of supply, commencing construction of projects in connection with proposed plans, and certain

• ther activities associated with such regulated uses.79 Notably, the statewide water

withdrawal regulatory provisions of the Water Resources Law are limited to public water supply and agricultural irrigation, leaving a substantial range of water using enterprises (including those relating to gas well drilling) outside the purview of the statute. Separately, New York purports to specially regulate surface and ground water withdrawal projects designed to transport water to points outside the state by establishing a separate permit program for interstate diversions.80 (ii) Regional Permit Programs In addition to these statewide permitting requirements, the Water Resources Law establishes several regional regulatory programs, including one addressing withdrawals within the Great Lakes/St. Lawrence River watersheds (which includes some sections of western New York covering the Marcellus Shales). New York requires reporting and registration of surface and groundwater withdrawals exceeding 100,000 gpd within the Great Lakes basin.81 Currently, in-basin use is only subject to registration, although the Water Resources Law indicates that if the NYSDEC registers a withdrawal resulting in a consumptive loss in excess of 5 MGD averaged over any 30-day period, the Department is required to implement prior notice and consultation with other Great Lakes states pursuant to the Great Lakes Charter.82 Withdrawals involving an interbasin diversion,

77 Although the statute mentions agricultural irrigation, the NYSDEC regulations are

notably silent regarding the regulation of water withdrawals for irrigation.

78 N.Y. Envtl. Conserv. Law § 15-1501 (McKinney 2005). 79 Id. 80 Id. § 15-1505. 81 Id. § 15-1605. 82 Id. §15-1607.

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however, require state approval, as well as approval by the governor of each Great Lakes State pursuant to the Water Resources Development Act of 1986.83 Recently, New York State ratified the Great Lakes-St. Lawrence River Basin Water Resources Compact, discussed below. Under that Compact, New York will be proceeding to develop broader implementing legislation more strictly regulating water withdrawals within the Great Lakes Basin. (iii) Proposed Regulation Under the Supplemental Generic Environmental Impact Statement In mid-2008, the NYSDEC determined that prior generic environmental impact reviews conducted under New York’s Environmental Quality Review Act84 for oil and natural gas development activities were not sufficient to address the potential impacts associated with horizontal drilling and development of shale plays. The previously Generic Environmental Impact Statement prepared in 1992 did not contemplate non- conventional drilling and fracing techniques. Starting in mid-2008, New York entered a period of a virtual moratorium on shale gas drilling when a supplemental generic environmental impact statement (“SGEIS”) was prepared and vetted via an extensive public comment process. NYSDEC issued a draft SGEIS85 in September 2009, inviting public comment on its proposed approach to regulating and mitigating a myriad of issues associated with shale gas development, ranging from water and wastewater, to air concerns. On the subject of water withdrawals, the draft SGEIS noted that while certain water withdrawals are currently regulated by the Delaware and Susquehanna River Basin Commissions (whose programs are described below), NYSDEC believed that neither SRBC or DRBC programs were adequate to regulate surface water withdrawals to product against reduced stream flows that might threaten fish and wildlife resources. The draft SGEIS proposed to regulate withdrawals for natural gas wells, requiring that such withdrawals be suspended when stream flows are less than 30% of the average daily flow (“ADF”) or average monthly flow of the stream. Such a “passby” flow condition would curtain withdrawals on most streams during much of the summer and fall seasons. Likewise, the SGEIS proposed to regulate groundwater withdrawals from locations proximate to streams and surface water bodies to ensure any effects on surface waters were acceptable. As of this writing, although the public comment period on the draft SGEIS has closed, NYSDEC has not yet announced a final version of the SGEIS. The only clear announcement from the agency has been a press release indicating that any well drilling in the watersheds of the New York City reservoirs and the Skaneateles Lake watershed

83 Pub. L. 99-662, implemented by N.Y. Envtl. Conserv. Law § 15-1613. 84 New York Environmental Conservation Law Art. 8. 85 NYSDEC, Draft Supplemental Generic Environmental Impact Statement on the Oil,

Gas and Solution Mining Regulatory Program (Sept. 30, 2009), available at http://www.dec.ny.gov/energy/58440.html.

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serving Syracuse would not be allowed to proceed under the generic EIS, but rather would require individual environmental impact evaluations for each proposed well.86 (c) Ohio (i) Common Law with Legislative Guidance Ohio continues, in large part, to rely upon common law doctrines governing surface and groundwater withdrawals. An interesting development, however, is that Ohio’s legislature, in a 1988 statute, provided specific guidance to Ohio courts concerning the determination of “reasonable use.” Ohio Revised Code §1521.17 adopts the principles of the RESTATEMENT (SECOND) OF TORTS, declaring: (B) In accordance with section 858 of the Restatement (Second) of Torts

• f the American Law Institute, all of the following factors shall be

considered, without limitation, in determining whether a particular use of water is reasonable: (1) The purpose of the use; (2) The suitability of the use to the watercourse, lake, or aquifer; (3) The economic value of the use; (4) The social value of the use; (5) The extent and amount of the harm it causes; (6) The practicality of avoiding the harm by adjusting the use or method of use of one person or the other; (7) The practicality of adjusting the quantity of water used by each person; (8) The protection of existing values of water uses, land, investments, and enterprises; (9) The justice of requiring the user causing harm to bear the loss. This statute, however, does not authorize the issuance of permits, but simply provides guidance to courts in applying the common law to disputes that may arise.

86 State Decision Blocks Drilling for Gas in Catskills, New York Times (April 23. 2010),

available at http://www.nytimes.com/2010/04/24/science/earth/24drill.html.

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(ii) Limited Regulatory Programs Ohio has adopted a limited permit program focused on large withdrawals, applicable to new or increased consumptive uses of more than 2,000,000 gallons per day averaged over any 30-day period.87 The criteria for permit issuance consider whether (1) public water rights in navigable waters will be adversely affected; (2) the facility’s current and proposed use incorporates maximum feasible conservation practices considering available technology and the nature and economics of various alternatives; (3) if the proposed withdrawal and use will reasonably promote protection of public health, safety and welfare; (4) whether the withdrawal will have a significant adverse impact on the quantity or quality of water resources and related land resources; (5) consistency with regional and state water resource plans; and (6) the sufficiency of water available for the withdrawal and protection of other existing legal uses of water resources. Ohio Rev. Code §1501.32 prohibits the transfer of water in excess of 100,000 gallons per day out of the Ohio portions of the Lake Erie and Ohio River basins without a permit from the Ohio Department of Natural Resources (“DNR”). Criteria for such permits largely parallel those applicable to large consumptive uses, with the additional element of a required showing that reasonable efforts have been made to develop and conserve water resources in the important basin and that further development of those resources would engender overriding, adverse economic, social or environmental impacts. Finally, Ohio Rev. Code §1521.16, requires persons who own facilities capable of withdrawing more than 100,000 gallons per day of surface or groundwater to register with the Ohio DNR, and report annually on monthly withdrawal volumes. (d) Pennsylvania In large part, in Pennsylvania the right to withdraw water from both surface and groundwaters in Pennsylvania is governed by common law, composed of the doctrines and precedents established by courts in cases decided over the past two centuries.88 With the exception of state laws regulating the withdrawal of surface water by public water

87 Ohio Rev. Code §1501.33. 88 R.T. Weston and J.R. Burcat, Legal Aspects of Pennsylvania Water Management,

WATER RESOURCES IN PENNSYLVANIA: AVAILABILITY, QUALITY AND MANAGEMENT (1990). Basin level regulatory programs of the Susquehanna and Delaware River Basin Commissions have largely displaced the courts as the arbiters of water rights issues in the eastern two-thirds of the Commonwealth. However, common law doctrines and traditions remain strong. Because common law rests on individual cases read together, rather than a cohesive code, many gaps remain in the court decisions governing water rights.

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supply agencies, Pennsylvania has no statewide regulatory program mandating the acquisition of permits for withdrawing surface or ground waters. No state statute or regulatory program comprehensively addresses the allocation or use of ground or surface waters among competing users, or provides for long-term management of water

• resources. A few state statutes have attempted (or been interpreted) to impose regulations

and permit requirements on withdrawals from specified sources and particular uses. Notwithstanding these observations, with the onset of the Marcellus Shale development in 2008, the Pennsylvania Department of Environmental Protection (“PaDEP”) has claimed authority through a combination of the Pennsylvania Oil & Gas Act89 and Pennsylvania Clean Streams Law90 to review and approve “water management plans” governing water sources utilized by Marcellus Shale gas operators. (i) 1939 Water Rights Act The 1939 Water Rights Act91 requires that public water supply agencies wishing to withdraw water from surface sources, or to acquire rights in surface sources, first

• btain a permit from PaDEP. For these purposes, a “public water supply agency” is

defined to include any corporation, municipal or quasi-municipal corporation, district or authority vested with the power, authority, right or franchise to supply water to the

• public. Traditionally, this has been interpreted to apply to those entities that supply water

to the public via pipes (as opposed to bulk or bottled water suppliers). The 1939 Water Rights Act does not regulate industrial, commercial or agricultural water users, and the Act does not cover groundwater withdrawals. It has been estimated that the 1939 Water Rights Act regulates only about 10% of the total surface water withdrawals in the Commonwealth. (ii) Safe Drinking Water Act The Pennsylvania Safe Drinking Water Act92 (“SDWA”), the state counterpart to the Federal Safe Drinking Water Act, was enacted primarily to address concerns regarding the quality of Pennsylvania’s drinking water supply. While the regulations adopted under the Pennsylvania SDWA are focused on setting water quality, design, construction and operating standards to assure safe and sanitary potable water, recent case decisions have drastically reinterpreted the statute to include consideration of the impacts of water withdrawals by public water supply systems.93 In terms of withdrawals by oil and gas well operators, however, the SDWA is not applicable.

89 PA. STAT. ANN. tit. 52, §601.101 et seq. (West 1996 and Supp. 2009). 90 PA. STAT. ANN. tit. 35, §691.1 et seq. (West 2003 and Supp. 2009). 91 PA. STAT. ANN. tit. 32, §§631-641 (West 1997). 92 PA. STAT. ANN. tit. 35, §721.1 et seq. (West 2003). 93 Oley Township v. PaDEP and Wissahickon Spring Water, Inc., 1996 EHB 1098.

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(iii) Water Well Drillers License Act The Water Well Drillers License Act94 does not regulate water use, but focuses on the collection of groundwater information through the mandatory recording and filing of well location, penetrated strata, design and yield data. Water well drillers must obtain a permit from the Department of Conservation and Natural Resources, and each time they drill a well, licensed well drillers must file a completion report with DCNR’s Bureau of Topographic and Geologic Survey. (iv) Water Resources Planning Act The Water Resources Planning Act (“WRPA”),95 adopted in 2002, is focused on the preparation and updating of the State Water Plan and regional water plan elements to the state plan. The WRPA mandates the updating of the State Water Plan by March 2008, and periodic updating every five years thereafter. A part of that process involves the required registration and reporting of water use by more significant water users. The WRPA moves away from the top-down, agency-dominated process toward a more collaborative planning process, with strong input from the regional (basin) level. The Act recognized that with proper planning, Pennsylvania’s water resources are capable of serving multiple uses in a balanced manner. Nothing in the WRPA authorizes

• r expands PaDEP’s authority to regulate, permit or control water allocations or water

withdrawals. The planning process is built around a Statewide Water Resources Committee, working with six Regional Water Resource Committees and PaDEP, in a multi-step process toward development of water plans for each region and the state. The six Regional Water Resource Committees are aligned on the basis of major watersheds,96 each with a membership appointed to represent a cross-section of stakeholders in the respective basins. The Statewide Committee’s membership includes a combination of six representatives from the regional committees, members appointed by the Governor from major interest segments, and certain state agency officials. The Statewide Committee, in consultation with PaDEP, has the lead in developing policies and guidelines for the preparation of the regional plans and State Water Plan. The regional committees, in turn, are to guide the development of regional components to the state plan. The State Water Plan and regional components are to include a number of mandatory elements, including:

• An inventory of ground and surface water resources.
• An assessment and projection of withdrawal and non-withdrawal demands.
• Identification of potential water availability problems or conflicts between

users.

94 PA. STAT. ANN. tit. 32, §§645.1 et seq. (West 1997) 95 27 PA. CONS. STAT. §3101 et seq. 96 The WRPA establishes committees for the Ohio, Great Lakes, Upper Susquehanna,

Lower Susquehanna, Potomac, and Delaware basins. 27 PA. CONS. STAT. §3113.

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• Assessment of public water supply capabilities.
• Process of identifying projects and practices that conserve water, and process

for giving recognition to such efforts.

• Identification of practical alternatives for addressing availability problems,

adverse impacts, or use conflicts.

• Recommended actions, programs, policies, institutional arrangements,

projects and management activities. The WRPA further provides for the designation of “critical water planning areas,” which are defined as any significant hydrologic unit where existing or future demands exceed or threaten to exceed the safe yield of available water resources.97 For these purposes, “safe yield” is defined on the basis of the amount of water that can be withdrawn from a water resource over a period of time without impairing the long-term utility of a water resource such as dewatering of an aquifer; impairing the long-term water quality of a water resource; inducing a health threat; or causing irreparable or unmitigated impact upon reasonable and beneficial uses of the water resources.98 Such a safe yield is to be determined based upon the predictable rate of natural and artificial replenishment of the water source over a reasonable period of time. In each critical water planning area, the regional water resource committee is to create a special advisory body, and proceed to prepare a critical area plan.99 That critical area plan must identify existing and future reasonable and beneficial uses, include a water availability evaluation, assess water quality issues that have a direct and substantial effect on water availability, identify existing and potential conflicts among users and adverse impacts on uses, and recommend practicable supply-side and demand-side alternatives for resolving such issues. Ultimately, each regional plan and the entire State Water Plan are approved and must be periodically updated by both the Statewide Water Resources Committee and the Secretary of PaDEP. For the first five-year iteration of the State Water Plan, this process was recently completed with the approval of the plan in March 2009.100 However, the initial plan did not include the designation of any critical water planning areas, as the process of screening those areas had not yet been completed. Now one year later, all six

• f the regional committees have completed the process of recommending watersheds that

might be designated as “critical,” and those recommendations are pending review by the Statewide Committee. The adopted State Water Plan will have some degree of importance. The State Water Plan is already recognized as a mandatory consideration in some state regulations, such as in the preparation and approval of sewage facility plans under 25 Pa. Code Chapter 71. The WRPA further provides for the general use of the State Water Plan as a

97 27 Pa. Cons. Stat. §3112(a)(6). 98 27 Pa. Cons. Stat. §3102. 99 27 Pa. Cons. Stat. §3112(d). 100 39 Pa. Bulletin 1591 (March 28, 2009)

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policy and guidance document, providing information, objectives, priorities and recommendations to be “considered and weighed” in a broad range of decisions.101 Further, the plan is to be used to: (1) identify and prioritize water resource and water supply development projects; (2) provide information to public and private decision makers; (3) identify opportunities for improving operation of existing infrastructure; (4) guide development and implementation of policies and programs; and (5) guide policies

• n activities that directly and significantly affect the quantity and quality of water, with

the objective of balancing and encouraging multiple uses of water resources.102 To gather and maintain up to date information on water use across the Commonwealth, §3118 of the WRPA requires the registration and reporting of water use by (i) any person who withdraws more than 10,000 gallons per day averaged over any 30- day period from any surface water or groundwater source; (ii) all public water supply agencies regardless of withdrawal amount; and (iii) each hydropower facility regardless

• f the withdrawal amount.103

In 2008, PaDEP finally promulgated rules under the WRPA governing monitoring, recordkeeping and reporting of water use.104 The rules both expand and further define the registration and reporting requirements. Registration and annual reporting of withdrawals and consumptive use is mandated by any person who withdraws more than 10,000 gpd averaged over any 30-day period from a surface or groundwater source or sources operated as a system, and by any person who obtains more than 100,000 gpd from another person (for example, via the purchase of water from, or a connection to, a public water system).105 For withdrawals, the trigger amounts are determined on the basis of the total amount withdrawn by a person from one or more points of withdrawal operated as a

• system. Thus, if a company has five wells in a given watershed, and uses them to supply

a given facility, the total amount withdrawn over any 30-day period from those five wells must be counted together. Registrations and reports must be filed with PaDEP on forms (hard copy or electronic) provided by the Department. The WRPA does not mandate metering in all cases. Where alternative methods exist to obtain a reasonably accurate evaluation of withdrawals and uses, the rules may allow for use of those alternative methods to obtain a reasonable estimate or indirect calculation.106 For smaller withdrawals of less than 50,000 gpd (except public water supply systems), the statute requires that the rules provide for use of alternative methods

101 27 Pa. Cons. Stat. §3116. 102 Id. 103 27 PA. CONS. STAT. §3118. 104 25 Pa. Code Ch. 110, 38 Pa. Bulletin 6266 (November 14, 2008). 105 25 Pa. Code §110.201. 106 27 PA. CONS. STAT. §3118(b)(1).

