The Shale Renaissance: How Fracking Has Changed Pennsylvania in the Twenty-First Century 0822947366, 9780822947363

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THE SHALE RENAISSANCE

THE SHALE RENAISSANCE How Fracking Has Changed Pennsylvania in the Twenty-First Century

JONATHAN M. FISK, SOREN JORDAN, AND A.J. GOOD University of Pittsburgh Press

Published by the University of Pittsburgh Press, Pittsburgh, Pa., 15260 Copyright © 2022, University of Pittsburgh Press All rights reserved Manufactured in the United States of America Printed on acid-free paper 10 9 8 7 6 5 4 3 2 1 Cataloging-in-Publication data is available from the Library of Congress ISBN 13: 978-0-8229-4736-3 ISBN 10: 0-8229-4736-6 Cover art and design by Melissa Dias-Mandoly

This book is dedicated to my family, including my supportive partner, Melanie, and our three sons, Noah, Micah, and Caleb. Thank you for being my motivation to finish this book and a daily source of laughter and joy.

Jonathan M. Fisk To Kim and Pat, who taught me how to theorize; to Dan, who taught me how to model; and to Victoria and Pippa, who remind me why it’s worth it.

Soren Jordan I dedicate this book to my partner, Megan, and our two children, Ida and Benton. I am deeply grateful for your continual patience, unwavering support, and unconditional love over the course of this journey. Thank you for being the best part of each day and my source of inspiration.

A. J. Good

CONTENTS

Preface ix

CHAPTER 1 The Politics of Unconventional Oil and Gas and the Challenge of Compliance 3

CHAPTER 2 Developing a Theory of Oil and Gas Compliance 39

CHAPTER 3 Pennsylvania, Fracking, and the Twenty-First-Century Boom 67

CHAPTER 4 Compliance Trends 99

CHAPTER 5 Site-Level Factors 129

CHAPTER 6 County-Level and Substate Factors 151

CHAPTER 7 State-Level Factors 169

CHAPTER 8 The Context of Compliance 200 Appendix: Methods 209 Notes 215 Works Cited 217 Index 239

viii

PREFACE

State regulations, regulators, and enforcement practices are at the core of many environmental debates, including the oil and gas controversy (Warner and Shapiro 2013). Even with additional scrutiny, the politics of conventional and unconventional oil and gas production are fractious and have appeared on the regulatory and legislative agenda in more than thirty states (Fisk 2017). Oil and gas rules are designed to protect environmental quality and public health while still permitting efficient development and extraction. The challenge for regulators, therefore, is designing rules, inspection protocols, and consequences that satisfy both goals. Overzealous rules and enforcement may stymie growth, hurt industry, and lead to antagonistic relationships between regulators and regulated firms. The twenty-first century’s oil and gas debate directly impacts nearly all aspects of American life: fifteen million Americans live or have lived within one mile of an extraction site, oil and gas provide 34 percent of total electrical generation in the United States, hundreds of thousands are employed by the industry, in some states oil and natural gas heats more than 50 percent of homes, it fuels millions of personal vehicles, and it is used in countless products daily (Fisk 2017). Yet, despite the central role that oil and gas extraction ix

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plays in American society, there are critical gaps in our understanding of how states ensure that resources make it safely from the fields to our homes and vehicles. We do not fully know the inspection process, the factors that shape how state regulators detect and identify violations, or the ways inspectors utilize the power of the state to ensure compliance with state rules. Why do these knowledge gaps persist? We believe the answer lies with the challenges of oil and gas compliance.

THE CHALLENGES OF OIL AND GAS COMPLIANCE There is a growing interest in oil and gas politics and management. Research, however, is incomplete and often focuses on policy formulation and adoption, financial impacts, public attitudes, and intergovernmental relations. These are important topics; however, they leave questions of compliance largely unanswered. This gap, we believe, is problematic and likely related to the nature of compliance activities, which themselves are shaped by a myriad of factors related to mission and policy, budget and personnel, technology, timing, data, shocks, politics, and economics. In this book, we set out to explore compliance and its related activities. To do so, we relied on a rich set of data (both qualitative and quantitative) designed to explore and unpack the concept of compliance with a specific emphasis on inspections, violations, and enforcement actions and what shapes specific outcomes. To do so effectively, we collected, consolidated, organized, and managed hundreds of thousands of unique data points that are currently housed in public and private sector databases. Each, we believe, is needed so that we speak to the national, state, and local context of oil and gas production. The context of compliance, for example, involves multiple federal agencies, decades of federal policy, thirty states, a variety of state agencies and policies, billions of dollars, thousands of inspectors, and more than 900,000 active wells (plus millions more that are idle or abandoned). This context, we argue, affects millions of Americans directly and millions more indirectly. Despite this, scholars and students have little systematic understanding of how states ensure that oil and gas producers remain in a state of compliance. This book leveraged hundreds of thousands of unique data points and scores of primary documents related to unconventional and conventional oil and gas management to answer several foundational questions at the core of natural resource management: 1. What is the debate surrounding oil and gas compliance and enforcement, and why does it matter? 2. What are the rules that operators must follow? How is compliance ensured?

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3. What factors may explain the likelihood of compliance-related outputs— in other words inspections, the identification of violations, and the use of administrative actions? 4. What factors are drivers of increases in compliance activities? 5. What factors are drivers of decreases in compliance activities?

WHY PENNSYLVANIA? There are several reasons why we focus on compliance outcomes in Pennsylvania. First, there is a tremendous amount of variation present in compliance data such as well type, inspector, inspector pay, violations identified by the inspector, and the administrative tool used to guide a violating operator back into a state of compliance. In fact, because this study examines compliance over time, it relies on more than 750,000 cases over a fifteen-year period. Importantly, Pennsylvania, unlike other states, makes this data freely available. The story of compliance in Pennsylvania is important for additional reasons. First, the expansive Marcellus Shale formation is home to 50 percent of the nation’s total shale gas and lies underneath much of the state. The Marcellus’s location, along with the development of new fracturing and horizontal drilling technologies, has contributed to a precipitous rise in gas production since the mid-2000s—and has made Pennsylvania a top-three producing state. Second, as Rabe and Borick (2013) have described, Pennsylvania’s fracking battles have been highly salient, have received significant media attention, and have been covered by popular documentaries. They add that the state was one of the first to experience the costs and benefits of large-scale unconventional hydrocarbon production—in other words, the advantages and disadvantages of fracking. Thus, like it does in many other states, oil and gas compliance means that Pennsylvania’s oil and gas stakeholders must be sensitive to multiple and sometimes disparate goals: 1. To promote the development of Pennsylvania’s oil and natural gas resources without sacrificing the “health, safety, environment and property of the citizens of Pennsylvania” 2. To protect the safety of both the people and facilities that the oil and gas industry employs in development efforts 3. To protect the “safety and property rights” of people who live in areas affected by the development of oil and natural gas resources 4. To protect “natural resources, environmental rights and values” in accordance with the Pennsylvania Constitution (Clovis and Pifer 2009) For these reasons, Pennsylvania is a strong lens to examine the management and compliance challenges associated with oil and gas and can offer important lessons for other “producer” states.

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A WORD ON PENNSYLVANIA DATA Pennsylvania-specific datasets, like many other states and compliance activities, offer only a small slice of oil and gas compliance. Even within one state, different agencies record exceptionally extensive data but treat them as completely separate issues (e.g., inspection data versus citizen complaints versus production records). Thus, identifying, collecting, cleaning, and then coding this data at the individual site level and combining it to unpack the context of compliance is a significant and time-consuming undertaking. State inspection records in just Pennsylvania contain approximately 750,000 unique cases after accounting for a time period of 2000–2015. These include field inspections and results (i.e., identification of an administrative, environmental, or safety violation or not), and any administrative actions pursued by the state regulator so that the operator could return to a state of compliance. Like many other governmentally managed datasets, states are often required by statute to keep records of this data; however, it is not done in a consistent format, nor is it user-friendly for large-scale data analysis. For researchers, this means that the data are context specific and concern only a specific slice of a broader picture, such as separate datasets for production, inspections, violations, penalties, and enforcement. Each of these distinct datasets is effectively in silos—that is, the variable names are not constant across the data and the records are managed in different formats. To this rich source of data, we add firsthand reports and primary evidence of compliance, including a grand jury report and a report from the state auditor (and associated responses) so that we present a more comprehensive view of compliance.

OVERALL STRUCTURE OF THE BOOK This book is roughly divided into two sections. Section 1 (chapters 1–3) describes the context in which oil and gas compliance takes place and how these forces play out in Pennsylvania’s oil and gas fields. Throughout these chapters, attention is paid to the environmental costs, economic benefits, and regulatory environment, as well as how the state seeks to ensure compliance through inspections, violations, and if necessary, a variety of administrative actions. Understanding this context of compliance is necessary so that readers may gain a more complete understanding of the compliance process; that is, the rules regulators are enforcing and the environment in which they are making compliance- and enforcement-related decisions. These dynamics are presented first in a model introduced in chapter 2, which also guides the analyses found in later chapters. Section 2 (chapters 4–8) examines different factors that shape the detection of violations and the use of specific regulatory tools. This involves understanding the broad trends that characterize oil and gas management

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(chapter 4) as well as site-specific (chapter 5), county-level (chapter 6), and state-level factors (chapter 7) that may impact compliance outcomes. Chapter 8 combines elements of these previous chapters into a unified and comprehensive model of oil and gas compliance.

CHAPTER DESCRIPTIONS Chapter 1 addresses the oil and gas debate at large, with a particular emphasis on establishing the national context that surrounds enforcement and compliance. As chapter 1 shows, context is largely a function of interrelated variables associated with organizational mission, relevant state policies and administrative rules, varying and evolving technologies, the timing of specific actions, availability of data, personnel and budgetary constraints, and the goals and preferences of political and industry leaders. This context, we suggest, can be ephemeral, interactive, and shifting as the aforementioned factors change and evolve over time. We conclude this chapter by organizing these factors loosely into a four-quadrant typology around four themes: mission and policy; technology, timing, and data; personnel and budget (for industry and the state); and politics and economics. Chapter 2 recognizes that the context of compliance does not address specific relationships or associations. To do so, it pivots to previous research and leans on how various theories, frameworks, and models have accounted for administrative performance. In effect, this chapter asks and answers how and why administrative actors make the decisions they do, albeit in differing policy domains. We then leverage these other works to inform the development of an exploratory oil and gas compliance model, which incorporates inspections, the identification of violations, and the use of specific administrative actions. Chapter 3 turns toward Pennsylvania, comparing it to other oil- and gas-producing states. We then identify specific state rules and processes that pertain to inspections, violations, and administrative actions leading to compliance. In short, this chapter summarizes the basic rules, missions, and policies that govern the context of compliance within Pennsylvania. It assumes that before we (and readers) can begin identifying patterns and relationships associated with outputs in a specific direction (i.e., what leads to the detection of violations or use of specific compliance tools), we must establish what it means to stay in compliance and how violations are detected. Chapter 4 identifies inspection, violation, and administrative action trends as well as other descriptive results. These results are then built upon in chapters 5–8, which present the results of our empirical models and incorporate the findings from primary source documents. Results from these chapters enable readers to identify, understand, and explicate how and to what extent site-level (chapter 5), county-level (chapter 6), and state-level

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(chapter 7) characteristics impact inspections, the detection of violations, and the use of specific administrative tools with an eye toward the model created in chapter 2. Embedded within each of these chapters are direct passages from primary source materials that offer additional insights into many of the relationships hinted at by our quantitative data. In chapter 8, we return to understanding the context compliance with an assessment of whether our expectations were met and if our explanatory model offered leverage in understanding natural resource compliance. We then offer a set of conclusions regarding compliance, especially how compliance speaks to larger themes of environmental protection, trust in government, and democratic legitimacy.

THE SHALE RENAISSANCE

Chapter 1

THE POLITICS OF UNCONVENTIONAL OIL AND GAS AND THE CHALLENGE OF COMPLIANCE

Advances in technology vis-à-vis air and water quality are among the twentieth century’s greatest achievements in terms of environmental management. The nation’s air and water resources are generally cleaner, federal and state environmental agencies have developed new capacities, and energy is reliably delivered to millions of consumers. In fact, compared to the first half of the twentieth century, the United States has made great strides in safeguarding the environment and providing safe and clean energy (Klyza and Sousa 2013). It is within this landscape that the transition to unconventional oil and natural gas politics and management took place and continues to take place. Today, oil and gas production vis-à-vis fracking has helped ensure access to reliable heat and power for millions of Americans, it employs thousands, and it supports the American economy in myriad ways. Yet, it is also a heavy industrial activity that can seriously harm the environment and can lead to pernicious impacts on the public’s well-being. Operating between these “goalposts” is a network of public and private sector actors who are producing, distributing, and consuming oil and gas in such a way that they satisfy multiple goals such as efficient production and environmental integrity. To accomplish these goals, local, state, and federal governments, as well as operators, engage in a set of activities known as compliance—in 3

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The Politics of Unconventional Oil and Gas and the Challenge of Compliance

short, establishing performance standards and then designing enforcement systems that maintain a state of compliance. Despite the many remarkable accomplishments of the twentieth century, the nation’s regulators and the systems necessary to deliver energy are increasingly confronting a fleet of natural and man-made threats. At just the original point of extraction, for example, the new technologies of hydraulic fracturing and horizontal drilling have opened up new production. They have also required regulators to develop new testing protocols, new inspection processes and evaluative criteria, and administrative learning. Preexisting and increasing nonpoint sources of pollution have added new layers of technical and political complexity and have made it more difficult to isolate the source of contamination. Wildfires, storms, and other external shocks add yet another layer of challenges impacting oil and gas operators and regulators (Fisk 2017). Transporting fuels and waste products and safely closing a site add to the difficulties faced by regulators. These issues range from the labeling of trucks that are transporting wastes to disposing of fracking fluids, and they can add costly political and administrative challenges. The lineage of today’s fracking debate can be traced back to the first wells coming on line over a century ago. Since the nineteenth century, the American landscape has witnessed oil and natural gas operators drilling more than four million wells from California to Pennsylvania. In fact, fracturing, as an idea, is at least seventy-five years old. Early attempts at fracturing rocks and other underground formations, for example, began in the 1940s. Whereas the technologies have changed, operators have utilized fracking-related extraction processes in at least one million oil and natural gas wells. Unlike many of today’s wells, many of these “historical” sites were barely noticed, caused little in terms of known surface disruptions for nearby residents, and were located in predominantly rural areas (American Petroleum Institute 2014). Hydraulic fracturing in the twenty-first century is much different. While the evolution of today’s operations stretches back over sixty years, the specific technologies supporting it began to be widely deployed in the mid-2000s (Fisk 2017). This technology, coupled with a favorable policy environment, set the stage for the fracking boom. For shale gas, the boom began around 2005, with similar technologies making tight oil extraction commercially viable around 2007–2008. Extant oil and gas operations involve multiple stages, actors, and processes. Operators receive multiple permits, are subject to planned and random inspections, drill both vertically (up to 10,000 feet) and horizontally (usually between 4,000 and 10,000 feet) and inject thousands of gallons of proprietary chemicals, water, and sand into underground formations (Dunn 2014). Once the site is prepared and fluids are injected, fracking begins, and

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5

hydrocarbons and other fluids flow up to the surface (Dunn 2014). These fluids must then be separated, and the hydrocarbons eventually enter the market while the wastes must be disposed of. Each state operates within its own set of rules, typically with specific standards contingent upon the resource to be extracted, enforcement practices, the location of wells, the governing jurisdiction, underground geology, and even the operator itself (Dunn 2014; Pless 2011). A vigorous debate over fracking and the challenges of compliance followed. The debate, Fisk (2017) writes, has taken place across statehouses and in the nation’s capital and involves a common set of issues that are simultaneously highly technical and salient, that likely elicit powerful symbols and emotions, and that impact millions of citizens. To this list, the compliance question adds complicated questions about responsiveness, trust in government, and regulatory legitimacy. Regulatory compliance cuts across each part of the production life cycle: locating and acquisition of mineral rights, site preparation, permits and drilling, fracturing, and postdrilling activities such as moving resources to the market. In other words, compliance is at the heart of the fracking debate. The politics of unconventional oil and gas production (i.e., fracking) are well known. These debates, we argue, extend to practices and priorities governing inspections, the detection of violations, and the use of administrative tools to ensure compliance. Supporters argue that domestic oil and gas production is responsible for economic benefits, such as jobs, new tax revenues, and investment, as well as national security benefits, such as avoiding importing hydrocarbons from geopolitically uncertain regions and nations. At the subnational level (state and local governments), many of these “shale” benefits are place-specific and very much needed. The expanded production in these communities translates into new job growth (with well-paying industry jobs), lease revenues for mineral owners, additional tax revenues via new taxes and fees, and direct investment. For all Americans, supporters note that domestically sourced oil and gas via fracking produces abundant, reliable, and cheap energy that is needed to fuel vehicles, generate electricity, operate industrial facilities, and heat homes. Advocates add that oil and, to a lesser extent, gas may be exported, which can supply new international markets and lead to even greater economic growth. Opponents, on the other hand, argue that unregulated production harms air quality, fragments forests, and threatens ground and drinking water. Moreover, they contend that many of the economic benefits are overblown, temporary, and not enough to outweigh the risks and costs. They continue by suggesting that existing regulations and associated regulatory agencies often fail to adequately balance hydrocarbon production with the public’s need for a clean, quality, and safe environment (Davis 2017; Fisk 2017).

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The Politics of Unconventional Oil and Gas and the Challenge of Compliance

Figure 1.1. Understanding Oil and Gas Management

Whereas the debates are national in scale, the overall management of oil and gas is intergovernmental. The federal government generally oversees production on federal lands, distribution of resources via interstate pipelines, and overall grid reliability and security. In contrast, much of the dayto-day management (e.g., site preparation, permitting, extraction, and site cleanup of oil and gas resources) falls to the states (Fisk 2016; 2017). In fact, state governments have traditionally overseen the oil and gas industry and, as such, have developed the requisite expertise, protocols, and competencies to engage in a wide variety of compliance activities. Despite the states’ prime role in oil and gas regulation, the context governing oil and gas production is intergovernmental. For example, the decisions made by federal regulators to approve a new pipeline, support additional drilling on federal lands, or regulate methane emissions are likely to create new compliance demands for state inspectors. Despite the light but growing federal footprint, which is addressed primarily in chapter 3, we focus here on broad categories of state regulatory activity, as shown in figure 1.1 (Fisk, Good, and Nelson 2017). The first part refers to the formulation and design of applicable rules, policies, operating procedures, inspection schedules, testing protocols, and potential fine amounts. These, we suggest, are the guardrails and standards that operators must meet to remain in compliance. To date, lawmakers in more than thirty states have adopted wide-ranging site safety policies,

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7

information disclosure to citizens and state officials, and chemical information disclosure to healthcare professionals and local governments, and they have influenced siting locations, applicable taxes and fees, permitting standards and schedules, technical standards, intergovernmental relations, security, environmental impacts, and short- and long-term site remediation. These policy arenas have identified an array of social, economic, political, and site-specific factors that help to explain state variation, policy design, and even the degree to which environmental interests are balanced with extraction goals (Fisk, Good, and Nelson 2017). The second piece of this puzzle addresses how state regulators ensure compliance with such rules. This involves a range of factors including applicable policies, missions, politics, economics, budgets, staffing, technology, data that shape inspections, criteria of a violation, and administrative activities. Here, however, less research is available that seeks to explain the decisions of inspectors, the use of compliance tools, or why enforcement actions vary over time. This dynamic is reflected in figure 1.1. As shown in figure 1.1, both pieces are critical to compliance and to the understanding of how states meet their oil and gas management goals. In other words, both rule formation and compliance are likely to remain hotly contested, as the impacted actors and institutions are often seeking or weighing significant economic and political rewards, serious public health and environmental risks, and additional responsibilities of state and local governments and administrators (Fisk, Park, and Mahafza 2017). The high stakes, as well as some of the governance challenges, are captured in these observations from stakeholders: John Tintera, Texas Railroad Commission (RRC) executive director, in reference to the RRC’s well inspection process, noted, “No agency can have a police officer behind every stop sign. . . . We prioritize our inspections, and we respond to every complaint. In seeking compliance, we have many tools, one of which is to go to enforcement” (Soraghan 2011). The secretary of Pennsylvania’s Department of Environmental Protection, John Quigley, noted, “Our (DEP) inspectors go out with clipboards and carbonless paper . . . when folks from the industry use iPads—tap, tap, tap, upload your data, go on to the next well. . . . We’re dealing with antiquated technology, we’re drowning in paper” (Phillips 2016). Chris Sandoz, from the engineering division of the Louisiana Office of Conservation, stated that the agency expected “operators to have their wells in good shape whether we’re there or not” (Soraghan 2011).

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The Politics of Unconventional Oil and Gas and the Challenge of Compliance

Texas Sunset Advisory Commission director Ken Levine observed, in reference to oil and gas enforcement, “If you never get penalized for it, you’re probably not going to stop speeding. . . . That’s essentially what’s happening in the field” (Soraghan 2011). At the core of these quotes are normative concerns about compliance, the behavior of stakeholders, and how best to reach multiple goals. Clearly, for some stakeholders, the lack of robust oversight is problematic, especially as it relates to the industry’s behavior—its willingness to take steps that would minimize air and water pollution and that would protect public health. Others note their expectations for the industry to be a strong and responsive partner, correctly observing that regulators cannot be everywhere at once. Finally, these passages also highlight the role of third parties and citizens relative to compliance. Citizens and those located closest to production sites are among the most likely to be impacted by operations, to feel the associated economic gains, and to witness surface-level disruptions such as spills. Their important role includes the ability to highlight problems such as leaks, to call in with complaints, and to communicate with regulators and elected officials. Each of these actors operates within the setting described in figure 1.1 and affects the politics and challenges of compliance.

LINKING COMPLIANCE AND PRODUCTION State governments face real and perceived risks and rewards of oil and gas production. Whether tangible or not, how stakeholders perceive, prioritize, and determine the costs and benefits of development matters a great deal when it comes to compliance. If state and local stakeholders experience direct and indirect benefits, trust in the sanguine economic forecasts, and believe that the risks are minimal, they are likely to support policies (in terms of both design and compliance) that impose minimal costs on the industry, that encourage production, and that utilize a small compliance footprint. Whereas, if the real and perceived risks are substantial, policy makers are more likely to support tighter controls, more inspections, and coercive actions designed to bring operators back into compliance. Thus, compliance does not exist in a political vacuum and must be considered with several interrelated pieces: The type of production or resource and its location The applicable slate of federal, state, and (if available) local regulations or policies and how violations are determined (i.e., what are the standards)

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The distribution of costs and benefits (i.e., who is experiencing the risks and rewards of natural resource production and to what extent) The agencies enforcing said rules (i.e., who is enforcing them and what are their abilities, capacities, and priorities) The political, administrative, and economic environment and the preferences and characteristics of stakeholders (Fisk 2017) Most operators seek to work within applicable regulatory frameworks and to be a “good neighbor.” However, compliance operations are a necessary aspect of oil and gas management and involve inspections, identification of violations, and questions about how best to bring the operator back into a state of compliance. This is especially true during a well’s productive phase. When violations are recorded, activists have seized upon them to push for changes in policy design, to increase the severity of penalties, to intensify compliance protocols (e.g., frequency of inspections and number of inspectors), and to question the legitimacy of administrative agencies—all of which may increase the operators’ costs. As a result, even the number of available inspectors and agency budgets have become focal points for the broader political forces engaged in debates concerning oil and gas production. In short, compliance dynamics do not exist outside the debate over oil and gas production.

WHAT AND WHERE ARE OIL AND NATURAL GAS DEPOSITS AND WHY DOES LOCATION MATTER? The type of resource matters. Oil and natural gas extracted from shale or unconventional deposits often include specific rules and standards that are different from oil and gas extracted from conventional sites. As such, we begin by briefly elucidating what oil and natural gas resources are and where they come from. Oil and natural gas are fossil fuels that formed millions of years ago as once-living materials decayed and were compressed at high temperatures and pressures. The type of natural gas and where it is “found” often determines its type and the specific extraction processes used by the industry (EIA 2018a). Conventional natural gas settled into large cracks and spaces between layers of subsurface rocks. Unconventional natural gas settled into tiny pores among shale, sandstone, and other sedimentary rock formations (also called shale gas or tight gas).

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The Politics of Unconventional Oil and Gas and the Challenge of Compliance

Natural gas that settled with deposits of oil is often called associated natural gas. Coalbed methane is natural gas that settled with coal deposits. Wet natural gas is methane (gas) that is found with associated compounds such as ethane or butane. Dry natural gas is just gas with no associated natural gas liquids. Oil (or crude oil) may exist as a liquid in underground reservoirs, within sedimentary rock, or near the surface in tar (or oil) sands (EIA 2018a). Oil and natural gas deposits are not uniformly distributed. Two-thirds of US natural gas production, for example, takes place in five states. In 2017, 23 percent took place in Texas, 20 percent in Pennsylvania, 8 percent in Oklahoma, 8 percent in Louisiana, and 6 percent in Ohio (EIA 2018b). Major deposits are shown in figure 1.2. These states stand out for several reasons. First, elected officials and state governments are more likely to experience the costs and benefits of oil and gas development and to possess experience in promulgating and enforcing state oil and gas policies. Second, like their respective state government, citizens in these jurisdictions (especially those located near production) are more likely to witness and participate in development activities such as receiving lease revenues, working in the industry, and experiencing spills and other contamination. In other words, compared to nonproducing states, extraction states are simultaneously more likely to encounter the risks from production (e.g., spills or contamination) and the benefits from oil and gas (e.g., tax cuts, job creation, and economic growth). Despite sharing a similar set of costs and benefits, the aforementioned states do differ in other ways, including state politics and ideology, their overall production levels, their region, and the extent to which they are economically dependent on oil and natural gas extraction (Fisk 2017). Texas and Oklahoma are traditionally conservative states with approximately 6 million and 1.2 million residents living within one mile of an oil and gas state. Both generate a significant amount of their state GDP from natural resource extraction. Ohio and Pennsylvania are traditionally swing states with 2.6 million and nearly 2 million residents, respectively, living within one mile of an oil and gas state. Each state produces a significantly smaller percentage of its state GDP from natural resource extraction (Gold 2014; Gold and McGinty 2013; Fisk 2017).

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Figure 1.2. Shale Plays in the Lower 48

We also provide data on proven reserves, as identified in table 1.1. According to the Energy Information Administration, reserves’ “estimates change from year to year as new discoveries are made, as existing fields are thoroughly appraised, as existing reserves are produced, as prices and costs change, and as technologies evolve” (EIA 2021; n.d.). They are related to market and regulatory conditions that affect the cost of doing business in a particular location. If a compliance regime, for example, imposes higher costs on industry, its proven reserves are likely to shrink. Or, if oil and gas prices decline (e.g., due to weak demand, oversupply, or competition from renewables), it is likely that firm profitability will fall as well, meaning that reserves are also likely to shrink (EIA 2021; n.d.). We return to the importance of well type. Prior to 2005, operators primarily extracted resources at conventional sites. This limitation was removed around 2005–2006, as operators developed the tools necessary to extract unconventional oil and natural gas. Today, extraction via hydraulic fracturing and horizontal drilling is largely driving increases in domestic production (Warner and Shapiro 2013). For example, in 2012, operators extracted nearly 30 million cubic feet (MMcf) from over 500,000 wells. These numbers are continuing their upward trend as of 2017–2018 and represent significant leaps from their pre-fracking oil and gas production levels, as shown in figures 1.3 and 1.4.