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• f estimation or indirect calculation in lieu of direct metering or measurement.107 For

most Marcellus Shale project withdrawals, however, metering will be expected. (v) Regulation of Marcellus Shale Water Use via the Oil & Gas Act and Clean Streams Law Despite the lack of a clear or comprehensive statutory enactment establishing a water withdrawal regulatory regime, PaDEP has nevertheless asserted the power to review and approve the water sources used in Marcellus Shale gas well development through a combination of the Pennsylvania Oil & Gas Act and the Pennsylvania Clean Streams Law. The Pennsylvania Clean Streams Law108 does not provide directly for regulation

• f withdrawals, but focuses on discharges or activities that cause or may cause pollution.

PaDEP has claimed under §691.401 (prohibition of other pollution) and §691.402 (potential pollution) to regulate withdrawals from Marcellus Shale wells to avoid depletion of stream flows that may cause “pollution.” Under the Clean Streams Law, “pollution” is broadly defined to include “contamination of any waters of the Commonwealth such as will create or is likely to create a nuisance or to render such waters harmful, detrimental or injurious to public health, safety or welfare, or to domestic, municipal, commercial, industrial, agricultural, recreational, or other legitimate beneficial uses, or to livestock, wild animals, birds, fish or other aquatic life, including but not limited to such contamination by alteration of the physical, chemical or biological properties of such waters ….”109 Citing the Pennsylvania Environmental Hearing Board’s decision in Oley Township v. PaDEP and Wissahickon Spring Water, Inc., supra, PaDEP takes the position that excessive water withdrawals which diminish stream flows and impact the physical, chemical, or biological properties of water bodies constitute pollution or potential pollution allowing the agency to assert regulatory

• jurisdiction. The manner and method by which it has done so raises some question,

however, since the relevant sections of the statute call for PaDEP to either issue orders restraining pollution or potential pollution, or authorize the agency to require “by rule or regulation” to acquisition of permits regulating activities that may cause potential pollution.110 In this instance, PaDEP has not issued regulations on the subject, and has not (except in a few limited instances) issued any orders. Instead, PaDEP has attempted to graft its Clean Streams Law powers with its permitting authority under the Pennsylvania Oil & Gas Act, and has established a water source review system via administrative forms and guidance. The Pennsylvania Oil & Gas Act111 requires permits for the drilling or alteration of any natural gas well. The Act

107 Id. 108 Pa. Stat. Ann. tit. 35, §691.1 et seq. (West 2003). 109 Id. §691.1. 110 See Pa. Stat. Ann. tit. 35, §§691.401, 691.402. 111 Pa. Stat. Ann. tit. 58, §601.101 et seq. (West 1996 and Supp. 2009).

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requires PaDEP, in reviewing permit applications, to consider whether the proposed well would violate any environmental statutes administered by PaDEP (e.g., the Clean Streams Law). During 2008 and early 2009, PaDEP required operators to file an “Addendum” with well permit applications providing plans for water withdrawals. Effective April 2009, PaDEP has created a separate “Water Management Plan” process. Marcellus Shale well permits issued under the Oil & Gas Act now contain a standard condition requiring that any water withdrawn or obtained for fracing purposes be conducted pursuant to a Water Management Plan approved by PaDEP. Water Management Plans must (i) list the proposed sources (surface water, groundwater, wastewater, public water supplies); (ii) provide information about impacts of withdrawals from those various types of sources; and (iii) provide a monitoring and reporting plan. 112 (e) Virginia (i) Statewide Permit Program for Surface Water Withdrawals Effective February 6, 2008, Virginia has adopted regulations implementing a statewide permit program for surface water withdrawals via the Virginia Water Protection (“VWP”) permit program.113 Authorized by the Virginia Water Protection Act,114 and administered by the Virginia State Water Control Board (“VaSWCB”), the VWP permit program applies to virtually all new or increased surface water withdrawals involving greater than 10,000 gallons per day.115 Surface water withdrawals are divided into two categories: (1) “major” withdrawals involving greater than 90 million gallons per month,116 and (2) “minor” withdrawals involving more than 10,000 gallons per day but less than the major threshold. New or expanded surface water supply projects subject to the permit program must publish a preapplication public notice with information on the project, provide an

• pportunity for public comment, and assist in identifying public concerns and issues

prior to filing a permit application.117 Following the “preapplication” phase, a detailed permit application is required, including among other elements an evaluation of

112 See model format and instructions at:

http://www.dep.state.pa.us/dep/deputate/minres/oilgas/new_forms/marcellus/marcellus.ht m.

113 9 Va. Admin. Code § 25-210-10 et seq. 114 Va. Code Ann. §§ 62.1-44.15 and 62.1-44.20 115 9 Va. Admin. Code §§ 25-210-50.A (permit requirement) and 25-210-60.B

(exclusions for certain surface water withdrawals).

116 Id. § 25-210-10 (definition of “major surface water withdrawal”). 117 Id. § 25-210-75.B.

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beneficial uses and assessment of potential impacts.118 All VWP permits contain conditions mandating that the permittee take reasonable steps to minimize or prevent impacts which may have a “reasonable likelihood of adversely affecting human health or the environment,”119 a phrase which may well expand to addressing impacts on neighboring wells or water supplies. Surface water withdrawal permits are specifically subject to conditions relating to protection of instream flows, with consideration given to the seasonal needs of other water users, seasonal availability of surface water flow, and the cumulative effect of all withdrawals and consumptive uses.120 Surface water withdrawal permits may be issued if the withdrawal is not likely to have a detrimental impact on existing instream and off-stream issues, and will not cause or contribute to (i) significant impairment of state waters, fish or wildlife resources; (ii) adverse impacts on

• ther existing beneficial uses; or (iii) violation of water quality standards.121

(ii) Permit Program for Surface Water Withdrawals from Designated Water Management Areas A separate permit system in Virginia governing surface water applies only to those areas designated as surface water management areas by the VaSWCB. A surface water management area is “a geographically defined surface water area in which the VaSWCB has deemed the levels or supply of surface water to be potentially adverse to public welfare, health and safety.”122 Within a designated surface water management area, a permit is required for any person to make a withdrawal of surface-water,123 subject to four specific exclusions and certain exemptions.124 Excluded and exempted from the system are any non-consumptive uses, withdrawals of less than 300,000 gallons per month, and withdrawals from a wastewater treatment system permitted by the VaSWCB or the Department of Mines, Minerals and Energy. In addition, a person who has entered into an approved agreement does not need a permit.125 One of the most important exemptions, and one which creates a gap in the effectiveness of the water management area approach, excludes withdrawal in existence as of July 1989, unless the rate of withdrawal is increased.126 Currently, designated surface water management areas have not been established, and thus a special area surface water withdrawal permit program does not include any of

118 Id. § 25-210-80. 119 Id. § 25-210-90.C. 120 Id. § 25-210-110.A. 121 Id. 122 Va. Code Ann. § 62.1-242 (2009). 123 See 9 Va. Admin. Code § 25-220-70A. 124 Id. 125 Id. 126 Id. §25-220-70.C.1.a.

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the Appalachian western areas under which the Marcellus Shale formation is located. However, given the large quantities of water required for Marcellus Shale development, Virginia’s VWP statewide permit program would apply if surface water withdrawals greater than 10,000 gallons per day are contemplated. (iii) Permit Program for Groundwater Withdrawals from Designated Water Management Areas Virginia’s groundwater withdrawal permitting program only applies within designated groundwater management areas.127 An area may be designated as a ground- water management area by the VaSWCB if the board finds that groundwater levels in the area are declining or are expected to decline excessively, wells of two or more users are interfering, or may reasonably be expected to interfere substantially with one another, the available groundwater supply has been or may be overdrawn, or groundwater in the area has been or may become polluted. If one of those four criteria are met, and the board finds that public health, safety or welfare require regulatory efforts, the VaSWCB may proceed to define a groundwater management area.128 Within designated management areas, permits are required for any withdrawal of groundwater greater than 300,000 gallons per month. However, a number of exceptions are provided, including exemptions for groundwater remediation projects, and groundwater withdrawals coincident with the extraction of coal, oil, gas or other minerals.129 Currently, Virginia has designated groundwater management areas only in Eastern Virginia and the Eastern Shore area. The areas overlying the Marcellus Shale formation are not encompassed by the groundwater permit program. (f) West Virginia Presently, West Virginia has not adopted a regulatory program addressing either surface or groundwater withdrawals. The Water Resources Protection Act130 establishes a water resource planning program, coupled with a water withdrawal registration and reporting program. The West Virginia Department of Environmental Protection (“WVaDEP”) is entrusted with conducting a water resources survey of consumptive and nonconsumptive surface and groundwater withdrawals across the state. Pursuant to those authorities, in December 2006, WVaDEP issued a Final Report Water Resources Protection Act Water Use Survey131 summarizing water use trends and conditions in the state. The Act imposes an

• bligation on those withdrawing water in quantities greater than 750,000 gallons per

127 Va. Code Ann. § 62.1-257 (West 2005). 128 Va. Code Ann. § 62.1-257. 129 Va. Code Ann. §§ 62.1-258 – 62.1-259. 130 W. Va. Code § 22-26-1 et seq. 131 http://www.wvdep.org/item.cfm?ssid=11&ss1id=722.

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month from one or more sources to register their water use and to provide WVaDEP with information regarding the location and quantity of water withdrawal, including seasonal withdrawal rates.132 However, the Act does not establish a permitting program, or any standards restricting the withdrawal or use of water. Hence, water withdrawals remain the exclusive province of common law. Although West Virginia has not adopted a broad-based water withdrawal program, in March 2009, the WVDEP Division of Water & Waste Management issued draft guidance to Marcellus Shale operators indicating that it will require operators to submit anticipated withdrawal information as an addendum to well work permit applications for wells where fluid volumes requiring disposal exceed 5,000 barrels.133 At this point, the WVDEP has not moved beyond this to require actual review and approval

• f water sources.

As part of its water planning process, West Virginia’s environmental agency has developed a web-based tool that allows prospective water users, including natural gas developers, to identify streams where water may be available either generally or under certain flow conditions, or where withdrawals might present problems.134 (g) The Delaware River Basin Commission (i) Delaware River Basin Compact When adopted in 1961, the Delaware River Basin Compact135 was a unique

• document. It was the first compact not merely consented to by Congress, but in which

the Federal Government became a full signatory party. While Federal agencies resisted the proposal, the states persisted in the belief that Federal membership was requisite to the effectiveness of the new regional entity. Congress agreed. The Compact created a new institution, the Delaware River Basin Commission (“DRBC”), composed of the Basin State Governors and a Presidential appointee (each with one alternate). With few exceptions, a vote of the majority binds all. DRBC is granted broad powers to plan, develop, conserve, regulate, allocate and manage the water and related land resources of the Basin. In providing for the “joint exercise” of the sovereign rights of the signatory parties “in the common interests of the people of the region,”136 DRBC is directed to prepare and adopt a Comprehensive Plan

132 W. Va. Code § 22-26-3. 133 See WVDEP, Draft Industry Guidance, Gas Well Drilling/Completion, Large Water

Volume Fracture Treatments (March 13, 2009) (available at http://www.wvdep.org/item.cfm?ssid=11)

134 See http://www.dep.wv.gov/WWE/wateruse/Pages/WaterWithdrawal.aspx. 135 Delaware River Basin Compact, Pub. L. No. 87-328, 75 Stat. 688 (1961). 136 Delaware River Basin Compact §1.3(b).

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“for the immediate and long range development and uses of water resources.”137 The Commission is further empowered to allocate water among the signatory states, providing the allocation could not constitute a prior appropriation of waters or confer any superiority of right.138 DRBC was created as a true management institution, with both regulatory and project development authority. The Compact explicitly recognizes that “[a] single administrative agency is ... essential for effective and economical direction, supervision and coordination of efforts and programs of federal, state and local governments and of private enterprise.”139 The Compact further declares as one of its fundamental purposes the objective “to apply the principal [sic] of equal and uniform treatment to all water users who are similarly situated … without regard to established political boundaries.”140 With these objectives, DRBC is conferred the power to adopt and enforce standards and rules covering the broad spectrum of water quantity and quality issues.141 (ii) DRBC Project Review As a central mechanism for implementing these regulatory powers, DRBC is authorized under §3.8 of the Compact to regulate and approve any “project” having a substantial effect on the water resources of the Basin, to assure consistency with the Commission-adopted comprehensive plan, and “the proper conservation, development, management or control of the water resources of the basin.” The term “project” is very broadly defined by the Compact to include 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.142 Under this provision, DRBC regulates a broad spectrum of projects that may affect the quality and quantity of water resources within the basin. Projects subject to commission review and approval include, among others:

137 Delaware River Basin Compact §13.1. 138 Delaware River Basin Compact §3.3. 139 Delaware River Basin Compact §1.3(c). 140 Delaware River Basin Compact §1.3(e). 141 Delaware River Basin Compact §§ 3.6(b) (standards for planning, design and

• peration of all projects and facilities in the basin which affect basin water resources), 5.2

(water quality standards), 5.4 (water quality enforcement), 6.2 (flood plain zoning).

142 Delaware River Basin Compact § 1.2(g).

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• All surface and groundwater withdrawals exceeding 100,000 gallons per day

(gpd) in any 30-day period.

• Construction or alteration of industrial wastewater treatment facilities or

domestic sewage treatment facilities involving a design capacity  50,000 gpd.

• The diversion (exportation or importation) of water from or to the Delaware

River Basin whenever the design capacity is greater than 100,000 gpd.

• Impoundment of water. 143

In May 2009, DRBC’s Executive Director issued a “jurisdictional determination”144 extending the Commission’s project review authority to all natural gas extraction projects located in shale formations within the drainage area of special protection waters designated by DRBC (that is, most of the upper and middle Delaware Basin).145 DRBC has defined the “project” to encompass “the drilling pad upon which a well intended for eventual production is located, all appurtenant facilities and activities related thereto and all locations of water withdrawals used or to be used to supply water to the project.”146 Thus, irrespective of the amount of water to be utilized, all Marcellus and other shale gas projects will trigger project review and approval requirements, and DRBC approvals are required prior to commencement of any development activities. More recently, DRBC extended this definition of project to include exploration wells, and announced a moratorium on process gas well drilling projects until regulations are finally adopted setting forth the standards for well project approvals.147 The central criterion governing approval of projects is whether the project proposal is consistent with the Delaware River Basin Comprehensive Plan. More specifically, DRBC is required to approve a project if it determines that the project “would not substantially impair or conflict with the comprehensive plan.”148 The Comprehensive Plan encompasses a wide range of regulations and policies, most of which are now compiled as part of the DRBC Water Code.149 Project review with

143 18 C.F.R. §401.35(b). 144 “Jurisdictional determinations” represent findings by the DRBC Executive Director

under 18 C.F.R. §401.35(a) determining that projects of a classification otherwise deemed not to have a substantial effect upon water resources (such as withdrawals of less than 100,000 gpd) are nevertheless found to have or may have a substantial effect on basin water resources and therefore require basin commission review and approval.

145 DRBC, Determination of the Executive Director Concerning Natural Gas Extraction

Activities in Shale Formations within the Drainage Area of Special Protection Waters (May 19, 2009) (available at http://www.state.nj.us/drbc/naturalgas.htm).

146 Id. at 2. 147 See notices posted at http://www.state.nj.us/drbc/naturalgas.htm. 148 Id.; see also Delaware River Basin Compact § 3.8. 149 The Delaware River Basin Water Code is currently available on line at:

www.state.nj.us/drbc/regula.htm.

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respect to withdrawals includes consideration by DRBC of such factors as the need for the proposed withdrawal, alternative sources available, impacts on other uses in the area and on instream uses downstream of the point of extraction, proposed mitigation measures, implementation of conservation measures, and other issues. DRBC’s general approach to water withdrawals looks at not only individual withdrawal proposals, but the

• verall cumulative situation in the watershed or aquifer in question.

ater withdrawals. Fundamentally, DRBC allocates water based upon the doctrine of equitable apportionment.150 During drought emergencies, DRBC has established a series of water use priorities, with first priority being given to uses which sustain human life, health, and safety, and second priority to uses needed to sustain livestock. After those priorities, water is to be allocated based on equitable apportionment, among producers of goods and services, food and fibers, and environmental quality in a manner designed to sustain the general welfare of the basin and its employment at the highest practical level.151 Water conservation policies applied to both new and existing uses. The DRBC Water Code requires maximum feasible efficiency in water use by new industrial, municipal, and agricultural users, and eventual application by existing users of those water-conserving practices and technologies that can feasibly be employed.152 How these criteria will be applied to Marcellus Shale gas well projects remains to be determined; but one should expect DRBC to encourage strongly the maximum feasible reuse of flowback and produced waters, and the minimization of fresh w Projects involving the export of wastewater from Marcellus Shale well development may engender DRBC project review as to water exports.153 DRBC policy reflects a finding that the waters of the basin are limited in quantity and that the Basin is frequently subject to drought water and drought declarations due to limited water supply storage and streamflow during dry periods. Commission policy “discourages” the exportation of water from the basin. In review of projects involving export of water, DRBC considers assessments of the resource, the economic impacts of the project and of all alternatives to any export or import. Such projects are subject to evaluation of particular factors, including (1) effort to first develop, use and conserve the resources

• utside of the basin; (2) water resource impacts of each alternative available; (3)

economic and social impacts of the import or export of water and each of the available alternatives; (4) the amount, timing and duration of the proposed transfer and its

150 Delaware River Basin Water Code § 2.5.1. 151 Id. § 2.5.2. 152 Id. § 2.1.2A-C. 153 As of this writing, DRBC has not issued specific guidance on whether or not it

considers the export of natural gas well flowback water to constitute a water export, but some Commission staff have signaled that DRBC may well consider the transfer of wastewater out of the basin to trigger water export review criteria.

• 39 -

relationship to passing flow requirements and other hydrologic conditions; and (5) benefits that may accrue to the basin as the result of the proposed transfer.154 Water quality, as well as quantity, impacts are likely to be a significant issue in project reviews of Marcellus Shale well projects. Much of the Delaware Basin containing Marcellus Shale has been designed as “special protection” waters for water quality purposes,155 and is subject to stringent restrictions on both point source discharges and non-point pollution controls (e.g., erosion and sedimentation, and stormwater controls). Minimization of land disturbance, non-point pollution control measures, and management of flowback wastewaters, and cumulative impacts are anticipated to be questions of concern during the review process. In addition to basinwide project review authority, the Compact grants the Commission special powers to designate “protected areas” where withdrawals are exceeding, or threaten to exceed, available resources or conflict with the Basin comprehensive plan. Growing concerns regarding potential overuse of aquifers in southeastern Pennsylvania led DRBC in 1981 to designate the Southeastern Pennsylvania Groundwater Protected Area.156 Within the area largely defined by Triassic formations, new or increased groundwater withdrawals exceeding 10,000 gpd are subject to strict review, including the requirement for sophisticated pump testing and hydrologic analyses prior to permitting. The aggregate of new and existing withdrawals are managed within “withdrawal limits” for the affected aquifers or sub-basins, to assure that total takings do not exceed the rate of groundwater recharge during normal or dry periods. DRBC has undertaken to further define the “withdrawal limits.” DRBC has established numeric withdrawal limits for each significant sub-basin, based on the 1-in-25-year average annual baseflow rate. Where total withdrawals in a watershed exceed 75% of this value, the watershed is designated as “potentially stressed.” In such potentially stressed sub- basins, the rules require that applicants include one or more programs to mitigate the adverse impacts of a new or expanded withdrawal.

154 Id. § 2.30.4. Given these considerations, the fact is that a number of intra-watershed

and interbasin transfers have been implemented, including New York City’s diversion of 800 mgd from the upper basin under the terms of the U.S. Supreme Court’s consent decree in New Jersey v. New York; a 100 mgd transfer by New Jersey to serve the northeastern New Jersey communities; a 60 mgd transfer from the Susquehanna Basin to the City of Chester area (west of Philadelphia); and various municipal system transfers involving communities that straddle the basin divides. Within the basin, numerous withdrawals involve transfers of water between the subbasins and watersheds that comprise the overall Delaware Basin, including transfers that have been specifically undertaken to relieve over-pumping of certain aquifers in developed areas. Thus, discouragement of basin transfers does not amount to a prohibition, and each project is judged on its own merits.

155 See Delaware River Basin Water Code §3.10.3A, incorporated by reference in 18

C.F.R. Part 410.

156 18 C.F.R. Part 430.

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In addition, as part of a protected area permit application, the project sponsor must show that the proposed withdrawal will not “significantly impair or reduce the flow

• f perennial streams in the area.”157 Under the Protected Area regulations, DRBC takes

specific steps to consider and protect existing water users whose wells may be affected by newer, deeper and more powerful neighbors. Where interference is predicted or

• bserved, new users are required to limit withdrawals in order to avoid interference, or to

provide compensation (in the form of replacement water supplies) where interference is unavoidable.158 Thus, DRBC attempts to promote efficient development of the resource, while protecting the reasonable expectations and investments of current users. DRBC is further empowered to declare emergencies and impose restrictions on water withdrawals and diversions (including suspension of State-issued water rights) during such periods.159 In both protected areas, and during emergencies, DRBC’s authority to grant, modify or deny permits is guided by standards found in Compact §10.5, which calls for actions “so as to avoid such depletion of the natural stream flows and groundwaters … as will adversely affect the comprehensive plan or the just and equitable interests and rights of other lawful users of the same source, giving due regard to the need to balance and reconcile alternative and conflicting uses in the event of an actual or threatened shortage of water of the quality required.” In effect, DRBC is granted plenary authority to reallocate and regulate waters within protected areas and during emergencies so as to balance all legitimate uses of water within the basin or particular affected area. (h) Susquehanna River Basin Commission (i) Susquehanna River Basin Compact The Susquehanna River Basin Compact160 was developed nearly a decade after the Delaware Compact, stimulated in part by concerns among some that the thirsts of the eastern seaboard metropolis might cause some (notably New York City) to look to the Susquehanna's headwaters as a new source for diversions. Indeed, at least one such “flood skimming” project was proposed to serve New York. Although the Compact was adopted in 1970, the Susquehanna River Basin Commission (SRBC) actually came into being in 1972. SRBC is essentially modeled on DRBC, with membership by the United States, New York, Maryland and Pennsylvania. Although SRBC's powers are nearly identical to those of the Delaware Commission, the emphasis of Commission activities and the development of Basin programs have been different. Notably, the Susquehanna is the largest U.S. river flowing into the Atlantic, and its mixture of urban, suburban, agricultural and forest areas presents

157 18 C.F.R., § 430.13(d)(4). 158 18 C.F.R. §§ 430.13(d)(5), 430.19. 159 Delaware River Basin Compact §§ 10.4, 10.8. 160 Susquehanna River Basin Compact, Pub. L. No. 91-575, 84 Stat. 1509 (1970).

• 41 -

a far less dense population distribution. However, major water users are found up and down the basin, and the river provides a major source of water for diversions and interbasin transfers that serve portions of the lower Delaware Basin and the Baltimore/northern Maryland metropolitan and suburban areas. SRBC has developed a fairly sophisticated groundwater management program,161 including regulation of all significant groundwater withdrawals in a program which considers both the aquifer and associated surface water impacts of all proposed well development projects.162 For the past three decades, SRBC has expressed concern for the impact of growing consumptive uses in the basin, and resulting lowering of drought flows for in- stream water quality and water balance in the Chesapeake Bay. Considerable effort has been expended in the past two decades on reallocation/reformulation of storage in existing reservoirs in order to make room for flow augmentation storage. (ii) Project Review and Regulatory Powers Specific SRBC regulatory programs target the management of new and increased withdrawals and consumptive uses. SRBC requires project approval for (1) all surface and groundwater withdrawals in excess of 100,000 gpd in any 30-day period;163 (2) any new or increased consumptive water use in excess of 20,000 gpd irrespective of its source

• f supply;164 and (3) all projects (irrespective of water quantity) involving the withdrawal

and consumptive use of water for development of natural gas wells targeting the Marcellus and Utica Shale formations.165 SRBC requires approval of a natural gas project prior to commencing any project construction, defined as either spudding any well or commencing construction of any water-related facility (for example, water withdrawal, water storage, or water conveyance structures).166 Notably, project review may be triggered not only by the drilling of new wells, but also by the “re-completion” of

161 On July 7, 2006, the SRBC published a notice of proposed rulemaking to amend 18

C.F.R. parts 803, 804, and 805. After the comment period, the SRBC made revisions to its proposals, adopted a final rule on December 5, 2006, and published notice of its final rulemaking at 71 Fed. Reg. 78,570 (December 29, 2006). The final rule was set to take effect on January 1, 2007; however, the effective date was temporarily suspended as the result of litigation. Pennsy Supply, Inc. v. SRBC, U.S. Dist. Ct. M.D. Pa., No. 1:06-CV- 02454, Order (Dec. 29, 2006) (stay pending further order of court). The temporary suspension has been lifted and the regulations have taken effect.

162 18 C.F.R. § 806.23. 163 18 C.F.R. § 806.4(a)(2)(i). 164 18 C.F.R. § 806.4(a)(3). 165 18 C.F.R. §806.4(a)(8), 73 Fed. Reg. 78618 (Dec. 23, 2008). 166 18 C.F.R. §806.3 (definition of “construction”), as amended at 73 Fed. Reg. 78618,

78620 (Dec. 23, 2008).

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previously developed gas wells to allow for extraction from the Marcellus or Utica Shale formations. For Marcellus Shale projects, project approvals associated with stream or ground water withdrawals require “dockets” approved by the full Commission following public

• hearing. Because the Commission meets only 4-5 times per year, this process can be

time-consuming and requires a good deal of advance planning. For consumptive water use associated with well projects, however, SRBC has adopted an “approval-by-rule” (“ABR”) procedure which allows Commission staff to issue administrative approvals without the need for action by the full Commission.167 Consumptive use ABRs are required for each well pad, irrespective of whether the water source involves a stream, groundwater well, water purchased from a public water supply system, or use of wastewater, mine water, or another type of water source. Such an ABR may be sought by submission of a notice of intent, coupled with issuance of a prescribed notice to the public, after which SRBC staff will issue an approval usually within 10-14 days. Although SRBC regulations provide a process for transfer of previously-issued project approvals upon change of ownership of the project, subject to prior notice to SRBC,168 such a transfer may trigger a “review” and modification of the prior approval in a variety of situations, including where the prior approval was more than 10 years old, or where the prior project approval did not include all ground and surface water sources or uses (e.g., some were “grandfathered”).169 Where facilities that did not previously require a project approval because their withdrawal or consumptive use predated the SRBC compact regulations, the new owner must submit a project approval application to SRBC prior to the date of ownership change,170 and the use by the new owner will be subject to SRBC’s full project review process and standards. SRBC has established particular “standards” governing consumptive uses of water within the Susquehanna Basin,171 which apply to all consumptive uses that involve more than 20,000 gpd over any 30-day period and that were initiated or increased after January 23, 1971. For these purposes, a “consumptive use” is defined to mean the “loss

• f water transferred through a manmade conveyance system or any integral part thereof

(including such water that is purveyed through a public water supply or wastewater system), due to transpiration by vegetation, incorporation into products during their manufacture, evaporation, injection of water or wastewater into a subsurface formation from which it would not reasonably be available for future use in the basin, diversion from the basin, or any other process by which the water is not returned to the waters of the basin undiminished in quantity.”172 Consumptive uses include, for example, virtually

167 18 C.F.R. §806.22(f). 168 18 C.F.R. §806.6. 169 18 C.F.R. §806.6(c)-(d). 170 18 C.F.R. §806.4(c) 171 18 C.F.R. § 806.22. 172 18 C.F.R. § 806.3).

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all water used at a Marcellus Shale well, including water for drilling, fracing, and dust control. Under the SRBC rules, regulated consumptive users (including all Marcellus Shale projects) must either curtail their consumptive use during “low flow” periods (as may be designated by the Commission), or must provide compensation for that use.173 In practice, such compensation may be provided by one of several methods, including development of storage facilities and provision of releases from those facilities during low-flow periods; purchase of available water supply storage from existing facilities; use

• f water from a public water supplier that maintains a conservation release or flow-by

approved by SRBC; use of groundwater; or other means approved by SRBC.174 In lieu of providing such compensation, a user may provide payments to SRBC under a set fee schedule, and SRBC, in turn, utilizes those funds for the operation of several storage facilities acquired by the Commission to provide for streamflow augmentation during low-flow period. (iii) Passby Flow and Conservation Release Requirements As a guide used in administering its project review authority, in late 2002, the SRBC adopted guidelines governing the determination of passby flows and conservation releases for surface and groundwater withdrawal projects.175 The SRBC uses passby flows, conservation releases, and consumptive use compensation to protect aquatic resources, competing users, and instream flow uses downstream from the point of withdrawal.176 Passby flow requirements mandate that, while water is being withdrawn, a specified amount of water must be allowed to pass a certain point downstream from the point of withdrawal.177 Approved surface-water withdrawals from small impoundments, intake dams, continuously flowing springs, or other intake structures in applicable streams will include conditions that require minimum passby flows.178 Additionally, approved groundwater withdrawals from wells that impact streamflow, or for which a reversal of the hydraulic gradient adjacent to a stream (within the course of a 48-hour pumping test) is indicated, also will include conditions that require minimum passby flows.179

173 18 C.F.R. § 806.22(b). 174 18 C.F.R. § 806.22(b). 175 SRBC, Guidelines for Using and Determining Passby Flows and Conservation

Releases for Surface-Water and Ground-Water Withdrawal Approvals, Policy No. 2003- 001 (November 8, 2002).

176 Id. 177 Id. 178 Id. (emphasis added). 179 Id.

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There are three narrowly tailored exceptions to the SRBC passby flow

• requirements. First, an exception is provided in cases where the surface-water or

groundwater withdrawal, has only a minimal impact in comparison to the natural or continuously augmented flows of a stream or river.180 The SRBC defines minimal impact as 10 percent or less of the natural or continuously augmented Q7-10 low flow of the stream or river.181 Second, an exception may be provided where the project in question requires Commission approval and a passby flow would be required under the guidelines, “but where a passby flow has historically not been maintained.”182 In these cases, withdrawals exceeding 10 percent of the Q7-10 low flow will be permitted whenever flows naturally exceed the passby flow requirement plus the taking.183 When streamflows do not naturally exceed the passby flows, the rate of withdrawal and quantity allowed are reduced to less than 10 percent of the Q7-10 low flow. This procedure is allowed for a period of four years from the approval date, and during this period the project sponsor should develop additional storage or supplies that will allow for withdrawals while still maintaining the passby flow requirement.184 In such cases, within two years from the SRBC approval date, the project sponsor will be required to file a plan

• utlining the proposed development of additional on-site storage or s

185

upplies. The method of determining passby flow for streams that support trout populations is based upon the SRBC’s Instream Flow Studies Pennsylvania and Maryland (May 1998) publication. That publication reflects studies which applied Instream Flow Incremental Methodology (“IFIM”) to evaluate cold water fish habitat impacts in a sampling of streams in several hydrologic regions of Pennsylvania and Maryland, arriving at a surrogate model to be applied to other streams in assessment predicted “habitat loss.” The SRBC policy pegs the acceptable amount of habitat loss depending upon the classification of the stream. Less than 5% habitat loss is allowed for exceptional value streams. Generally, less than 5% loss (or at most 7.5% habitat loss) is allowed for high quality waters. Passby flows to prevent more than 10 or 15% habitat loss would be imposed on streams with lower classifications supporting trout populations. For areas of the basin that do not support trout populations, the SRBC passby flow policy sets levels generally ranging from 15 to 25 percent of average daily flow.186In no case is the passby flow less than the Q7-10 flow.187

180 Id. 181 Id. at pg. 2. 182 Id. 183 Id. 184 Id. 185 Id. 186 Id. at pg. 6. 187 Id. at pg 3-4.

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In lieu of the “desktop” methodology set forth in the SRBC passby flow policy, the policy allows a project sponsor to provide an instream flow study to demonstrate that lower passby flows and releases will provide an acceptable level of aquatic habitat

• protection. Exceptions may also be provided if the applicant can demonstrate that there

are no viable alternative supplies available, or if after coordination, another acceptable passby flow criterion can be established.188 Conversely, pursuant to SRBC regulations §§ 803.43(a)(1) and 803.44(a)(1), the Commission may increase the passby flow requirement for any project when water quality or sensitive environmental resources may be adversely effected.189 Conservation releases only come into play with surface-water withdrawals made from a large impounding structure.190 A conservation release imposes a requirement to actually augment stream flows by releases from storage. Such augmentation may occur not only during low flow periods, but also during more normal flow regimes. When this is the case, “the conservation release shall be equal to, or greater than, the Commission’s low flow criterion.”191 (iv) Enforcement and Sanctions SRBC has taken an aggressive enforcement posture in relation to Marcellus Shale gas well projects, as well as other projects subject to basin commission review. The SRBC Compact allows for imposition of civil penalties in an amount up to $1,000 per day for each violation of the Compact and implementing regulations.192 Applying these provisions, SRBC has invoked its enforcement authority in a number of situations where gas well projects were commenced prior to obtaining commission approval, extracting settlements that have ranged upward to around $500,000 per company for situations involving multiple violations. SRBC staff have expressed a view that given the number

• f communications it has directed to companies engaged in gas well development

reminding entities of the basin commission’s jurisdiction, proceeding with project development absent proper approvals will be counted in most cases as “willful.” (i) Great Lakes – St. Lawrence River Basin Water Resources Compact The northwestern portion of the Marcellus Shale formation lies within the Great Lakes-St. Lawrence River Basin in sections of western New York, northwestern Pennsylvania, and northeastern Ohio.