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The Politics of Unconventional Oil and Gas and the Challenge of Compliance

Table 1.1. Reserves (in trillion cubic feet) Proved reserves

Extensions and discoveries

Revisions

Production

Proved reserves

Source of gas

Year-End 2015

2016

2016

2016

Year-end 2016

Coalbed methane

12.5

0.0

−1.0

−1.0

10.6

Shale

175.6

32.3

19.0

−17.0

209.8

Lower 48 onshore

123.6

5.8

−9.5

−9.5

110.3

Lower 48 offshore

8.0

0.2

0.2

−1.3

7.1

Alaska

4.6

0.1

−1.1

−0.3

3.3

Total

324.3

38.4

7.6

−29.2

341.1

Conventional & Tight

Source: EIA 2017a

Both figures 1.3 and 1.4 capture the increase in overall US production. Of note is that the boom for natural gas started slightly earlier than oil. However, extraction for both resources was increasing by 2008–2009, meaning that the context surrounding inspections, identifying violations, and deciding administrative actions following a violation was dramatically different by 2008 compared to the days before fracking.

THE PRODUCTION PROCESS Oil and gas management and compliance begin prior to actual drilling. State regulators determine the information required on a drilling application or permit, any best management practices to be implemented, the cost (if any) of surety bonds, predrilling requirements, and other analyses that must be performed prior to drilling and after completion. Once the site is prepared and ready for drilling, additional rules may include the establishment of specific inspection schedules, performance standards, various permits, construction standards, production quotas, and the availability of specific administrative and punitive actions to ensure compliance. Additionally, administrative rules also govern the number and frequency of inspections, specific aspects to be inspected during a site visit, details of when and how reinspections may take place, actions available to inspectors and oversight agencies, financial penalties that may be issued, and standards operators must meet. If a violation is detected, state rules then shape the administra-

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Figure 1.3. US Natural Gas Production

Figure 1.4. US Oil Production

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The Politics of Unconventional Oil and Gas and the Challenge of Compliance

tive options available to a regulator or inspector to encourage or require the operator to return to a state of compliance. More specific steps, mainly from an operator perspective, are presented in table 1.2. Compliance is inherent to the various “steps” identified in table 1.2, as there are performance standards and testing protocols associated with each supporting activity. The various stages presented in table 1.2 also provide stakeholders with opportunities to further support or challenge the status quo. In other words, those seeking to support extraction may utilize compliance activities in a way that supports production. Moreover, the various stages also mean that compliance is likely to involve an array of agencies, stakeholders, and levels of government (Fisk 2017). See King (2012) for a comprehensive resource on the technical aspects of unconventional fuel production. The presence of multiple stages also forces stakeholders to engage with one another so that they may fully address questions of compliance such as the following: 1. What learning is required? 2. Are existing testing and standards adequate? 3. What data needs are there? 4. Is there adequate organizational capacity? 5. Is pinpointing causality possible? In this way, compliance may invite an antagonistic relationship, but it also creates opportunities to collaborate, find balance among competing goals, innovate, and meet citizens’ needs.

THE SCOPE AND CHALLENGES OF COMPLIANCE Federal policy makers have few formal powers when it comes to state compliance outcomes or processes. Federal policies like the Energy Policy Act of 2005 have reduced the federal role relative to compliance even more. In other words, oil and gas infrastructure and actors (not including interstate pipelines and facilities on federal lands) are much more under the auspices of state regulators than those at the federal level. Oil and gas researchers have largely followed suit and have identified an array of factors that make the politics of oil and gas management a minefield for stakeholders (Fisk 2017). Overzealous enforcement may stymie growth and industry innovation, harm industry’s competitiveness and raise its costs, and lead to antagonistic relationships between regulators and regulated firms. These practices, in turn, may mean that production goals, enshrined in state laws, are not met. Conversely, lax enforcement may threaten environmental health and public safety, may contribute to long-term site damage, and may allow operators to create a variety of environmental externalities. In this scenario, state environmental priorities, also ensconced in state law, are not satisfied.

The Politics of Unconventional Oil and Gas and the Challenge of Compliance

15

Table 1.2. Common Stages in Oil and Gas Management Stage

Common activities

Exploration

Operators locate and map potential resources. Operators negotiate and secure lease and any necessary contract with landowners or property owners. Acquire necessary permits from federal, state, or local governments. Post financial sureties or bonds. Conduct any required predrilling testing.

Site preparation

Prepare the well pad (the site that will contain multiple wells)—this includes clearing site vegetation and building roads so that vehicles and other infrastructure may be brought to the site. Transport requisite equipment and infrastructure—this includes tanks, water and blender pumps, monitoring equipment, and chemicals. If necessary, prepare a pit for storage of water, drilling fluids, and/or rocks generated from drilling and other site preparation. If necessary—build transport lines.

Drill a hole (called a wellbore) into the earth—this can involve both vertical and horizontal wellbores. Typically operators drill vertically first and then turn the drill bit horizontally. Insert casing and cement into the well bore, which involves metal Well piping intended to prevent cross-contamination and can be secured construction via cement. and drilling Drilling fluid or mud is injected. Operators install a well blowout preventer to control release of oil or gas. Install venting and/or flaring as necessary to relieve internal pressures.

Hydraulic fracturing

Operators will run a series of tests for well integrity, equipment pressure, rock stress, and other factors prior to fracking. This will involve a site-specific blend of water, sand, and proprietary chemicals. Operators inject fracking fluids at high pressures to fracture or pulverize the subsurface formation. Operators reduce pressure to allow oil and gas to flow to the surface. Some of the fracking fluid will return to the surface; this is known as flowback. Naturally occurring water may also return to the surface; this is known as produced water. Hydrocarbons are moved to storage via gathering lines and other pipelines. Fracking is currently used in approximately 43–50% of domestic oil production and nearly 70% of natural gas production. In some states these numbers are higher.

Sources: Reproduced from Fisk 2017 with minor editing for style and clarity; Intermountain Oil and Gas BMP Project, n.d.

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The Politics of Unconventional Oil and Gas and the Challenge of Compliance

Figure 1.5. The Context of Oil and Gas Compliance

In either case, compliance is the common denominator and involves a set of administrative outputs related to inspections, violations, and administrative actions. These outputs are shaped by political support, available technology, knowledge, use of data, the clarity of applicable rules, and the capacity of state agencies and operators to enforce such rules, among other factors. These dimensions are further organized into four broad categories, as shown in figure 1.5, which we describe as an interactive context of compliance.

Mission and Policy State oil and gas agencies respond to and implement a variety of goals. In Colorado, for example, state lawmakers charged the state’s Oil and Gas Conservation Commission (COGCC) with four primary goals: 1. The efficient exploration and production of oil and gas resources in a manner consistent with the protection of public health, safety and welfare; 2. The prevention of waste; 3. The protection of mineral owners’ correlative rights; 4. The prevention and mitigation of adverse environmental impacts (COGCC 2018). The mission of the Pennsylvania Department of Environmental Protection (DEP) is similar: “Oil and Gas Management is responsible for the statewide oil and gas conservation and environmental programs to facilitate the safe

The Politics of Unconventional Oil and Gas and the Challenge of Compliance

17

exploration, development, and recovery of Pennsylvania’s oil and gas reservoirs in a manner that will protect the commonwealth’s natural resources and the environment” (DEP 2019b). The presence of these goals, according to researchers, shapes how state oil and gas agencies and elected officials prioritize their tasks, allocate financial, technical, and human resources, promulgate rules, and ensure compliance (Davis 2012; Fisk 2017). Davis (2012) explains that on one hand, state oil and gas agencies are required (via state oil and gas laws) to facilitate efficient hydrocarbon production. This, in turn, may lead agency leaders, staff, and political principals to advocate or support more relaxed forms of enforcement such as supporting less coercive corrective actions and penalties. On the other hand, inspectors are expected to protect health and environment (and respect private property), which may contribute to greater administrative and political support for aggressive inspection schedules, more rigorous and frequent inspections, and more coercive actions, such as administrative orders or the assessment of financial penalties.

Technology, Timing, and Data Compliance challenges are an amalgam of historical decisions and practices. They are also a function of new technology (and learning curves), demands, constraints, and decisions. In fact, today’s inspectors may visit facilities that stretch back to the nineteenth century, when oil and gas wells first dotted the American landscape (Fisk 2017). Many of these older wells complicate compliance as they still demand regulators’ time and attention and are not necessarily well mapped. They can be abandoned, meaning they do not have a current owner (that is still in business), or they have not produced oil or gas in quite some time, and some are in serious disrepair. Finally, they were built according to nineteenth- or early twentieth-century construction standards or utilized differing technology (American Petroleum Institute 2014). Fracturing practices in the 1960s are illustrative. During the 1960s operators, along with supportive federal agencies, began to fracture underground formations with nuclear devices. In 1967, for example, the collaborative effort that included federal scientists and the natural gas industry detonated a twenty-nine-kiloton nuclear device underground in rural New Mexico with the hope of fracturing subsurface formations. Through 1973, there were more than two dozen sites in which nuclear fracking had been the primary means of extraction (American Oil and Gas Historical Society, n.d.). While this particular methodology is no longer used, compliance involves oil and gas wells that were constructed during this period. By 2005–2006, drilling processes and extraction technology had advanced enough to open up large swaths of previously unrecoverable oil and gas. These developments, as well as favorable market signals, helped launch

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The Politics of Unconventional Oil and Gas and the Challenge of Compliance

the twenty-first century’s shale oil and gas boom. By 2018, the fracking boom had spread to more than twenty states, leading to the construction of thousands of active and producing wells and consuming thousands of acres. Production by way of fracking continues to employ hundreds of thousands of workers and generates billions in revenues for state and local governments. It has even received bipartisan support, but extant research has shown Democrats to be more supportive of oversight (Davis and Fisk 2014). Thus, from a “numbers perspective,” the compliance and management challenges facing oil and gas regulators are particularly daunting (American Geosciences Institute 2018). Other pertinent facts about the compliance workload include the following: Since 1859, operators have drilled approximately 3.7 million wells in the US. In 2018 the Environmental Protection Agency estimated that the number of abandoned and/or inactive wells (onshore) ranges from 2.3 million to nearly 3 million (EPA 2018). In 2017 there were around 1 million active oil and gas wells in the United States. Operators utilize unconventional production practices in approximately 95 percent of all producing wells (American Petroleum Institute 2014). State oil and gas personnel face additional bureaucratic and technical challenges that shape enforcement and compliance. In some states, regulatory programs governing conventional oil and gas were established long before hydraulic fracturing or horizontal drilling. In some cases, this has meant that rule makers and inspectors attempted to apply “conventional” rules and tests for contaminants to unconventional operations, which, according to advocates, were not always sufficient or adequate (Davis 2012). Enforcement and compliance efforts may also be complicated by a lack of predrilling data, external events, or data at large. This can be especially problematic when it comes to assessing financial penalties to operators, who often have deeper pockets than state oil and gas agencies. If, for example, state regulators cannot ascertain or acquire data that speaks to environmental conditions prior to development (commonly referred to as baseline data), it is difficult to evaluate whether suspected contamination is linked to existing (or historical) hydrocarbon production, if it occurred naturally, or if it was associated with some other factor, and then to assess a financial penalty (Fisk 2017).

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The type of well, stage of production, age, and productivity levels also shape how and when inspections and other compliance activities take place. Ohio Oil and Gas Association president Tom Stewart notes, “Older wells and low-producing wells don’t need as much attention from inspectors. . . . In Ohio, the regulatory agency’s time is better spent looking at how a well’s being drilled in the front year of a well’s life.” Stewart then compared Ohio’s oil and gas needs to those in Alaska and suggested, “In Alaska, for example, wells draw from massive reservoirs of gas and oil. . . . There, a single well might be a higher priority” (Gilmer 2012). Gaye Greever McElwain from the Texas Railroad Commission added that “inspections are scheduled for oil and gas leases, not individual wells. Gas leases hold one well each, but oil leases can hold many” (Gilmer 2012). In Pennsylvania, inspectors prioritize sites in which there is active drilling and fracturing in shale formations over older or idle wells. As Fisk (2017) notes, the most productive phase of a well’s life is often within its first years of production. During construction, as well as during this highly productive phase, the site is likely to have more activity and staff present (Jackson et al. 2014; 2011). However, as production dwindles, activity at the site winds down. The well’s potential impact on public health and the environment, however, can last decades even with the site still subject to compliance. Several factors complicate compliance at this stage: 1. Many older, abandoned, or orphaned wells were drilled before the fracking-fueled boom and predate modern mapping and safety technologies but are still subject to inspections and administrative actions. 2. Many older, abandoned, or orphaned wells are not as prioritized for compliance as active sites. 3. Many older (and less productive) wells are sold by the initial operator to small producers with fewer resources and staff designed to interface with compliance staff. 4. Newer wells have been added to many states’ inventory and they need to be inspected, sometimes without requisite staff. Each of these creates new compliance demands, often without additional resources. There are also significant safety and environmental challenges related to older, often unplugged, wells. They can, for example, leak methane and other toxic fluids and gases into nearby structures or water resources. This is particularly true for older wells, which can create a fire or explosion hazard due to the explosive gases released. The combination of the industry’s growth since 2006 and its financial losses in 2020 have increased the potential liabilities of orphaned and idled wells. Challenges associated with the COVID-19 pandemic further com-

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The Politics of Unconventional Oil and Gas and the Challenge of Compliance

plicated compliance. First, domestic onshore oil and gas production experienced a precipitous decline, which has since rebounded but, at the time, contributed to temporary job losses, declines in tax revenues, closed production and facilities, and industry bankruptcies. These stressors are stacked on top of two million previously idled and possibly orphaned oil and gas wells that date back decades. Because there is no “owner” for these wells, the financial implications for state regulators are significant. A recent study of thirteen states, for example, estimated over 635,000 inactive wells. Of these, researchers concluded that more than 10 percent of those wells were improperly abandoned and closed. Specific costs depend on the well, its depth, and other factors but can easily exceed $100,000 (Ho et al. 2016). Nelson and Fisk (2021) observed that producing states utilize an array of financial instruments to mitigate the financial risks related to well plugging and to even help fund state agencies. They note that the use and adequacy of such tools varies across the states, but they typically include some combination of the following: A bond or financial surety (which can cover a single well or all wells within the state) Severance taxes and fees associated with oil and gas production Insurance However, many orphaned wells were installed prior to the implementation of any of the above financial tools, leaving the state as the most likely financially responsible party. These place new fiscal demands on state administrative agencies, many of which are already underfunded (Nelson and Fisk 2021).

Personnel and Budget State oil and gas regulatory agencies exist in an environment that is bureaucratic and competitive. For the former, state oil and gas programs and functions are assigned to specialized organizational units, which are likely to exist within a broader organization, such as natural resources or public health and the environment. They are then overseen and coordinated within a vertical hierarchy that seeks to serve the interests and goals of the parent organization. For the latter, agencies must also compete for budgetary and human resources within their “home” agency, with other departments, and with other legislative priorities. Underfunding or understaffing may have particularly harmful impacts vis-à-vis compliance. The lack of resources may delay inspections, limit the frequency of inspections, delay purchases or new hires, force staff to rely on outdated tests, and create high workloads for oil

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21

Table 1.3. Oil and Gas Extraction Gross Economic Output (in billions of dollars) Year

Output

2000

143

2001

142.3

2002

116.7

2003

166

2004

191

2005

249.3

2006

257.4

2007

276.9

2008

388.4

2009

227.6

2010

304.7

2011

372.9

2012

362.7

2013

426.4

2014

474.9

2015

269.6

2016

230.5

2017

304.7

Source: BEA 2018, reformatted for this book

and gas staff. More directly, budgetary resources can impact an agency’s ability to recruit new inspectors or to retain experienced inspectors and other personnel that participate in the compliance process (Gilmer 2012). In 2018, for example, the Colorado Oil and Gas Conservation Commission reported that it nearly ran out of money and at one point reported a $5.6 million shortfall, even with new wells in the state. Todd Hartman of the COGCC explained that the agency’s budget issues were caused by several factors, including the following: “Severance taxes have come in low, commodities prices have been lower than in the recent past and that’s affected the amount of severance tax . . . and then a court ruling allowed operators to deduct more of their expenses before they pay that severance tax” (Kovaleski 2018).

Politics and Economics Politics and economics are never “far” from state oil and gas agencies and regulators. In this sense, regulators face political and economic pressures

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The Politics of Unconventional Oil and Gas and the Challenge of Compliance

related to consumers, the industry, elected officials, and state and national economic trends. In some states, researchers have observed that state oil and gas regulators and political leaders are inclined to work collaboratively with the industry to secure many of the economic benefits associated with expanded production. This may include industry-friendly rules, inspection schedules, and enforcement practices and penalties. Other states and leaders are more skeptical of oil and gas production and have supported policies that protect the environment and limit health risks (Davis 2012). These dynamics may be dramatically reshaped and reprioritized during focusing events and other disasters. Supporters of domestic oil and gas argue that production yields a long list of economic, political, and financial benefits, which may depress demands for rigorous oil and gas enforcement efforts, as these may increase costs to industry and, in turn, consumers). They explain that expanded oil and gas extraction creates economic value, as shown in table 1.3. As table 1.3 notes, across the United States, oil and gas output generates billions, with peaks between 2011 and 2014 and a decline beginning in 2015. Economic output largely follows the deployment of horizontal drilling as well as the use of hydraulic fracturing, albeit with a slight delay. The influx of fracking dollars enabled policy makers to fund politically popular efforts such as tax cuts, new infrastructure investment, lower energy costs, and increases in education spending (Fisk 2017). The industry also employs thousands in well-paying jobs, often in communities that are still recovering from the recent economic recession (Fisk 2017). Second, production sends millions in revenues, taxes, royalties, and fees to government budgets and private citizens (Davis 2012; Fisk 2017). Third, millions of Americans directly rely on natural gas (as a baseload generating fuel) and oil (for transportation), meaning that because of domestic production, consumers have a secure and reliable source of electrical generation and fuel. Fourth, hydrocarbons are used in a variety of industrial and commercial applications, goods, and services (American Gas Association 2019). Increased domestic oil and gas has contributed to a variety of substantial consumer benefits and savings as well (Fisk 2017). First, oil and gas wells and pipelines are already a common sight in many American cities and towns. As such, when compared with other energy types, oil and gas production requires fewer large-scale capital-intensive projects. Second, both are domestically sourced, meaning that consumers avoid relying on hydrocarbons from geopolitically unstable regions, which permits producers and consumers to enjoy greater levels of price stability and to engage in longterm natural resource planning. Third, advances in drilling technology have reduced operator costs. As a result, in many states and localities, end users

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Table 1.4. Gas Prices (per thousand cubic feet)

Date

US natural gas wellhead price ($)

US price of natural gas delivered to residential consumers ($)

US price of natural gas sold to commercial consumers ($)

US natural gas industrial price ($)

US natural gas electric power price ($)

2000

3.68

7.76

6.59

4.45

4.38

2001

4

9.63

8.43

5.24

4.61

2002

2.95

7.89

6.63

4.02

3.68

2003

4.88

9.63

8.4

5.89

5.57

2004

5.46

10.75

9.43

6.53

6.11

2005

7.33

12.7

11.34

8.56

8.47

2006

6.39

13.73

12

7.87

7.11

2007

6.25

13.08

11.34

7.68

7.31

2008

7.97

13.89

12.23

9.65

9.26

2009

3.67

12.14

10.06

5.33

4.93

2010

4.48

11.39

9.47

5.49

5.27

2011

3.95

11.03

8.91

5.13

4.89

2012

2.66

10.65

8.1

3.88

3.54

2013

10.32

8.08

4.64

4.49

2014

10.97

8.9

5.62

5.19

2015

10.38

7.91

3.93

3.38

2016

10.05

7.28

3.52

2.99

2017

10.98

7.89

4.14

3.52

Source: EIA 2018e; EIA 2018i, reformatted for this book

and elected officials are enjoying a fracking-fueled dividend through reduced energy prices and, in some cases, are unlikely to support policies and practices that may lead to increases in end-user prices, as shown in tables 1.4 and 1.5. Of note, at the beginning of the oil and gas boom in 2006–2007, electrical prices were over $6 per TCF (thousand cubic feet). In 2017 prices were slightly above $3.50 per TCF. Consumers have largely experienced declines in natural gas prices since 2006. As tables 1.4 and 1.5 show, the rapid rise of onshore domestic oil and gas production has contributed to consumer savings. Between 2008 and 2012, for example, the price of gas delivered to residential customers declined by

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The Politics of Unconventional Oil and Gas and the Challenge of Compliance

Table 1.5. Electrical Prices Average Cost of Electrical Generation for Natural Gas (indexed to Jan. 2008 as value) Month

Cost ($)

Jan. 2008

0

July 2008

3.43

Jan. 2009

−1.84

July 2009

−3.96

Jan. 2010

−1.53

July 2010

−3.09

Jan. 2011

−2.89

July 2011

−3.31

Jan. 2012

−4.62

July 2012

−4.88

Jan. 2013

−3.9

July 2013

−4.08

Jan. 2014

−1.19

July 2014

−3.82

Jan. 2015

−4.16

July 2015

−5.17

Jan. 2016

−5.28

July 2016

−5.32

Jan. 2017

−4.14

July 2017

−5.07

Jan. 2018

−3.16

July 2018

−5.05

Jan. 2019

−4.26

July 2019

−5.76

Jan. 2020

−5.68

July 2020

−6.27

Source: EIA 2022, reformatted for this book

The Politics of Unconventional Oil and Gas and the Challenge of Compliance

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Figure 1.6. Retail Gasoline Prices

over $3, with industrial users seeing a much larger decrease. We note the political peril that an elected official may find him or herself in, should he or she seek or publicly support enforcement practices that raise industry costs, as these costs are likely to be passed on to consumers (Davis 2012). Recently, researchers have quantified the overall savings to consumers brought about by unconventional oil and gas production. Dews (2015) concluded the following: Gas-consuming households across the United States have saved approximately $200 annually on their gas bills—although there is regional variation. Consumers in Arkansas, Louisiana, Oklahoma, and Texas received approximately $432 per person in savings. Consumers in Illinois, Indiana, Michigan, Ohio, and Wisconsin received approximately $259 per person in savings.

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The Politics of Unconventional Oil and Gas and the Challenge of Compliance

Table 1.6. Revenue Options Tool

Explanation

Severance taxes

Severance taxes are assessed when the resource is “severed” from the ground. Severance tax rates and amount vary and are typically based on factors such as volume extracted, price (current or previous year), number of wells, value of the oil or gas, etc.

Impact fees

Impact fees are typically charged to cover the costs of development such as damages to roads and other infrastructure, etc.

Sales taxes

Sales taxes are collected at the point of sale and can be charged on purchases for oil and gas equipment and through up and downstream sales, subject to exemptions. Sales taxes are also impacted as the industry’s workforce grows and declines and as oil and gas workers purchase goods and services.

Property taxes

Property taxes are levied on property or properties owned by the industry both directly and indirectly as its employees purchase and acquire property, subject to exemptions.

Administrative fees

These fees help cover the costs of development and the applicable state or local regulatory agency as it processes permit applications, etc.

Lease payments and royalties

These payments are remitted to the owner of the land or resource.

In-kind donations Fines

Donations These fees are charged to an operator if the state assesses a penalty.

Sources: Reproduced from Fisk 2017 with minor editing for style and clarity; Minor 2014; Raimi and Newell 2014

Consumers in California, Oregon, and Washington received approximately $181 per person in savings. Drivers have also benefited from increased oil production made possible via fracking, as shown in figure 1.6 (EIA 2019). Work supported by the American Petroleum Institute attributed declines in the cost of gasoline to hydraulic fracturing, estimating that fracking decreased per-barrel oil prices by between $12 and $40 in 2013, freeing up dollars for citizens to spend elsewhere (ICF International Associates 2014).

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Table 1.7. Fracking and Funds State

Year

Description

Alaska

2013

Changed tax rate to 35% of the production value of oil and gas

Colorado

2014

Allocated severance tax operational fund revenue to the wildfire preparedness fund

Colorado

2014

Transferred severance tax perpetual base fund to water conservation board construction fund

Illinois

2013

Established Illinois severance tax

North Dakota

2013

Allocated portion of production tax revenues to newly created outdoor heritage fund

Pennsylvania

2012

Created Pennsylvania’s impact fee on oil or gas wells produced within the state

West Virginia

2014

Created West Virginia Future Fund and allocated 3% of the severance tax revenue to fund

Source: Reproduced from Fisk 2017 with minor editing for style and clarity

Revenues One of the prime drivers for oil and gas supporters is the prospect of new and additional revenues. Researchers have noted that this potential has contributed to policy makers seeking industry-supported policies (Davis 2012). It can also shape the context of compliance and priorities of elected officials. Oil and gas revenues come in a variety of “shapes,” “sizes,” and “types,” and are summarized in table 1.6. Individual state policies often direct where these monies flow and how they may be used. Severance taxes, for example, are largely collected at the state level and may be redistributed to substate units of government, specific state agencies, or the support of specific funds or priorities. For example, since 2013, states have utilized or sought to utilize severance tax or impact fee dollars to cover politically popular tax cuts and to support other domestic priorities such as education, transportation projects, and public safety (Fisk 2017). Oil and gas property taxes, by comparison, are more likely to be collected by substate units of government and have yet to engender the same type of political contestation as impact fees or severance taxes. Finally, administrative fees, including drilling permits, are most likely to be collected directly by the regulatory agency and are often used to fund agency operations. Within this category of funding, the source varies by state; that is, some collect fees with the issuance of a drilling permit, whereas others may collect at different stages of the production process. In short, states use industry-generated or related revenues to fund a variety of governmental ser-

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The Politics of Unconventional Oil and Gas and the Challenge of Compliance

Table 1.8. Revenue Sources State

Dedicated revenue sources

Allocation formula

Wyoming

Amount capped at 8/10 of a million ($0.0008) of market value

Revenues credited to state’s Oil and Gas Conservation Commission

Ohio

The state collects: $0.025 per MCF of natural gas $0.10 per barrel of oil

Revenues are divided between two funds: 10% to the Geological Mapping Fund 90% to the Gas Well Fund

Texas

Severance tax on natural gas (7.5% of market value) Severance tax on oil (4.6% of market value) Various tax incentives and exemptions

Revenues are divided as follows: 0.5% of revenues cover enforcement Remaining revenues: 25% to the Foundation School Fund 75% to the state’s general fund

Earmarks are first distributed to multiple state agencies. After earmarks: 60% of revenues are distributed to Pennsylvania Impact fee (changes annually) impacted counties and cities. 40% of revenues are deposited in the Marcellus Legacy Fund for statewide programs. Source: Pless 2012b

vices and priorities beyond covering the costs of the applicable regulatory agency (Fisk 2017; Raimi and Newell 2014; Raimi 2017). As shown in table 1.7, state lawmakers have sought revisions in state tax law as well as the creation of new revenues during the fracking boom. Examples include the creation of “rainy day” accounts and legacy funds to address costs associated with long-term site remediation and other environmental challenges (Davis 2012; Fisk 2017; Warner and Shapiro 2013). In other cases, such as Illinois and Pennsylvania, state lawmakers have created entirely new revenue streams. More specific examples from 2012 to 2014 are cited in table 1.7. As mentioned above, states differ in how they collect and assess taxes and fees relative to oil and gas. These differences matter, as they can be used to fund regulatory agencies and schools, support tax cuts, and cover the costs associated with development, as shown in table 1.8. These fees, however, also have the potential to increase the costs of doing business within the state,

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Table 1.9. Selected States and Severance Tax—2013 Total taxes ($, in thousands)

Severance taxes ($, in thousands, including coal and other minerals)

Severance tax proportion of total taxes

Alaska

5,132,811

4,016,966

78.26%

Louisiana

9,223,829

834,116

9.04%

Montana

2,644,610

282,356

10.68%

Nevada

7,026,626

290,448

4.13%

New Mexico

5,201,576

713,998

13.73%

North Dakota

5,298,770

2,457,530

46.38%

Oklahoma

8,892,503

515,981

5.80%

Texas

51,714,295

4,647,848

8.99%

West Virginia

5,378,122

608,371

11.31%

Wyoming

2,186,054

867,933

39.70%

Colorado

11,245,662

147,732

1.31%

Sources: US Census 2014; 2013; reproduced from Fisk 2017 with minor editing for style and clarity

which can limit the firm’s ability to generate a profit, disrupt the efficient extraction of resources, and preclude them from fully staffing extraction sites. As shown in table 1.9, states vary in the allocation of industry-generated and related revenues and the extent to which they rely on oil and gas monies to fund their general operations. Some states, even those that have actively encouraged development, depend on oil and gas for a tiny fraction of their overall GDP—meaning that they are less dependent on the industry for jobs and growth and may prefer compliance efforts that do not threaten oil and gas’s bottom line or raise its costs. Others, including Alaska, Montana, Wyoming, New Mexico, North Dakota, and Oklahoma, rely on oil and gas severance taxes for more than 10 percent of their overall tax revenue (Pless 2012a; 2012b; 2011).

Employment Benefits and Realities The context surrounding oil and gas compliance may also be influenced by estimated, perceived, and real gains in employment, included in figure 1.7 (BLS 2019). After the discovery of a field, hydrocarbon production requires a small army of engineers, surveyors, managers, supervisors, welders, construction workers and builders, office staff, extractors, drillers and field workers, repair and maintenance workers, machinists, and transporters (Agerton et al. 2017; Considine, Watson, and Blumsack 2010). It should

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The Politics of Unconventional Oil and Gas and the Challenge of Compliance

Figure 1.7. Oil and Gas Extraction Employees (in thousands, seasonally adjusted)

be noted that oil and gas extraction also indirectly supports the creation of ancillary jobs, although these numbers are fiercely debated. State policy makers, especially in economically hard-hit states and substate regions, may resist or be hesitant about enforcement efforts that may impede production and potentially harm industry hiring. Figure 1.7 shows seasonal estimates for jobs directly supported by oil and gas production. Data again shows the years between 2006 and 2014– 2015 as a period of steady job growth within the industry, which coincides with the fracking-fueled boom. We should note that figure 1.7 displays job growth overall, but because production is place-specific, these gains were clustered in producing states such as Texas, Pennsylvania, Oklahoma, Ohio, and Colorado. How many jobs does fracking create? This seemingly innocuous question is at the center of the fracking debate and as a result is also at the heart

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of the context surrounding compliance. Supporters of oil and gas are quick to focus on optimistic projections and numbers, such as those included in figure 1.7. Opponents, however, argue that such forecasts are inflated and short-lived, and that the number of directly supported industry jobs tends to be much lower (Schulte 2014). Fisk, in 2017, citing Foran (2014), suggests that such arguments are influenced by one’s political beliefs and preferences. Claims made during the 2014 Pennsylvania gubernatorial race illustrate how murky and challenging generating accurate employment data can be. The incumbent, Republican Tom Corbett, argued that unconventional gas extraction in the Marcellus supported around 200,000 jobs. The state’s Department of Labor and Industry, however, reported only 30,000 additional natural gas-related jobs, a number supported by his Democratic opponent. Foran (2014) explained that both numbers could be true, noting that the differences between the two estimates are likely the result of two different definitions of what constitutes an industry-supported job. The Department of Labor’s count likely included only those individuals directly involved in production (natural-gas extraction, well drilling, etc.). By comparison, the Corbett campaign’s estimation was likely the result of a broader definition of job gains, which included all jobs created by natural gas’s supply chain, including its downstream industries, and its impacts to the larger regional economy. (Fisk 2017, 28–30)

Environmental Costs A common goal for oil and gas agencies is limiting the environmental impacts of oil and gas and preventing future costs. As such, state enforcement of oil and gas rules is likely to be influenced by environmental risks, quality-of-life concerns, and citizen complaints and reporting. These concerns are often amplified in states with a greater number of residents located near production sites and sites in urban areas. In these cases, state or local policy makers may support additional oversight, inspections, and tougher enforcement actions (Fisk 2017). Specific environmental threats include air particulates and other pollutant emissions, leaking wells, leaking methane, spills from industry facilities, and fluid migration. Environmental threats also include impacts on water quality, such as poor well construction, failing concrete or casings, spills, and fluid migration. Additional environmental impact data from Environment America, an anti-fracking advocacy group, is presented in table 1.10. As table 1.10 demonstrates, oil and gas production consumes acres of land, contributes to land fragmentation, leads to particulate emissions and contamination, and impacts greenhouse gas emissions (which can support

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Table 1.10. Environmental Impacts Industry’s impact Wells drilled** Number of spills, blowouts, and leaks in 2013 (in 15 top states for onshore oil and gas activity)* Water consumed (in billions of gallons)** Chemicals injected since 2005 (in billions of gallons)**

Environmental impact quantified 82,000 7,662 250 2

Air pollution emitted (in tons)**

450,000

Acres damaged**

360,000

Sources: Reproduced from Fisk 2017 with minor editing for style and clarity; Ridlington and Rumpler 2013**; Soraghan 2015*

the closure of coal power plants but can also contribute to methane emissions). These costs are concentrated in producing states and areas. Other environmental factors interact with institutional realities and constraints, including several summarized below: State oil and gas laws typically require agencies to minimize environmental impacts while also supporting prodevelopment goals, meaning that agencies must address multiple goals without necessarily having certainty on how to balance said goals. Many rules are designed to minimize environmental harms to an acceptable risk level without imposing burdensome costs on producers. However, it is an open debate as to what constitutes acceptable risk, as risk levels are often idiosyncratic and can be outside the control of regulators. Interest groups often use environmental contamination, violations, and any bad behavior in the industry as their political weapons of choice to push for desired changes, including how laws are enforced (Fisk 2017). The precise cause of environmental contamination can be difficult to determine. This is true especially if predrilling data is not available, if an agency’s testing capacities are not current, if they are not allowed to test for certain contaminants, or if there are multiple contaminants or naturally occurring chemicals. The stage of production also shapes fracking’s environmental footprint. Throughout the production life cycle, opponents argue that operators release

The Politics of Unconventional Oil and Gas and the Challenge of Compliance

Figure 1.8. Possible Points of Air Contamination

Figure 1.9. Possible Points of Water Contamination

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a variety of harmful air emissions. These include air particulate emissions, smog-inducing chemical compounds, and gases tied to climate change—often from methane leaks, flaring, and venting, as presented in figure 1.8 (EPA 2018). Critics also contend that oil and gas production harms water quality, as shown in figure 1.9. Researchers have noted that oil and gas’s greatest threat to surface waters is primarily through site runoff, accidents, and spills. Groundwater quality can be impacted via surface spills, leaking wastewater pits, or other poor disposal practices. In more rare circumstances, poor well construction or casing failures may permit fluids to migrate into adjacent formations (Intermountain Oil and Gas BMP Project 2016). The connection between water contamination and unconventional oil and gas production has long concerned stakeholders; however, cases of actual contamination are fairly rare. Between 2005 and 2014, Pennsylvania Department of Environmental Protection regulators concluded that unconventional oil and gas operations accounted for 106 cases of drinking water well contamination. Between 2010 and 2013, Ohio Department of Natural Resources regulators confirmed six cases of water pollution traced back to oil and gas operations but could not isolate fracking as the sole cause. Between 2010 and 2014, West Virginia regulators identified four cases of contamination related to oil and gas operations (Begos 2014). Figures 1.8 and 1.9 show the array of possible sources of contamination and the various points during which operations may harm the environment. Looking closely, both figures reveal that risks are present before, during, and after fracturing. This presents challenges to compliance, as many state agencies have prioritized compliance activities during certain points of the production life cycle (e.g., its productive phase compared to others). In a similar way, operators are more likely to be present at actively producing sites than at marginal wells. However, contamination (and likely the result of an environmental violation), can take place before a well is spudded or after a well is no longer producing.

Public Health Research is still ascertaining and evaluating possible connections between negative public health outcomes and distance from oil and gas sites. This relationship is key, as protecting public health is a core component of many states’ oil and gas policies, and as a result, protecting public health is a key piece of compliance. Yet, unpacking this link has proven to be difficult, as

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evidence is often mixed, and administrative responsibilities may be shared with a state health agency (instead of an oil and gas agency). The lead researcher of a recent Colorado study, Lisa McKenzie, for example, concluded that closer proximity to oil and gas wells was linked to an increased exposure to benzene, a known carcinogen (Fisk 2017). McKenzie explained, “We do know that concentrations of hazardous air pollutants like benzene are closer to these oil and gas well sites. So it’s not surprising that the health risks are also higher as you get closer to those sites” (Hood 2018). State health officials countered that “they have not detected elevated health risks from the benzene and other hydrocarbons measured in McKenzie’s study” (Hood 2018).

Surface-Level Disruptions Rabe and Borick (2013) identified several ways that oil and gas development impacts quality of life for nearby residents, such as increased truck traffic, vehicular congestion, damaged infrastructure, crime, increased noise, venting and flaring, spills, and dust contamination during construction and operations. These concerns have also worked into state supreme court decisions: The Pennsylvania State Supreme Court observed that prior to discovery and development of the Marcellus Shale, cities had enacted zoning plans and other land use policies reflective of their values and preferences. Such policies served as a foundation for what residents expected for their community and quality of life. Act 13, according to the plurality opinion, “fundamentally disrupted those expectations, and ordered local government[s] to take measures to effect the new uses, irrespective of local concerns.” Robinson Twp., Washington County v. Commonwealth, 83 A.3d 901 (Pa. 2013). New York justices also articulated concerns for residents’ quality of life. In Wallach v. Town of Dryden, New York’s highest court determined that the Town of Dryden evaluated drilling and concluded that, if allowed, it would harm the community’s “deliberately cultivated, smalltown character.” This determination, the court concluded, should be protected (Fisk 2017). Many of these aspects (e.g., truck routes or times in which operators may flare a well) are addressed in applicable permits. As such, they are subject to citizen complaints as well as inspections, violations, and administrative activities.

Land Fragmentation Oil and gas operators often divide production sites into a crisscrossing pattern that breaks up large swaths of previously undeveloped land. Known as

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land fragmentation, this environmental harm is particularly problematic in states such as Pennsylvania and Ohio. In a study of energy development in Lycoming County, Pennsylvania, for example, the United States Geological Survey observed that the area’s forests are home to a variety of species that struggle when they are located near human populations. Land fragmentation also harms ecosystem services (provided by large intact forests) such as controlling insect populations, purifying water, offering recreational opportunities, storing carbon and greenhouse gas emissions, and offering aesthetic value to citizens (Cusick 2017). In some states, lawmakers have taken steps to mitigate the impacts of land fragmentation especially when it involves endangered species. In Pennsylvania, for example, when operators seek to drill within forests, they must follow rules under the Pennsylvania Natural Heritage Program, which requires that the project be analyzed for its impacts on “threatened, endangered, and special concern species and resources” (Abrahams, Griffin, and Matthews 2015, 154). Although it should be noted that environmental impact research does not necessarily stop development.

Waste Management and Safety Fracking produces waste products that can fall under federal, state, and local regulation, although specific regulation depends on the type of disposal, the operator, and the jurisdiction (Shankman 2010). Common disposal methods are recycling for future uses or extraction efforts, treating and discharging into surface waters, injecting it into underground Class II wells (more likely to be federally regulated), storing in (usually lined) open-air wastewater pits (likely to be state regulated), and spreading it onto roads for ice or dust control (more likely to be locally regulated). According to the Environmental Protection Agency (2016; n.d.), “Wastewater management choices are affected by cost and other factors, including: the local availability of disposal methods; the quality of produced water; the volume, duration, and flow rate of produced water; federal, state, and local regulations; and well operator preferences. Available information suggests that hydraulic fracturing wastewater is mostly managed through injection in Class II wells.” Veil (2015) estimated that approximately 93 percent of produced water from the oil and gas industry was injected into Class II wells in 2012. The EPA (2016a; n.d.) has identified potential risks for various disposal practices, but especially for produced waters stored above ground. The agency noted: Above ground disposal of hydraulic fracturing wastewater has impacted the quality of groundwater and surface water resources in some instances. In particular, discharges of inadequately treated hydraulic

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fracturing wastewater to surface water resources have contributed to elevated levels of hazardous disinfection byproducts in at least one downstream drinking water system. Additionally, the use of lined and unlined pits for the storage or disposal of oil and gas wastewater has impacted surface and groundwater resources. Unlined pits, in particular, provide a direct pathway for contaminants to reach groundwater. Wastewater management is dynamic, and recent changes in state regulations and practices have been made to limit impacts on groundwater and surface water resources from the aboveground disposal of hydraulic fracturing wastewater.

Researchers have tied a small number of Class II underground injection wells to episodes of induced seismicity (Ellsworth 2013).

Infrastructure Oil and gas operations rely on a small fleet of heavy trucks, a variety of personnel and skills, possibly new roads, chemicals, water, sand, and industrial equipment such as compressors to extract oil and gas resources. At the height of production, extraction sites are busy and necessitate frequent trips to and from various facilities. The combination of frequent trips, heavy trucks, and infrastructure not designed for such traffic can exacerbate challenges associated with already stressed infrastructure. A RAND study found the following: Road maintenance and repair costs ranged between $13,000 and $23,000 per well, not including any road maintenance agreements. Once factored road maintenance agreements were included, the study concluded infrastructure costs of between $5,000 and $10,000 per well. Based on data presented in chapter 4, in some years, operators drilled more than a thousand wells, meaning repair costs can exceed $1 million quickly (Samaras 2014). Fisk (2017) cited a New York study concluding that if the state permitted fracking, infrastructure repair costs would range between $211 and $378 million.

SUMMARY AND CONCLUSIONS The contextual environment shaping oil and gas compliance is influenced by organizational mission, the timing of operations, external events, new and emerging technologies, data needs and availability, budgetary and personnel-related demands, political priorities, and economic needs. New technologies, for example, have made it possible for operators to drill thousands

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of new wells and for inspectors, subject to resource availability, to efficiently submit their inspection reports. Novel technologies, however, have not eliminated the need to inspect wells built fifty years or one hundred years ago. Similarly, new production has led to job growth but also created new environmental threats requiring additional competencies and training for inspectors. Political leadership has responded to this changing environment. Some elected officials, for example, are largely supportive of extraction, whereas others have urged caution and preached the importance of environmental protection. Administrative agencies have also felt the competing pulls of the contextual environmental surrounding oil and gas production. Centralized offices may have different priorities than their regional counterparts. Frontline staff may also hold different values, knowledge, resources, and priorities than executive-level personnel. These differences may be even greater when administrative staff is compared to the private sector. Yet, all are involved in compliance. Thus, when it comes to oil and gas, compliance is neither a simple task nor one that only involves today’s best management practices. As an industry, oil and gas’s legacy dates to the nineteenth century (Fisk 2017). It is this historical footprint, when combined with the missions of oil and gas agencies, the type and age of the well, budgetary and political pressures, and limited human resources, that challenges applicable state agencies charged with ensuring compliance.

Chapter 2

DEVELOPING A THEORY OF OIL AND GAS COMPLIANCE

This chapter addresses two independent sets of questions. The first group relates to understanding why state lawmakers, administrators, regulators, street-level actors, and other stakeholders behave the way they do. Why do they prioritize certain outcomes over others? Do such factors also influence those on the ground who oversee day-to-day implementation? The second examines state oil and gas policies with a particular emphasis on variables that are associated with specific policy outcomes. How have state roles in energy and environmental politics developed and changed over time? What explains the variation in state decision-making relative to oil and gas policies and management? This chapter provides the answers to these questions and is divided into two parts. We begin by exploring how previous scholarship has understood administrative behavior and decision-making with a focus on theories of implementation, public management, discretion, intergovernmental relations, and focusing events. The second portion of the chapter sheds light on state environmental and energy governance, including why some states pass more stringent policies than others. By focusing on both, we develop a fuller picture of the context of compliance and can begin developing a theory of compliance that reflects the multidimensional, dynamic, interactive, 39

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Developing a Theory of Oil and Gas Compliance

Figure 2.1. The Context of Oil and Gas Compliance

and value-driven nature of natural resource politics. Compliance challenges, for example, are likely to include inspectors’ workload capacity. Workload issues, in turn, are influenced by the proliferation of new oil and gas wells, budgetary decisions made by state lawmakers, training opportunities afforded by agency administrators, support offered by elected officials, and the presence of multiple goals. The workload is further shaped by the oil and gas policies of decades ago, many of which were enacted prior to contemporary hydraulic fracturing. These older policies and mandates still exist and, in some cases, operate alongside more current policy goals including clean power and climate change mitigation. Oil and gas compliance also involves private property rights, ancillary environmental laws, conflicting information or the lack of information, limited data, uncertainty, and strained financial and human resources. The involvement of interest groups, each of which can compound the difficulties associated with compliance, also affects compliance outcomes and the goals pursued by elected officials. Finally, external environmental factors, such as naturally occurring radioactive elements and severe weather, further complicate the challenges of achieving “compliance.” These factors are mapped onto figure 2.1, which was first introduced in the preceding chapter. The identification of such factors does not inherently shed light on how they impact an operator’s performance or how regulators make decisions relative to ensuring firm compliance. Figure 2.1 also does not elucidate the

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variables that shape the use of specific administrative decisions and actions to ensure compliance. Does inspector salary or tenure, for example, contribute to more frequent detection of violations or the use of administrative orders? Is there a “revolving door” between agency staff and the industry? If so, does it matter for compliance outcomes? Relatedly, do these factors shape the use of other compliance tools or the availability of training? Similar questions may be asked about nearly all the factors identified in chapter 1 and figure 2.1. Realizing these gaps, we begin this chapter by summarizing how previous scholarship has explicated the relationship between such factors and performance. To do so, we provide a brief overview of prior research addressing policy implementation, intergovernmental relations, focusing events, public management, and principal-agent as well as agent discretion. To these, we add research dedicated to unpacking state oil and gas policies. We build on these frameworks to create an exploratory model of natural resource compliance, presented at the end of the chapter.

IMPLEMENTATION STUDIES Implementation research is often divided by differing theoretical assumptions, methodologies, and even eras. At their core, however, implementation scholars are generally asking questions that are concerned with accounting for the mismatch (if any) between how lawmakers design a policy and how it is then implemented by street-level agents (Pressman and Wildavsky 1984; Schofield 2001; Torenvlied and Thomson 2003; Wood and Waterman 1991). To this end, researchers have identified a variety of factors that shape the effectiveness of implementation efforts, the antecedents of conflict, the role of multiagency and intersectoral networks, the degree to which street-level agents exercise discretion, and the extent to which stakeholders achieve desired policy goals (Long and Franklin 2004; Ripley and Franklin 1982).

Top-Down Implementation Birkland (2011; 2004) observes that top-down policy implementation scholarship typically begins with an understanding of the goals and motivations of policy designers and the specific language used in relevant statutes. Sabatier (1986) similarly notes that “top-down” or “administrative implementation” focuses on the objectives, goals, and decisions made by executive-level actors. Within this framework, political and bureaucratic principals oversee and manage lower-level units and actors (e.g., inspectors within a narrow vertical hierarchy) so that implementation takes place in a manner consistent with the interests and goals of the administrative or political superiors. If it is assumed that subordinates’ behavior can be adequately constrained, top-down implementation research has also identified a variety of ancillary factors that further shape how effectively policies are enforced and how ser-

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vices are delivered by street-level officials (Sabatier 1986). Ringquist (1993) identifies four main categories of implementation variables: The first group relates to variables associated with how clearly and unambiguously the statute is written, with the expectation that ambiguity contributes to less efficient or less effective implementation. The second group centers on whether the policy in question is supported by an adequate causal theory. In other words, what caused the problem or issue and how can it be adequately addressed? Scholars anticipate that policies supported by an adequate causal theory and known solutions will be implemented more effectively. The third group looks to internal political factors. If elected officials and key agency leaders fail to provide the requisite technical, staffing, managerial, and financial resources, it is likely that street-level implementation efforts will be less effective. The fourth group considers how external factors such as socioeconomic factors, characteristics of the regulated entity, interest groups, and citizens’ expectations also shape the overall effectiveness of implementation. If regulated entities and stakeholder groups are supportive of the agency and its mission, regulators’ ability to effectively implement a policy is improved. However, if such organizations are not sympathetic or are opposed, the difficulties associated with implementation and enforcement are likely to increase. These variables, according to Ringquist (1993), work in concert to shape policy outputs and the behavior of local- or street-level agents.

Bottom-Up Implementation Bottom-up implementation research offers additional insight into how “onthe-ground” actors affect policy implementation and outcomes (Elmore 1980; Lipsky 1976; 1980). This group of scholars argues that a strictly top-down focus fails to fully appreciate the importance of organizational capacities, “street-level” expertise, process internalization, discretion, and the leadership skills of local agents (Lipsky 1980; Yanow 1993). Nakamura and Smallwood (1980) add that scholars should avoid focusing too much on statutory language. They point to the political process that preceded policy adoption and suggest that it offers important insights into the policy’s political context, the relevant stakeholders, and the policy’s history—all of which shape implementation effectiveness. This time period can also reveal information about the intensity and frequency of interest group involvement.

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Additionally, by understanding this environment, researchers may assess the size, intensity, scope, and dimensions of the conflicts that comprised the preadoption political fights and that have carried over into implementation. As a result, bottom-up approaches to implementation begin by understanding street-level agents’ decision-making, their motivations, and how their understanding of applicable statutes, processes, and goals shape implementation outcomes (Hjern and Porter 1981; Lipsky 1980). Street-level implementation efforts are further impacted by the reality of multiple principals conducting oversight, the existence of intransigent problems, and the use of often vague and conflicting goals (Matland 1995; Maynard-Moody, Musheno, and Palumbo 1990). Bottom-up scholarship also focuses on the actions of frontline staff and argues that this focus is critical even after policy adoption because legislation is often passed without clear goals or processes. Lawmakers may also avoid including explicit objectives or standards, may avoid ranking priorities, and may fail to describe their preferred method of implementation (Lipsky 1978). This uncertain environment compels local actors to interpret vague language and then implement policies embedded with considerable ambiguity and multiple goals. Moreover, because of this ambiguity, street-level agents develop routines, exercise discretion, and deploy problem-solving pathways that are unique to their department or mission (Hill 2003; Yanow 1993). Once these nuances and routines are understood, the policy can be traced back to its designers and their goals so that scholarship can more fully understand implementation (Birkland 2011). Lipsky (1980) notes several additional characteristics that enable street-level agents to shape compliance outcomes: 1. Street-level bureaucrats tend to possess more information than higherlevel actors since they are closer to the problem’s origins and its target population. This asymmetry may be even more important during episodes of policy change, as they are information-rich resources. 2. Street-level bureaucrats tend to be “closer” to the targeted population. This proximity affords them with opportunities to impact the regulated entity and to shape policy outcomes—by being either overly responsive or not responsive enough to the regulated industry and target population. 3. They are charged with executing and enforcing various policies with disparate goals. Winter (2006) observes that street-level agents are particularly influential in less visible tasks than more visible ones. 4. Street-level bureaucrats directly experience and cope with limited resources (e.g., staffing, professional development, and budgets). As noted above, agency staff, resources, and personnel are important drivers of performance and variation within administrative outputs. Moe

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(1990, 143–44) observes, “Once an agency is created, the political world becomes a different place. Agency bureaucrats are now political actors in their own right. They have career and institutional interests that may not be entirely congruent with their formal missions, and they have powerful resources— expertise and delegated authority—that might be employed toward these selfish ends.” Evans (2010) offers additional reasons for variation relative to outputs, including differences in each street-level agent’s knowledge of the targeted population, institutional location, knowledge of loopholes, personal values, relationship with centralized management, and even personality (e.g., rebellious or rule-oriented). Finally, Maynard-Moody and Musheno (2003) write that a bureaucrat’s decisions are often shaped by his or her beliefs about what is fair and whether the client is worthy (see also May and Winter 2011). Even in policy environments with low levels of conflict and ambiguity, bottom-up scholars contend that effective policy implementation may still not occur. Mischen (2007) cites Meyers and Dillon (1999, 253), whose description of welfare reform illustrates the potential pitfalls of focusing too heavily on top-down factors: “No matter how much welfare workers in local offices support the intent of welfare reform, necessary changes in the operations and goals of local programs will not happen automatically. . . . Something happens within the organization that can either halt the process of implementation or speed it on its way. This something must take into account organizational leadership, organizational culture, organizational learning, etc.” In short, Mischen (2007), like Meyers and Dillon (1999), concludes that effective implementation efforts must include an accounting of organizational behavior.

Contingent Approaches Berman (1978) argues that implementation is contingent on a set of context-specific factors. Implementation that involves incremental reforms, for example, is less likely to cause conflict because solutions are known and the external environment is predictable and stable. Here, top-down characteristics, such as elite-level support and clear goals, are likely to shape overall effectiveness more so than common bottom-up factors. Conversely, nonincremental implementation is likely to generate conflict, present a range of potential solutions or causal theories, and involve a more uncertain political environment. In these cases, those closest to the implementation are well positioned to shape the reform. Matland (1995) also presents a contingent understanding of implementation based on the degree of goal ambiguity and conflict, as shown in table 2.1. As shown in table 2.1, Matland’s typology places conflict and ambiguity at the heart of implementation and offers some predictive power about

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Developing a Theory of Oil and Gas Compliance Table 2.1. Implementation Types Type of implementation Experimental implementation

Symbolic implementation

Political implementation

Administrative implementation

Degree of conflict

Low

High

High

Low

Degree of ambiguity

Implementation style

High

Outcomes and outputs are often a function of degree and intensity of stakeholder involvement, available resources, and the expertise of street-level actors.

High

Stakeholders often seek differing outputs and outcomes and may even adopt various methods to accomplish goals. Through this diversity, street-level bureaucrats can influence implementation.

Low

Stakeholders have yet to agree upon or prioritize goals, and without this agreement, outcomes and outputs are likely to vary.

Low

Outputs and outcomes are generally straightforward as stakeholders understand and agree upon goals and processes. Barriers include lack of funding and other resources, including human capital.