188 Id. at pg. 7. 189 Id. at 2. 190 Id. 191 Id. 192 SRBC Compact §15.7.

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In late 2008, Congress provided its consent and the President signed the Great Lakes-St. Lawrence River Basin Water Resources Compact (“GLSL Compact”),193 which had been previously enacted by concurrent legislation adopted by the eight Great Lakes States. The GLSL Compact establishes a statutory and regulatory framework for imposing substantial additional regulatory controls on water withdrawals involving Great Lakes Basin waters, including withdrawals from the lakes themselves, streams within the basin, and groundwaters within the Great Lakes and St. Lawrence River watersheds. The key elements of this program include: 

• Registration. All existing water withdrawals greater than 100,000 gallons

per day in any 30-day period are required to register with their states. Criteria applied through this process will be used to define the “grandfathered” amount of those existing withdrawals (thereby establishing a baseline defining future increases that may trigger permit requirements).  Water Withdrawal Permitting. States are required to establish permitting programs regulating new or increased withdrawals above to-be-defined trigger levels. In the absence of arriving at another trigger, the default would be 100,000 gallons per day over any 30-day period. Such withdrawals may be approved only if they meet prescribed minimum criteria (referred to as the “decision-making standard”).  Decision-Making Standard. The GLSL Compact embraces a decision- making standard, with the commitment that each jurisdiction would review regulated withdrawals consistent with that standard. The decision- making standard in §4.11 of the GLSL Compact requires a determination that the proposed use is reasonable, considering a series of factors, including (a) whether the withdrawal is planned in a fashion that provides for efficient use of the water and will avoid or minimize waste; (b) whether efficient use is being made of existing water supplies; (c) the balance between economic development, social development and environmental protection; (d) the supply potential of the water source, considering quantity, quality, reliability and safe yield of hydrologically interconnected water sources; and (e) the probable degree and duration of any adverse impacts to other lawful consumptive or non-consumptive water uses or to the quantity or quality of the waters and water dependent natural resources, and proposed plans or arrangement for avoidance or mitigation of such impacts. Other criteria require that each withdrawal or consumptive use incorporate “environmentally sound and economically feasible water conservation measures”; and mandate that the withdrawal and consumptive use be implemented so as to ensure that the proposal will result in “no significant individual or cumulate adverse impacts” to the

193 Pub. Law 110-342, 122 Stat. 3749.

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quantity or quality of waters and water dependent natural resources of the basin on the applicable source watershed. Notably, some aspects of the decision-making standard were controversial as the proposed compact was introduced and debated in several of the state

• legislatures. In particular, the meaning and scope of the “no significant

impact” language has raised considerable questions and concern.  Out-of-Basin Diversions and Intra-Basin Water Transfers. With limited exceptions, the GLSL Compact prohibits out-of-basin diversions of water; and transfers of water between the subbasins of the Great Lakes will be

• restricted. Subject to some high regulatory standards, use of basin waters

by straddling communities will be permitted. All proposals involving out-

• f-basin diversions or transfers between subbasins of the Great Lakes

would be subject to review by a regional body (involving the states and provinces), with a determination of findings to be presented back to the host state or province. Under the GLSL Compact, out-of-basin diversions and transfers between the lakes are further subject to review and approval by a Regional Council, composed of the eight Great Lakes State Governors or their designees.  Significant Consumptive Water Uses: Where withdrawals involve significant consumptive uses of water (> 5,000,000 gpd in any 90-day period), the host state is obligated to provide notice to the other jurisdictions, and invite their comments, which then must be considered in the applicable state permitting agencies.  Water Conservation Measures. States are required to develop and implement voluntary and/or mandatory water conservation measures applicable to both existing and new users. New or increased withdrawals must implement environmentally sound and economically feasible water conservation measures. The GLSL Compact is currently in its early stages of implementation. Some states (including Pennsylvania194) have adopted statutes setting up permitting programs conforming to the compact’s mandates, but in other jurisdictions (New York and Ohio) those programs are still in the formative stages. 4. Protection of Water Supplies 4.1 Regulation of the Fracing Process and the Proposed FRAC Act The advent of unconventional drilling techniques, including horizontal drilling and large-scale hydraulic facture stimulation, have lead to a heightened public sensitivity

194 Act of July 4, 2008, P.L. 526, No. 2008-43, Pa. Stat. Ann. tit. 32, §817.23-30 (West

• Supp. 2009).
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regarding potential impacts on water supplies and the fresh groundwater resources that

• verlie many shale plays – and that public concern, in turn, has stimulated political

proposals that may seriously impact industry activities. On the one hand, credible studies indicate that the potential for impacts to surface water and fresh groundwater from hydraulic fracturing and horizontal well completions are expected to be minimal because of regulatory requirements by state oil and gas agencies coupled with the practices implemented by gas well operators to ensure fluids are contained.195 Such studies indicate, for example, the deposition environment of the Marcellus Shale, which produced a thick blanket of Devonian-aged shales above the Marcellus, provides a thick sequence of overlying shales to act as a series of confining layers to prevent vertical migration of fracturing fluids upward towards fresh groundwater systems.196 That being said, some environmental groups have produced “studies” and press releases citing a range of chemicals utilized in drilling and fracing fluids, and raising the specter of migration of these chemicals into water systems.197 The Federal Safe Drinking Water Act,198 as amended by the Energy Policy Act of 2005, excludes injection of fluids for fracing purposes from regulation under the underground injection control (“UIC”) program.199 Specifically, hydraulic fracturing is excluded from the definition of “underground injection.”200 In late 2009, bills introduced in the U.S. Senate201 and House202 proposed the Fracturing Responsibility and Awareness of Chemicals (“FRAC”) Act. The proposed FRAC act would turn the exclusion for hydraulic fracturing into an inclusion, thereby bringing all injection of any fluid or propping agents for purposes of hydraulic fracturing

• perations relating to oil and gas production under the full panoply of UIC permitting and
• regulation. In addition, the FRAC Act would mandate that EPA or States administering

the UIC program require disclosure by operators to the agency and to the public of all

195 A. Daniel Arthur, Brian Bohm and Mark Lane, Hydraulic Fracturing Considerations

for Natural Gas Wells of the Marcellus Shale, The Ground Water Protection Forum, 2008 Annual Forum, Cincinnati, OH, September 21-24, 2008.

196 Id. at 16. 197 See, e.g., Environmental Working Group, Drilling Around the Law (2009), available

at: http://www.ewg.org/drillingaroundthelaw.

198 42 U.S.C. §300j et seq. 199 See UIC program discussion in Part 6.5 below. 200 32 U.S.C. §300h(d)(1)(B)(ii) (“The term ‘underground injection’ … excludes … the

underground injection of fluids or propping agents (other than diesel fuels) pursuant to hydraulic fracturing operations related to oil, gas, or geothermal production activities.”

201 Senate Bill 1215, sponsored by Sen. Robert Casey (D-PA). 202 House Bill 2766, sponsored by Rep. Dianna DeGette (D-CO).

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chemical constituents (but not the proprietary chemical formulas) used in the fracturing process. If enacted in its current form, there is little doubt that the FRAC Act would stand as a serious impediment to unconventional drilling of shale gas wells – as an extensive geologic and engineering evaluation process is mandated for permitting of most UIC wells, and EPA is hardly staffed in a manner that could manage literally thousands of well applications per year. Pressure to push forward the FRAC Act has been blunted, to some degree, by the undertaking of a study by EPA of hydraulic fracturing and its impacts, funded with a $1.9 million appropriation in the FY 2010 appropriations act, which mandated a peer-reviewed

• evaluation. On March 18, 2010, EPA formally announced initiation of that study, with

input from the Science Advisory Board.203 The scope and depth of this study remains to be determined, and its work product may take several years to be concluded. In the mean while, the industry must keep a watchful eye on political developments and potential efforts to move forward on the FRAC Act proposal. 4.2 Liability of Gas Well Operators for Impacts on Other Water Users Marcellus Shale development operations may impact upon other water users (such as neighboring well or stream owners) via several different modes. First, the process of installing and using water sources, whether from surface streams or wells, may affect downstream flows or aquifer supplies to neighboring wells. Second, the process of drilling, fracing or otherwise developing the gas well may theoretically impact the quantity or quality of water supplies, such as by interrupting or causing a change in groundwater flow patterns, or by contributing pollution via improperly controlled movement of gas or well fluids into freshwater horizons. (a) Liability for Impacts Caused by Water Supply Development As indicated by the discussion in Part 3, the question of liability for impacts caused by water supply development and withdrawals rests largely on the applicable state law governing “water rights” and water allocation, and substantially is affected by the location and nature of the withdrawal involved. In those jurisdictions governed primarily or exclusively by common law (western Pennsylvania, Ohio, West Virginia, and Virginia), exposure to liability will depend upon “reasonable use” determinations and point of withdrawal versus use. In situations where adequate water sources can be developed on the same leasehold as the gas production well, the gas developer will enjoy “riparian” rights as to surface waters and “reasonable

203 See EPA Press Release:

http://yosemite.epa.gov/opa/admpress.nsf/e77fdd4f5afd88a3852576b3005a604f/ba591ee 790c58d30852576ea004ee3ad!OpenDocument.

• 50 -

use” rights as to groundwater. Surface water impacts are more likely to involve a weighing of factors, while the groundwater doctrines in most states are less likely to lead to imposition of liability for impacts on other wells unless the impact is reasonably foreseeable and the developer fails to take reasonable steps to avoid or mitigate the

• impact. On the other hand, where water supplies must be obtained off of the mineral

leasehold, old rules in many jurisdictions view water transfers as per se unreasonable, and could readily lead to broader exposure to claims for interference with other water users. Although “regulatory” regimes governing water withdrawals pose an additional administrative step, they may in the long run serve to benefit major energy developments. Regulated riparian systems, such as administered by SRBC and DRBC, have tended to displace antiquated common law rules that disfavor off-land transfer of water, thereby allowing the tapping of sources which may not be available at the immediate site of use. These permit programs will almost always require consideration of impacts on neighboring wells, springs or surface water supplies, but also provide a more predictable avenue by which such impacts can be assessed and mitigated through appropriate provision of replacement supplies or compensation. (b) Liability for Impacts Caused by Gas Well Development and Operation (i) Common Law Liabilities Absent special statutory arrangements, liability for water supply quantity and quality impacts occasioned by gas well development will rest substantially on common law tort doctrines – principally trespass, nuisance and, where applicable, strict liability rules. Since these and related issues are being addressed by another panel, suffice that we mentioned them here for the sake of completeness. (ii) Special Statutory and Regulatory Requirements Some jurisdictions, such as Pennsylvania, have adopted special statutory and regulatory provisions that act as an overlay to, or displacement of, common law rules in regard to impacts from oil and gas well development. (1) The Pennsylvania Oil & Gas Act – Water Supply Protection Provisions Section 208 of the Pennsylvania Oil and Gas Act204 imposes an affirmative

• bligation on well operators to restore or replace affected water supplies. Specifically,

section 208(a) declares: (a) Any well operator who affects a public or private water supply by pollution or diminution shall restore or replace the affected supply with an

204 58 P.S. §601.208.

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alternate source of water adequate in quantity or quality for the purposes served by the supply. Section 208(a) is notably silent in terms of what activities by a well operator might lead to such an obligation. Section 208(b) provides further clarification, however, in describing the procedures by which any “landowner or water purveyor suffering pollution

• r diminution of a water supply as a result of the drilling, alteration or operation of an
• il or gas well”205 may notify the PaDEP and request an investigation be conducted.

Read together, it would appear that the statutory obligation to replace or restore water supply attaches when the impact results from the drilling, alteration or operation of the gas well, and not to impacts resulting from a gas well owner’s development of a separate water supply source on or off the mineral lease area. There are, however, no cases or agency guidance addressing this point. The Pennsylvania Act sets up a specific process to be followed.206 After receipt

• f a complaint, PaDEP must undertake an investigation within 10 days. The agency must

render a determination within 45 days. If the agency fines or “presumes” that the pollution or diminution of the water supply was caused by drilling, alteration or operation activities, then PaDEP will issue an order to the gas well operator to restore or replace the affected supply, and if necessary provide a temporary replacement. Pennsylvania’s law creates a presumption that the gas well operator is responsible for pollution of a water supply within 1000 feet of the gas well, where the pollution

• ccurs within six months after completing drilling or alteration of the well.207 This

presumption can be overcome if the well operator affirmatively proves one of five defenses: (1) The pollution existed prior to the drilling or alteration activity as determined by a predrilling or prealteration survey. (2) The landowner or water purveyor refused to allow the operator access to conduct a predrilling or prealteration survey. (3) The water supply is not within 1,000 feet of the well. (4) The pollution occurred more than six months after completion of drilling or alteration activities. (5) The pollution occurred as the result of some cause other than the drilling or alteration activity.208

205 58 P.S. §601.208(b) (emphasis added). 206 Id.; 25 Pa. Code §78.51. 207 58 P.S. §601.208(c). 208 58 P.S. §601.208(d).

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To utilize either of the first two defenses, the well operator must retain the services of an independent laboratory to conduct a predrilling or prealteration survey of water supplies in the area, and results of that survey must be provided to PaDEP and each water supply owner. Regulations detail the required elements of such a survey, including the notice to be provided to neighboring landowners in the area and specific information which must be collected regarding each well.209 The statute does not create a presumption about impacts on the quantity of neighboring supplies or call for a predrilling or prealteration survey of the quantity aspects of neighboring wells. Nevertheless, a predevelopment survey of water supplies for both water quantity and quality may be prudent as a prophylactic defensive measure. (2) West Virginia’s Water Protection Regulations Like Pennsylvania, West Virginia imposes affirmative obligations on well

• perators that require operators to generally “prevent surface and underground water

pollution,”210 as well as imposing specific operational requirements.211 West Virginia also has a waste prevention rule that requires operators “to prevent the pollution of the waters of the state in drilling and producing operations, or in transporting or distributing such products. 212 ” In addition to the general pollution prevention requirements imposed in state rules, West Virginia imposes a water supply testing requirement on well operators. Under this rule, operators generally must test water from any wells or springs located within 1000’ from any proposed well.213 Such operators must provide notice to owners of property within 1000’ from any proposed well to give such owners the opportunity to request testing of well or spring water.214 The rules require specific sampling and

209 25 Pa. Code §78.52. 210 W. Va. Code State R. tit. 35, §4-16.5. 211 For example, W. Va. Code State R. tit. 35, §4-11.3 contains “operational criteria” that

include the use of fresh water casings for any drilling through “the deepest fresh water horizon (that being the deepest horizon which will replenish itself and from which fresh water or usable water for household, domestic, industrial, agricultural, or public use may be economically and feasibly recovered).”

212 W. Va. Code State R. tit. 35, §4-17.1. 213 W. Va. Code State R. tit. 35, §4-19. 214 W. Va. Code State R. tit. 35, §4-19.2.

• 53 -

analysis methods.215 And, the rules provide for a right of entry for operators in order to allow such operators to obtain samples for a

216

nalysis. Finally, if a well operator causes or contributes to groundwater contamination, “every reasonable effort shall be made by the operator to identify, remove, or mitigate the source of such contamination.”217 Such efforts can include developing a groundwater remediation plan and conducting groundwater monitoring.218 (3) Ohio’s Water Protection Requirements. Like West Virginia, Ohio requires well operators to conduct operations “in a manner which will not contaminate or pollute the surface of the land, or water on the surface or in the subsurface.”219 Ohio imposes operational requirements on well operators that are intended to protect groundwater. Ohio, for example, requires operators to construct and maintain drilling pits in such a manner so as to prevent the escape of brine.220 Ohio prohibits brine disposal in surface or groundwater or on land in such quantities that it causes or could reasonably be anticipated to cause damage or injury to public health or safety or the environment, including damage or injury to drinking water.221 In addition, Ohio requires well operators in urban areas to use “best management practices” to minimize and control surface flow of water, sedimentation, and erosion.222 Finally, in response to an incident in which methane gas leaked from a well into 26 homes through a domestic water well, Ohio’s Department of Natural Resources has implemented new permit conditions requiring operators to prevent the accumulation of unsafe gas pressure in the annulus of a well, thereby preventing such gas from entering domestic water supplies.223

215 W. Va. Code State R. tit. 35, §4-19.3. 216 W. Va. Code State R. tit. 35, §4-19.4. This right of entry includes the right to get a

court order allowing entry if an owner protects or blocks entry when requested. Id. §4- 19.4b.

217 W. Va. Code State R. tit. 35, §4-20. 218 Id. 219 Ohio Admin. Code § 1501: 9-1-07. 220 Ohio Rev. Code § 1509.22(C)(3). Ohio also requires the installation of protective

casing to prevent surface or groundwater from entering “fresh water strata.” Ohio Rev. Code § 1509.17.