Source: Matland 1995

the resulting politics. Based on the framework, when conflict and ambiguity remain low, implementation is relatively easy (often based on resource availability). As conflicts intensify, implementation efforts become increasingly difficult and can be shaped by factors such as political power, influence, and outright coercion. In addition, because conflict impacts the ways in which actors manage policy implementation, the level of conflict also alters the strategies actors use to moderate its effects. At lower levels of conflict, for example, more powerful actors tend to use persuasion and more cooperative approaches to problem solving. When conflict becomes more severe, more powerful actors will often resort to more intense bargaining tactics and may exercise their authority to compel action (Matland 1995). Matland also addresses the significance of policy ambiguity and its impact on program implementation. In particular, he suggests that ambiguity may paralyze actors at two points during implementation. The first “choke-point” he identifies occurs when actors are unable to agree on end goals. The second often takes

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place when actors are negotiating the means to achieve the policy’s goals. In other words, confusion on how to achieve a goal will likely contribute to failing to achieve consensus on an overall goal or the processes needed to achieve that goal. In political environments where ambiguity and conflict are low, actors will likely engage in an administrative-rational decision-making process. Here, goals are clear and compatible with one another. Basing his work on Simon’s 1960 “programmed decision” model, Matland (1995) assumes that solutions to administrative implementation questions are known and can be implemented effectively. As such, the most significant barrier for implementing agents is securing the requisite resources, which is not a given. If the necessary resources are secured, then it is likely implementation will be successful. When ambiguity is low but conflict is high, decision-making becomes more value driven and political. In these situations, actors have identified their policy goals but have done so without any agreement about how to achieve their goals. In these scenarios, conflict will emerge as actors seek to find consensus on an implementation strategy. When these dynamics are present, Matland (1995) suggests that “power” is the final arbiter. In other words, when one institution, person, or organization has sufficient power over another, it can coerce agreement among all other actors (Matland 1995). In Matland’s “experimental implementation” quadrant, high levels of ambiguity and low levels of conflict are present. When these conditions are present, the level and intensity of actor involvement and the resources and expertise available to street-level actors are more likely to influence outcomes. In short, these situations are distinguished by uncertain policy preferences and technologies. The fourth quadrant is known as “symbolic implementation” and is characterized by high levels of ambiguity and conflict. Matland (1995) suggests that this environment involves highly salient and symbolic politics, such as those that involve resource redistribution. The intense conflict may delay successful implementation as well as influence the ways in which actors formulate goals, interact with one another, and devise potential solutions. In these contexts, actors likely hold different beliefs about preferred outcomes and the ways to achieve said goals. When policies include ambiguous or multiple goals, they often fit within this “symbolic” quadrant, which anticipates a particular brand of implementation politics. In these situations, Matland (1995) hypothesizes that actors will rely on their differing perspectives, hold different beliefs, and pursue different political ends, often based on their professional experiences—all having the potential to contribute to conflict. Their competing outlooks also shape how they translate the abstract goals into administrative actions.

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Figure 2.2. Discretion and Design Choices

POLITICAL CONTROL AND PRINCIPAL-AGENT Previous scholarship has utilized principal-agent models to unpack the actions and motivations of both principals and agents. Embedded in this perspective are several assumptions about both principals and actors: 1. Both parties are under contract. 2. The agent performs some work that benefits the principal. 3. The principal oversees the agent. 4. Due to information asymmetries, the principal cannot continuously monitor or enforce the agreement to ensure that the agent is always acting in the principal’s interest. 5. Because perfect monitoring is impossible and the existence of information asymmetries (informational differences between the principal and agent), the agent will shirk, engage in other activities, seek out additional budgetary resources, or pursue his or her own interests. This reality forces the principal to invest in ways to monitor agent behavior, and they may include rules, sanctions, trainings, incentives, and the like.

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Given these pervasive and systemic challenges, how then do principals minimize shirking and ensure that their agents behave in a way that maximizes principals’ interest? Public administration literature has identified a variety of mechanisms addressing design, oversight, and discretion, which we turn to next.

DISCRETION One way that political principals attempt to minimize shirking is through the design of bureaucratic institutions. Moe (1989) points to political uncertainty and the reality of compromise as shaping the discretion afforded to on-the-ground administrators, as shown in figure 2.2. As shown in figure 2.2, the use of agency discretion is a strategic choice made by political actors. Thus, another key to understanding compliance in natural resource administration is to examine agency and agent-level discretion relative to legislative language and intent, where and how lawmakers have delegated their authority, the availability of investigative powers and oversight, and resources to shape decision-making vis-à-vis compliance, especially identifying violations and the use of corrective measures. Moe (1989) also identifies that the political environment constrains the ability of legislative and executive principals in several ways: Affords stakeholders and interest groups multiple opportunities to shape or exert pressure relative to policy or administrative decision-making as well as multiple venues to shape administrative decisions Creates rigid and/or intensive oversight requirements, which can be costly and ineffective Contributes to conflict among various stakeholders as well as between the regulator and regulated entity Within this oversight framework, policy makers create and incentivize a formal and informal system of policies, rules, norms, and procedures that permit stakeholders (including citizens) to oversee the bureaucracy through reporting, registering complaints, testifying on or about relevant decisions, providing information, and utilizing the courts. Legislators can then examine administrative outcomes, criticize agencies, and claim credit for intervening (McCubbins and Schwartz 1987). Legislators constrain administrative actors through a variety of mechanisms such as repealing, modifying, or expanding earlier statutes, reorganizing bureaucratic agencies, revising agency priorities, attaching conditions, restricting how appropriations may be used, and withholding resources (Kaufman 2001). The cumulative effect, Kaufman (2001) argues, is that it is in the agency’s best

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interest to be responsive and sensitive to legislative priorities. Waterman, Rouse, and Wright (1998) expanded the pool of potential controls and influences to include economic and interest group actors. Their results suggest that federal and state employees alike feel pressure from a variety of political and economic sources; however, the sources of influence are much less clear for state-level officials than for national administrators. Wood and Waterman’s (1991) results confirmed that bureaucrats are generally responsive to political principals and seek to align their actions with the goals of their principals. Other scholarship examines internal mechanisms that serve to limit bureaucratic discretion. Myhill and Johnson (2016), for example, observed that professional ethics may serve as a constraint on administrative discretion. Findlay (2015) identified similar constraints on agent discretion when decision-making takes place in a group setting or when multiple parties are involved. Finally, extant research has also found that training matters, especially when it intentionally exposes street-level agents to decisionmaking tools that emphasize the agency’s desired goals, outcomes, and priorities (Woodard and Kline 2015).

THE PUBLIC MANAGEMENT APPROACH O’Toole and Meier (abbreviated below as OTM), in 1999, developed a predictive model that evaluates the factors that shape administrative outcomes. The well-known framework includes institutional constraints, political sources of control and influence, and other economic influences that public managers face. They also leave room for contextual and environmental circumstances such as focusing events, budgetary shocks, and other unforeseen events (Meier and O’Toole 2001). The equation for this model is provided below (O’Toole and Meier 1999).

OTM’s measure of hierarchy, displayed in equation 2.1 as the S term, is normalized on a range of 0 to 1; where hierarchy means closer to 1 and focused more internally, less hierarchy means more fluid network participation. O’Toole and Meier (1999, 508–9) define hierarchy as a stabilizing or buffering force and as the formal authority to compel some sort of action. Hierarchy, they suggest, gives managers institutional support and facilitates the development of routines, information pathways, systems, and values, and it tends to support the status quo. It can also, however, hinder performance, especially in situations that demand flexibility or adaptability. They note that organizations located within a single agency tend to have greater degrees of hierarchy than programs spread across two or more organizations.

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The OTM approach defines “M1” as management’s contribution to organizational stability. They write, “One crucial task of management is to maintain structure: to frame the goals, to set the incentives, and to negotiate the contributions from members from those with whom the system interacts” (O’Toole and Meier 1999, 517). The term “M1” captures the impact of managerial efforts under different contexts of system stability and appears in the model as H + M1. In effect, the term means that as organizations become more centralized (hierarchical), management’s efforts aimed at organizational stability and subsequent performance may be diminished as compared to management’s influence in more decentralized systems.

Management’s Efforts to Exploit Opportunities and Buffer Shocks (M3 and M4) Organizational stability influences performance through its interactive relationship with other managerial strategies. O’Toole and Meier (1999) contend that managers of more autonomous organizations are more likely to affect organizational performance through internal mechanisms than managers of more networked organizations. In turn, greater stability allows organizations to better buffer against the potentially detrimental effects that environmental shocks have on performance. Conversely, a greater managerial emphasis on networking may leave organizational performance more vulnerable to shocks, especially if an agency is operating in a more decentralized structure.

Environmental Factors (X) Factors or shocks in the environment can create instability and affect managerial strategies. Disturbances to the operational status quo may include sudden losses of revenue, natural disasters, or other economic and social changes in an organization’s contextual environment. Recent scholarship notes that such events often cause organizational stress, contribute to nonincremental changes, contribute to a reassessment of organizational goals and priorities, and cause a recasting of values or agency priorities (Meier, Favero, and Zhu 2015; O’Toole and Meier 2010). Scholars have tested various aspects of the model. O’Toole and Meier (2003, 2009, 2010) examined the effects of stability and hierarchy on organizational performance (standardized test scores). Importantly, they included personnel stability factors (district superintendents’ length of tenure and teacher turnover levels) as well as variables that capture professionalism, personnel recruitment efforts, resources and expenditures, and student characteristics. Findings suggest that personnel stability and networking relationships directly and positively affected students’ test performance. In a later study, Meier and O’Toole (2003) operationalized

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multiple elements of management: the activity and presence of professional networks, managerial quality, organizational stability, and workforce development. They document that the number and frequency of interactions between network members (superintendents, teachers, etc.) were positively associated with test scores and district performance. Additionally, control factors such as management’s effort to pay teachers more had positive impacts on performance. Conversely, increases in instructional spending, the number of Latino or low-income students, and the number of noncertified teachers (due to less stability) negatively impacted performance. Applying the model to law enforcement, Nicholson-Crotty and O’Toole (2004, 13) observed that well-networked law enforcement cleared more crimes than those departments that did not successfully manage their external networks. Data also suggested that managers that successfully engaged with political actors, interest groups, and other stakeholders positively affect their performance.

FOCUSING EVENTS AND SHOCKS In their seminal work, Wood and Waterman (1993) identified three types of events that may shape bureaucratic behavior and outcomes: Discrete events—those stimuli that occur once but have long-lasting effects on management decisions within the affected bureaucracies Event processes—sequences of discrete events such as a time-ordered budget or oversight hearings Tones—stimuli that gradually develop and change how bureaucracies manage various policies over time Events and shocks leave political, managerial, and administrative legacies and can lead to significant changes in the status quo (Davis 2001; Meier and O’Toole 2008; Meier, O’Toole, and Hicklin 2010). Scholars have noted that actors have used the event (and its post-event aftermath) to mobilize the public, introduce new problem definitions, and push new issues on the agenda. Events may also compel groups to reevaluate their strategies and revisit which groups are part of their coalitions. An external shock can also lead to nonincremental policy changes and organizational shifts (Bosso 1995; Weible, Sabatier, and McQueen 2009). Work by Birkland (1998) has identified focusing events as factors behind dramatic shifts in administrative enforcement, attitudes and values among agency staff, and a reshuffling of regulatory priorities (Duffy 1997; Kingdon 1995; Scavo, Kearney, and Kilroy 2008; Schwartz and Sulitzeanu-Kenan 2004; Weible, Sabatier, and McQueen 2009). In short, the regulatory imprint of a focusing event con-

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tinues even after the initial shock has waned as impacted groups monitor, process, and then disseminate information about the event’s impacts. Here we point to the relationship between focusing events and administrative behavior. As noted, administrative values and cultures are also susceptible to the powerful effects of focusing events. In two of their three Israeli cases, the General Security Service1 and Bank Shares incidents,2 Schwartz and Sulitzeanu-Kenan (2004, 99) found that focusing events contributed to changes in administrative values and priorities. For each case, the authors observed shifts toward attitudes embracing “rectitude (honesty and fairness) and resilience (security) and away from dispositions valuing economic efficiency and production.” Their American cases also suggested that focusing events affect organizational values, finding that “managerialism is vulnerable when perceived as causing disaster. . . . To date, American reaction to disasters demonstrates a healthy ability to put managerial values in their place in the wake of disaster” (99). Focusing events have also contributed to nonincremental environmental policy change (Birkland 2011; 1998; Kingdon 1995). Davis (2001), for example, described how focusing events were largely responsible for significant changes to US wildfire policy. The fires served as a focusing event and elucidated the shortcomings of the policy status quo (Davis 2001). This created a policy window for those supporting policy change and enabled them to offer new policies (Kingdon 1995).

THE BUREAUCRATS THEMSELVES Agency staff and personnel are also important drivers of performance and administrative outputs. These actors, Moe (1990) writes, develop their own interests (often on procedural and technical matters) and preferences aimed at reducing political uncertainty and the regulated entity. To do so, they may pursue several strategies: They may form alliances and nurture relationships with stakeholder groups, the regulated entities, and applicable politicians. Each of these stakeholders can offer political support for the agency, whose support is key for the agency’s needs and legitimacy. They may engage in ongoing and continuous exchange of information and resources so that participants build trust and reduce transaction costs. They may broaden their base of support, which may involve developing favorable relationships with the regulated firms/interests or identifying other opportunities for longer-term relationships.

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They may insulate themselves through technical knowledge, continued professional development, and training. Using a series of federal welfare reforms, Mischen (2007) traced how the work of frontline staff transformed their dominant orientation from client processing to client serving. These reforms necessitated changes in agency culture and personnel skill sets so that agency values more closely aligned with new policy objectives. Hill (2003) identified periods of uncertainty as particularly important to learning and change. During such times, local agents learned about new problem definitions, solutions, bureaucratic and organizational roles, response methodologies, and community policing practices and programs. In fact, many officers reported that through interorganizational networks, professional meetings, and training opportunities, they learned how other departments approached common organizational challenges and then implemented such solutions within their home department or unit.

INTERGOVERNMENTAL RELATIONS Deil Wright (1988) identified three broad frameworks that characterized intergovernmental relations (IGR). The coordinate authority model depicts national and subnational actors as occupying distinctly different spheres of influence and having disparate sources of power. Another model depicts IGR as a hierarchy with the national government above the state and local governments. Wright’s model of overlapping authority moves beyond these classical conceptions of federalism by suggesting that contemporary IGR involves “complex multiunit interactions beyond the nation-state relationship” (Agranoff and Radin 2015, 141). These interactions, according to Wright (1988), include federal and state agencies, local governments, universities, nonprofits, and other stakeholders. Through these networks, public goods and services are delivered (Agranoff and Radin 2015, 142). However, because political power is incomplete, responsibilities and accountability must be shared through bargaining and negotiation (Agranoff 2001). Wright’s (1988) framework identifies factors that shape the contours, scope, and effectiveness of intergovernmental negotiations: Limited and dispersed power Modest and uncertain areas of autonomy High degree of potential or actual interdependence Simultaneous competition and cooperation

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Bargaining-exchange relationships Negotiation as a strategy for reaching agreement Subsequent scholarship has utilized Wright’s 1988 overlapping federalism framework to account for various policy outcomes in state Medicaid (Agranoff and Radin 2015), No Child Left Behind (Krane 2002), and fiscal grants and transfers (Liebschutz 1991). In general, this line of work has found examples of intergovernmental cooperation and of conflict, which we turn to next (Agranoff and McGuire 2003). IGR researchers have pinpointed organizational differences as obstacles to collaboration. Kapucu et al. (2010), for example, notes that actors often hold differing priorities and goals, which, when present, are likely to contribute to conflict. Additionally, intergovernmental actors are likely to hold varying levels of commitment to and knowledge of one another’s goals and applicable rules, which complicates the process of identifying a common goal or process. They may also have varying mandates and resources or have competing understandings of a problem or its causal roots, culpability, or severity—again leading to differing perspectives on goals and roles. Gill and Picou (1998) add that anthropogenic events (caused by humans) are particularly ripe for intergovernmental conflicts, as the affected parties may blame one another to avoid accountability (Fisk, Good, and Nelson 2018). Finally, actors may not trust one another, may compete over resources, and may have had past relationships that were characterized by conflict. Each of these may lead to poor communication and ultimately less effective intergovernmental coordination (Scheberle 2004). Other research has identified an array of factors that are associated with more effective collaborative relationships: Pearson and Clair (1998) highlighted the importance of participants being flexible, their willingness to adapt and adjust to uncertain conditions, their commitment to sharing information with one another, and their ability to sympathize with stakeholders as being important to effective collaboration. Moynihan (2008) contends that role clarity and a clear hierarchy are important for effective collaborative networks. Wukich and Robinson (2013) noted the critical role of identifying consensus around goals and processes and effective collaboration. Agranoff (2007) found that when actors hold a greater understanding

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of applicable rules, the missions of partner organizations and their capacities, and overall interdependencies, they are more likely to engage in effective collaboration. Lubell (2005) observed the importance of identifying immediate and short-term benefits as a way to build trust and reduce transaction costs—both of which are important for effective collaboration.

SUBNATIONAL POLITICS We now turn to subnational politics. As the prior section noted, politics plays an important role when it comes to agency decision-making. State energy and environmental politics exist in a political environment that continues to change. While an in-depth analysis of general state political trends is beyond the scope of this project, several patterns vis-à-vis political polarization are noteworthy. Jordan and Bowling (2016) observe several developments. The first is that the number of state governments with unified party control (i.e., one party controls all branches of state government) has increased significantly, beginning in the late 1990s. However, they describe the outcomes of state polarization (i.e., differences in policies) as largely unknown.

SUBNATIONAL ENVIRONMENTAL POLITICS To understand the context surrounding state oil and gas policymaking, we turn now to research that examines subnational environmental and energy policymaking. Gottlieb (2002) describes environmental policymaking as a response to collective action dilemmas, which are defined as situations in which individual stakeholders would be better off overall if they cooperated with one another, but for an array of reasons, they choose not to. The challenge for lawmakers, therefore, is designing policies that lead to the optimal allocation of scarce resources for all parties involved. To do so, policy makers have utilized policies ranging from command and control and standardsetting to voluntary environmental programs (Gottlieb 2002). We should note that based on the policy’s design and objectives, the role of compliance is likely to shift. In other words, compliance vis-à-vis command and control will involve a different set of protocols and programs than voluntary environmental programs, which may involve little in terms of compliance.

Early Environmental Policy Efforts Klyza and Sousa (2013) describe American environmental policymaking as falling into three eras, which they label as layers: liberal economic, conservation, and the green state. These layers did not replace one another, but rather each was laid down on top of the other. Thus, even today, aspects of the first

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two layers are still present and may be used by stakeholders engaged in environmental and energy governance. The first layer they suggest took place from the beginning of the nineteenth century and lasted until the 1890s. They describe this period as an era dominated by liberal economic policies, in which the development of natural resources took precedent over environmental protection. This high growth emphasis was aided by a nearly nonexistent administrative state, especially at the federal level. Klyza and Sousa (2013) describe the second layer, beginning in the 1890s through the 1930s, as conservation. Under this framework, scientific and policy experts determined maximum sustainable yields, which sought to balance concerns for future use with current growth needs. Much like the emphasis in the first layer, conservation’s primary emphasis was on economic growth, which contributed to few policy conflicts between the first and second layers, as both were essentially progrowth. The third layer, from around the 1960s through today, Klyza and Sousa (2013) describe as the green state. As compared to the first two layers, the environmental layer sought to limit what it viewed as the excesses and externalities of the first two eras or layers. During this period, lawmakers passed command and control policies such as the Clean Air Act, Clean Water Act, Safe Drinking Water Act, and Endangered Species Act. Lawmakers have also sought to limit greenhouse gas emissions. During this era, concerns over regulatory capture precipitated the development of administrative agencies that were designed to be kept apart from industry and were created to engage in environmental compliance through an adversarial relationship (i.e., conflictual with the regulated entity).

Unpacking the Green State Within the Green State, environmental policymaking and compliance have shifted and evolved over time. Starting in the 1970s, national policies injected a large federal role into environmental protection and included the creation of the Environmental Protection Agency and the promulgation of the Clean Air Act and Clean Water Act. As such, this era necessitated the development of a robust administrative “state” that could ensure that laws were being adequately enforced and that regulated firms remained in compliance with federal and state regulations. Command and control compliance, at this point in time, relied upon two primary assumptions. The

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first assumed that the interests of the private sector and the public sector were incongruous and could not be reconciled. In other words, the industry would seek to maximize its profits, would willingly ignore the public interest, and would shirk its social responsibilities. The response from regulators, therefore, was that compliance must be severe enough to act as a deterrent for current and future violations. The second assumption was that the industry’s decision-making could be modified through a set of uniform rules that prescribed specific performance standards, required inspections, and established testing criteria, as determined by applicable policy makers (Fiorino 2006; 2001). This style of regulation produced several impacts relevant to compliance, which we note below: 1. Regulation became prescriptive, conflictual, and costly. 2. Regulation became highly technical and attempted to specify exactly what was to be done, at what level it was to be done, and how it would be done or evaluated. 3. Industry’s response was that it tried to carve loopholes (or find them) in the rules, and agencies responded by trying to close them. 4. Agencies maintained high levels of compliance actions such as inspections, violations, and enforcement actions and often adopted an adversarial approach to the regulated firms. 5. Industry’s response became more litigious and confrontational, which again increased the likelihood of litigation as well as the agency’s costs. 6. Transaction costs, such as those associated with reporting, permitting, enforcement, and adjudicating conflicts, increased (Fiorino 2006; 2001). By the mid-1980s, critics pointed out that command- and control-style environmental regulation was overly intrusive, that it slowed innovation and growth, and that it was delivering more costs than benefits to society. They called for more economic and risk analysis, better ways of setting priorities, and more flexibility so that the industry could internalize costs and find efficiencies without relying on the administrative state. Concurrently, political events and attitudes among the general public were also signaling a shift away from traditional command and control environmental enforcement and toward deregulation and decentralization (Fiorino 2001). Klyza and Sousa (2013) noted that the era’s environmental politics adhered to this general trend. Many of President Reagan’s environmental policies, for example, devolved day-to-day implementation to the states. The era also led to bureaucratic agencies utilizing economic techniques such as cost-benefit and cost-effective analysis so that they could provide policy makers with a rational basis for decision-making vis-à-vis compliance. The late 1980s also witnessed the emergence of new energy and environmental problems that necessitated new types of policies. Newer chal-

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lenges such as indoor air pollution, nonpoint pollution (pollution from scattered, moving, and more diffuse sources), depletion of the ozone layer, global warming and climate change, habitat loss, and losses in biodiversity were added to the list of preexisting issues. The rise of issue networks and environmental advocacy groups further shaped the role of third-party actors in policy formulation and enforcement processes. State-level industry associations emerged to promote firms’ environmental capacities, to push for their desired policies, and to push back against administrative agencies and environmental groups. Additionally, as more information became available, community and other advocacy groups began to disseminate data to pressure regulators and firms (Fiorino 2006; 2001). Today’s conversations over environmental governance have added another set of challenges to the plates of environmental regulators. New and emerging challenges are attempting to tackle multidimensional and sectoral problems such as climate change, sustainability, social equity, and environmental justice. As a set of issues, these approaches recognize that place matters, that individuals experience environmental benefits and risks differently, and that citizen-level changes are likely necessary for meaningful change. Federal and state lawmakers have also incorporated regulatory approaches that rely on environmental accounting, material and energy life cycle assessment, carbon and greenhouse gas inventories, and ecological foot printing. Throughout the twentieth and now twenty-first century, state environmental agencies play a critical role in the nation’s environmental and energy governance. For many agencies, their history stretches back to eras where extraction and development were the primary values or command and control was the dominant compliance framework. These values and approaches are still present and operate alongside more contemporary issues. Today, states regulate a significant percentage of the American economy, including intrastate electrical power generation, oil and gas development, and multiple aspects of climate change. They also support and manage three quarters of all federal environmental programs, issue more than four out of every five environmental permits, perform nine of ten environmental enforcement actions, and collect nearly all the data used by the federal government (Rabe 2021). In short, state environmental agencies have become comprehensive organizations responsible for most environmental programs and possess sweeping programmatic responsibilities, including oil and gas management. State environmental governance has taken on even greater importance, with gridlock and polarization taking hold in Washington, DC. Their old and new responsibilities impact state compliance efforts in a variety of ways:

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1. Given their historical and current role in environmental regulation, state governments have developed substantial competencies, expertise, and abilities relative to compliance and enforcement. 2. As state governments or agencies make environmental or energy policy decisions, they may disagree with the priorities of local government or federal policy makers. 3. State energy and environmental decision-making is likely to be decentralized and there may be disagreement within agencies or between various elected officials. 4. State officials and the industry must interact with one another during compliance, which can involve the collection and sharing of information, although how that information is used in pursuit of goals may vary. 5. Compliance conflicts are likely to emerge between regulators and regulated entities as well as between various interest groups. 6. Concern over emerging environmental issues such as climate change, biodiversity, and environmental justice may impact agency goal setting and introduce disagreements.

STATES AND OIL AND GAS POLICYMAKING A small but growing group of subnational environmental policy scholars have asked what factors shape state policies relative to oil and gas (Davis 2017). Davis, in 2012, shed light on this question by examining how states responded to fracking. Results from Davis’s 2012 work outlined how politically powerful state-level subgovernments (composed of industry and trade officials, regulatory agencies, and state legislators) insulated and nurtured unconventional oil and gas operations. These closed networks, Davis (2012) explained, protected industrial expansion even at the expense of environmental protection. They were also able to block calls for additional inspections and inspectors, preclude chemical disclosure, limit techniques available for confirming a violation, and impede updated testing protocols. Another vein of state oil and gas research seeks to understand causes of policy change. One consistent finding attributes subnational fracking policy differences to ideological and partisan differences across the states. In effect, liberal or Democratic state lawmakers are more likely to support oversight and a stronger role for state regulators than more Republican or conservative state policy makers (Boudet et al. 2016; Davis and Fisk 2014). Moreover, the literature points to the priorities of state political elites including governors, state legislators, and industry groups as critical in understanding that particular state’s goals (Rabe and Borick 2013; Rinfret, Cook, and Pautz 2014; Davis 2014; Heikkila et al. 2014). It should be noted that Davis (2012)

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contends that state priorities can be impacted by focusing events, policy windows, and the availability of new data and research. Focusing events have also contributed to more stringent oil and gas policies. Fisk (2017) documents how a leaking well in Longmont, Colorado, sparked local pushback and a voter-led ban on fracking within the city (Rochat 2013; 2012). In Arlington, Texas, a spill contributed to calls by local lawmakers for greater oversight of fracking fluids (Fisk 2017). Fracking-related focusing events, especially those taking place within a city, can engender high-profile attention and can contribute to state regulators having a heightened sensitivity to localized concerns. Davis’s 2012 work documents the myriad of ways that state regulatory decisions create localized impacts, such as increased truck traffic, infrastructure deterioration, and dust and noise. These can be especially noticeable in areas with heavy development. Socioeconomic factors are also at play when it comes to opposition to oil and gas development. Possible reasons, as outlined by Fisk, Good, and Nelson (2017), include the following: 1. Wealthier jurisdictions develop greater organizational capacities by having the means, for example, to conduct research, gather data, and add staff. 2. Wealthier jurisdictions view environmental protection as a luxury good, meaning that other policy needs are already met and they can pursue environmental protection. 3. Wealthier jurisdictions have the means to design and experiment with regulatory innovation (Daley and Garand 2005). 4. Wealthier jurisdictions may have additional revenue streams that make oil and gas monies less important.

LINKING THE LITERATURES The findings unearthed herein set the stage for a rich and robust set of compliance politics, challenges, and opportunities. On one hand, statehouses are becoming more polarized and state lawmakers have a wealth of tools at their disposal to shape desired outcomes. States have also retained primary control over oil and gas management and in some cases have decades of experience regulating the industry. They are also pursuing other goals related to environmental protection and sustainability. On the other, lawmakers have enacted policies with varying degrees of goal clarity and ambiguity, have delegated authority to bureaucratic organizations, and have control over the availability of resources that impact administrative decision-making. When these insights are combined, we can gain leverage in understanding compliance outcomes as delivered by state oil and gas agencies.

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TOWARD A THEORY OF NATURAL RESOURCE COMPLIANCE Despite the historical and contemporary roles that states play as the key arbiters of energy decisions, scholars have yet to design and evaluate a theory that focuses on the context of compliance that surrounds natural resource management. As the first set of studies demonstrated, the factors affecting administrative outcomes and performance are best described as an amalgam of political, economic, organizational, and technical characteristics that take place over time, interact with one another, and do not necessarily follow a particular order. A similar set of patterns and relationships emerged in our second group of studies that explained state oil and gas policy differences and outcomes. Oil and gas policymaking, including compliance, is also shaped by a variety of factors with policy differences related to policy design, adoption, implementation, and management. These stages directly and indirectly shape the context that surrounds inspections, violations, and the actions taken to return the operator to a state of compliance. Some compliance decision points are discrete events, such as an inspection, the detection of a violation, or the use of an administrative tool. Others are a series of events, such as enacting an agency’s budget or establishing a field inspection calendar. Both types of “events” shape the politics and challenges related to compliance and can include the following: Where, how frequently, and when inspections occur The use of testing and other protocols to determine violations The identification and classification of violations The use of administrative actions or enforcement activities ranging in severity Our findings are summarized and presented in table 2.2. Table 2.2 summarizes and combines the two main bodies of literature presented in this chapter. It also enables the identification of a series of testable hypotheses: 1. Contexts with more experienced inspectors will have more robust compliance activities. 2. Contexts with better-paid inspectors will have more robust compliance activities. 3. Contexts with more Democratic and liberal stakeholders and policy makers will have more robust compliance activities. 4. Agents will be responsive to political principals.

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Table 2.2. Context of Compliance Common factors

Explanation

Mission and policy

This concerns state laws and regulations that establish oil and gas priorities and goals and how applicable agencies engage in oil and gas management including enforcement. State regulations vary in the degree to which they describe clear priorities, goals, etc., and in the extent to which implementing agents and managers understand, prioritize, and implement said goals (Fisk 2017). Mission- and policy-related factors are likely to shape the subsequent actions, priorities, and decisions of agency leaders and, in turn, may cause inspectors or regional office staff to favor one outcome over another (e.g., development over environment) or to prefer the use of a specific regulatory action.

Politics and economics

This concerns the degree and scope of political and elite level support (budgetary, opinion) relative to specific goals such as environmental protection and extraction by statewide leaders (governor and statehouse) (Davis 2012). Politics and economics factors are likely to include stakeholder and interest groups, such as the oil and gas industry and environmental groups. Affected groups are likely to closely monitor the implementation of state oil and gas policies, mount pressure campaigns, shape rules, call in complaints and engage in other efforts to shape the priorities of leaders (Fisk 2017). Additionally, this category of factors includes the way elected officials perceive the public’s attitudes, which may provide electoral incentives to proceed or to impede compliance goals such as environmental protection or natural resource extraction even in the face of resistance by the target group (Davis and Fisk 2014). State political leaders may also seek to place pressures on agency leaders and in turn inspectors, which may shape the actions, priorities, and decisions of agency leaders and in turn inspectors or regional office staff to favor one outcome over another (e.g., development over environment). Economic factors are also concerned with the extent to which the oil and gas industry supports employment, retains or builds financial capital, possesses resources, competes against other industries, and generates new and unexpected revenues that may shape the economic significance of the regulated entity, which in turn may impact goals and priorities of state leaders. Additional factors within this category are interested in the degree to which industry asserts its influence at the state level, which is especially important when the policy domain is complex and requires technical expertise to navigate.

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Politics and economics (cont’d)

Budget and personnel

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As applied to the oil and gas community, there are multiple principals and agents. On one hand, political leaders and executive branch leaders (governor and appointed agency leaders) are considered the “principals,” while staff (such as oil and gas inspectors) are the agents. On the other hand, oil and gas staff may be considered principals while the oil and gas industry may operate as an agent. This means that in practice there are multiple principals along with multiple agents making the possibility of goal conflict highly likely. It also places DEP staff and inspectors in the difficult position of being both a principal and an agent.vt The culture, salary, experience, and values of agency personnel, including executive-level personnel and frontline inspectors, affect compliance priorities and decisions. Staffing and financial capacity of the Department of Environmental Protection will likely affect the quality and effectiveness of the implementation efforts such as frequency and quality of inspections (Rabe and Borick 2013). Frontline personnel are likely to hold different perceptions about their enforcement roles or different values than state agency officials or federal officials, and they may employ a variety of strategies that shape compliance outcomes (Davis 2012). The set of values and attitudes that are pervasive within the organization can help maintain the status quo or lead to change relative to the status quo. Personnel are likely to engage in coping strategies such as the following: • Working to limit and depress demand for street-level agents’ services • Rationing of street-level agents’ services • Focusing on routine activities • Focusing on reactive outputs and behaviors As applied in the context of oil and gas, inspectors, much like other street-level bureaucrats, are likely to have varying impressions about, interpretations of, and relationships with the industry even within the same regulatory framework. In this case, inspectors may hold differing opinions about the operator, the inspection process, the adequacy of state rules, private property rights, whether a violation is observed, and the most effective course of action so that the operator may return to a state of compliance (Lipsky 1980; Winter 2006).

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Technology, timing, and data

Developing a Theory of Oil and Gas Compliance This grouping is concerned with the extent to which the related problems and focusing events are severe, random, novel, and have a wide impact. Each of the aforementioned dimensions is shaped by the location of the industry infrastructure, the area nearby that infrastructure, the well, the well’s “place” within the life cycle of production, spills, unemployment, budget deficits, cost of natural gas, etc. This category also addresses how the availability of technology and the speed and accessibility of technological adoption can further impede or facilitate compliance goals (Fisk, Park, and Mahafza 2017). The category also addresses the extent that applicable agencies possess the requisite technical, human, and data skills and resources to fulfill compliance goals (e.g., to fulfill priorities and goals of elected and administrative leadership) (Fisk 2017).

Source: Generated by authors

5. Contexts with greater wealth and affluence will have more robust compliance activities. 6. Contexts with a higher number of accidents and incidents will be more supportive of more robust compliance activities. 7. Contexts with clear policy guidance will be responsive to such guidance. 8. Performance will be constrained by the agency’s previous performance. Improved internal management will mitigate the impact of past performance on current performance. 9. The inclusion of new technologies will directly impact the performance of organizations. We embed these insights and relationships within figure 2.3, which is an exploratory model of oil and gas compliance, with an example of how it can be partially operationalized in figure 2.4. The model in figure 2.3 elucidates the factors shaping administrative decision-making and compliance-related outcomes in the presence of multiple goals. Similar to O’Toole and Meier’s (1999) public management model, this framework assumes compliance activities are largely institutionalized but are subjected to internal and external threats, opportunities, and constraints that affect street-level and executive-level decision-making (Hill 2003). We also anticipate that the organization’s outcomes and outputs are shaped by the organization’s past performance, overall stability of the organization, use of technology or lack thereof (for both the regulated entity and regulators), staffing levels, knowledge of staff, and resources (for the regulating organization and the regulated entity). We also note the important role of shocks and the ability of the organization to absorb such shocks and events, as well as the quality of the organization’s internal management and its relationships with

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Figure 2.3. An Exploratory Model of Natural Resource Compliance

Figure 2.4. Operationalizing the Context of Compliance within Pennsylvania

applicable stakeholders. Finally, we anticipate that performance and process are nonlinear, interactive, and dynamic. For example, violations are likely to lead to secondary inspections, and previous violations may require multiple administrative actions taken as part of a return to compliance. To fully operationalize figure 2.3 would be time and resource intensive and perhaps impossible. That limitation aside, developing a list of possible covariates is a useful way to begin as we explore and probe the context of compliance. We begin that work here and propose a set of factors (for our context of compliance variables listed in the bottom left corner), which are presented in figure 2.4. It should be noted that these variables can be applied to the model, as a whole or in part, or to various outputs of compliance that could function as separate dependent variables.

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SUMMARY AND CONCLUSIONS In 2015 Meier et al. (130–32) noted, “Management matters in measurable ways for performance. . . . The good news, then, is that the question of whether public management shapes performance has been answered, at least in general terms.” This observation and much of the research that informed it are summarized in the first part of this chapter. In general, these literatures revealed that a variety of internal and external dynamics shape performance in expected and unexpected ways. Additionally, the ability to impact outcomes and performance spans the organizational hierarchy and ranges from top-level officials to those operating along the front line. Finally, measuring performance is dynamic, influenced by time, and nonlinear. The second portion of this chapter examines state environmental policymaking, how it emerged, and how it has evolved over time. The chapter then shifts to the scholarship that examines oil and gas policymaking with an emphasis on understanding how and why states make the decisions they do. The chapter concludes by applying these insights to the development of a parsimonious model that captures oil and natural gas compliance activities such as inspections, violations, and administrative actions designed to return the operator to a state of compliance. These variables range from site-level characteristics, including the location of wells, to strategies pursued by statewide elected officials. It also acknowledges that state political and administrative dynamics are ephemeral and influenced by a myriad of contemporary and historical forces.

Chapter 3

PENNSYLVANIA, FRACKING, AND THE TWENTY-FIRSTCENTURY BOOM

As chapter 2 shows, myriad factors impact compliance outcomes and administrative decision-making. Yet, prior to identifying and understanding what impacts performance in a specific direction, it is critical to summarize the rules of the game; that is, what is required of oil and gas operators and the standards that applicable agencies and regulators are required to ensure. In other words, rules operate as the “guardrails,” and state agencies build and maintain these “guardrails” through inspections, identification of violations, and administrative actions so that operators return to a state of compliance and avoid violations in the future. To accomplish the above, this chapter is organized into two main parts. The first part details how Pennsylvania fits within the larger hydrocarbon landscape. Attention here is paid to similarities and differences across the states and how the fracking debate has shaped the context of compliance in Pennsylvania. The latter half is dedicated to the applicable “rules of the game” and how the state of Pennsylvania conducts inspections, determines violations, and enforces actions to maintain compliance and reach its goals. These dynamics are presented visually in figure 3.1. The top half, “interactive context of compliance,” identifies many of the factors that research has found likely to shape priorities and processes related to compliance. Here, 67

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Figure 3.1. Accounting for Context and Behavior

we note the potential impacts of variables approximating our four main categories, such as the presence of federal and state policies (and goal ambiguities), priorities of elected officials and agency leaders, events or shocks and emergence of new technology, availability of data and stage of production, and even revenues available to support compliance activities. The bottom half focuses on compliance activities themselves. This portion identifies three significant compliance “activities” and assumes that the context of compliance influences the outputs associated with each activity (e.g., the number of inspections, number and types of violations, and use of specific administrative tools).

A WORD ON SINGLE-STATE CASE STUDIES There are strong justifications to focus on a single state. From a theoretical perspective, Nicholson-Crotty and Meier (2002, 412–14) observed that single-state case studies are methodologically sound: “When analyses focus on, for example, substate bureaucratic units or individual voters, a single state may encompass sufficient variation for a sound study.” In Pennsylvania, there

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is tremendous variation in what and where inspections take place, the results of those inspections, and the use of administrative tools in response to a violation. Variation is also evident at the ground level with factors such as the well type (oil, gas, or combined oil and gas), the well pad’s location and surrounding environs, the year, the inspector, the inspector’s pay, and the regulatory tool, if needed, to return the operator to a state of compliance. In fact, because this study includes all inspections, violations, and administrative actions between 2000 and 2015, it relies on more than 750,000 unique cases. There are practical reasons to focus on Pennsylvania as well. The state is home to the Marcellus Shale formation, which holds nearly 50 percent of the nation’s total shale gas and has contributed to Pennsylvania being a top natural gas-producing state. Second, largely due to the development of hydraulic fracturing and horizontal drilling technologies, oil and gas production (in terms of both overall production and number of oil and gas wells) has undergone a precipitous rise since 2006 and has also been subject to boom-and-bust cycles—a trait Pennsylvania shares with several other states with oil and natural gas reserves (EIA 2018c; 2018d; 2018e; 2018g; 2018h; Rabe and Borick 2013).

PENNSYLVANIA’S PLACE IN THE US OIL AND NATURAL GAS INDUSTRY The rise of unconventional oil and gas production in Pennsylvania and elsewhere has fueled a multitude of debates. Within these political contests, including those in Pennsylvania, the heroes and villains are well known and can change depending on who is telling the story. Moreover, stakeholders have nationalized many of the arguments that surround fracking and have shined a bright light on state oil and gas frameworks, which follow a routine regulatory process as well as a common set of bureaucratic activities.

Similarities Pennsylvania shares with other producing states a long history replete with episodes of boom and bust, examples of abandoned infrastructure, and an administrative apparatus with a mandate to support multiple goals (Mulhollem 2018). As the technologies that support fracking and unconventional production matured and became widespread, many of these similarities have continued and grown. In many producing states, armed with new technology, the oil and gas industry drilled new wells, reopened existing wells, and expanded their operations. This placed new pressures on state administrative agencies, which were charged with accommodating new technologies while still regulating existing operations and addressing preexisting challenges. These new demands, laid on top of existing ones, were to be accomplished with limited means and a regulatory apparatus largely designed to support oil and gas production.

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Pennsylvania’s oil and natural gas regulatory politics have also followed national trends. Davis’s 2012 work noted that states often have legislative language that prioritizes extraction over other goals. To carry out these goals, many states created regulatory agencies that work closely with the oil and gas industry via influential state-level subgovernments. Such networks, Davis (2012) writes, have historically favored oil and gas production over goals related to environmental protection. To this end, state subgovernments have promulgated industry-supported rules, testing requirements, and procedures, including those related to inspections, violations, and penalties. While there are differences in the technical requirements across producing states, however, many have adopted a fairly standard set of compliancerelated tasks, as shown in chapter 1 (Davis 2012). It should be noted that most states have concentrated oil and gas regulatory responsibilities largely within one agency; Pennsylvania (like other states) has carved out smaller roles for other state agencies. The state’s contentious oil and gas conflicts have also followed a national pattern, many of which are summarized in chapter 1. Supporters argue that unconventional oil and natural gas production represents a growth opportunity primarily through the creation of new jobs and additional state and local tax revenues. The industry’s backers are also likely to push for a highly state-centric approach and to advocate for limited oversight. Opponents, on the other hand, argue that oil and gas production delays the necessary transition to renewable energy, harms air and water quality, creates only a temporary increase in jobs, and fundamentally hurts the quality of life through surface-level disruptions (Fisk 2017; Jacquet 2014). Those skeptical of oil and gas are also more likely to back calls for local involvement and to distrust state agencies, which they believe are overly responsive to industry (Fisk 2017).

Differences The context surrounding compliance in Pennsylvania also differs in important ways. First, unlike several other producing states, Pennsylvania has enjoyed both Republican and Democratic governors from 2006–2015. By comparison, Republican governors have exclusively overseen states such as Texas and Oklahoma. Second, the state constitution includes an Environmental Rights Amendment (ERA), which applies to state and local governments. The ERA affords citizens of the commonwealth with a constitutionally protected right to clean air and water and the preservation of lands that hold natural, scenic, historic, and aesthetic value. The Pennsylvania Supreme Court has held that the ERA limits the ability of state leaders to impose policies that limit their constitutional obligations, such as in the case of Robinson Twp., Washington County v. Commonwealth, 83 A.3d 901 (Pa. 2013).

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Pennsylvania, Fracking, and the Twenty-First-Century Boom Table 3.1. State Revenue Sharing Finances State

% to municipalities (as share of total production value)

% to counties (as share of total production value)

Texas

.2 .3 (other local governments)

.7

Pennsylvania

.4 (grants) .8

.5

Montana

.1

2.1

Louisiana

.3 (municipalities)

.6 (parishes)

Colorado

.3 .3 (other local governments) .8 (grants)

1.8

Source: Reproduced from Fisk 2017 with minor editing for style and clarity

Similarities across the states also tend to subside as policies become more technical and financial. State regulators, for example, must consider policies and enforcement for resources located in vastly different surface and subsurface geographies. Recent research by Rabe and Hampton (2015), for example, examined variation relative to severance taxes and impact fees. They note that states show a great deal of variability in what they collect in terms of revenues, especially in terms of specific rates, how revenues are allocated once collected, and the restrictions placed on those revenues. As a result, regulations may target similar “items” but include different standards, rates, and stringencies. Pennsylvania, for example, unlike many producing states, relies on an impact fee rather than a severance tax. Another set of differences, addressing revenue sharing, is shown in table 3.1.

A HISTORICAL OVERVIEW OF OIL AND GAS POLITICS IN PENNSYLVANIA Pennsylvania is one of the cradles of America’s oil and gas industry. In 1859, operators drilled the world’s first commercial oil well in Titusville, Pennsylvania, marking the start of the first American oil “boom” (Pennsylvania Independent Oil and Gas Association 2018). Crude oil production skyrocketed from 2,000 barrels in 1859 to 4,000,000 in 1869 and to 10,000,000 in 1873 (Strauss 2015). Less than twenty years later, in 1878, operators discovered natural gas at a site near Pittsburgh. Operators, however, did not have the ability to cap the well or transport the extracted gas to nearby markets, and on November 3, 1878, the well blew in (nearing a vertical depth of 1,400 feet). The site, known as the Haymaker Gas Well, burned for over a year (American Oil and Gas Historical Society 2018). New and growing cities and communities followed these early discoveries. Titusville, Pennsylvania, for example, ballooned from 250 residents in 1859 to approximately 10,000

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by 1864, many of whom were employed by the industry. By 1885 natural gas was fueling the growing city of Pittsburgh and displacing the use of coalfired electrical generation (American Oil and Gas Historical Society 2018; Strauss 2015). This first boom was short-lived and soon transitioned into a statewide bust. By 1901 the extractive industry had shifted its attention toward Texas and to the electric bulb, as kerosene was no longer needed for lighting (Strauss 2015).

BUILDING TOWARD THE PENNSYLVANIA BOOM In Pennsylvania and in other shale states, the first boom of the twenty-first century resulted from a blend of private and public sector decisions, technologies, moments, and policies that stretch from the 1860s to the first years of the twenty-first century, as shown in table 3.2. As table 3.2 demonstrates, oil and gas policies stretch back well before the early twentieth century, and many of them exemplify the values associated with economic liberalism and conservation as outlined by Klyza and Sousa (2013). That said, many of the key dates and legislation that set the stage for today’s fracking boom began in the 1930s. Fisk (2017) identifies key actions in this early era including the following: In 1935, under the Public Holding Company Act, the federal government restricted consolidation within the natural gas and electricity markets. In 1935, six producer states created the Interstate Oil and Gas Compact Commission (IOGCC), which was ratified by Congress. Under the auspices of the IOGCC, member states coordinated production standards, identified conservation opportunities, shared remediation and plugging best practices, and disseminated research among members (IOGCC 2015). For states, this approach enabled them to preclude future federal intervention, provided the industry with stability, and reduced uncertainty. In 1938, under the Natural Gas Act of 1938, federal lawmakers created the Federal Power Commission to regulate interstate natural gas sales and oversee interstate pipelines. Another wave of decision-making occurred in the 1960s and 1970s. This wave directly nurtured many of the technologies that ushered in the shale renaissance and eventually the renaissance’s compliance challenges: In the 1960s operators and the federal government experimented with fracturing underground formations via nuclear devices (Fisk 2017).

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Table 3.2. Timeline of Significant Oil and Gas Events and Moments Time frame

Event or decision

1860s

Industry first uses fluids to stimulate underground formations (often hard rock well sites) at locations in Pennsylvania, New York, Kentucky, and West Virginia (Montgomery and Smith 2010).

1930s (federal New Deal legislation)

The Public Holding Company Act of 1935 restricted consolidation within several private sector industries including natural gas (Fisk 2017). The Natural Gas Act of 1938 authorized federal policy makers to set and charge “ just and reasonable rates” for interstate natural gas sales (Fisk 2017).

1930s

The industry injected acid into the subsurface to stimulate wells, but early results were not promising and the practice was eventually abandoned (Gold 2014; Montgomery and Smith 2010).

1935

Producer states created the Interstate Oil and Gas Compact Commission (IOGCC), in which member states agreed to cooperate with one another to address overproduction, manage waste, and limit federal involvement (Interstate Oil and Gas Compact Commission 2015).

1947

Stanolind Oil and Gas Corporation injects approximately 1,000 gallons of gelled gasoline and sand in an attempt to fracture underground formations in Kansas, Oklahoma, and Texas. The injections did not substantially improve production levels but demonstrated that fracturing could increase yields (Gold 2014).

1949

A team composed of Halliburton and Stanolind Oil Company employees reported that they fractured a well in Oklahoma (AOGHS 2018).

1949

The Halliburton Oil Well Cementing Company filed a patent related to hydraulic fracturing processes (Montgomery and Smith 2010).

1960s

As part of the federal government’s Plowshare program, operators and multiple federal agencies fractured formations via underground nuclear detonations. Results did not sufficiently improve production (Fisk 2017).

1973

US natural gas production peaked at 21.7 trillion cubic feet (EIA 2010).

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1974

President Gerald Ford created the Energy Research and Development Administration (the predecessor to today’s Department of Energy) and charged it with promoting “unconventional gas research” (Golden and Wiseman 2015).

1976

The DOE began the Eastern Gas Shales project, which supported hydraulic fracturing in shale formations (Fisk 2017).

1978

Through the Natural Gas Policy Act, federal lawmakers enacted rate-setting formulas that affected natural gas’s end-user price (Fisk 2017).

1987

Union Pacific Resources used horizontal drilling and slickwater fracturing in the Austin Chalk play (Texas). Similar processes were used in North Dakota’s Bakken formation (Golden and Wiseman 2015).

1989

Lawmakers deregulated sales of natural gas (Fisk 2017).

1980s–early 1990s

Between 1980 and 1992, the oil and natural gas industry received Section 29 Nonconventional Fuels Production tax credits. The Department of Energy subsidized demonstration projects in West Virginia (Appalachian Basin), Michigan (Antrim Shale), and Texas (Barnett Shale) (Golden and Wiseman 2015).

1997

Mitchell Energy developed the methodologies and processes used in today’s unconventional operations and applied their method in the Barnett (Texas) Shale (Gold 2014).

2003

Gas well production bottomed out at approximately 124 thousand cubic feet per day—meaning that the average well produced only 29 percent as much as it did in 1971 (EIA 2010).

2005

Residential natural gas prices peaked at $16.66 per thousand cubic feet (EIA 2010).

2005

The Federal Energy Policy Act of 2005 exempted unconventional oil and gas production from a variety of federal environmental laws (Fisk 2017).

2006

Operators drilled 31,687 natural gas wells (a record at the time) (EIA 2010).

2011–

US natural gas production passed its 1973 peak with production generally increasing largely due to hydraulic fracturing and horizontal drilling (Gold 2014).

Source: Reproduced from Fisk 2017 with minor editing for style and clarity

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In 1974, President Ford created the Energy Research and Development Administration (ERDA) and authorized it to support “unconventional gas research.” The ERDA eventually became the Department of Energy (DOE), which has continued supporting unconventional fuel research. In 1978, under the Natural Gas Policy Act, federal lawmakers established new rate-setting formulas and in 1989, federal lawmakers deregulated natural gas sales (Golden and Wiseman 2015). Throughout the 1990s, federal and state support of unconventional fuels continued primarily through tax incentives, tax exemptions, and public-private collaborations: Between 1980 and 1992, the unconventional fuel industry benefited from the Section 29 Nonconventional Fuels Production tax credit, with the approximate value of the benefit nearing $10 billion (Golden and Wiseman 2015). The DOE collaborated with the industry to partially fund a series of demonstration projects in areas near the Marcellus Shale formation and offered financial support for several of the technologies that help facilitate extraction at unconventional sites.

FEDERAL LAWS As noted in chapter 1, the states manage much of the day-to-day operations of oil and gas operations. That being said, understanding where the federal policy boundaries exist is important because they act as parameters for state policymaking. In other words, is the policy area largely under the purview of federal regulators or state regulators—or is the policy area being regulated concurrently (both federal and state rules apply)? Through a series of historical and more recent decisions, federal regulations are concentrated largely on grid reliability, security, railroads, interstate sales, and distribution. Subsequent policies, especially the Energy Policy Act of 2005, have removed the federal regulators even more, as identified in table 3.3. As such, they create opportunities for producer states to adapt their compliance efforts in ways that meet state goals with minimal federal interference. As shown in table 3.3, recent actions, such as the Energy Policy Act of 2005, have exempted the industry from a variety of federal environmental standards. By removing itself from these portions of the compliance debate, the federal government essentially ceded this “space” to state governments. This policy vacuum has enabled states to enact regulations that they then must enforce.

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Table 3.3. The Small Federal Footprint in Oil and Gas Policymaking Law

Effect

Federal Resource Conservation and Recovery Act (RCRA)

Federal law exempts many wells from being designated as superfund sites under RCRA. The law, as written and interpreted by the EPA, excludes petroleum (such as crude oil), natural gas, and liquefied natural gas from being classified as a “hazardous substance,” which is needed for superfund designation. Federal law also exempts “drilling fluids, produced water, and other wastes associated with the exploration, development, or production of crude oil or natural gas” from being designated as a hazardous substance (Brady and Crannell 2012; Soraghan 2015).

Clean Air Act (CAA)

Under the CAA, the EPA may aggregate smaller pollution sources, which are controlled by a single entity and are located near one another. However, oil and gas wells are exempt from the aggregation requirement. Because most wells by themselves do not reach the CAA’s threshold limit of hazardous emissions, operators are often not required to acquire a permit (Brady and Crannell 2012). Under the Biden administration, however, new limits and standards vis-àvis methane emissions have been announced.

Clean Water Act (CWA)

Surface water discharges are regulated under the 1972 Clean Water Act.

The Energy Policy Act also exempted unconventional oil and gas operators from many requirements commonly included in environmental impact assessNational ments. A second exemption, also enacted in the 2005 legislation, shifts the Environmental burden of proof to the public rather than the operators to prove that oil and Policy Act gas activities are unsafe. In 2006 and 2007, the BLM granted this exemption to about 25 percent of all wells approved on public land in the West (EWG 2013).

Safe Water Drinking Act

Under the 2005 Energy Policy Act, the Bush administration excluded unconventional production from regulation and standards that are part of the Underground Injection Control program, unless diesel fuels are used (Fisk 2017). Many states have enacted rules that are designed to minimize crosscontamination between drinking waters and industry.

Toxic Release Inventory

The EPA does not require that the oil and gas industry disclose chemicals to the Toxic Release Inventory (TRI). The EPA explains that much of the TRI data is already collected by applicable state agencies and that the agency does not have the capacity to collect site-specific information for the hundreds of thousands of wells that dot the US landscape (FracFocus 2016).

Unconventional oil and gas operators operate under Sections 311 and 312 of the 1986 Emergency Planning and Community Right to Know Act. The Emergency sections mandate that facilities that manufacture, process, or store designated Planning and chemicals produce a Material Safety Data Sheet (MSDS) for each chemical. Community The MSDS lists the properties and health effects of each chemical and must be Right to Know available to state and local officials. Importantly, operators must provide state Act and local responders with an inventory of all on-site chemicals for which an MSDS is required under federal law.