221 Ohio Rev. Code § 1509.22(A). 222 Ohio Admin. Code § 1501: 9-1-07(B). 223 See Ohio Department of Natural Resources press release, January 18, 2008

(http://www.dnr.state.oh.us/home_page/newsreleasefeed/tabid/18276/EntryID/326/Defau lt.aspx; http://www.ohiodnr.com/mineral/default/tabid/10352/Default.aspx)

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Ohio regulations require applicants for well drilling permits to sample all water wells within 300 feet of the proposed well locations in urbanized areas, but this sampling requirement is not directly tied to a provision creating liability for specific groundwater impacts that may be identified through such sampling.224 However, the general provision prohibiting operators from contaminating groundwater would apply, and that statutory provision might be utilized as part of a common law claim that the operator has violated a “duty” owed to those drawing water from the groundwater that has been contaminated. 5. The Flowback / Wastewater Challenge 5.1 Scope of the Challenge As noted above, about 3-5 million gallons of water are required to perform a successful hydrofracturing treatment of a Marcellus Shale well. A portion of this water (25-50%) emerges from the well as flowback water, with significant volume in a relatively short period of time. Efforts to obtain representative characterization of Marcellus Shale flowback and produced waters are continuing. What is known from the information available to date is that typical flowback water contains 4-25% salts (including constituents from underground formation), plus oil and gas, plus chemicals added during the frac. Typical total dissolved solids (TDS) may exceed 100,000 milligrams per liter (“mg/l”). Other constituents of concern include barium, strontium, and naturally occurring radioactive material (“NORM”). The following table provides some typical flowback water vs. freshwater constituent values:225

Parameter Typical Surface Water Analysis (mg/l or ppm) Flowback Analysis (mg/l or ppm) TDS < 500 20,000 to 300,000 Iron < 2 0 to 25 Oil & Grease < 15 0 to 1,000 Barium < 2 0 to 1,000 Strontium < 4 0 to 5,000 pH 6 to 9 5 to 7.5

Reuse of flowback water requires treatment and/or dilution with fresh water to lower TDS and some other specific constituent concentrations (e.g., sulfates) that could inhibit successful fracture stimulation programs. Of the up to approximately 5 million

224 Ohio Admin. Code § 1501: 9-1-02(F). 225 Mark Gannon (Water and Wastewater Department Manager, Tetra-Tech), Challenges

in Water Supply and Flowback Water Management, in K&L Gates Second Annual Appalachian Basin Oil & Gas Seminar, Pittsburgh, PA (April 29, 2009).

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gallons used for each hydrofracture job, industry sources indicate that 1-1.5 million gallons of flowback water resulting from each frac job require handling, treatment, recycling and/or disposal. In addition, over time, additional produced water will be generated from each well – albeit Marcellus Shale wells have been relatively low in produced water per MMCF of gas produced. The notable challenge remains that existing treatment facilities have limited capacity and capability to handle these volumes, constituents and concentrations/loadings. Confounding these hurdles, some eastern streams have limited capacity to assimilate these constituents, while other streams may have high quality / special protection status. Clearly, the industry faces a daunting strategic challenge to identify and develop viable water management methods, facilities and disposal options. 5.2 Overview of Wastewater Management Issues Addressing the wastewater challenge involves tackling a series of issues, and developing a coherent wastewater management strategy. Among the issues to be addressed are: (1) characterizing flowback wastewaters; (2) developing systems to assure wastewaters are sent to (and reach) appropriate treatment facilities; (3) selecting the appropriate treatment and disposal technologies, both to meet current and future regulatory mandates; (4) identifying and resolving treatment and disposal facility design and permitting issues; and (5) characterizing and managing treatment residuals. These key issues are illuminated in the following sections of this chapter. 5.3 Requirements for Characterizing Flowback Wastewater A fundamental starting point, both from a legal and practical perspective, requires an appropriate and complete characterization of the constituents in flowback wastewaters, the respective concentrations of those constituents, and the factors that may affect wastewater contents. Although flowback wastewaters from various wells in the Marcellus Shale formations may be similar in general nature, concentrations of certain constituents may be expected to vary over the flowback period, and may also vary to some extent by geographic location. Selecting appropriate treatment technologies and facilities requires a decent understanding by each operator of the range and variability of constituents (including chlorides, metals, NORM, etc.) that may be anticipated from gas wells under development. In framing characterization efforts, companies need to consider both what information they need to make appropriate technological decisions and applicable regulatory requirements for characterizing wastewater streams. Flowback water is exempted from the Resource Conservation and Recovery Act (“RCRA”) Subtitle C hazardous waste regulations by virtue of the exemption set forth in 42 U.S.C. §6921(b)(2)(A). Thus, hazardous waste characterization mandates found in 40 C.F.R. Part 261 are not applicable. However, gas well flowback wastewater may be subject to state regulatory regimes governing characterization of “solid wastes” and

• wastewaters. Pennsylvania provides a prime example. Pennsylvania’s standard gas well
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permit conditions wastewaters to be characterized “in accordance with 25 Pa. Code §287.54” – thus providing a cross-reference to the Commonwealth’s residual waste management rules in 25 Pa. Code Ch. 287. Under the Chapter 287 rules, a generator must use generator knowledge and representative sampling to determine physical and chemical composition of material.226 Section 287.54(a) requires performance of a “detailed analysis that fully characterizes the physical properties and chemical composition” of each waste generated. That analysis may include available information from material safety data sheets (“MSDS”) or similar sources.227 PaDEP Form 26R provides guidance concerning the requirements for chemical analysis of Marcellus Shale drilling, completion and production wastewaters, and calls for analysis of a plethora of constituents.228 Analytic methods must conform with EPA’s standard test methods, and because this information is required to be submitted as part of a state regulatory program, the analyses must be performed by an accredited environmental laboratory.229 The generator of residual waste, including flowback water, must provide this information to receiving waste treatment and management facilities, and the certification of waste characterization must be submitted to PaDEP at least annually by March 1 of each year.230 Records of all analyses, including laboratory quality assurance - quality control (“QA-QC”) procedures must be maintained by the generator and available for PaDEP inspection.231 In turn, facilities receiving flowback water must assure that they can adequate treat and manage the wastewater. Under Pennsylvania and other state’s rules, such

226 25 Pa. Code §287.54(a). A generator may rely on detailed analysis that characterizes

waste (company or potentially industry data) within the past five years, if the generator can certify that it is representative. A full chemical analysis is required at a minimum of every five years. Id. §287.54(g).

227 Id. 228 PaDEP Form 26R, Chemical Analysis of Residual Waste Annual Report by the

Generator Instructions, Doc. No. 2540-PM-BWM0347 (Rev. 7/2009), available at: http://www.elibrary.dep.state.pa.us/dsweb/View/Collection-10502. The current listing of required constituents includes: Acidity, Alkalinity (Total as CaCO3), Aluminum, Ammonia Nitrogen, Arsenic, Barium, Benzene, Beryllium, Biochemical Oxygen Demand, Boron, Bromide, Cadmium, Calcium, Chemical Oxygen Demand, Chlorides, Chromium, Cobalt, Copper, Ethylene Glycol, Gross Alpha, Gross Beta, Hardness (Total as CaCO3), Iron – Dissolved, Iron – Total, Lead, Lithium, Magnesium, Manganese, MBAS (Surfactants), Mercury, Molybdenum, Nickel, Nitrite-Nitrate Nitrogen, Oil & Grease, pH, Phenolics (Total), Radium 226, Radium 228, Selenium, Silver, Sodium, Specific Conductance, Strontium, Sulfates, Thorium, Toluene, Total Dissolved Solids. Total Kjeldahl Nitrogen, Total Suspended Solids, Uranium, and Zinc.

229 See 27 Pa.C.S. §§4101-4113 (relating to environmental laboratory accreditation) and

25 Pa. Code. Ch. 252.

230 25 Pa. Code §287.54(b). 231 Id. §287.54(e).

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facilities must have a waste acceptance plan; and wastes must have approval from the receiving facility for receipt. Each publicly owned treatment works (“POTW”) (i.e., municipal sewage treatment plant) must obtain NPDES permitting agency approval prior to receipt of new types of industrial wastewater (such as Marcellus Shale wastewaters) that were not reflected in their original NPDES permit application. In this regard, wastewater characterization is required to avoid interference with the POTW’s wastewater treatment processes (for example, by killing or inhibiting the bacteria used to treat biological oxygen demand (“BOD”) materials), to prevent pass-through of the constituents without proper treatment, and to prevent impact on the POTW’s sludge quality and classification (e.g., by adding metals or other constituents that would preclude beneficial land application). 5.4 Assuring Delivery to Appropriate Facilities All states require POTWs to provide notice to state permitting authorities and to

• btain NPDES permit modification if necessary for acceptance of new types of influent
• sources. Likewise, all or virtually all states required that privately operated wastewater
• r other waste treatment facilities received prior approval before accepting new waste

streams for treatment. Imposition of these obligations on the receiving treatment facilities, however, does not mean that generators can simply rely on the receiving

• facilities. Some states, such as Pennsylvania, impose direct responsibilities on waste

generators to assure that their wastes reach appropriate permitted facilities. As just one example, the Pennsylvania oil and gas and residual waste rules impose mandates and responsibilities on gas well wastewater generators to send their wastewaters to appropriate permitted facilities. The oil and gas rules at 25 Pa. Code §287.55 require that each gas operator prepare and implement a plan for control and disposal of fluids and wastes. In turn, the residual waste regulations in 25 Pa. Code §287.6 declare that a generator may not consign or transfer residual waste “which is at any time subsequently” stored, treated, processed or disposed of or discharged at an unpermitted facility. Under this provision, PaDEP takes the view that if wastewater is delivered to an unpermitted facility – even if the generator did not specify that facility – the generator may be held responsible. Under 25 Pa. Code §287.55, each Marcellus Shale operator is mandated to maintain for at least five years certain residual waste generator records, including the types and amounts of waste generated, date waste generated, and information regarding processing or disposal facility. Further, oil and gas well operator annual reports require specific information concerning wastewater disposition. Considering these various generator responsibilities, manifests per se are not required, but operators must clearly consider how they will track waste shipments to meet the above requirements. Many operators have developed forms (such as bills of lading, logs, and the like) to consign wastewaters to designated treatment facilities and to obtain follow-up confirmation of delivery. Finally, note should be made of the potential consequences for failing to consider and deliver wastewaters to properly permitted facilities. Under state oil and gas, water

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quality and solid waste laws, significant penalties may be imposed on generators whose waste is delivered to unpermitted facilities. In Pennsylvania, for example, violation of the residual waste rules exposes a generator to both criminal prosecution and civil penalties in the amount of up to $25,000 per day for each violation.232 Beyond such regulatory sanctions, however, mismanagement of wastewater raises potential for significant cleanup liabilities if materials are mishandled. 5.5 Treatment, Reuse and Disposal Technology Choices Marcellus Shale flowback and production wastewater presents some significant challenges in terms of selecting effective and implementable treatment, reuse and/or disposal technologies. A brief overview of the potential choices and some of their constraints may be helpful. (a) Natural pond evaporation Natural pond evaporation is often utilized in Texas and other parts of the dry

• southwest. However, in the eastern U.S. where average rainfall frequently exceeds 40

inches per year, and precipitation and evaporation rates are nearly equivalent, natural pond evaporation is impractical. (b) Direct reuse for drilling and fracing The ability to directly use flowback or production wastewater in Marcellus Shale drilling and fracing depends on desired water quality characteristics, which can vary between drilling firms and techniques. Any reuse of such wastewater needs to address a series of technical items, including oil/condensate separation, solids and bacteria removal, and sulfides control. In order to avoid problems in the drilling process, reuse of such wastewater usually requires some treatment be applied. Certainly, however, a potential exists for mixing treated flowback wastewater with fresh water to attain desired TDS / chlorides values allowing reuse; and a variety of operators are experimenting with such techniques. (c) Underground injection of flowback & production brines The underground injection of gas well wastewaters is again an option utilized frequently in other parts of the nation. In the east, geologic constraints coupled with some significant regulatory and permitting hurdles have resulted in only a very small number of underground wells currently to be permitted to date in Appalachian Basin

• states. Some of the legal/regulation aspects of underground injection are discussed

further in Part 6.5 below.

232 Pa. Stat. Ann. tit. 35, §§6018.605-6018.606

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(d) Conventional treatment technologies Conventional wastewater treatment technologies, such as pH adjustment, metals precipitation, membrane filtration, and oil / water separation, might be applied to flowback and production wastewaters to address certain constituents, but these conventional technologies do not address the TDS / chlorides challenge. Conventional treatment technologies alone are not a solution. (e) TDS reduction via reverse osmosis Reverse osmosis (“RO”) is a technology that utilizes pressure to force a solution through a membrane, retaining the solute (salt laden solution) on one side and allowing the pure solvent (water) to pass to the other side. TDS reduction via RO is effective for certain wastewaters up to a TDS concentration of approximately 40,000 ppm. Moreover, RO membranes are prone to fouling and premature failure if wastewaters contain any of a variety of interfering constituents. Membrane fouling by

• rganics, silica, calcium carbonate and calcium sulfate is a common problem with RO
• systems. Anti-scaling agents are used to minimize scaling and cleaning chemicals must

be used regularly to maintain membrane efficiency. However, even with the use of these chemicals, the RO membranes eventually plug and the membranes must be replaced. RO treatment is moderately energy intensive. The energy requirement for the RO membrane system (not including the necessary pretreatment units) treating brackish wastewater averages 9.6 kWh/1000 gallons of produced water. Expressed as the power requirements for treating the influent flow,233 the average energy use is 13.7 kWh/1000

• gallons. Based on a Department of Energy/EPA report,234 electrical energy generation in

the U.S. results in approximately 1.341 lb of carbon dioxide per kWh.235 Thus, a 100,000 gpd RO plant would consume 500,050 kilowatt hours per year, equating to 335 tons of CO2 emissions per year. RO systems engender both high capital and O&M costs. At this point, because of the limitations of RO units to handle effectively TDS values above 40,000 ppm, however, any cost estimate for Marcellus Shale wastewaters is probably irrelevant. RO treatment results in recovery of only 30-60% of the incoming water volume in the form of a treated water effluent containing less than 500 ppm of TDS. Conversely, 40-70% of the incoming wastewater is left in the form of a more concentrated, higher-

233 Assuming 30% reject flow. 234 Department of Energy and Environmental Protection Agency, Carbon Dioxide

Emissions from the Generation of Electric Power in the United States (July 2000).

235 This value reflects an average of electrical generation from all sources: coal, natural

gas, nuclear, wind, etc. If all electrical energy was from coal, the carbon dioxide generation rate is 2.095 lb/kWh.

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TDS “brine” – often referred to as “reject” water. The TDS salts do not go away; they are only more concentrated in a somewhat smaller volume of wastewater. The key constraint for RO is that it is only effective up to TDS/chloride levels of approximately 40,000 ppm. Typical Marcellus Shale flowback wastewaters exhibit TDS levels well in excess of this concentration. Hence, although some vendors are promoting RO systems, many knowledgeable wastewater engineers believe RO is not a feasible or effective option for typical Marcellus Shale wastewaters. (f) TDS reduction via evaporation TDS reduction via evaporation (also known as thermal distillation) has been espoused as another available technology, which may be deployed via either mobile or centralized waste treatment configurations. Basically, the technology requires heating volumes of high-TDS water to evaporate a portion of the water, converting it to steam which may then be recovered through condensation, while leaving behind more concentrated brine solutions. Heat sources for evaporation systems may involve either electricity or fossil-fuel (using oil or natural gas and various heat transfer systems). In almost all cases, evaporation systems require pretreatment to remove various constituents, such as inorganic chemicals, ammonia, and suspended solids, which will cause fouling of the process and to prevent scaling. Solids removal by membrane filtration may be required before the water is sent to the evaporator. Other pretreatment may be required including activated carbon for organics removal. Fouling of heat exchanger surfaces can greatly reduce distillation efficiency — calcium sulfate and calcium carbonate are the most common cause of such fouling.236 If this type of fouling will potentially occur, calcium removal by chemical precipitation will be required upstream of the membrane filtration system. Sulfates in the wastewater will also pose a particular issue, as efforts must be undertaken to prevent sulfates from fouling the evaporative process. Evaporation is moderate to highly energy intensive. The literature indicates that energy requirements for all three potential thermal processes (multi-stage flash distillation, multi-effect distillation, and mechanical vapor compression) are essentially independent of the influent salt concentration237 and are high — the average energy use for the most efficient thermal process (thermal or mechanical vapor compression) is 43.2 kwh/1000 gallons of product water (39 kWh/1000 gallons influent water). At that rate, 100,000 gpd of wastewater would require an estimated 3,900 kWh of thermal/electrical energy to remove TDS.

236 J. E. Miller, “Review of Water Resources and Desalination Technologies,” SAND

2003-0800, Sandia National Laboratories, Albuquerque, NM (2003) (costs adjusted to 2009 values).