Source: Reproduced from Fisk 2017 with minor editing for style and clarity

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The Environmental Protection Agency and the Commonwealth While not the subject of state enforcement practices, EPA rules do pertain to operators doing business in Pennsylvania and may affect state implementation efforts. The Environmental Protection Agency’s role in the fracking debate includes both research and rulemaking. For the former, the agency has conducted and authored voluminous studies about unconventional oil and gas’s potential for environmental contamination, especially air and water as well as wastewaters. For the latter, the EPA has recently become more active in terms of rulemaking. It should also be noted that changes to federal rule may broaden or narrow Pennsylvania’s authority to regulate fracking. The agency’s rules for well completions (the process of making a well ready for production) are instructive on the interplay between state and federal rules, which as we note, form the starting point of compliance. Based on EPA rules: “Oil and natural gas companies are required to notify EPA in advance when they are going to complete a hydraulically fractured well. Companies can meet notification requirements by complying with state advance notification requirements. If a state does not have an advance notification requirement, companies must inform EPA no later than two days before beginning the well completion process” (EPA 2021). In Pennsylvania, “all oil and gas operators are required to submit well records within 30 days of drilling a well and completion reports within 30 days of completing a well” (DEP 2015). Similar intergovernmental dynamics are evident with the EPA’s New Source Performance Standards design to reduce industry’s methane emissions, as summarized by the EPA below: Before issuing the proposed regulations in 2015, EPA sought input from states, tribes, industry and environmental groups, and continued to do so as it developed the final rules. The agency received more than 900,000 public comments on the proposed NSPS and held three public hearings. A number of states regulate, or are considering regulating, air pollution from the oil and natural gas industry, and EPA’s rules allow them to continue to do so. Under the Clean Air Act, states have the authority to regulate air emissions from sources within their boundaries, provided their requirements are at least as protective as federal requirements. The final rule provides a pathway for companies to harmonize the NSPS with any comparable state requirements they may have. These sources include hydraulically fractured oil wells, some of which can contain a large amount of gas along with oil, and equipment used

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across the industry that was not regulated in the agency’s 2012 rules. (EPA, n.d.)

In November 2021, the EPA announced, “For the first time ever, it [EPA] will require that states develop plans that will reduce methane emissions from existing sources nationwide—including from an estimated 300,000 oil and gas well sites” (White House 2021). Evident again in this pattern is the potential for state rules to be in conflict, preempted, or complemented by EPA regulations. This in turn affects compliance activities, as it may mean state staff must wait to see if and how EPA rules and state regulations can be harmonized, if they will be enforcing a federal rule that has become state policy, or if the state rule meets or exceeds EPA standards. The EPA also noted that they found that state programs varied considerably and could not determine whether “any particular state rule is equivalent to the New Source Performance Standards (NSPS), [but] we did include provisions for industry to demonstrate that it has to meet requirements that are comparable to the NSPS under a state rule.” As such, the EPA announced that it would “allow those sources to comply with a specific NSPS requirement by complying with the state regulation” (EPA 2016b). The EPA also collaborates with the Interstate Oil and Gas Compact Commission to improve its relationship with producing states. In 2019 the partnership announced and agreed to the following: 1. Continue long-term improvement in communication between the states and EPA. 2. Continue a high-level IOGCC/EPA relationship that is intended to foster environmental protection based on mutual understanding of each other’s missions, responsibilities, and authorities. 3. Address, through ad hoc, issue-oriented working subgroups, issues that may result from concurrent jurisdiction between the states and EPA. 4. Identify issues of concern between the states and EPA that can be addressed in the short and long term. 5. Identify and implement mutually beneficial joint activities (EPA 2019). In summary, what is the EPA’s regulatory relationship with the state oil and gas agencies such as Pennsylvania’s Department of Environmental Protection? Two points seem clear. The first is the importance of delineating what is regulated (and then enforced) concurrently and what is exclusively regulated by the state or EPA. For compliance, who sets the rules, who does what, who sets the testing protocols, and who subsequently enforces them

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are paramount and determine what priorities are likely to matter. The “who” here may also make a difference relative to activities before policy adoption—what were the conflicts, what was the issue’s scope, and what groups exerted influence? In other words, the context of compliance variables will likely shift depending on the venue and level of government. A second major role for the EPA in terms of compliance relates to its role as a governing partner. In this way, the DEP (through the IOGCC) and the EPA coordinate their activities (or are ordered to develop plans for activities) and engage in strategies outlined by Wright (1988) including simultaneous competition and cooperation, bargaining-exchange relationships, and negotiation as a strategy for reaching agreement.

Federal Policy and Pipelines in the Commonwealth Three federal agencies oversee the nation’s pipelines, including many lines located in Pennsylvania: The Pipeline and Hazardous Materials Safety Administration (PHMSA), within the Department of Transportation, manages pipeline safety and development. The Federal Energy Regulatory Commission (FERC) establishes rates and resolves siting issues for pipelines. The Transportation Security Administration ensures pipeline security (Fisk 2017). According to the Department of Environmental Protection, natural gas production within the state grew faster than the capacity of the state’s pipelines, which are needed to move the gas from the production site to markets. Pipeline infrastructure is governed by a combination of federal, state, and substate regulations. As shown above, several federal agencies are heavily involved in the operation and maintenance of interstate pipelines (DEP 2015). The Pennsylvania legislature authorized the state’s Public Utility Commission (PUC) to enforce standards for pipelines and associated facilities that are involved in the distribution and transportation of natural gas. Under the PUC’s grant of authority, its agents: “Enforce federal safety standards as an agent for the U.S. Department of Transportation’s Office of Pipeline Safety. The PUC may prescribe additional pipeline safety standards over and above federal standards, provided they are not in conflict;

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Direct the utility to take necessary steps to correct the violation; Investigates the methods or practices of pipeline companies, including its reports, records and other information; Issue a violation report and notify the gas utility of the results of the onsite evaluation” (DEP 2021; PUC 2021).

THE FRACKING DEBATE IN THE COMMONWEALTH The first twenty-first-century oil and gas boom arrived in Pennsylvania in the early 2000s, with Pennsylvanians located above the Marcellus Shale receiving lease offers and letters from the oil and gas industry. A confluence of technological factors (fracturing and horizontal drilling), locational factors (the state was located above the Marcellus Shale formation), and favorable policies (to be discussed later in this chapter) largely drove this early optimism. The Marcellus Shale formation is one of the world’s largest natural gas–producing fields, holding trillions of cubic feet of unconventional natural gas. The formation is located about a mile beneath the surface and above the Utica Shale, which itself is another potentially rich source of hydrocarbons (Rabe and Borick 2013). Today, operators are active in more than twentyfive counties centered in areas of western and northeastern Pennsylvania. Recent Energy Information Administration estimates determined that the Marcellus play holds reserves of approximately 77.2 trillion cubic feet (TCF) at year-end 2015, which makes it one of the largest natural gas plays in the US. The agency also estimated that the formation held oil reserves of 143 million barrels (MMbbls). The Marcellus play footprint extends across five states: New York, Pennsylvania, Ohio, West Virginia, and Kentucky. Like other formations, “key geologic and technical criteria that control play boundaries include thermal maturity, total organic carbon (TOC), formation thickness, porosity, depth, pressure, and the ability to be fractured” are used to calculate or estimate the volume of reserves (EIA 2017a). In Pennsylvania, the average Marcellus operator uses a fracking fluid blend consisting of 92 percent water, 6 percent sand, and 2 percent chemicals (also called slickwater) and can require more than four million gallons of water (Markosek 2018), necessitating around 80,000 gallons of fracking fluid.

STATE RULES AND REGULATIONS A variety of state laws and regulations govern oil and gas production, including the 1984 Oil and Gas Act, Coal and Gas Resource Coordination Act, Act 13, and the Oil and Gas Conservation Law. Other state laws also impact the industry and include the Clean Streams Law, the Dam Safe-

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ty and Encroachments Act, the Solid Waste Management Act, the Water Resources Planning Act, and the Community Right to Know Act. To implement these laws (as they pertain to oil and gas), state lawmakers have authorized the Office of Oil and Gas Management (OOGM), a division of the Pennsylvania Department of Environmental Protection, to manage oil and gas operations within Pennsylvania. Lawmakers charged the OOGM to “facilitate the safe exploration, development, and recovery of Pennsylvania’s oil and gas reservoirs in a manner that will protect the commonwealth’s natural resources and the environment” (OOGM 2016). A gubernatorial appointee leads the department and is responsible for ensuring fossil fuel production while also mitigating its environmental impacts. The OOGM is divided into four offices with a central location in Harrisburg and three regional field offices in Williamsport, Meadville, and Pittsburgh. In general, the Williamsport and Pittsburgh district offices are responsible for overseeing shale development. Other regulatory agencies that impact oil and natural gas development in Pennsylvania include the following: The State’s Environmental Quality Board (EQB) adopts the DEP’s regulations related to water supplies, drilling, erosion control, and waste disposal1 (DEP 2018; 2013; OOGM 2016). The Environmental Hearing Board (EHB) hears and decides appeals from department actions. This power is limited to only final actions adopted by the Department of Environmental Protection. The EHB also reviews specific actions such as Complaints for Civil Penalties (Shale Gas Roundtable, n.d.). The DEP’s Bureau of Safe Drinking Water is responsible for protecting public water supplies. It does not oversee the construction and maintenance of private water wells; “however, DEP must inspect and test a private water well where drilling activities may have contaminated the private water well” (DePasquale 2014). The DEP’s Bureau of Laboratories performs analytical testing for DEP programs that monitor water quality related to shale gas development. The Pennsylvania Department of Conservation and Natural Resources (PADCNR) and the Pennsylvania Game Commission (PAGC) play a regulatory role when extractive activities are located on state lands. PADCNR oversees leases for hydrocarbons beneath forest and park lands, and PAGC does the same for state game lands (Chalfant and Corrigan 2019).

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The Department of Health examines and studies potential public health impacts related to oil and gas development (Shapiro 2020). The Public Utility Commission collects and dispenses Act 13 dollars as well as oversees much of the state’s pipeline infrastructure. The DEP via the OOGM implements the above statutes—primarily the Oil and Gas Act, the Oil and Gas Conservation Law, Coal and Gas Resource Coordination Act, and Act 13 (DEP 2018; 2013; Office of Oil and Gas Management 2016; Rabe and Borick 2013). This implementation includes developing specific rules governing production, which we cover: permitting and registration, financial surety, required plans, paperwork, documentation, drilling, fracturing, and extraction, as well as the testing methodologies used to ensure rules are met. A more detailed description is available in appendix 3.1. Finally, the agency oversees the reuse, recycling, and disposal of wastewaters (typically through injection wells or private facilities). The DEP has also developed standards addressing environmental impacts, waste management, casing, and site closure practices that form the heart of its subsequent compliance operations. Table 3.4 summarizes many of these rules. The state has promulgated additional rules governing the following: air quality and venting, flaring, cement type, casing and cementing depth, surface casing cement, immediate casing cement, producing casing, information disclosure, fluid storage, pit liner, flowback, wastewater transportation, underground fluid injection, idle time, and temporary abandonment. More detailed information is available in appendix 3.2. These rules set the foundation for what compliance means and what inspectors examine and look for in terms of violations. In other words, these and other rules represent the parameters that operators must stay within. When operators fail to comply, the DEP then engages its violation and administrative action protocols to force the operator to return to compliance and to deter future violations.

Act 13 Under Republican governor Tom Corbett and the legislative majority, state lawmakers passed Act 13 (State Impact 2018). See appendix 3.3 for a more in-depth description of Act 13. The expansive new law included a variety of significant policy changes relative to compliance such as the following: Defined what constitutes an unconventional well as one that is drilled “into an unconventional formation, which is defined as a geologic shale formation below the base of the Elk Sandstone or its geologic equivalent where natural gas generally cannot be produced except by horizontal or vertical well bores stimulated by hydraulic fracturing” (DEP 2012)

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Table 3.4. Major State Oil and Gas Rules State standards and rules

Functions

Permitting (erosion and sedimentation control, drilling, water obstruction, and encroachment)

“Applicants must disclose the proposed well’s location, distance to coal seams, proximity to surface waters, other water resources, and public resources such as schools and playgrounds. DEP’s staff evaluates the application to assess if the proposed well would cause or contribute to: • • • • •

Harmful environmental impacts; Conflicts with coal mine operations; Violations of well spacing requirements; Violations of setback distances; Other violations as determined by DEP policy.

If the wells will disturb an area (includes site, roads, pipelines, and storage facilities) of five or more acres, the applicant must receive a stormwater management permit as well (separate from the drilling permit).” “All operators seeking to drill a well after April 17, 1985, must submit a financial surety/bond. Bond amounts are as follows: • A single well is $2,500; • A blanket bond that would cover any number of wells is $25,000.

Financial Bond amounts for wells drilled in the Marcellus Shale Play liability and AND that have a wellbore length of at least 6,000 feet are as bonding follows: (non-Marcellus • Between 1 and 25 wells, the bond amount is $10,000 per wells) well, but capped at $140,000; • Between 26 to 50 wells, the bond amount is $140,000 plus $10,000 per well, but capped at $290,000; • Between 51 to 150 wells, the bond amount is $290,000 plus $10,000 per well, but capped at $430,000; • For more than 150 wells, the bond amount is $430,000 plus $10,000 per well, but capped $600,000.” Casing

“Operators must case and cement Marcellus Shale natural gas wells if the well bore is through freshwater aquifers and/or deeper zones that house oil, gas, or brackish waters.”

Testing

“Operators must test for mechanical integrity in all oil and gas wells and submit quarterly inspection reports annually.”

Site closure

“The operator is required to plug the well and within nine months of plugging the well, the operators must also restore the site.”

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Erosion and site controls

“Operators must implement preventative best management practices to limit erosion and sedimentation. Operators must also author and implement an Erosion and Sediment Control Plan.” “Water supply impacts or interruptions that occur within 2,500 feet of unconventional wells (and 1,000 feet of conventional wells) are presumed to be the responsibility of the operator. Operators must author and implement a Water Management Plan, which includes the following:

Water use

Wastewaters

• Identify where the water will be acquired and stored; • Identify withdrawal quantity, rate, timing and pass-by requirements; • Demonstrate that the withdrawal will not adversely harm the quality or quantity of other users, uses, and the watershed; • Identify a reuse plan for water used on site; • Many operators have also implemented baseline or pre-drilling water testing.” “Operators are required to identify where produced wastewaters will be stored, treated, and/or disposed. Operators are not allowed to discharge wastewater into surface waters.”

Sources: DEP 2018; 2013

Established a new impact fee schedule to be collected by the state’s Public Utility Commission Limited local land use and zoning authority as it relates to the placement of oil and gas facilities (Rabe and Borick 2013) Shifted state money into long-term site cleanup funds Expanded “drillers’ zone of presumed liability from 1,000 to 2,500 feet” Created new rules for chemical disclosure to the DEP Increased civil penalties to $75,000 and increased well bonding amounts (based on length of well bore rather than a flat fee) (State Impact 2018) Act 13’s authors also designed a fifteen-year impact fee schedule: between $40,000 and $60,000 per well in year one; between $30,000 and $55,000 per well in year two; between $25,000 and $51,000 per well in year three; and between $10,000 and $20,500 per well for years four through ten. Rabe and Borick (2013, 330–31) described the creation and design of the impact

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fee as particularly noteworthy and as creating an incentive to keep production high. As part of its design, state lawmakers “crafted the fee to operate at a lower overall level than that of any other state and included a complex mechanism that shifted the actual political burden of fee adoption onto local governments.” The PUC states the purpose of the fee as covering impacts associated with oil and gas production. Once collected, the PUC distributes monies to the following state agencies: conservation districts, the Fish and Boat Commission, the Public Utility Commission, the Department of Environmental Protection, Emergency Management Agency, Office of State Fire Commissioner, the Department of Transportation, the Housing Affordability & Rehabilitation Enhancement Fund, the Marcellus Legacy Fund, and local governments with oil and gas sites (PUC 2018). Act 13 also described how the impact fee could be spent. Permissible expenses for local governments, as described by the PUC, include the following: Construction, reconstruction, maintenance and repair of roadways, bridges and public infrastructure; Water, storm water and sewer systems, including construction, reconstruction, maintenance and repair; Emergency preparedness and public safety, including law enforcement and fire services, hazardous material response, 911, equipment acquisition and other services; Environmental programs, including trails, parks and recreation, open space, flood plain management, conservation districts and agricultural preservation; Preservation and reclamation of surface and subsurface waters and water supplies; Tax reductions, including homestead exclusions; Projects to increase the availability of safe and affordable housing to residents; Records management, geographic information systems and information technology; The delivery of social services;

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Judicial services; Deposit into the municipality’s capital reserve fund if the funds are used solely for a purpose set forth; Career and technical centers for training of workers in the oil and gas industry; Local or regional planning initiatives (PUC 2018).

Act 13 and the Courts Shortly after Act 13 went into effect, Robinson Township, along with several other communities, environmental stakeholders, and medical interest groups, sued the state (Rabe and Borick 2013). The Pennsylvania Supreme Court, in a 4–2 decision, declared portions of Act 13 that preempted local zoning authority as unconstitutional—specifically statewide preemption of local zoning rules and mandating that municipalities permit oil and gas production in all zoning areas. Justices Castille, Todd, and McCaffery concluded that portions of Act 13 violated the state’s Environmental Rights Amendment (article I, section 27) while Justice Baer argued that Act 13 infringed upon due process rights guaranteed in the state’s constitution (article I, section 1) (Pearson, Feeley, and Drajem 2013). Additionally, the court ordered that Sections 3305 through 3309 (review of ordinances by the PUC and loss of well impact fees) be reviewed.2 The plurality’s opinion focused on the application of the state constitution’s Environmental Rights Amendment to local communities. The ERA, the justices determined, provides Pennsylvanians with a right to clean air, pure water, and preservation of the natural, scenic, historic, and aesthetic value of the environment. The plurality added that the protection of these rights is reserved to the commonwealth and is a responsibility of all units of government. As a result, the Pennsylvania General Assembly cannot abrogate the responsibilities imposed by the ERA. Additionally, state lawmakers cannot “remove necessary and reasonable authority from local governments to carry out these constitutional duties.” Robinson Twp., Washington County v. Commonwealth, 83 A.3d 901 (Pa. 2013) (Holland et al. 2017, 787).

COMPLIANCE POLICIES What is the purpose of compliance in Pennsylvania? A report titled “Report 1 of the Forty-Third Statewide Investigating Grand Jury” issued by the state attorney general provides an answer: “The goal of regulatory oversight, moreover, is not only to discover past violations of environmental require-

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ments, but to deter new ones. And the way to do that is to punish violators once they are identified” (Shapiro 2020, 6). The report added, “Contamination of water and air is not supposed to happen, of course. Environmental laws and regulations are supposed to prevent these very things. The agency responsible to enforce those requirements is DEP” (Shapiro 2020, 5). To this end, the DEP possesses significant discretion in how it ensures operators’ compliance with applicable state rules and laws. This process begins with varying types of inspections, the detection of potential violations through specific testing and protocols, and if necessary, the use of specific administrative tools to ensure that the operator returns to a state of compliance (McKelvey 2015a). It should be noted that these standards typically apply to a single well, even if wells or facilities are concentrated in a particular area. In other words, the DEP policy does not consider wells as a group. As the DEP notes, “Their collective effect is not measured or acknowledged in the governing regulatory scheme” (Shapiro 2020, 39–41).

Inspection Process The Office of Oil and Gas Management (OOGM) schedules inspections in a way that maximizes efficiency, accuracy, and thoroughness, subject to available personnel and financial resources, and they can be scheduled or random. However, a 2014 auditor general’s report criticized DEP’s current inspection practices as creating “an exception to policy requirements for when and how frequently inspections are conducted because it allows DEP to conduct inspections only when it has the personnel and financial resources to do so.” The agency has also prioritized producing wells over abandoned or nonproducing sites. As a result, staff attempts to inspect each producing well in the Marcellus Shale annually, although this priority is also subject to resource availability. In fact, DEP officials recently conceded “that all active shale gas wells were not inspected at least once a year because DEP ‘does not have the resources’ to do so.” Additional challenges include high staff turnover, a revolving door with industry, and long training times for new hires (DePasquale 2014). Other factors that affect the department’s inspection schedule include the following: The operator’s business culture, attitude toward compliance, relevant expertise, and whether the operator cooperates with the inspector and the DEP Whether the operator has a designated staff member or members that act as an environmental specialist or that interface with DEP inspection staff

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The life cycle of the well and stage of production. That is, active well sites (under construction or during drilling or fracking) may take up to an entire day. By comparison a producing well (but not one in which fracking is taking place) typically takes less time. Whether it is a random inspection or a follow-up inspection (Hamill 2014) Inspections often begin with the inspector surveying the site’s perimeter, which may be as large as five acres, to ensure that the operator is complying with erosion and sedimentation standards. They then work their way to more internal operations, including examination of the well pad, fluid storage, pump stations, and hoses. Inspectors also review administrative records, site plans, waste documentations, records, and logs, as well as conduct tests and respond to citizen complaints (Hamill 2014). The DEP conducts multiple types of inspections, which can be scheduled or unannounced (DEP 2015). Inspections may take place at specific points along the production process: during site construction and preparation, drilling and alteration, and plugging. Despite the lack of formal inspection schedule, the number of well inspections has increased in recent years. For example, the DEP reported 2,418 inspections (for shale gas wells) in 2009. The DEP estimates that by 2012, inspections had jumped to nearly 15,000. We highlight several here that are especially relevant to compliance, with the remainder presented in appendix 3.4: Routine Complete: Any inspection of a regulated facility or activity covering the majority of items that can possibly be inspected at that point in time in the project. Routine complete inspections reflect that the inspector performed a thorough inspection of a well site or project area for regulated activities. Follow-up: A follow-up inspection is conducted to determine if previously issued violations have been sufficiently resolved. In the Oil and Gas Program this inspection type will be used anytime an inspection is performed to document the status of a violation, regardless of whether it is performed on the same day. Compliance Evaluation: This inspection type is noted only when all previous violations are resolved in the field and the originally cited facility has returned to full compliance. If there are still outstanding violations, or new violations are found during the inspection, this inspection type should not be used.

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Complaint: Any inspection conducted in response to a complaint or referral from a citizen, organization, or governmental agency. Incident-Response: Incident-response to an accident or emergency type event. Field Inspectors conducting initial inspections in response to large spills, releases, well control events or other emergency situations should use this inspection type. Administrative: Any review requiring a lengthy examination of files, permits, general permits, case/compliance history, databases, or other office duties related to a permitted facility. (DEP 2015)

According to Shapiro (2020) DEP staff also developed additional practices relative to inspections, which did not involve visiting a well. The report described: We are mindful of concerns that DEP is understaffed and employees cannot spend all their time making inspections. At the same time, we are highly skeptical that operators can fairly or effectively police themselves, given the powerful incentives not to expose their own violations. Yet we learned that it was not uncommon for DEP employees to resolve some cases through an “administrative file review,” meaning sitting at their desks, reviewing documentation submitted by the industry, without ever seeing the spill for themselves. On other occasions, we learned, DEP employees would investigate citizen complaints simply by calling the operator and asking him what happened. “We had so many complaints,” testified one employee. “It was impossible for us to respond to everyone.” So, instead, the first step was often to telephone the well site operator. If the operator sent in a photo purporting to show that no spill had occurred, the matter could be closed without ever leaving the office. (Shapiro 2020, 58–60)

Violations, Investigations, and Corrective Actions The DEP classifies violations as falling into one of two types: administrative or environmental health and safety (Rahm et al. 2015). In general, administrative violations are concerned with data reported to the department, including information related to permitting, approval, notification, and reporting, whereas health and safety violations are generally related to conditions that present a threat to health and the environment (DEP 2015). The DEP possesses administrative tools to ensure that operators remain in compliance with state oil and gas rules:

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Voluntary activities include “technical assistance and education” to bring operators back into compliance or to help them avoid violations (DEP 2015). Corrective actions that provide information about violations include notations in inspection reports, notices of violations, and administrative conferences with the expectation that the operator will take the necessary action to return to compliance. There is a second set of corrective actions that compel corrective measures including consent orders and agreement (CO&A), consent decrees, administrative orders, suspension or revocation of permits or registrations, and equity actions in court (DEP 2015). Penalty actions include civil penalties, fines, community environmental projects, and bond forfeitures. Payments may be separate from enforcement actions that require that the operator correct the violation (DEP 2015). These actions are described in greater detail in appendix 3.5. There is no specific order in terms of corrective actions. If DEP personnel determine that an NOV (notice of violation) will not ensure compliance or that a violation presents a clear public health danger, the agency may immediately issue an administrative order to correct the violation. Additionally, violations that “present immediate environmental harm or public health and safety issues may warrant the filing of a court action” (DEP 2015). In short, “there is no precise formula of enforcement action that is appropriate for every situation. The appropriate action must be chosen to achieve and maintain compliance considering various factors, such as seriousness, culpability, cooperation, and history” (DEP 2015). To this end, the department has prioritized violations in the following order: 1. Violations that result in the actual or potential release of any substance that endangers health, safety or the environment. 2. Violations that cause the need to restore or replace an adversely affected water supply. 3. Violations that result in the discharge of pollutants to surface or ground waters, such as spills or other releases. 4. Drilling or conducting other oil and gas related activities without a permit or other required authorization. 5. Intentional violations other than those listed above. 6. Failure to comply with an order, consent decree, etc., other than those listed above.

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7. All other violations (DEP 2015).

Penalties The issuance of a financial penalty can be among the agency’s highest-profile decisions. Often taken after other corrective actions have failed to bring the operator back into compliance, a penalty fine is calculated via a formula that begins with the base amount, which is defined by “the impact of the violations determined by the resultant harm or risk of harm to people, property, and the environment.” This initial amount can be increased based on the following factors: “The willfulness or culpability of the offender is then evaluated to determine an additional penalty” and the offender’s history The direct costs to the DEP/state incurred during the “investigation, response, and remediation, as well as any savings realized by the violator as a result of the penalized behavior” The behavior of the violator; that is, whether the violator exhibits “good faith and cooperation” during “clean-up, abatement, and restoration” (DEP 2002)

Compliance Dynamics Compliance is a complex interplay among rules (or lack thereof), standards, testing, and resources—any of which can derail compliance overall. During investigation or inspection, for example, inspectors must apply specific standards that must be met in order to determine whether there is a violation. The grand jury report provides a helpful example of this dynamic as it relates to water analysis: Water analysis is an imperfect science that cannot always provide the answers homeowners need. This complexity of water testing is compounded by the fact that operators are not required to disclose all the chemicals used to fracture any particular well, or any chemicals used in the drilling process. That makes it impossible to analyze a homeowner’s water for sources of contamination properly, because the tester does not know what to look for. (Shapiro 2020, 30–32) Homeowners frequently described a lingering fear that analysis of their water was not showing a full and accurate picture of what was happening. When they turned to DEP for answers, they were often

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left unsatisfied because DEP’s standard water analysis was too narrow and would not account for the full range of potential contaminants in their water. When results were provided they were difficult for the layman to understand. Turning to the industry operator would bring equally unsatisfying answers. (Shapiro 2020, 30–32) One of the mechanisms to do so was to conduct water testing when a homeowner complained of contamination. However, we learned that DEP was relying on old, pre-fracking criteria—meaning DEP employees weren’t even looking for the new compounds used in unconventional drilling, and therefore couldn’t accurately say whether it was causing contamination. (Shapiro 2020, 6)

The report noted similar challenges relative to determination of odor and air quality violations: The Department, however, imposed such stringent requirements that violations could rarely be found. A DEP air quality specialist explained, for example, that, in order to vindicate a complaint, the odor had to be smelled at the same time by three unrelated people in three different households, plus an inspector on site. And if the operations around the impoundment tended to produce the odor at a particular time of day that was outside of DEP work hours, no violation could be brought. The inspector testified that, in ten years in his position, he had never once been able to issue a “malodor” NOV. (Shapiro 2020, 60–62)

SUMMARY AND CONCLUSIONS This chapter began by situating Pennsylvania and grounding it within the larger community of oil- and gas-producing states. Pennsylvania was and is at the core of oil and natural gas production, management, and politics. In many ways, the state has a distinct and unique set of contextual experiences, especially with its Environmental Rights Amendment. It is also one of the few producing states that has had governors of both major parties. Yet, Pennsylvania’s fracking fights share many commonalities with other states. The fracking debate, whether it is New York, Pennsylvania, or Texas, has well-known contours. In short, those favoring development highlight economic gains and new revenues, whereas those opposed point to environmental risks. A second part takes a deep dive into specific compliance activities and takes a Pennsylvania-centric view of inspection processes, violations, and administrative actions. In the field, state regulators and inspectors face a twofold challenge. On one hand, they must cope with historical

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decisions and practices that date back to the latter half of the nineteenth century. On the other hand, they must respond to and manage compliance challenges in a period of rapid technological change that has fundamentally changed the oil and gas industry (e.g., horizontal drilling and hydraulic fracturing). In the late 1800s, Pennsylvania was at the center of new oil and gas production. By 2005–2006, new drilling and extraction processes generated a new oil and gas boom in Pennsylvania and helped to return the Keystone State as a key player in the nation’s energy portfolio (Montgomery and Smith 2010).

APPENDIX 3.1. OIL AND GAS PRODUCTION PROCESS—KEY STEPS 1. Operators apply for a permit or registration from the DEP. The operator must be established as an oil and gas operator and pay requisite fees. If a permit is issued, the operator may begin operations after providing a twenty-four-hour notice to the DEP, the landowner, and city or township in which the well is located. 2. Operators may also need to submit or receive the following: casing and cementing plan, notification for impacted landowners or water well owners, gas storage notification, impact statements for threatened or endangered species, coal owner notification, bond for well, waiver of distance requirements, variance from distance restriction, proposed alternate methods for casing, plugging, venting, waste management practices, and road-spreading plan, emergency response plan (part of Act 13), Act 537 Sewage Facilities, and conformance with oil and gas conservation policies (Pennsylvania Independent Oil and Gas Association 2018). 3. Operators drill vertically. Oftentimes they must pause below the water table so that operators may encase the well in cement to block seepage or leakage into the adjacent water table (casing). 4. Operators insert a drill bit and will eventually “bend” it to follow the underground formation or deposit. This is when operators drill horizontally. (Operators can drill multiple horizontal shafts from the original vertical well.) The horizontal well is also encased in cement with a pipe in the center to allow for the extracted resource to flow up to the surface. (The cement barrier is also around the pipe.) 5. Operators set a charge at the end of the well bore, marking the beginning of the fracturing process. 6. Operators inject a mixture of water, sand, and chemicals (frack fluid) to further pulverize the rock and to hold open the recently created fractures. The fluids are also designed to perform other functions such as preventing corrosion, sanitizing, lubricating, and reducing friction (Dunn 2014; McElreath, n.d.). 7. Natural gas and other materials that flow to the surface are considered

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flowback and produced waters. Produced waters are naturally occurring waters that come to the surface along with oil and gas during production, whereas flowback waters contain some of the fracking fluids (American Geosciences Institute 2019; Fisk 2017; Markosek 2018; OOGM 2016).

APPENDIX 3.2. ADDITIONAL REGULATIONS Table 3.5. Oil and Gas Rules Regulatory Area

Specific Language

Air quality, venting, and flaring

Addressed in permit including use of best available technology for emissions from new sources and inspections schedules

Cement type regulations

Yes

Casing and cementing depth requirements

50 feet below water table

Surface casing cement circulation regulations

Cementing to surface required

Intermediate casing cement circulation regulations

Cementing to surface required

Production casing cement circulation regulations

500 feet above true vertical depth

Information disclosure

Complete the chemical disclosure form and submit it to FracFocus—regulations do allow for trade secrets

Fluid storage operations

Pits allowed and regulated for all fluids

Pit liner requirements

Yes, liner required

Flowback and wastewater transportation tracking

Recordkeeping required (5 years)

Underground fluid injection

Underground injection allowed

Well idle time

12 months permitted

Temporary abandonment

60 months permitted

Sources: DEP 2018; 2013; FracFocus 2016; OOGM 2016

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APPENDIX 3.3. ACT 13 Act 13, according to Rabe and Borick (2013), also preempted local decision-making and land use authority in several ways: 1. Restricted setback distances between new wells and buildings, property lines, and bodies of water and established a new impact fee schedule 2. Amended local zoning laws and preempted local land use authority relative to the installation of hydrocarbon compressor stations in areas zoned as agricultural and industrial districts; defined compressor stations as conditional use for all types of zones, including residential areas 3. Prohibited, through section 3304b, local rules that exceeded those standards imposed on other industrial uses within the city or local governing jurisdiction 4. Authorized the state to withhold impact fees, should local governments fail to meet the standards established in Act 13 (DEP 2012; State Impact 2018)

APPENDIX 3.4. TYPES OF INSPECTIONS 1. Routine Complete: Any inspection of a regulated facility or activity covering the majority of items that can possibly be inspected at that point in time in the project. Routine complete inspections reflect that the inspector performed a thorough inspection of a well site or project area for regulated activities. This inspection type should be the standard for routine inspections. 2. Routine Partial: Any inspection of a regulated facility or activity that is limited in scope, not related to spills, complaints, or more specific inspection codes. Any routine inspection that targets only one or two aspects of a regulated facility or activity. 3. Pre-operation: In accordance with 58 Pa. C.S. § 3258(a)(1), this inspection type is conducted during well site construction and preparation after the installation of erosion and sedimentation control measures. The operator may not commence drilling activities until after this inspection has been conducted. 4. Drilling/Alteration: Any inspection performed during the drilling or alteration of a well. This inspection type would be used from application review until after the well is stimulated and operational. 5. Plugging: This inspection type should be used for all plugging activity inspections. 6. Follow-up: A follow-up inspection is conducted to determine if previously issued violations have been sufficiently resolved. The eFACTS

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definition states that a follow-up inspection should be done on the same day. In the Oil and Gas Program this inspection type will be used anytime an inspection is performed to document the status of a violation, regardless of whether it is performed on the same day. 7. Compliance Evaluation: This inspection type is noted only when all previous violations are resolved in the field and the originally cited facility has returned to full compliance. If there are still outstanding violations, or new violations are found during the inspection, this inspection type should not be used. 8. Bond Release: This inspection type is used by a wide variety of oil and gas field personnel. The bond release inspection is done to ensure that all conditions of the well bond have been satisfied before the bond is refunded to the operator. 9. Site Restoration: Site restoration inspections are conducted after all permitted earth disturbance activities are completed, temporary best management practices (BMPs) are removed, and the operator has permanently stabilized the site. Site restoration inspections are typically conducted in response to Department receipt of both Well Site Restoration Reports (5500-PM-OOGM0075) and Notice of Termination for an Erosion & Sediment Control General Permit. 10. Complaint: Any inspection conducted in response to a complaint or referral from a citizen, organization, or governmental agency. Oil and gas staff shall utilize the Complaint Tracking System (CTS) and follow the Standard Operating Procedure for Complaint Response Management, when recording, investigating, and resolving complaints. 11. Incident-Response: Incident-response to an accident or emergency type event. Field Inspectors conducting initial inspections in response to large spills, releases, well control events or other emergency situations should use this inspection type. 12. Road Spreading: Any inspection conducted by field inspectors related to the spreading of brine for the purposes of dust control and road stabilization on unpaved roads. 13. Administrative: Any review requiring a lengthy examination of files, permits, general permits, case/compliance history, databases, or other office duties related to a permitted facility (DEP 2015).

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APPENDIX 3.5. CORRECTIVE ACTIONS Table 3.6. Administrative Actions Actions

Explanation

Notation in inspection report

Notes on an inspection report can be given or shared with a violating operator.

Notice of violation (NOV)

An NOV advises the operator or party responsible for a violation of the “existence of a violation, not to compel an action.” It should “request or recommend that the person receiving the notice pursue corrective measures in a timely fashion.” This is subject to a follow-up inspection. It should be noted that receiving an NOV does not inherently mean that the violator will receive an enforcement order.

Administrative conference

An administrative conference is an “informal discussion with DEP staff regarding compliance issues and the party’s responsibilities and plans to correct the violations. Such a conference is not an enforcement action but rather a step in the policy of progressive enforcement.”

Consent order and agreement

“A plan for corrective actions resulting from an administrative conference may be formalized in a negotiated agreement such as a consent order and agreement.”

Consent decree

A consent decree “is an agreement negotiated between the Department and the subject party, and must be approved by the court in which the underlying action was filed. Usually such agreements arise from litigation that is already before the court.”

Administrative order

In an administrative order, the DEP “establishes the detailed factual basis for the violations(s), [and] directs the violator to take specific corrective actions by specific dates to correct a violation.” According to DEP policy, an “administrative order may be initiated by an Oil and Gas Inspector, Water Quality Specialist or related discipline, or by a supervisor after review of an inspection report by Counsel.”

Permit or registration suspension and/or revocation equity action

A permit suspension is “the temporary withdrawal of the privilege to conduct an activity under a specific permit or registration. The suspension may be for a fixed period of time or indefinitely until the Department is satisfied with progress towards compliance or resolution of the violation(s).”

Source: DEP 2015, reformatted for this book

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Table 3.7. Penalty Actions The DEP defines CACP as a negotiated settlement. However, Consent the DEP notes, “When determining an appropriate settleAssessment of ment amount, DEP will consider the factors contained in the Civil Penalty applicable civil penalty guidance, as well as prior settlements for (CACP) similar violations.” The DEP seeks “penalties mainly under the Oil and Gas Act (58 Pa. C.S. § 3256 et seq.) and the Clean Streams Law (35 P.S. § 691.1 et seq.). The Program may also assess a penalty under other laws, such as the Solid Waste Management Act (35 P.S. Assessment of § 6018.101 et seq.) and the Dam Safety and Encroachments civil penalty Act (32 P.S. § 693.1 et seq.). Although the maximum penalties allowed by these laws differ, the penalty provisions of each are similar in instructing the Department as to what factors to consider when evaluating penalties for violations.” Complaint for These documents are submitted to applicable courts or agencies civil penalties seeking civil penalties. Bond forfeiture

Depending on context-specific factors, “the Department will normally initiate bond forfeiture at the same time that it issues an administrative order or files a court action, or only after attempts at other enforcement actions have been pursued.”

Community environmental project

“A community environmental project (CEP) settlement may be documented by a consent order and agreement (CO&A) wherein the violator agrees to fund or perform specific work of environmental improvement in or near the municipality where the violation occurred. In the Oil and Gas Management Program, such work would typically be to plug one or more abandoned or orphaned wells that do not belong to the violator. However, the agreement may allow a different kind of environmental project.”

Source: DEP 2015, reformatted for this book

Chapter 4

COMPLIANCE TRENDS

Compliance takes place in an arena replete with multiple goals, specialized knowledge and technology, elite political and economic actors, interest groups, evolving on-the-ground conditions, asymmetric information sharing, and ample discretion. Whereas researchers have concluded that state-level oil and gas agency leadership is generally responsive to elected officials (Davis 2012), less is known about compliance-related outputs during the lead-up and the first handful of years that encompassed the unconventional oil and gas boom. As chapter 3 shows, state agencies, including the Department of Environmental Protection in Pennsylvania, possess authority to make and enforce applicable rules, hire and develop personnel, consider (or reconsider) priorities, and engage with citizens and other stakeholders as part of compliance. The context of oil and gas compliance is influenced by a range of factors related to mission and policy; technology, timing, and data; political and administrative priorities; and budgetary constraints and larger economic forces, as outlined in chapter 1. In chapter 2, previous scholarship demonstrated how many of these contextual factors can shape and affect policy implementation, outputs, and outcomes, albeit mostly in other policy domains. Chapter 3 frames this interactive context within the rules and standards as 99

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articulated and promulgated within the state of Pennsylvania. We continue to focus on Pennsylvania in chapter 4 but shift our attention to unpacking the outputs and outcomes first outlined at the beginning of chapter 2 (production, inspections, identification of violations, and use of regulatory/judicial tools).1 To do so, we are guided by the following questions: 1. How many wells are present in Pennsylvania? 2. What is the number of unconventional wells? Similar questions are included about oil production. 3. On average, how many inspections does the state conduct annually? What is the workload of an inspector? What types of inspections are being conducted? What is the budget of the Department of Environmental Protection? 4. How many violations are inspectors detecting? What differences, if any, exist between violation types (e.g., administrative or public health and safety)? 5. To what extent does the state fine violators? 6. Has the growth of unconventional production affected each of the above questions? The answers to these questions represent an important foundation for understanding how unconventional production has ignited debate, challenged regulators, and shaped how Pennsylvania ensures compliance (DePasquale 2014). A few numbers are illuminating and put challenge in Pennsylvania in perspective: There are approximately 60,000–70,000 actively producing wells (both conventional and unconventional sites). There are around 10,000–12,000 unconventional oil and gas wells. Operators have drilled over a half million oil and gas wells. The state has records for approximately 200,000 wells. The state estimates that there may be 560,000 oil and gas wells that are not in state records and/or are safely plugged (Mulhollem 2018). What does all this mean for compliance? The short answer is that for DEP inspectors there are thousands of wells that lawmakers have prioritized for inspections, tens of thousands of wells that may have limited or no predrilling data, thousands of wells built to different standards during different eras, thousands of wells that involve new technologies (which inspectors had

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Table 4.1. Energy Production Estimates in Physical Units, Pennsylvania, 2000–2017 Year

Fossil Fuels Coal (in thousands of short tons)

Natural Gas (in millions of cubic feet)

Production

% Change from Previous Year

% Change from Previous Year

Production

2000

74,619

n/a

2001

74,784

0%

150,000 130,853

2002

68,471

2003

63,792

−8%

157,800

−7%

159,827

2004

66,023

3%

197,217

2005

67,556

2%

168,501

2006

66,178

−2%

175,950

4%

2007

65,190

−1%

182,277

4%

2008

65,455

0%

198,295

9%

2009

59,143

−10%

273,869

2010

58,964

0%

572,902

Renewable Energy Crude Oil (in thousands of barrels)

Fuel Ethanol (in thousands of barrels)

Production

% Change from Previous Year

Production

% Change from Previous Year

n/a

1,500

n/a

0

n/a

−13%

1,620

8%

0

n/a

21%

2,324

43%

0

n/a

1%

2,466

6%

0

n/a

23%

2,396

−3%

0

n/a

−15%

2,460

3%

0

n/a

2,589

5%

0

n/a

2,788

8%

0

n/a

2,999

8%

0

n/a

38%

2,967

−1%

0

n/a

109%

3,238

9%

2,518

n/a

2011

59,899

2%

1,310,592

129%

3,431

6%

2,690

7%

2012

55,506

−7%

2,256,696

72%

4,319

26%

2,547

−5%

2013

55,161

−1%

3,259,042

44%

5,307

23%

2,677

5%

2014

61,877

12%

4,257,693

31%

6,849

29%

2,740

2%

2015

50,872

−18%

4,812,983

13%

7,085

3%

2,677

−2%

2016

45,885

−10%

5,210,208

8%

6,306

−11%

2,675

0%

2017

49,131

7%

5,463,888

5%

6,573

4%

2,660

−1%

Source: EIA 2018f, reformatted for this book

to learn about while they were already producing), hundreds of wells without a known owner, thousands of wells that are not actively maintained or monitored, tens of thousands of wells in unknown locations, dozens of performance standards, and multiple principals. We should note that none of the above addresses the adequacy of existing laws or practices.

PRODUCTION TRENDS A combination of natural and anthropogenic factors drives much of the state’s oil and gas production. It is home to much of the Marcellus Shale formation, which holds nearly half of the nation’s total shale gas. The Marcellus’s location, along with the development of new fracturing and horizontal drilling technologies, has contributed to a sudden rise in oil and natural gas

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Compliance Trends

Figure 4.1. Natural Gas–Producing Wells, 2000–2016

production, as shown in figures 4.1 and 4.2. These trends coincided with steep declines in the state’s coal industry, rising demand within Pennsylvania and elsewhere for natural gas, and somewhat stagnant renewable energies, as reflected in table 4.1. A closer look at the overall production levels in table 4.1 belies the percentage changes for coal and natural gas. Between the years 2000 and 2015, natural gas production grew more than tenfold. In fact, from the 2010–2011 year to the 2011–2012 year, natural gas production nearly doubled. Oil, it should be noted, also enjoyed a renaissance, although the inclines are not quite as steep as those of natural gas. Fracking-fueled production can be juxtaposed with coal extraction, which showed steep production declines over the same time frame. In fact, for some years, the change from the previous year was over 10 percent. Natural gas and, to a lesser extent, oil have long been part of the state’s energy mix and economy. Each has enjoyed strong support from state elected officials (often Republicans) as well as administrative leaders in the DEP

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103

Figure 4.2. Natural Gas Production, 2000–2016

Figure 4.3. Shale Gas Production, 2007–2016

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Compliance Trends

Figure 4.4. Pennsylvania Field Production of Crude Oil (in thousand barrels)

(Rabe and Borick 2013). As outlined in chapter 3, lawmakers have passed a myriad of laws and regulations, as well as standards for identifying and detecting a violation, designed to support the industry while also balancing public health and environmental protection. State lawmakers have also sought to capitalize on the economic benefits of production. When combined with technological innovations, a favorable market, and a supportive regulatory environment, oil and gas production has undergone significant growth since 2006, albeit with some small dips as shaped by regional, national, market, and global factors, in recent years. These trends are reflected in figures 4.1–4.4. Like elsewhere, the fracking boom in Pennsylvania meant a large increase in the number of actively producing wells. In fact, between 2000 and 2015, the number of active oil and gas extraction sites nearly doubled. As noted in chapter 4, each of these sites required a series of permits and would be prioritized for DEP inspections, especially when the well was actively producing.

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Compliance Trends Table 4.2. Location of Development, 2015 Counties

Operators

Violations

Wells

Washington

9

153

1,146

Bradford

6

765

1,097

Susquehanna

8

795

1,079

Greene

12

111

870

Lycoming

11

636

832

Tioga

6

507

661

Butler

12

57

321

Fayette

7

39

257

Westmoreland

12

57

251

Wyoming

6

142

228

Armstrong

14

66

202

Clearfield

8

67

102

Sullivan

5

81

98

Clinton

5

64

70

McKean

10

35

65

Allegheny

4

4

63

Elk

5

25

60

Lawrence

2

13

52

Jefferson

7

54

49

Cameron

3

56

43

Potter

5

109

40

Mercer

4

17

38

Indiana

8

13

33

Beaver

2

2

30

Centre

5

31

26

Clarion

7

51

24

Somerset

3

9

17

Forest

3

16

14

Blair

1

15

6

Venango

3

7

4

Cambria

3

0

3

Crawford

3

7

3

Warren

2

0

3

Huntingdon

1

2

1

Source: Table reproduced from Amico et al. 2015 with minor stylistic editing

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Similar to figure 4.1, the fracking boom also led to significant jumps in overall natural gas extraction as more unconventional sites emerged (although not all wells were fracked). The surge in production fueled significant optimism within the state and refilled state coffers, but also contributed to production that encroached into areas not accustomed to development and that strained limited resources at the DEP. As mentioned in chapters 1 and 2, advances in extraction technology targeting underground shale formations and a favorable tax code paved the way for Pennsylvania’s production boom, as shown in figure 4.3. Although many conventional wells were still producing, much of the production from these sources had already peaked, meaning that the vast majority of the state’s production was originating from unconventional formations such as the Marcellus Shale. In fact, production in the Marcellus largely fueled the state’s return to a top US natural gas–producing state. Many of Pennsylvania’s fracking battles take place over issues related to natural gas extraction. However, the state’s operators also extract oil, which has also benefited from advancement in extraction technologies. Oil wells, it should be noted, are subject to inspections, violations, and corrective actions with oil-specific standards and criteria. Within Pennsylvania, production and its costs (e.g., environmental externalities, including violations) and benefits are clustered in counties located above the Marcellus Shale. In table 4.2 we include the top forty producing counties out of the sixty-seven counties in the state, along with violations, as measured in 2015. Oil and gas production is place-specific with surface-level costs being acutely felt in areas and communities with a higher number of individuals living near development. Benefits, however, can be felt locally as well as at the state level and are likely to benefit individuals located far from production. When production is concentrated in specific locations or communities, it complicates compliance in several ways: It is likely to generate statewide and place-specific economic benefits, including job and employment benefits, meaning that there are political incentives to support production and even lax oversight. It is likely to also bring economic benefits to particular regions, including impact fee revenues, job creation, and new investment. It is likely to concentrate costs including environmental risks, potential violations, and disruptions to quality of life, meaning that there are political incentives to support more rigorous oversight.

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107

It is likely to impact areas that are home to residents and groups with differing life experiences, priorities, values, levels of trust in state government, and beliefs about the oil and gas industry and environmental issues. It is likely to impact areas that are home to residents and groups with differing vulnerabilities, degrees of political efficacy, and willingness to call the DEP with complaints. Pennsylvania’s proximity to major markets has further incentivized extraction and has created new opportunities for state lawmakers and producers. As a result, companies have proposed new lines or expansion of existing infrastructure. Highlights include the following: New interstate pipelines that span multiple states (e.g., Pennsylvania to Alabama) Several lines that increase pipeline capacity by several hundred to nearly 1,000 MMcf/d (million cubic feet per day) In short, the overall number of pipelines crisscrossing the state is increasing, as is the overall capacity to transport hydrocarbons—both regionally and nationally. Data presented in table 4.3 includes a snapshot of pipeline projects, as reported by the DEP from 2010 to 2015 (DEP 2019b). The proliferation of oil and gas pipelines, briefly discussed here as well as in chapter 3, has raised the stakes in terms of compliance. Of note is the number of interstate lines, meaning that production at Pennsylvania sites is heating homes in states across the United States and generating billions of dollars of revenue. It also means that the decisions of state regulators are likely to have an indirect (albeit small) impact on lines overseen by federal agencies. In other words, a decision to permit a new pipeline (or increase pipeline capacity) is likely to lead to an increase in natural gas extraction (and thus production), which would necessitate a greater number of wells scheduled to be inspected. The number of sites where drilling has begun (known also as spud dates) reflects the growth in Pennsylvania’s oil and gas sector and is shown in figure 4.5–4.7. The Pennsylvania DEP states, “The Spud Data Report is designed to show the Oil & Gas drilling commence date,” as reported by the operator to the oil and gas inspector for the county. This matters in two ways. First, DEP policy states that “the start of drilling of a well may not commence until the Drill & Operate Well permit has been issued to the Well Operator” (DEP 2020). Second, the DEP has prioritized inspections within the first year of production and at unconventional sites.

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Table 4.3. Pipeline Projects Cost ($, in Miles millions)

Project Name

Pipeline Operator Name

East Side Expansion Project

Columbia Gas Transmission

9/30/15

PA, NY, NJ

PA

NJ

269

19

Leidy Southeast Expansion

Transcontinental Gas Pipeline

1/5/16

PA, MD, VA

PA

VA

610

30

Line N, West Side Expansion and Modernization Project

NiSource Gas Transmission & Storage

9/24/15

PA

PA

PA

76.1

23

Uniontown to Gas City Expansion Project (U2GC) (bidirectional)

Texas Eastern Transmission

8/28/15

PA, OH, IN

PA

IN

56

n.d.

Line 1570 Project

Columbia Gas Transmission

10/24/14

PA

PA

PA

121.7

18.5

Northeast Connector

Transcontinental Gas Pipeline

11/7/14

PA, NJ, NY

PA

NY

49

n.d.

Rose Lake Expansion Project

Tennessee Gas Pipeline Co.

10/27/14

PA

PA

PA

92

n.d.

TETCO Supply Expansion Project

Eastern Shore Natural Gas

12/1/14

PA

PA

PA

0

8

TETCO TEAM 2014 Expansion

Texas Eastern Transmission

11/7/14

PA, NJ

PA

NJ

500

34

West Side Expansion Project (Smithfield III)

Columbia Gas Transmission

10/27/14

PA, WV, KY

PA

KY

81

n.d.

Beg. End Completed State(s) State State Date

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Compliance Trends

MPP Project

Tennessee Gas Pipeline Co

9/20/13

PA

PA

PA

89

7.9

Northeast Supply Link Project

Transcontinental Gas Pipeline

10/28/13

PA, NJ

PA

NJ

390

12.5

Northeast Upgrade Project

Tennessee Gas Pipeline Co

12/5/13

PA, NJ

PA

NJ

500

40

Sabinsville to Morrisville Project

Dominion Transmission

11/1/13

PA

PA

PA

17

4

Tioga Area Expansion Project

Dominion Transmission

10/3/13

PA

PA

PA

67

15

Ellisburg to Craigs Project

Dominion Transmission

10/30/12

PA, NY

PA

NY

46

7

Inergy Marc I Hub Line Project

Central New York Oil & Gas

11/14/12

PA

PA

PA

n.d.

39

Line N 2012 Expansion

National Fuel Gas Supply Corp

10/31/12

PA

PA

PA

35.823

4.85

Northeast Expansion Project

Dominion Transmission

10/31/12

PA

PA

PA

97.3

n.d.

Northeast Supply Diversification Project

Tennessee Gas Pipeline Co

10/19/12

PA, NY

PA

NY

100

7

Northern Access Expansion Project

National Fuel Gas Supply Corp

10/31/12

PA, NY

PA

NY

80

n.d.

Philadelphia Lateral Expansion Project

Texas Eastern Transmission

10/18/12

PA

PA

PA

n.d.

n.d.

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Compliance Trends

300 Line Expansion Project

Tennessee Gas Pipeline Co

11/1/11

PA, NJ

PA

NJ

643

127

NFGS Line N Projects

National Fuel Gas Supply Corp

10/19/11

PA

PA

PA

56

18

North and South Expansion Project

Central New York Oil & Gas

11/1/11

PA, NY

PA

NY

n.d.

n.d.

TEMAX/ TIME III

Texas Eastern Transmission

8/26/11

PA

PA

PA

472

38.6

Tioga County Extension Project

Empire Pipeline

11/20/11

PA, NY

PA

NY

46.76

15

Delta Lateral Project

Transcontinental Gas Pipeline

10/7/10

PA

PA

PA

12.5

3.5

Dominion Hub I Project

Dominion Transmission

10/29/10

PA

PA

PA

34

2

Dominion Hub III Project

Dominion Transmission

10/26/10

PA, WV

PA

WV

35

9

Dominion Rural Valley Project

Dominion Transmission

4/1/10

PA

PA

PA

40.6

1.4

Eshore Parkesburg Expansion

Eastern Shore Parkesburg Line

10/16/10

PA

PA

PA

19

8

T. W. Phillips Bionol Clearfield Pipeline Proj

T. W. Phillips Pipeline Corp

1/8/10

PA

PA

PA

7

8

Note: n.d. indicates no data available. Source: DEP 2019b, reformatted for this book

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Compliance Trends

Figure 4.5. Spud Date by Well Type

Figure 4.6. Spud Counts—Unconventional and Conventional Wells

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Compliance Trends

Figure 4.7. Total Spud Count

The rate and frequency of spud dates largely follows the history and trajectory of unconventional oil and gas development, with specific trends highlighted: By 2005–2006, beginnings of the dramatic uptick in the number of spudded wells are evident, for both oil and gas, as shown in figures 4.5–4.7. This represents the beginning of the oil and gas boom and the zenith of optimism. It also represented a period of learning for both the industry and DEP staff. There have been a greater number of “spud dates” for natural gas wells than for oil wells. This has regional implications, as thousands of miles of intra- and interstate lines deliver Pennsylvania’s natural gas to consumers as far south as Alabama. Production from many of these fields started increasing significantly around 2008 with smaller decreases and upticks since then as the market has responded to varying issues such as cold weather that have affected supply and demand.