237 J. E. Miller, supra.

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Similar to RO technology, evaporation units leave significant volumes of

• residuals. A typical evaporation facility will recover 60-65% of the wastewater in the

form of distilled water, leaving 40% of the volume as saturated TDS wastewater. Thus, the availability of a viable option for disposal of significant volumes of concentrated brine remains even after application of evaporation technology. (g) TDS reduction via crystallization Evaporation/crystallization takes the process one step further to evaporate the concentrated brine to produce a salt cake. Influent feed to the crystallizer is further heated through a heat exchanger to promote flash boiling of the brine, with the resulting vapor passing through a heat exchanger/condenser system. If the system works as desired, the resulting concentrate produces salt crystals and cake, which are removed and dewatered through a centrifuge system. Often referred to as “zero liquid discharge” (“ZLD”), evaporation/crystallization does not destroy the TDS, it only changes it into a different type of residual posing a somewhat different dispositional challenge. Evaporation/crystallization is a highly energy intensive method of treatment. The power consumption of a 1,000,000 gallon per day facility handling brines from Marcellus Shale wells, for example, has been projected at 10 megawatts plus more than 30,000 cubic feet of natural gas per hour. Thus, to treat 1,000,000 gallons per day of wastewater would require some 87,600,000 kilowatt hours of electricity annually (the equivalent electric demand of some 11,300 households238); plus 262,800,000 ft3 of natural gas

• annually. Using EPA’s emissions factor of 1.341 pounds of carbon dioxide emissions per

kwh, the annual electric demand for just one such evaporation/crystallization facility equates to nearly 60,000 tons of CO2 emissions per year. The projected cost of ZLD treatment is substantial. Cost estimates for centralized wastewater treatment facilities utilizing evaporation/crystallization for oil and gas brines indicate capital cost estimates ranging from $90-100 million for a 1 MGD facility. O&M costs for such a facility are estimated at approximately $15-20 million annually.239 (h) Key regulatory questions affecting selection In evaluating these alternatives, and framing a wastewater technology strategy,

• perators need to consider a number of questions that define the “regulatory drivers” to

technology selection.

238 Based on the U.S. Department of Energy, Energy Information Administration’s

Middle Atlantic Household Electricity Report (December 22, 2005) using 2001 data, electric consumption in 15 million Mid-Atlantic region households totaled 116 billion kwh,

• r

an average

• f

7,733 kwh annually per household. (http://www.eia.doe.gov/emeu/reps/enduse/er01_mid-atl.html (last visited June 6, 2009)).

239 Mark Gannon, supra.

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 What are the allowable discharge levels (loadings and concentrations)?  Are there differences in regulatory treatment between on-site treatment vs. centralized facilities?  What rules govern the management, disposition or beneficial use of residuals?  What are today’s requirements?  What will be the likely future requirements - the regulatory trends? 5.6 Regulatory Drivers to Technology Selection – Impending Restrictions

• n Surface Water Discharges

(a) Overview A forceful driver to the industry’s scramble to select and implement wastewater management technologies, including increased recycling and reuse of flowback water, arises from proposals from some states to impose severe restrictions upon surface water discharges from high-TDS sources. One leader to date has been Pennsylvania, which in April 2009 issued a “Permitting Strategy for High Total Dissolved Solids (TDS) Wastewater Discharges” (the “PA TDS Strategy”),240 followed by proposed rulemaking241 and most recently a final rulemaking package adopted effective August 21, 2010.242 Similarly, the New York DEC’s draft Supplemental Generic Impact Statement for shale gas development proposes stringent regulation of TDS-containing wastewaters, including changes to state-issued discharge permits issued to POTWs to limit the acceptance of such brines in order to avoid interference and pass-through conditions. (b) The PA TDS Strategy and Pending Regulations The PA TDS Strategy starts with a description of the “problem.” The Strategy cites to several studies relating to the impacts of TDS,243 and PaDEP refers to streams

240 Available at:

http://www.depweb.state.pa.us/watersupply/cwp/view.asp?a=1260&Q=545730&watersu pplyNav=|30160

241 39 Pa. Bulletin 6467 (November 7, 2009). 242 See 40 Pa. Bulletin 4835 (August 21, 2010). 243 PaDEP, Trihalomethane Speciation and the Relationship to Elevated Total Dissolved

Solid Concentrations Affecting Drinking Water Quality at Systems Utilizing the Monongahela River as a Primary Source During the 3rd and 4th Quarters of 2008 (February 2009); PaDEP, Cause and Effect Survey, South Fork Tenmile Creek (February 2009); PaDEP, Aquatic Survey of Lower Dunkard Creek, (October-November 2008).

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with relatively high TDS concentrations in certain low flow conditions, and hence limited available assimilative capacity, pointing to the Monongahela River and the West Branch Susquehanna River as primary examples. The PA TDS Strategy called for adopting and implementing by January 1, 2011, two types of new standards: (1) a new treatment standard for high TDS sources; and (2) new instream water quality criteria for constituents that affect aquatic life or other protected uses. (i) Proposed Treatment Standards Under the PA TDS Strategy, PaDEP initially proposed a new end-of-pipe treatment “technology based” standard to be inserted into 25 Pa. Code Chapter 95 for all “high TDS sources.” This element of the strategy was moved forward through a notice of proposed rulemaking which was published in the Pennsylvania Bulletin for public comment during the fall of 2009.244 The initially proposed Chapter 95 amendments would have imposed treatment standards on any new or expanded source of “high-TDS wastewater” – defined as any source that includes a TDS concentration that exceeds 2,000 mg/l or a TDS loading that exceeds 100,000 pounds per day.245 This would effectively encompass all Marcellus Shale wastewaters. The initial proposed rules would establish a treatment standard, to be effective by January 2011, limiting all “new” high TDS sources to effluent limits of 500 mg/l of TDS, 250 mg/l of Total Chlorides, and 250 mg/l of Total Sulfates (in each case, stated as a monthly average).246 Oil and gas wastewaters would additionally be subject to effluent limits on both total Barium and Strontium of 10 mg/l as a monthly average. The proposed Ch. 95 regulations met with a broad concern and opposition from various regulated sectors well beyond the oil and gas industry, including power generation, refineries, coal mining, pharmaceuticals, and food processing establishments. Responding to the concern that a “one-size-fits-all” approach was unjustified, PaDEP convened a TDS Stakeholders Subcommittee to its standing Water Resources Advisory Committee composed of representatives of various sectors and public interest

• rganizations to examine various options. Although the Stakeholders Group failed to

develop a consensus recommendation, valuable information was provided concerning the conditions and impacts of the proposed rules on various sectors,247 and several alternatives were brought forth for consideration.248 The studies cited in the PA TDS Strategy have been posted at: http://www.depweb.state.pa.us/watersupply/cwp/view.asp?a=1260&Q=545730&watersu pplyNav=|30160.

244 39 Pa. Bulletin 6467 (November 7, 2009). 245 Proposed 25 Pa. Code §95.10(a). 246 Proposed 25 Pa. Code §95.10 247 Copies of the sector presentations are available at:

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The final Ch. 95 adopted by the Environmental Quality Board in May 2010 and published finally on August 21, 2010, varied substantially from the original proposal. The central elements of the pending final rules are:  Within one year of the effective date, each natural gas well operator must adopt and implement a source reduction strategy identifying the methods and procedures to maximum recycling and reuse of flowback or production fluid either to fracture other natural gas wells or for other beneficial uses. The strategy must be updated annually.  New or expanding treated discharges of wastewater resulting from the fracturing, production, field exploration, drilling or well completion of natural gas wells may be authorized under NPDES permits only if: (1) the discharges are from centralized waste treatment (“CWT”) facilities; (2) the discharge meets monthly average effluent standards of 500 mg/l TDS, 250 mg/l Chlorides, 10 mg/l Barium, and 10 mg/l of Strontium; and (3) any CWT discharging to a POTW must meet the same treatment standards for TDS, chlorides, barium and strontium prior to the water reaching the POTW.  Other industries will be subject to an effluent limitation of 2000 mg/l of TDS as a monthly average applied to any new or expanding mass loading

• f TDS, with certain exclusions and allowances for variances if certain

criteria are met.  If particular watersheds approach 75% of their TDS assimilative capacity as measured at the nearest downstream water supply intake, PaDEP may undertake a wasteload allocation process and impose more stringent loadings on all TDS discharges to that watershed. (ii) Potential Instream Criteria Second, under the PA TDS Strategy, PaDEP has been developing new instream water quality criteria for the components of TDS that contribute to osmotic pressure. As

• f this writing, PaDEP has proposed a new instream criteria for Chlorides of 230 mg/l as

a 4-day average and 860 mg/l as a 1-hour average.249 Both are stated as being aimed at aquatic life protection. If adopted, these criteria would affect the permitting of both new and existing discharges. Such instream criteria are applied in calculating whether new or existing discharges at each particular point of a stream, when combined with existing http://www.portal.state.pa.us/portal/server.pt/community/water_resources_advisory_com mittee_%28wrac%29/14017/wrac_taskforce_on_chapter_95/631764.

248

See TDS Stakeholders Subcommittee comments are available at: http://files.dep.state.pa.us/PublicParticipation/Advisory%20Committees/AdvCommPortal Files/WRAC/WRAC-%20TDS%20Task%20Force%20Final%20Report%203-12-10.pdf.

249 40 Pa. Bulletin 2264 (May 1, 2010).

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instream background concentrations of Chlorides at low flow (Q7-10) conditions, would cause an instream exceedance of the standard. If so, a water quality based effluent limit (“WQBEL”) will be developed to limit Chlorides in the discharge.250 Such WQBELs, by definition, may be more stringent than technology-based effluent limitations. 6. Legal and Regulatory Issues in Implementing Treatment and Disposal Facilities 6.1 Treatment Facility Siting Centralized brine treatment facilities, particularly those using sophisticated ZLD evaporation/crystallization technologies, are substantial complexes, involving a myriad of influent storage, treatment, residuals handling and other equipment. Mobile equipment designed for use at or near new gas well sites may be less extensive, but in combination with associated tankage, impoundments and ancillary equipment, even these non- centralized facilities can be significant. Siting issues are, therefore, an important consideration. (a) Zoning and land development regulations Zoning and land development regulations may govern the location and allowable configuration of treatment units, by both restricting the zoning districts where such activities can take place and/or their design (e.g., setbacks from property boundaries, land coverage, screening, and other standards). Zoning and land development plan approval processes can be lengthy and complex, especially for situations involving conditional use and special exception zoning approvals requiring hearings before municipal governing bodies or zoning hearing boards. Such zoning and land development regulations and processes will vary by state and locality; and the applicable rules in each jurisdiction must be reviewed as part of the overall site selection and design process. In some instances, local zoning regulations may be preempted or partly preempted by applicable state laws. In Pennsylvania, for example, municipalities exercise zoning powers under the Pennsylvania Municipalities Planning Act,251 but Section 602 of the Oil & Gas Act252 preempts certain local regulation of gas well development operations. In a

250 See discussion below in Part 6.2(a)(ii). 251 Pa. Stat. Ann. tit. 53, §§10101 et seq. (West 1997 and Supp. 2009). 252 Pa. Stat. Ann. tit. 58, §601.602 (West 1996). Section 602 of the Oil & Gas Act

provides: Except with respect to ordinances adopted pursuant to the … Municipalities Planning Code, and the …. Flood Plain Management Act, all local ordinances and enactments purporting to regulate oil and gas well

• perations regulated by this act are hereby superseded. No ordinances or

enactments adopted pursuant to the aforementioned acts shall contain provisions which impose conditions, requirements or limitations on the same features of oil and gas well operations regulated by this act or that

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set of companion cases decided in early 2009, the Pennsylvania Supreme Court ruled that the Oil & Gas Act preempted municipal ordinances which attempt to regulate the same aspects of gas well development and operations as regulated by PaDEP (such as well design, bonding, certain setbacks, and environmental standards), but allowed communities to control the location of gas wells within certain zoning districts through traditional zoning regulations.253 The Supreme Court noted that in using zoning controls, municipalities might not be allowed to (i) increase the specific setback requirements contained in the Oil & Gas Act;254 or (ii) use “conditional use” zoning approval procedures to impose “conditions addressed to features of well operations regulated by the [Oil & Gas] Act.”255 The preemptive impact of the Pennsylvania Oil & Gas Act may extend, in some cases, to wastewater treatment facilities. Where treatment processes are developed at the gas well site, arguably those wastewater operations would be part of the gas well

• perations regulated under the Act. On the other hand, centralized wastewater treatment

facilities located off of gas well sites are regulated under other state environmental laws, but not the Oil & Gas Act, and would presumably not partake of any preemptive provisions in the Oil & Gas Act. (b) State siting restrictions for certain treatment facilities In addition to traditional zoning and land use regulations, certain state laws may impose additional restrictions or standards guiding the siting of particular treatment

• facilities. Again, Pennsylvania provides an example in its residual waste regulations,

which may, under certain circumstances, apply to brine water treatment facilities. Pennsylvania residual waste rules establish siting restrictions256 for those “residual waste processing facilities” that require individual permits under the Solid Waste Management Act.257 The term “residual waste” explicitly includes all “liquid” waste from industrial, mining and agricultural operations, which broadly would include any industrial wastewater.258 However, the residual waste siting standards do not apply to captive processing facilities and wastewater treatment facilities that qualify for the accomplish the same purposes as set forth in this act. The Commonwealth, by this enactment, hereby preempts and supersedes the regulation of oil and gas wells as herein defined.

253 See Range Resources-Appalachia, LLC v. Salem Twp., 964 A.2d 869 (Pa. 2009);

Huntley & Huntley, Inc. v. Borough Council of the Borough of Oakmont, 964 A.2d 855 (Pa. 2009):

254 Huntley & Huntley, 964 A.2d at 864 n.10. 255 Huntley & Huntley, 964 A.2d at 866 n.11. 256 25 Pa. Code §297.202. 257 Pa. Stat. Ann. tit. 35, §6018.101 et seq. (West 2003). 258 Pa. Stat. Ann. tit. 35, §6018.102 (definition of “residual waste”).

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“permit-by-rule” contained in 25 Pa. Code §287.102(b)-(c). On-site treatment facilities would presumably qualify for the “captive processing” permit-by-rule, while centralized wastewater treatment facility that discharge under an NPDES or that discharge to a POTW under pretreatment standards would qualify under the §287.102(c) permit-by-rule. A true “zero liquid discharge” facility, however, would not apparently meet the eligibility criteria for the residual waste processing facility permit-by-rule, and thus could trigger the siting standards for facilities mandating individual permits. Those siting standards would exclude such treatment facilities from: (1) the 100-year floodplain absent DEP approved floodproofing; (2) 100 feet from exceptional value wetland; (3) 100 feet from other wetlands; (4) 300 feet from occupied dwelling, absent owner waiver; (5) 100 feet from perennial stream; (6) 50 feet from property line; and (7) 300 yards from school building, park or playground.259 6.2 NPDES Permit Issues As most readers are aware, any discharges to surface waters of the United States via “point sources” are subject to requirements under the Federal Clean Water Act (“CWA”) for the procurement of National Pollutant Discharge Elimination System (“NPDES”) permits.260 NPDES permits describe "effluent limitations" – how much of which pollutants can be discharged in compliance with the law. (a) Establishing effluent limits The CWA and counterpart state water quality programs employ two primary types of regulatory controls: water quality standards and technology-based standards. Water quality standards describe permissible instream concentrations of various parameters (such as dissolved oxygen, dissolved solids, and various chemicals), designed to protect the designated uses of a stream. These water quality standards vary depending

• n the use of the water. For example, a stream classified as “recreational” or “cold water

fisheries” would receive greater protection than one classified as agricultural. Technology-based standards focus on the method used to treat effluent before it is introduced into a body of water. These standards set a level of effluent quality that is achievable using certain prescribed levels of pollution control technology. Thus, if technology exists which permits treatment of effluent to a level cleaner than required to meet the water quality standards for the receiving body of water, the higher technology- based standards control. Conversely, if the technology-based standards are not sufficient to assure achievement of the instream water quality standards, then more stringent water quality-based effluent limits (“WQBELs”) will be imposed.

259 25 Pa. Code §297.202. 260 33 U.S.C. §1342.

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(i) Technology-based effluent limitations Most, but not all, technology-based effluent limitations are based upon federal categorical treatment standards established for particular categories and subcategories of

• industries. These standards, found at 40 C.F.R. Parts 401, 405-471, prescribe different

treatment and performance standards for existing sources and new sources, based upon several statutory formulations as to what those requirements are to achieve. Treatment facilities and discharges at gas well sites are subject to Part 435 effluent guidelines (“ELG”) for the onshore oil and gas extraction subcategory.261 Those rules allow no discharge of wastewater pollutants absent a “fundamentally different factors” variance. In contrast, centralized wastewater treatment facilities are regulated by ELGs set forth in 40 C.F.R. Part 437. For units not subject to a federal ELG, the permitting agency (in most cases the state) will establish technology-based effluent limits defining best conventional control technology (BCT), best available demonstrated technology for new sources (“BADT”), and best available technology currently available (BAT) for toxics and non-conventional pollutants, as determined by “best professional judgment.” In addition to the federal technology-based standards and those established by permitting agencies based on best professional judgment, states may by regulation establish state-based treatment standards. The final 25 Pa. Code §95.10 Pennsylvania treatment standards, discussed above, are one such example. (ii) Water quality based effluent limits If technology-based standards alone are insufficient to protect instream water quality, effluent limits designed to attain and protect instream water quality criteria may be imposed as additional requirements in the NPDES permit. The water quality standards are based on the actual or intended use of the body of water (i.e., agriculture, recreation, cold water or warm water fish, etc.) as designated in state water quality criteria.262 In most cases, such water-quality based effluent limitations (“WQBELs”) are calculated based on assimilative capacity at design flow of 7-day, 10-year low flow (“Q7-10”). (b) Special protection waters The concept of “special protection” waters is incorporated as part of regulations adopted under both state regulations and the federal Clean Water Act. Under the federal Clean Water Act, states are required to classify their streams and other bodies of water. At a minimum, states must provide protection for existing instream uses and the level of water quality necessary to maintain those existing uses.263 Where the quality of the

261 40 C.F.R. §435.30-.32 262 See, e.g., 25 Pa. Code §§93.3, 93.4, 93.7; 40 C.F.R. Part 131. 263 40 C.F.R. §131.12(a)(1).

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waters exceed levels necessary to support propagation of fish, shellfish, wildlife, and recreation in and on the water, the state must maintain and protect that water quality at a higher level, with certain exceptions, under what are commonly called the “antidegradation” provisions.264 As an example, in Pennsylvania, these antidegradation provisions are reflected in 25 Pa. Code §§ 93.4a-93.4d. Pennsylvania recognizes two classifications of “special protection” waters that are subject to the antidegradation requirements: high quality (“HQ”) waters and exceptional value (“EV”) waters. As to HQ waters, new or increased point source discharges (discharges via a pipe or conveyance) must pass a rigorous review, including: (1) a demonstration that there are no feasible, environmentally-sound and cost-effective non-discharge alternatives;265 (2) in the absence of a feasible, environmentally-sound and cost-effective non-discharge alternative, a demonstration that the project sponsor is using the “best available combination of cost-effective treatment, land disposal, pollution prevention and wastewater reuse technologies” (referred to as “ABACT”);266 and (3) a showing either that the proposed discharge will not cause any reduction of water quality, or that any such lowering of water quality “is necessary to accommodate important economic or social development in the area where the waters are located.”267 The permitting criteria for EV waters are even more stringent. Like HQ waters, these criteria require (i) evaluation and selection of any feasible, environmentally- sound non-discharge alternative, and (ii) use of ABACT where there is no feasible and cost-effective non-discharge alternative.268 However, even if those two criteria are met, the third criterion mandates without exception no lowering of existing water quality.269 In other words, there is no option for utilizing social or economic benefits to justify a lowering (even slightly) of instream quality. Given these stringent criteria, obtaining permits for discharge of wastewaters associated with gas well development in special protection waters will be an extremely difficult, if not nearly impossible, task. (c) Impaired waters At the other end of the spectrum, one faces the issue of waters that are currently counted as “impaired,” in the sense that they do not presently meet instream water quality criteria.

264 40 C.F.R. §131.12(a)(2)-(3); See, e.g., The Raymond Proffitt Foundation v. U.S. EPA,

930 F.Supp. 1088 (E.D. Pa. 1996).

265 25 Pa. Code §93.4c(b)(1)(i). 266 25 Pa. Code §93.4c(b)(1)(i)(B). 267 25 Pa. Code §83.4c(b)(1)(iii). 268 25 Pa. Code §93.4c(b)(1)(i). 269 25 Pa. Code §93.4a(d).

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As a legacy of a variety of developments and conditions, a number of Appalachia region streams are challenged, and currently unable to achieve water quality standards. Under Section 303(d) of the Clean Water Act,270 states are required to identify these “impaired” waters where technology-based effluent limitations required under CWA §301 and other pollutant control requirements are not stringent enough to achieve instream water quality standards. Pennsylvania’s §303(d) list, for example, includes over 14,000 miles of streams as “impaired.”271 The prime causes of such impairment are abandoned mine drainage, siltation, and nutrients, followed by a variety of other causes. The process for identifying and correcting water impairments under the federal Clean Water Act Section 303(d) involves three distinct phases. First, the water is assessed to determine if it is or is not meeting water quality standards. Second, total maximum daily loads (“TMDLs”) are developed to correct pollution problems. Third, plans, programs, and regulatory steps must be taken to implement the TMDL objectives. Under this three-step process, the key step is the development of a TMDL. A TMDL is the amount of pollutant loading that a waterbody can assimilate and still meet water quality standards. A TMDL is the “sum of individual waste load allocations for point sources, load allocations for non-point sources and natural water quality and a margin of safety express in terms of mass per time, toxicity or other appropriate measures.”272 Thus, TMDLs are to account for all sources of pollutants (both natural and manmade), and allocate loadings among those contributing sources to form a budget of how much loading can come from each source without causing an exceedance of instream objectives. TMDLs are to be developed for the sources and causes of impairment identified

• n the 303(d) list. Thus, allocations are made to the appropriate sources of pollutant

loading, with individual waste load allocations made to specific point sources, coupled with allocations of allowable loadings from non-point sources. At this point, DEP has completed TMDLs only for a fraction of the identified impaired waters. The final stage in the process involves the development and implementation of implementation or restoration plans – with specific steps to be taken to control point and non-point sources to achieve the wasteload allocations provided in the TMDL. These implementation plans will, in most cases, involve the imposition of more stringent effluent limitations, higher best management practices, and other measures to conform to the wasteload allocation for each point source or category of non-point sources. By definition, such TMDL reductions go beyond “technology,” and may impose

270 33 U.S.C. §1313(d). 271 PaDEP, 2008 Pennsylvania Integrated Water Quality Monitoring and Assessment

Report at 3 and 32 (Table 2), available at: http://www.depweb.state.pa.us/watersupply/cwp/view.asp?a=1261&q=535678.

272 25 Pa. Code §96.1.

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requirements that necessitate much more than “end of the pipe” solutions (i.e., changes in processes, materials, equipment and practices). 6.3 Water Quality Construction Permits for Wastewater Facilities Beyond NPDES permits, some jurisdictions require separate design reviews and pre-construction permits for wastewater treatment facilities. (a) Pennsylvania Pennsylvania maintains a separate construction permitting program for industrial wastewater treatment works. Under Section 308 of the Clean Streams Law,273 what is known as a Water Quality Management (Part II) Permit must be obtained for any construction, expansion or alteration of an industrial wastewater treatment facility. The application for such a Part II permit must be accompanied by an engineer’s report, plans and specifications clearly showing what is proposed and the basis of design for the contemplated treatment equipment and units.274 Such plans must be prepared and sealed by a registered professional engineer.275 (b) Ohio Ohio requires a Permit to Install (“PTI”) prior to the construction or installation of either municipal or industrial wastewater treatment facilities or works for disposal of treatment sludges.276 Designs prepared and certified by a professional engineer must be submitted to the Ohio Environmental Protection Agency (“Ohio EPA”).277 Among the criteria for review, Ohio EPA is required to determine whether the proposed system will “[e]mploy the best available technology.”278 (c) Delaware River Basin Commission The installation or expansion of an industrial wastewater treatment plant discharging to any surface or ground waters within the Delaware River Basin must obtain a “project approval,” from the DRBC. Under Section 3.8 of the Delaware River Basin Compact,279 DRBC requires a project approval for the construction or alteration of any facilities directly discharging industrial wastewater to groundwater or surface water

273 35 P.S. §691.308. 274 25 Pa. Code §91.23. 275 25 Pa. Code §91.23(b)-(d). 276 Ohio Rev. Code. §§6111.44-6111.45; Ohio Admin. Code Ch. 3745-42. 277 Ohio Admin. Code § 3745-42-03. 278 Id. § 3745-42-04(A)(3). 279 32 P.S. §815.101.

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having a design capacity greater than 50,000 gpd.280 Industrial wastewater treatment facilities discharging within the drainage areas of waters classified as “outstanding basin waters” or “significant basin waters” under the DRBC water quality regulations281 have a lower 10,000 gpd threshold triggering project approval requirements.282 DRBC reviews project approval applications for consistency with the Delaware River Basin Comprehensive Plan, composed of the compendium of regulations, policies, and plans adopted by DRBC to manage the quality and quantity of basin water resources. The Comprehensive Plan includes standards that are, in some cases, more stringent than counterpart state water quality rules, such as standards governing increases in in-stream TDS concentrations.283 With respect to groundwater, DRBC water quality rules establish a “policy” to prevent degradation of groundwater quality. In implementing that policy, DRBC requires the best water management determined to be practicable; and no quality change will be considered which, in DRBC’s judgment, may be injurious to any designated present or future ground or surface water use or would result in concentrations at any point in excess of drinking water standards.284 6.4 Air Emission Issues for Water Treatment Facilities Although perhaps not immediately obvious, water treatment facilities can often be the source of regulated air emissions. As examples, emissions triggering permitting issues may arise from electric generators

• r

heat sources used for evaporation/crystallization technology, and treatment chemical or residuals storage may also engender particulate or other emission issues. The nature and degree of emission regulation depends on total emissions from the facility, and whether facility qualifies as a “major source.”

280 18 C.F.R. §401.35(a)(5). 281 The DRBC water quality regulations are published as part of the Delaware River

Basin Water Code, which is available

• n

the DRBC website at: http://www.state.nj.us/drbc/drbc.htm.

282 18 C.F.R. §401.35(a)(5). 283 See Delaware River Basin Water Code §§3.20 and 3.30 (prescribing stream quality

• bjectives for interstate and intrastate streams; generally establishing for most areas
• utside of the tidal estuary TDS limitations of 133% of background or 500 mg/l,

whichever is less)

284 Delaware River Basin Water Code §3.40.4.

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(a) What counts as a “source” in defining “major source” The federal “major source” definition refers to any source or group of stationary sources “within a contiguous area” and “under common control.”285 EPA interpretations look to the distance between facilities, functional relationships, interdependence, and common control factors, with no formula or bright lines defining what units or areas may be counted as part of a single “major source.” EPA’s approach to defining a “major source” has potentially significant implications in the context of gas well wastewater operations. Water treatment facilities and natural gas production / processing facilities (including compressor stations) may all be considered a single “facility” for determining “major source” status, especially if (i) the water treatment facility is at or near the gas well site, and (ii) the water treatment facility is under control of the gas well operator. (b) Potentially applicable air emission regulations A thorough review of the potentially applicable air emission requirements is well beyond the scope of this chapter. Hopefully, it will suffice to not a few of the potentially applicable items to be considered.

• Permits. In most instances, federal and/or state laws require permits prior to the

commencement of construction of any new air emission source or air pollution control device.286 Depending on the other requirements triggered by the source, the process for

• btaining such constructions permits can be extended and complicated.

New Source Performance Standards (“NSPS”). NSPS are emission standards established by the U.S. Environmental Protection Agency that apply to facilities in a specific category, and establish emission limitations to all new facilities constructed after trigger date for that category. As one example, NSPS standards have been set for industrial-commercial-institutional steam generating units287 and for small industrial-

285 42 U.S.C. §7661(2). See, also, EPA Title V permit regulations at 40 C.F.R. §70.2,

stating: Major source means any stationary source (or any group of stationary sources that are located on one or more contiguous or adjacent properties and are under common control of the same person (or persons under common control) belonging to a single major industrial grouping and that are described in paragraphs (1), (2) or (3) of this definition. … (emphasis added).

286 See, e.g., 25 Pa. Code §127.11 et seq. (plan approval requirements); N.Y. Comp.

Codes R. & Regs. tit. 6, §201-5.1 et seq.

287 40 C.F.R. Part 60, Subpart Db.

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commercial-institutional steam generating units,288 which may apply to certain forms of evaporation and crystallization units. New Source Review in Non-Attainment Areas. Under the federal Clean Air Act, major sources which have emissions greater than certain quantities of certain air contaminants within areas which fail to meet national ambient air quality standards are required to undergo pre-construction new source review (“NSR”) and meet stringent emission limits.289 In the Appalachian region, all of Pennsylvania and New York are part

• f the Ozone Transport Region and considered at least “moderate” non-attainment of the

precursors of ozone: volatile organic compounds (“VOCs) and nitrogen oxides (“NOx”). Some areas closer to the New York and Southeastern Pennsylvania metropolitan areas are classified as even more severely non-attainment. In most of Pennsylvania and New York, a major source is one emitting 50 tpy of VOCs or 100 tpy of NOx . In the more serious non-attainment areas, the trigger drops to 25 tpy of VOC or NOx. If a facility exceeds these NSR triggers, a permit is required before commencement of any

• construction. New major sources, or major sources undergoing a major modification,

must implement the technology capable of meeting the Lowest Achievable Emission Rate (“LAER”) plus obtain offsets for all VOC or NOx emissions. NSR in Attainment Areas - Prevention of Significant Deterioration (“PSD”). In areas where current ambient air meets national ambient air quality standards, new major sources of any criteria pollutant must undergo special reviews known as prevention of significant determination (“PSD”).290 PSD analysis involves determining whether the increase of pollutant emissions is significant, and substantially relies upon an emissions impact analysis. That analysis, in turn, may require ambient monitoring for up to one year to prepare for necessary

• modeling. The requisite modeling must demonstrate that the cumulative emissions from

the proposed new source, coupled with existing permitted sources, will not cause exceedance of national ambient air quality standards. Further, as part of PSD evaluation, the source must show that it is implementing best available control technology (“BACT”).291 Hazardous Air Pollutants. If a source involves emissions of any identified hazardous air pollutants, the source must demonstrate that it will implement Maximum Achievable Control Technology (“MACT”) requirements.292 State Technology Standards. Beyond federal requirements, states may impose their own air emission technology mandates. As one example, Pennsylvania’s air

288 40 C.F.R. Part 60, Subpart Dc. 289 42 U.S.C. §§7501-7515; 40 C.F.R. §52.24 290 40 C.F.R. §§ 51.165-51.166, 52.21. 291 40 C.F.R. §52.21(j). 292 42 U.S.C. §7412(d); see generally 40 C.F.R. Part 63.

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regulations generally require that every newly permitted source carry out “best available technology” – which is judged by PaDEP staff based on either agency guidance or professional judgment.293 6.5 Underground Injection of Wastewater or Treatment Residuals Injection of wastewaters into underground formations is a frequent practice other shale plays, such as the Barnett Shale development in Texas. Not surprisingly, many

• perators assume that similar underground injection practices are available in the

Appalachian Basin. To date, however, underground injection of wastewater has been slow to develop, in part due to geologic constraints and in part as a result of legal and regulatory hurdles. This section discusses a few of those hurdles. (a) Acquiring Rights to Allow Underground Injection The first gating question involves the acquisition of necessary rights and permissions from involved property owners for the injection of wastewaters into underground horizons. While a typical natural gas lease accords the operator with certain rights to undertake activities ancillary to gas well drilling and development,294 such as injecting fluids for fracing, the typical lease probably does not contain language permitting injection and permanent disposal of wastewaters into formations below the

• land. Just as courts have held that the right to gas storage is separate from the right of gas

extraction,295 and must be conveyed via explicit language, one would expect that rights to inject wastewaters would need to be obtained via separate conveyances or leases, or through clear and distinct language in the gas drilling lease. In framing and negotiating an appropriate injection and disposal lease agreement, a number of issues must be considered. First, of course, is what lands and property interests are potentially affected and who must be approached to grant associated injection and disposal rights. From a technical perspective, predicting the horizontal area that may be utilized for wastewater disposal (i.e., where the wastewater will flow to once injected) is not a simple matter. For example, the U.S. EPA has established a presumed zone of endangering influence based on a calculation of the area under which the injected fluid may move in the formation used for disposal. It is a fairly involved equation, with a number of variables and some assumptions and default settings. Given the layering and fracturing of formations that may be utilized for injection, the area of disposal may well not be a neat circle around an injection well, and consideration may need to be given to differential/preferential flow directions. At the same time, because of the split of surface

293 25 Pa. Code §127.12(a)(5). 294 See Belden & Blake Corp. v. Pa. Department of Conservation & Natural Resources,

969 A.2d 528, 532-33 (Pa. 2009); Chartiers Block Coal. Co. v. Mellon, 25 A. 597, 598 (Pa. 1893).

295 Pomposini v. T.W. Phillips Gas and Oil Co., 580 A.2d 776, 778-79 (Pa. Super. 1990).

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and mineral estates throughout much of the Appalachian Basin, occasioned by past coal,

• il and gas activities, the surface owner of the land may not hold the rights, or the only

rights, to the formations being impacted. Certain mineral holders may also be implicated. Beyond the issue of “from whom” and “where” injection right might need to be

• btained, injection and disposal leases should address with some care what activities are
• contemplated. Items to be considered, for example, include: (1) what strata are allowed

for injection (e.g., below a certain depth); (2) rights not only for placement of the injection facilities, but also monitoring wells and other activities; (3) allowance for entry and inspection by governmental regulatory agencies; and (4) what steps will be taken if the surface owner’s water supplies or lands are impacted. (b) Federal Safe Drinking Water Act – Underground Injection Control (“UIC”) Program296 Part C of the federal Safe Drinking Water Act (“SDWA”) establishes the federally mandated UIC program.297 Under the SDWA, a permit is required for any “underground injection,” defined as “the subsurface emplacement of fluids by well injection.”298 An amendment to the SDWA added by the Energy Policy Act modified the definition of “underground injection,” providing a limited exemption for the “underground injection of fluids or propping agents (other than diesel fuels) pursuant to hydraulic fracturing

• perations related to oil, gas, or geothermal activities.”299 This exemption is limited,

however, to fluid injection for hydraulic fracturing activities, and does not extend to the disposal of any wastes, including drill cuttings, flowback water, or production brines. The UIC permit program is administered either by EPA or by states who have

• btained EPA approval of programs meeting certain requirements (referred to as

“primacy”). The basic federal rules governing UIC activities are set forth in 40 C.F.R. Part 144, while detailed permitting criteria and standards governing underground injection are found in Part 146. EPA’s current rules categorize UIC wells into five classes, based on similarity in the fluids injected, activities, construction, injection depth, design, and operating

• techniques. The five classes are:

296 The author would like to thank his colleague, Christopher Nestor, Partner in K&L

Gates’ Harrisburg Office, for contributing substantially to the following discussion of federal and state UIC regulations.

297 42 U.S.C. §300h et seq. 298 Id. §300h(b)(1) and (d). 299 Id. §300h(d)(B)(ii).

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Class Use Citations Class I Used to place radioactive, hazardous or non- hazardous fluids (industrial and municipal wastes) into deep isolated formations beneath the lowermost underground sources of drinking water (USDW). According to EPA, there are no known radioactive waste disposal wells operating in the United States.300 40 C.F.R. §§ 144.6(a), 146.5(a) 40 C.F.R. Part 146, Subparts B, G Class II Used to inject brines and other fluids associated with oil and gas production, unless classified as hazardous waste at the time of injection, and for enhanced recovery of oil or gas and for storage of hydrocarbons. 40 C.F.R. §§ 144.6(b), 146.5(b) 40 C.F.R. Part 146, Subpart C Class III Used to inject fluids associated with solution mining of minerals. 40 C.F.R. §§ 144.6(c), 146.5(c) 40 C.F.R. Part 146, Subpart D Class IV Used to inject hazardous or radioactive wastes into or above USDWs. As of 1984, these wells are banned unless authorized under a federal or state groundwater remediation project.301 40 C.F.R. §§ 144.6(d), 146.5(d) For our purposes, the focus is upon Class II UIC wells, covering wells used for disposal of fluid brought to surface from conventional oil and gas production. The applicable federal standards establish a myriad of requirements predicate to permitting, and governing subsequent operation, of such wells. Planning for UIC wells requires evaluation of potential impacts within an “area of endangering influence.”302 That area is defined based upon a specified formula which considers a number of geologic and technical factors. The permit application must include a plan for corrective action to prevent fluid movement into drinking water sources;303 and an identification of all wells within area of review penetrating formations affected by pressure increase. Any proposed UIC well must be constructed to meet

300 See http://www.epa.gov/OGWDW/uic/wells_class1.html#what_is. 301 See 40 C.F.R. § 144.13. 302 40 C.F.R. §146.6. 303 40 C.F.R. §§144.55, 146.7.

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specific casing, cementing, logging and testing standards;304 and subsequently tested to demonstrate mechanical integrity.305 All Class II wells are subject to detailed, long-term monitoring requirements.306 (c) Pennsylvania Currently, Pennsylvania does not have primacy for the federal UIC program, and hence EPA Region III is the permitting authority for issuing such permits in the Commonwealth.307 Pennsylvania, however, regulates wells utilized for disposal of oil and gas drilling and production fluids via rules adopted pursuant to the Pennsylvania Oil & Gas Act and Clean Streams Law, set forth in 25 Pa. Code § 78.18. PaDEP has consistently stated that two permits are required for disposal injection wells: a well permit from PaDEP pursuant to § 78.18 and a UIC permit from EPA.308 As part of the application for a state permit, the UIC well operator must (1) file an application for a well drilling permit under the Oil & Gas Act;309 (2) submit to PaDEP a copy of the UIC permit and application submitted to EPA under 40 C.F.R. Part 146;310 and (3) submit a control and disposal plan meeting requirements of 25 Pa. Code §91.34.311 (d) Ohio Ohio is a primacy state for all classes of wells.312 The Ohio EPA regulates Class I, IV, and V wells under its Division of Drinking and Ground Waters, and the Ohio Department of Natural Resources (“Ohio DNR”) regulates Class II and Class III injection wells through its Division of Oil and Gas UIC Program.313

304 40 C.F.R. §146.22. 305 40 C.F.R. §146.8. 306 40 C.F.R. §146.23. 307 See 40 C.F.R. §§ 147.1950-147.1955. 308 See PaDEP, Bureau of Oil and Gas Mgmt., Oil and Gas Wastewater Permitting

Manual at 35 (2001); PaDEP, Bureau of Oil and Gas Mgmt., Fact Sheet, Injection Wells for Disposal and Enhanced Recovery (Rev. April 2009).

309 25 Pa. Code §78.18(a)(1), cross-referencing permits under §78.11. 310 Id. §78.18(a)(2). 311 Id. §78.18(a)(3). 312 See 40 C.F.R. §§ 147.1800-147.1801. 313 Id. See also http://www.epa.state.oh.us/ddagw/uic.html.

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Ohio EPA’s regulations implementing Ohio’s UIC program for Class I, IV and V wells are consistent with the federal UIC program.314 With respect to Class II wells, the Ohio DNR is authorized to adopt rules and issue orders regarding the storage and disposal of “brine and other waste substances” pursuant to Ohio Rev. Code. §1509.22(C). For these purposes, “brine” means all saline geological formation water resulting from,

• btained from, or produced in connection with the exploration, drilling, or production of
• il or gas.315 Regulations governing produced water management have been codified at

Ohio Admin. Code Ch. 1501:9-3 (saltwater operation) and Ch.1501:9-5 (enhanced recovery) of the Ohio Administrative Code. Notably, Ohio’s oil and gas law states that the Ohio injection well regulations are to be interpreted as no more stringent than the federal UIC regulations, unless a stricter interpretation is essential to ensure that underground sources of drinking water will not be endangered.316 (e) West Virginia West Virginia has been granted primacy under the federal UIC program. The West Virginia Department of Environmental Protection’s Office of Oil and Gas issues Class II UIC wells for brine and fluid disposal under W.Va. Code R. §47-13-13.3. The West Virginia rules substantially parallel the federal UIC regulations.317 (f) New York New York does not have primacy under the federal UIC program; but the N.Y. Department of Environmental Conservation’s Division of Mineral Resources regulates drilling, operation of brine disposal wells under N.Y. Environmental Conservation Law §23-0305(14). A well permit is required from the Division of Mineral Resources for any brine disposal well deeper than 500 feet. This includes any operation to drill, deepen, plug back or convert a well. Regardless of well depth, the NYSDEC Division of Water must be contacted for a determination of whether a State Pollution Discharge Elimination System (“SPDES”) permit is necessary to operate any brine disposal well. The NYSDEC indicates that only six UIC wells have been permitted in New York to date for the disposal of brines produced from oil and gas well drilling.318 (g) DRBC As noted above, DRBC has invoked project review jurisdiction over all activities associated with the development of Marcellus Shale gas wells in the portions of the basin

314 See Ohio Rev. Code §§ 6111.043 et seq. (establishing program for regulation of the

injection of sewage, industrial waste, hazardous waste, and other wastes into wells); Ohio

• Admin. Code §3745-34-04 (classification of wells, Classes I - V).

315 Ohio Rev. Code § 1509.01(U). 316 Ohio Rev. Code § 1509.22(D). 317 See W.Va. Code R. §47-13-1 et seq. 318 NYSDEC, Brine Disposal Well Summary, http://www.dec.ny.gov/energy/29856.html.

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which drain to special protection waters (that is, virtually all of the area underlain by Marcellus Shale).319 This project review authority would ostensibly extend to installation and operation of UIC wells in the Delaware Basin. 6.6 Residuals Management & Disposition (a) What are the treatment residuals? The potentially available treatment technologies all engender the generation of significant treatment residuals, and the management and disposition of those residuals could be as substantial a challenge as treatment of the flowback and produced wastewaters. The substantial residual streams from various treatment units include the following: (1) low-TDS or distilled water; (2) sludges (from pretreatment for metals and suspended solids removal); (3) high TDS concentrated brine (from RO units and evaporation units); and (4) salt or salt cake (from crystallizer units). The volume of these residuals can be substantial. Evaporation systems result in somewhat recovery rates of approximately 60%, but still leave an estimated 40% of the wastewater in the form of a concentrated brine. Thus, an oil and gas produced water treatment plant handling 1,000,000 gallons of influent wastewater (in the range of a typical flowback water volume from a single horizontal well) would produce an estimated 400,000 gallons per day of concentrated brine. That equates to 80 plus tanker trucks per day of saturated brine residuals to be taken for ultimate disposition. Likewise, crystallization ZLD does not make TDS go away, but instead leaves a large quantity of residuals to be managed. Depending on the influent chlorides concentration, a 1,000,000 gpd crystallization plant handling Marcellus Shale brines is anticipated to produce some 400-520 tons per day (146,000-190,000 tons/year) of salt cake. (b) Categorization of residuals Before determining the appropriate handling and disposition of such residuals, the first task involves classifying the materials. Are they hazardous waste or alternatively subject to some other waste regime? Under RCRA, an exemption is accorded for drilling fluids, produced waters, and

• ther wastes associated with the exploration, development or production of crude oil and

natural gas.320 This leads to the question, are treatment residuals resulting from physical

• r chemical treatment of such residuals likewise eligible for the RCRA exemption?

319 See discussion of the DRBC Executive Director’s jurisdictional determination at Part

3.5(g)(ii), supra.

320 42 U.S.C. §6921(b)(2)(A).

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EPA’s interpretations of the exemption suggest that residuals from reclamation of exempt exploration and production wastes are exempt.321 As a result, most residuals resulting from treatment of flowback or produced fluids from a gas well would probably be classified a “residual” or “industrial” waste under state solid waste management laws, unless they qualify under state regulations as a “product” or “coproduct” or otherwise obtain some form of general permit or other state determination that the material is not a waste or no longer a waste. (c) State regulation of residual or industrial waste or beneficial reuse of residuals State regulations concerning the management of non-hazardous waste can vary significantly between jurisdictions. An example or two is provided for illustration. (i) Pennsylvania Pennsylvania has adopted an extensive set of regulations governing the management of non-hazardous waste produced from industrial and other non-municipal processes, referred to as “residual waste.”322 The Pennsylvania residual waste rules distinguish between a “waste” and a “coproduct.” A “coproduct” is a material of a physical character and chemical composition that is consistently equivalent to an intentionally manufactured product or produced raw material, if use presents no greater threat to health and the environment.323 It is potentially possible that salt produced from a crystallizer ZLD unit, if it meets all specifications for a use such as road salt application, might be found to meet the definition of a “coproduct” and thus fall outside

• f the waste management regime.

Alternatively, Pennsylvania provides the vehicle of “general permits” to allow for “beneficial use” of residual waste.324 A beneficial use general permit may be initiated by either an individual or industry-wide application, or on PaDEP’s own motion. The process for review and approval of such a general permit requires submission of descriptions of the waste to be covered, a complete chemical analysis, a description of the proposed beneficial use (e.g., road salt use), a detailed narrative and schematic of the production process from which the waste material was derived, proposed concentration limits for contaminants in the material, and a detailed demonstration of the efficacy of the

321 See 58 Fed. Reg. 15284, 15285 (March 22, 1993) (“[T]he Agency has consistently

taken the position that wastes derived from the treatment of an exempt waste, including any recovery of product from an exempt waste, generally remain exempt from the requirements of RCRA Subtitle C. Treatment of, or product recovery from, E&P exempt wastes prior to disposal does not negate the exemption.”)

322 See 25 Pa. Code Chapters 287-299. 323 25 Pa. Code §§ 287.1 and 287.8-287.9. 324 25 Pa. Code §287.611 et seq.

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material for the proposed beneficial use.325 After a public notice and comment period, PaDEP may issue a general permit if it finds that the proposed beneficial use will be conducted in a manner that will not harm or present a threat to public health, safety, welfare or the environment through exposure to constituents in the material during the proposed use or after such use, and that the proposed use of the waste as a substitute for an ingredient in an industrial process or as a substitute for a commercial product will not present a greater harm or threat than the product or ingredient which the waste is replacing.326 Under this criteria, PaDEP will consider not only near term issues, but potentially longer term impacts (e.g., the relative risks resulting from runoff of “beneficial use” salt applied to roads compared to commercial grade salt). The general permit, if issued, will allow utilization of the material for a prescribed use, subject to various operating, reporting and recordkeeping conditions.327 Following issuance of such a general permit, any other person who wishes to undertake the same use may apply for coverage under the general permit, by submitting a request for registration seeking a determination of applicability from PaDEP.328 As of this writing, Pennsylvania has not tackled the issue of issuing either a coproduct or beneficial use general permit for the residuals resulting from treatment of gas well flowback or produced water. This remains an issue where there remains a number of open questions. (ii) West Virginia West Virginia had adopted rules, albeit less elaborate, which would similarly allow for beneficial use of non-hazardous waste materials. Under the West Virginia regulations, the Secretary of the W.Va. DEP may issue a beneficial use permit for the “use of a non-hazardous material for a specific beneficial purpose where it is done in a manner that protects groundwater and surface water quality, soil quality, air quality, human health, and the environment.”329 The W.Va. DEP will evaluate the analysis of the material and other information demonstrating its beneficial use characteristics, including an evaluation of the potential impact to human health and the environment from the proposed method of use.330 The beneficial uses contemplated in the West Virginia rule are focused upon land application in accordance with a list of location standards and restrictions,331 although the rules do not explicitly limit beneficial uses to land application situations.

325 25 Pa. Code § 287.621(b). 326 25 Pa. Code §287.624. 327 25 Pa. Code §§ 287.287.624, 287.631. 328 25 Pa. Code §§ 287.641-287.643. 329 W. Va. Code R. § 33-8-2.4. 330 W. Va. Code R. § 33-8-3.1.a. 331 W. Va. Code R. §§ 33-8-3.1 and 33-8-3.2.

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6.7 Implementing Wastewater Projects – Transactional Issues At the same time as tackling the technical and regulatory issues associated with managing Marcellus Shale wastewaters, there are a number of important structuring and transactional issues that the legal and business teams must embrace. Among these are:  Who will develop, finance, own & operate such facilities?

• Should the gas well operator develop a captive facility?
• Are there advantages to joining forces with other gas operators?
• Are viable commercial operators willing to develop such facilities, and

under what arrangements can capacity be assured?  What arrangements are required to cover high fixed capital & operating costs?  If engaging a contractor or vendor to install or operate the wastewater system, how will the parties allocate risks associated with:

• Permit and construction timing vs. regulatory imperatives governing

discharges?

• Variable wastewater production rates?
• Variable wastewater characteristics (flowback vs. production waters;

differences in frac fluids and geographic areas)?

• Processing viability?
• Process and equipment durability?
• Changes in law and regulations?
• Energy and chemical costs?
• Residuals disposition (residual quality; cost changes; liability risks for

product use; liability issues at disposal sites)? 7. Summarizing Key Challenges to Wastewater Management As seen from the above dissertation, the challenges to adopting and implementing a viable wastewater management strategy are myriad and complex – an intertwined array

• f technical, legal, regulatory, and transactional issues. To take a step back, however,

some of the overarching items to keep in mind:  Choosing the right technology. As Marcellus Shale development proceeds, operators will need technologies and facilities that provide

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 Regulatory uncertainty and flux. As E&P companies are driving forward, the rules of the road are still being written. Important aspects of the regulatory roadmap are still in development, as exemplified by the PA TDS Strategy. Thus, one can’t just look at current regulations, but must look ahead to the possible regulatory landscape of coming years in order to make choices and frame investments that will be cost-effective and support the overall development plan.  Permitting time frames. Permitting processes are not simple, and their respective time frames can be extensive. The permitting of major wastewater facilities will consume considerable time. Some typical timeframes for major permits are:

• Zoning and land development approvals (3-6 months)
• NPDES permits (6-12 months, more of TMDLs or load allocations)
• Water quality facility construction permits (90-120 days)
• Air quality construction permits (6-12 months; plus 12 months of

studies if PSD monitoring and modeling required)

• Residual waste beneficial use general permits (200 days for new

general permits; 60 days for eligibility determination under existing general permits)332 These time frames pose serious challenges to the industry in attempting to meet aggressive regulatory schedules, such as those seen in PaDEP’s TDS

• Strategy. Industry, in turn, must consider whether regulatory agencies

modify procedures to accommodate their imperatives, or otherwise how can such mandates be adjusted.

8. Final Words Leaving the sagebrush plains of Texas above the Barnett Shales for the “green” climes of the Appalachian Basin and the Marcellus Shale and similar shale plays in the east, one might have the impression that water resource issues are left behind. If this paper has one point, it is – tis not so. The Marcellus Shale and other shales of the eastern U.S. represent a marvelous and exciting energy development opportunity, and also a water resources and wastewater management challenge that will require strategic planning and legal/regulatory finesse.

332 See PaDEP, Guide to DEP Permits and Other Authorizations (2007), available at:

http://www.depweb.state.pa.us/dep/cwp/view.asp?a=3&q=461114&depNav=|