Compliance Trends

113

The number of new sites for unconventional wells peaked around 2007 with approximately 2,000 spuds, which coincided with a dramatic decline for spuds at conventional sites. It should be noted that this trend, already evident in figure 4.3, suggests that a large majority of new wells were targeting unconventional fuel sources, namely shale formations. Visual results are shown in figures 4.5–4.7. Figures 4.5–4.7 depict the fracking boom and the number of wells that operators were drilling in Pennsylvania. We should note that drilled wells are not necessarily producing wells as wells must be completed prior to producing. We point to a large spike in the number of wells drilled around 2006 and 2007 at the beginning of the boom. The figures also show how the number of new wells drilled began to drop around 2010, even as statewide production increased. The Bureau of Labor Statistics explains: Increased natural gas supply tends to dampen prices. In turn, lower prices can erode incentive for drilling, which eventually results in decreased production. . . . With prices currently well below their 2008 peak, producers have cut back on new drilling activity to avoid oversupply in the natural gas market. However, despite the slowdown in drilling activity, overall production has continued to rise, due to expanded horizontal hydraulic fracturing to shale rock formations. In terms of demand, domestic consumption increased 9.4 percent between 2008 and 2012, chiefly due to increased demand from the electric power sector, which rose 37 percent between 2008 and 2012. The vast majority of electric power is generated from coal and natural gas. As the price of natural gas fell relative to that of coal, the electric power generation sector increased natural gas consumption and reduced coal consumption. (PPI Energy and Chemicals Team 2013)

Understanding the differences between spud dates and actual production has important implications for compliance. As indicated in chapters 1 and 3, operators must lease the mineral rights prior to drilling or extracting. Once leased, they then apply for requisite permits from the applicable agency, which enables the operator to begin drilling. For unconventional sites, operators are likely to drill vertically and horizontally. The spud date coincides with the date that drilling begins, not actual production, and drilling is typically performed by an oilfield service company rather than the firm that originally leased the mineral rights. For compliance this matters in two ways. First, the time between the spud time and production tends to be longer for unconventional sites than for conventional sites, as the ground and the well itself need to be prepared. In this way, there is additional time for inspections and a greater number of steps to prepare the well for actu-

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al extraction. Second, the entity that leased the mineral rights may not be the same as the oilfield servicer, meaning that a violation and subsequent response may involve more than just the regulated entity and the regulator (Fisk 2017). Since about 2010–2011 (as compared to previous years), the number of new spuds has largely dropped. However, looking further back, the number of new spuds had increased, especially since 2000, reflecting the boom-andbust nature of oil and gas production. This too has implications for many of our compliance variables. During the boom times, state governments are more likely to reap rewards related to increased (or even new) tax collections and gains in employment. This context, largely supportive of extraction, may have a set of factors pushing for desired inspections, violations, and administrative protocols and actions. As noted in figure 4.7, the boom often gives way to a bust. According to Fisk (2017), the social implications of fracking’s boom-and-bust economics can be troubling. “Jim Weaver, a planner in Tioga County, Pennsylvania described the boom-bust dynamic as ‘[dollars] dangling in front of you and you’re chasing the carrot, before you know it you’re out on a limb, and the limb gets sawed off’” (DePillis 2015, quoted in Fisk 2017). “Guy Coviello, with the Youngstown/Warren Regional Chamber of Commerce in reference to the Vallourec’s announcement reflected ‘you can’t predict the cycles . . . but even though we knew it [boom and bust business], I think we all kept that knowledge in a closet somewhere’” (Shingler 2015, quoted in Fisk 2017). “Shawn Bennett, the Executive Vice President of the Ohio Oil and Gas Association described the industry’s economic situation in 2015 as ‘people are packing up and leaving and there are jobs being lost. Things just aren’t going gangbusters the way they were a year ago’” (Shingler 2015, quoted in Fisk 2017). For compliance, boom-and-bust cycles matter. First, they may affect the political fortunes of elected officials, or present new opportunities for stakeholders to push for their desired changes. They may also impact state agency budgets and other financial and tax incentives. Finally, they may harm the industry and lead to bankruptcies or a scaling back of operations.

THE ECONOMICS OF PRODUCTION As noted in chapters 1 and 3, the statewide economics of oil and gas production are significant. For Pennsylvania, state-level revenues generated directly from development (as measured through collected impact fees) spiked

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Compliance Trends

Table 4.4. Act 13 Impact Fee Collections Year

Total collections (rounded to the nearest million)

2011

204,000,000

2012

202,000,000

2013

226,000,000

2014

224,000,000

2015

188,000,000

2016

173,000,000

2017

210,000,000

2018

252,000,000

Sources: PUC 2018; 2016, reformatted for this bookv

Table 4.5. Act 13 Revenues Allocations, 2017 Destination

Amount

50% County Conservation Districts 50% PA State Conservation Commission

$3,875,000 $3,875,000

Fish and Boat Commission

$1,000,000

PA Public Utility Commission

$1,000,000

Department of Environmental Protection

$6,000,000

PA Emergency Management Agency Office of State Fire Commissioner

$750,000 $750,000

Department of Transportation

$1,000,000

36% to counties with unconventional gas wells

$39,522,377

37% to municipalities with wells (less capped excess)

$38,728,373

27% to all municipalities in counties that have wells

$29,432,261

Restriction on municipalities’ transfer to Housing Affordability & Rehabilitation Enhancement Fund

$2,101,315

Housing Affordability & Rehabilitation Enhancement Fund

$5,000,000

Marcellus Legacy Fund

$76,522,920

Source: PUC 2018, reformatted for this book

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Compliance Trends

Table 4.6. County-Level Distribution, 2017 (not comprehensive) County name

60% to counties & municipalities with wells

40% Marcellus legacy disbursement

Total

Allegheny

$579,983.22

$1,091,312.20

$1,671,295.42

Bradford

$4,997,135.45

$54,121.86

$5,051,257.31

Butler

$1,948,743.63

$166,406.26

$2,115,149.89

Greene

$4,913,617.87

$33,127.71

$4,946,745.58

Lycoming

$3,605,175.71

$102,640.06

$3,707,815.77

Susquehanna

$5,911,189.01

$36,391.76

$5,947,580.77

Tioga

$2,983,433.70

$36,930.58

$3,020,364.28

Washington

$7,089,714.92

$185,228.24

$7,274,943.16

Total

$39,522,376.65

$11,478,437.70

$51,000,814.35

Source: PUC 2019, reformatted for this book

in 2013 and 2014 and then dropped through 2016. By 2017, however, they rebounded and topped $200 million, as reflected in table 4.4. The impact fee (paid by the operator) is a function of the average annual price of natural gas, which can be adjusted to reflect increases in the consumer price index if the total number of unconventional wells exceeds the number of wells in the prior year (Rabe and Borick 2013). Act 13 withholds a fixed amount of impact fee dollars ($25.5 million) for state agencies. It also set aside a similar amount for the Marcellus Legacy Fund. After the state withholds its $25.5 million, monies are allocated based on the following formula: 60 percent to the Unconventional Gas Well Fund (for counties and municipalities with wells) with the remaining 40 percent to the Marcellus Legacy Fund, as reflected in table 4.4 (PUC 2018; 2016). Within the Unconventional Well Fund, the state distributes monies as follows: 36 percent to counties with wells, 37 percent to municipalities with wells, and 27 percent to municipalities in counties with wells. The dollars received by the Marcellus Legacy Fund are distributed with the following formula: 20 percent to the Commonwealth Financing Authority, 10 percent to the Environmental Stewardship Fund, 25 percent to the Highway Bridge Improvement Fund, 25 percent to PennVEST and Water Programs, 15 percent to Environmental Initiatives (via counties), and 5 percent to the Department of Community and Economic Development (PUC 2018; 2016), as reflected in table 4.5, with county allocations shown in table 4.6. As shown in table 4.6 and summarized in chapter 3, Act 13 includes a portion of revenues to be set aside for impacted local governments. First, it should be noted that Act 13 dollars largely fall to the same set of jurisdic-

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Compliance Trends

tions that have production, meaning that they may create the perception of winners and losers. The act also prescribes how localities may spend these dollars, including public infrastructure, water (including stormwater and sewer), emergency preparedness, environmental programs, tax cuts and reductions, housing projects, workforce development, social services, and planning. According to research by Gajanan and Robar (2016), local governments are spending their Act 13 dollars on primarily the following: supporting their capital reserves, emergency readiness, public safety and preparedness, infrastructure, and information technology, with a smaller number using these dollars to support tax cuts and social services. The availability of impact fee dollars may again provide an incentive to encourage production and depress the appetite for exercising more stringent oversight.

INSPECTION TRENDS Inspections are critical tools that enable state lawmakers to balance environmental protection with energy development. Over time, the DEP has conducted hundreds of thousands of inspections from new drill sites to sites that are considerably older. The temporal dimension, we should note (data between 2000 and 2015), captures inspection activity during boom-andbust portions of oil and gas development as well as during the rapid increase in production in unconventional fields. In general, the agency has done “more with less” although it has incorporated new technologies to make the inspection and compliance process more efficient (Cusick 2017). In figures 4.8–4.12, we highlight the number of inspections as well as their workload. Key takeaways from these figures include the following: State financial support for the DEP has decreased during the included time period. The raw number of inspections has increased since 2005; this follows production trends as well as the number of producing wells and spuds. The workload for DEP inspectors has increased and in some years the average number of inspections exceeded 800. The raw number of all inspection types has increased and topped 30,000. The number of inspections at unconventional sites has increased. The number of experienced inspectors has declined since 2010.

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Figure 4.8. Raw Number of Inspections

The number of inspections at new drill sites has increased. Figure 4.8 shows the raw number of inspections per year from 1960 through 2015. The overall count of inspections has experienced a precipitous rise in the years following the advent of unconventional production. This, we believe, makes sense as state policy prioritizes unconventional production sites and active drill sites over other site types. In short, as the boom began, so did the overall count of inspections. Tables 4.9 and 4.10 reflect inspectors’ workload. In table 4.9, the average number of inspections per inspector is shown. A common theme for this chapter is compliance activities swinging upward in the mid-2000s. Such is the case in table 4.9. In 2006 the average number of wells inspected was less than three hundred. In 2010 the average had nearly doubled and by 2014 it had tripled. In short, as the number of overall inspections increased, so did the average number of inspections for each inspector—without substantial increases in the DEP budget forcing inspectors to do more with less. In figure 4.10, we display inspector experience. In general, inspector experience followed the same pattern as the overall number of inspections and average workload. While no inspector would have had experience inspecting an unconventional site prior to 2006, social science research suggests that

Compliance Trends

Figure 4.9. Average Annual Number of Inspections

Figure 4.10. Number of Experienced Inspectors

119

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experience matters in terms of street-level decision-making. The grand jury alluded to the novelty of fracking and pointed to internal management challenges within the DEP during the early years: DEP employees didn’t just need new rules; they needed new knowledge. The Department was faced with novel extraction technologies that no one knew anything about. In the early days of the industry, DEP endeavored to better understand aspects of the process by performing its own study. And yet, the agency did not effectively share the information among its own staff once it was acquired. We learned that expert training is available that could assist DEP employees in their ability to effectively regulate this industry. In spite of its availability, the agency hasn’t found a way to avail itself of many of these training opportunities. (Shapiro 2020, 5)

We should note that it is hotly debated whether the number of inspectors and inspections is adequate. We suggest that this debate is part of the context of compliance and subject to the factors identified in our model, which is displayed visually in the subsequent chapter. For example, as noted in chapter 8, Governor Wolf has proposed adding more oil and gas inspectors. Data in figure 4.11 enables readers to understand the types of inspections conducted by DEP personnel. The most common inspection type is routine, which signals that the “inspector performed a thorough inspection of a well site or project area for regulated activities,” and this inspection can take place at any time. Both complaints (that is, inspections conducted in response to a complaint from a citizen, organization, or public organization) and administrative reviews (examining files, permits, etc.) are less common; however, both increased following widespread development in the Marcellus Shale. In figure 4.12, we highlight inspector workload and fracking via spud counts and what it may mean for inspectors. Again, we note that inspectors’ workloads reached their lowest in 2007 and 2008, with significant and rapid rebounds in the following years. These new wells represented new demands on inspectors, many of whom were inspecting a substantial number of wells prior to the unconventional oil and gas boom. This quantitative data is supplemented by the “on-the-ground” experiences of veteran state DEP inspectors. Of his experience with operators, DEP inspector John Sengle2 described, “For the most part the companies have been pretty attentive. . . . That said, I have walked up on a site and seen a spill and thought, ‘I can’t believe the company didn’t see that.’” In describing his experience with inspection, Sengle added, “I clearly have a hierarchy of operators I deal with who are pretty much ahead of the game, and then the ones I kind of have to lead along. But I try not to let that influence how I approach a site” (Hamill 2014). Sengle adds that compliance is also shaped

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Figure 4.11. Inspections by Type

Figure 4.12. Number of Spuds by Inspector accounting for Workload

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by the individual charged by the drilling company to manage the site (or manage environmental impacts), stating that “it is so dependent on the guy on the ground, the guy the companies have monitoring the site. . . . If he’s good, everything goes smoothly” (Hamill 2014).

VIOLATION AND ADMINISTRATIVE ACTION TRENDS This section addresses violation and administrative actions. DEP inspector John Sengle observed that timing matters: “When a well site is active, it can have more than 100 people on-site, dozens of tanker trucks, pumps, hoses and other equipment.” That’s why, he said, inspectors know with good reason that “most violations occur at active sites.” Other research has revealed common patterns relative to violations: higher numbers at conventional well sites and more frequent violations during the first two years of a well’s life cycle, often the most active portion of a well’s life (Hamill 2014). Prior research also found that larger operators were less likely to receive a violation as a ratio of total producing wells (Abualfaraj et al. 2016; Rahm et al. 2015). Our results, which generally support these earlier findings, are presented in figure 4.13 and tables 4.7 and 4.8. Notable takeaways from the overall data include trends such as these: Some violations, such as a failure to properly store, transport, process, or dispose of a residual waste, are much more frequently observed than others. Three of the top four violations are classified as environmental health and safety, although there are usually more administrative violations than environmental health and safety. Notice of violation appears to be the most common administrative response to a violation observed by an inspector. About 15 percent of inspections resulted in some sort of enforcement action. Both types of violations have ebbed and flowed in the timespan included here. Both types of violations have grown recently, although health and safety violations’ rate of growth has slowed over time. The full picture of violation trends, however, is incomplete and can depend on the quality and availability of data and the time period. Based on findings from a grand jury report, the attorney general concluded the following:

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Our investigation also revealed evidence of another manner in which DEP was not vigorously enforcing Pennsylvania environmental laws. When the Department discovers that an operator is not in compliance with a regulation, the Department is supposed to issue a Notice of Violation, or “NOV.” DEP failed to do much of that in the formative years of fracking, which is when oil and gas violations were much more likely to occur. . . . We heard evidence indicating that in at least some cases DEP staff’s reluctance to issue oil and gas NOVs may have been a consequence of policy decisions made at the top of the Department. (Shapiro 2020, 62)

These early observations stand in contrast with DEP practices adopted in later years as well as nuances in counting practices: “DEP has provided the Grand Jury with statistics showing that, in more recent years, the number of NOVs has dramatically increased. In 2015, for example, the Department issued over 400 unconventional well NOVs, and the numbers have gone up since. We’re encouraged to see that. We do note, however, that the Department has begun, in effect, double-counting NOVs in some cases. If the violation is not corrected within the year, it is carried over to the following year but is registered as if it were a new violation” (Shapiro 2020, 63). Publicly available DEP data also reveals what sorts of violations occur more or less frequently, which is important as certain violation types present varying public health risks. More frequent violations may also be indicative of an enforcement priority, poor behavior by the industry, or the need for greater learning by stakeholders. Data limitations preclude identifying a particular reason. Table 4.7 reveals the frequency of violations by type. It is noteworthy that several of the more common environmental health and safety violations are associated with oil and gas waste disposal (e.g., failure to properly store, transport, process, or dispose of a residual waste). Identifying antecedents to specific violation types is a subject for future research, but waste management is a key part of the production process, and as such, is relevant to questions of compliance. Waste violations also highlight the temporal dimension of compliance as well as the interplay between federal and state regulation. As the grand jury report noted: For years following the fracking boom, the DEP permitted the industry to dispose of flowback and production water at municipal wastewater facilities. However, these facilities could not process the various metals, chemicals, radioactive materials, and extreme salinity of these

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Table 4.7. Common Violations since 2009–2011 (not comprehensive) Description

Type

Total Violations

Failure to properly store, transport, process, or dispose of a residual waste.

Environmental health and safety

490

O&G (Oil and Gas) Act 223—General. Used only when a specific O&G Act code cannot be used.

Administrative

349

Failure to minimize accelerated erosion, implement Erosion & Sediment (E&S) plan, maintain E&S controls. Failure to stabilize site until total site restoration under Oil and Gas Act Sec 206(c)(d).

Environmental health and safety

315

Failure to adopt pollution prevention measures required or prescribed by DEP by handling materials that create a danger of pollution.

Environmental health and safety

292

Failure to properly control or dispose of industrial or residual waste to prevent pollution of the waters of the commonwealth.

Environmental health and safety

243

Pit and tanks not constructed with sufficient capacity to contain pollutional substances.

Administrative

222

Failure to report defective, insufficient, or improperly cemented casing within 24 hours or to submit plan to correct within 30 days.

Administrative

175

Environmental health and safety

155

Clean Streams Law—General. Used only when a specific CLS code cannot be used.

Administrative

149

Failure to post permit number, operator name, address, or telephone number in a conspicuous manner at the site during drilling.

Administrative

135

Failure to maintain 2′ freeboard in an impoundment.

Administrative

107

Failure to submit well record within 30 days of completion of drilling.

Administrative

100

Failure to notify DEP of pollution incident.

Administrative

87

Impoundment not structurally sound, not impermeable, not third-party protected, or contains greater than 20″ of seasonal high groundwater table.

Administrative

79

E&S plan not adequate.

Administrative

70

Discharge of pollutional material to waters of commonwealth.

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Compliance Trends

Improperly lined pit.

Administrative

70

Failure to design, implement, or maintain BMPs (best management practices) to minimize the potential for accelerated erosion and sedimentation.

Administrative

69

Failure to post pit approval number.

Administrative

64

Failure to install, in a permanent manner, the permit number on a completed well.

Administrative

63

Failure to plug a well upon abandonment.

Administrative

61

Failure to properly install the permit number, issued by the department, on a completed well.

Administrative

57

There is a potential for polluting substance(s) reaching waters of the commonwealth and this may require a permit.

Environmental health and safety

56

Failure to take all necessary measures to prevent spill. Inadequate diking, potential pollution.

Environmental health and safety

56

No E&S plan developed, plan not on site.

Administrative

51

Environmental health and safety

48

Improper casing to protect fresh groundwater.

Administrative

48

Impoundment not structurally sound, not impermeable, or not third-party protected.

Administrative

47

Failure to achieve permanent stabilization of earth disturbance activity.

Administrative

44

Driller’s log not on site.

Administrative

41

Failure to restore well site within nine months after completion of drilling, or failure to remove all pits, drilling supplies, and equipment not needed for production.

Administrative

40

Administrative code—general.

Administrative

39

Failure to notify DEP, landowner, political subdivision, or coal owner 24 hours prior to commencement of drilling.

Administrative

36

Inadequate, insufficient, and/or improperly installed cement.

Environmental health and safety

34

Industrial waste was discharged without permit.

Environmental health and safety

34

Stream discharge includes drill cuttings, oil, brine and/or silt.

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Discharge of industrial waste to waters of commonwealth without a permit.

Environmental health and safety

31

Operator shall prevent gas and other fluids from lower formations from entering fresh groundwater.

Environmental health and safety

30

Rat hole not filled.

Environmental health and safety

29

Administrative

27

Failure to submit completion report within 30 days of completion of well.

Source: Amico et al. 2011. Descriptions reproduced from this source with minor stylistic editing.

fluids. Therefore, in 2012, a voluntary ban on accepting fracking fluids at wastewater facilities was instituted, and Pennsylvania later formally banned the practice. Recycling wastewater and disposing of it in deep injection wells requires hauling it around the Commonwealth and neighboring states in tanker trucks. This wastewater may be composed mostly of brine and relatively harmless constituents, or it may be full of extremely dangerous chemicals or highly radioactive. There is no way to tell, however, because the industry is not required to identify or manage its wastewater for what it actually contains. Due to exemptions under federal law, trucks carrying fracking wastewater in Pennsylvania are not placarded as hauling hazardous waste, even though they may be carrying hazardous waste. Rather, they display signage indicating they are carrying “residual waste,” which fails to account for the serious health and environmental risks posed by fracking wastewater. (Shapiro 2020, 20)

We should note that the challenge of what to do with fracking’s waste products is not unique to Pennsylvania. As Davis and Fisk (2014) note, state regulators have designed policy options ranging from less intrusive responses to more robust responses. Data also permits users to examine violations by type. We note that during the early years from about 2008–2010, both violation types plateaued or declined. While data limitations preclude a precise causal explanation, possible reasons include a greater need for inspector training, inspector burnout, a deliberate policy effort to support and nurture the industry, or policy choices to dissuade inspectors from issuing violations. It is also noteworthy that both violation types began to increase toward 2012 and 2014, which hints that DEP compliance was slow to respond to the fracking boom and that compliance priorities may have started to shift. Data also depicts how the DEP responded to violations. Full results

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Figure 4.13. Violation Types over Time

are presented in chapters 5–7, but a sample of years (2012–2015) includes forty-two counties and municipalities within a universe of 100,529 inspections and indicates the following: 12,699 notices of violations (approximately 12 percent of inspections resulting in a violation) 546 administrative orders (approximately less than 1 percent of inspections resulting in a violation serious enough to warrant an administrative order) 546 consent orders and agreements (approximately less than 1 percent of inspections resulting in a violation serious enough to warrant a consent order) Table 4.8 shows several interesting patterns. Of note is that during the boom’s early years of 2010–2013, penalty amounts were largely flat. However, beginning in 2014, fine amounts began to increase and topped $9.6 million in 2016. This abrupt change could be related to a handful of large fines, policy changes due to Act 13, the detection of more serious violations, a shift in enforcement priorities, or the change in the governor’s mansion— all of which are possible.

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Table 4.8. DEP Fine Amounts Year

Fines and Penalties ($)

2009

926,346

2010

2,714,654

2011

2,671,101

2012

2,078,373

2013

2,584,128

2014

7,138,908

2015

3,414,102

2016

9,688,573

Source: DEP 2016

The DEP fine amounts are based on “exact damage and penalties.” DEP spokesperson Amanda Witman added that timing also shapes the fine’s amount, noting, “If a spill continues to impact groundwater while the site is being remediated, DEP waits until the site has been completely cleaned up in order to calculate the total days of the violation and that each day constitutes a new violation for penalty calculation purposes” (McKelvey 2015a; Woodall 2015). Additionally, Witman explained, “DEP does routinely negotiate with operators in order to reach a settlement that both parties agree to, which is why many DEP penalties are actually Consent Assessments of Civil Penalties. Bringing the operator to the table to negotiate a penalty reduces the likelihood of an appeal” (Woodall 2015).

SUMMARY AND CONCLUSIONS This chapter attempted to answer questions about compliance outputs (e.g., inspections, violations, and administrative actions following a violation). Results paint a picture of an early boom that has and likely continues to challenge the state today. The nearly timeless bureaucratic adage “do more with less” seems to aptly summarize the statewide trends vis-à-vis oil and gas production. In general, state support for the DEP has generally dropped, yet inspectors are conducting more inspections. They are investigating new sites, yet there are still thousands of conventional wells. Violations are also not created equally, with some occurring much more frequently than others, and some of the most common being related to health and environment. Finally, DEP actions often start with NOVs, which makes intuitive sense given their enforcement priorities outlined in the preceding chapter.

Chapter 5

SITE-LEVEL FACTORS

Chapter 5 begins the process of understanding the context surrounding oil and gas compliance by examining site-level characteristics. While the focus on factors is specific to the site level, we recognize that such factors are complex, multifaceted, and interrelated with variables that are presented and analyzed in chapters 6 and 7. At the site level, state regulators consider several factors including type of well, direction of drilling (horizontal or vertical), type of resource extracted, and whether it is unconventional or not. Should a violation be identified, Department of Environmental Protection personnel possess latitude in the use of specific bureaucratic tools (e.g., notifying operators of a violation and/or issuing a financial penalty so that the operator may return to a state of compliance). The site level is particularly important, as surface-level disruptions such as spills, contamination, accidents, and the presence of new industrial development may expose nearby residents to health risks. For others, site-level development is a welcome sign and is associated with economic prosperity and other ancillary employment benefits. For these, oil and gas are well worth the site-level risks. Recognizing this important “level” and its potential impacts on compliance, this chapter is guided by two questions:

129

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Site-Level Factors

Table 5.1. Variables of Interest IVs

Coding

Well direction

0=Vertical 1=Horizontal

Unconventional

0=No 1=Yes

Well type

0=Gas only 1=Oil only 2=Combined oil and gas

Operator

Entity receiving inspection

Follow-up inspection

Follow-up inspection: yes/no

Operator

By name

Source: Generated by authors

1. What site-level characteristics shape the detection of total violations, administrative violations, and public health, safety, and environmental violations? a. What factors contribute to an increase in the odds that a violation will be observed? b. What factors contribute to a decrease in the odds that violations will be observed? 2. What site-level characteristics shape the likelihood that an inspector will rely on administrative tools such as a notice of violation (NOV) or administrative order? The answers to the above questions seek to isolate the impact (if any) of several variables that approximate site-level characteristics and include well direction, unconventional or conventional wells, type of well (oil, gas, or combined), the operator, and the nature of the inspection (e.g., a follow-up inspection), as shown in table 5.1. There are a handful of variables included in table 5.1, including one of our major variables of interest: whether the well is classified as unconventional, as these wells were prioritized for inspections by the DEP.

RESULTS Which site-level factors are significant drivers of compliance-related activities? The first set of tables and figures looks to the identification of both administrative violations and environmental health and safety violations. The second grouping examines administrative options (administrative action, notice of violation, consent order decree, or administrative order) should a violation be observed by an inspector. The last set of tables and figures shifts

131

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the focus to penalties and assesses which site-level characteristics help explain variation in fine amounts.

Inspections Data limitations precluded a more in-depth analysis addressing which wells received an inspection and which did not. As noted in chapters 3 and 4, the state has numerous unmapped and possibly unknown wells. Additionally, for several of the years included in our study, the agency relied on paper records. Finally, while the DEP makes available a copious amount of data (especially compared to other states), there is no comprehensive database available that lists all wells within the state and whether they received an inspection. Additional limitations of the DEP’s inspection policies were noted in a performance audit conducted by a state auditor: DEP’s inspection policy was issued 25 years ago—before the era of shale gas—as a statement of policy. Despite considerable shifts in technology and human resource capital, this policy remains in place today. In addition, this policy statement contains a “loop hole,” which essentially only requires DEP to conduct inspections as it has the financial and human resources to do so. With increased responsibilities due to the rapid expansion of the shale gas industry, it is difficult to understand why DEP has not developed and implemented a modern policy governing the inspection schedule for active shale gas wells. An updated policy would allow DEP to be proactive, rather than reactive, in assuring citizens that the commonwealth’s water supplies are appropriately safeguarded. (DePasquale 2014)

For transparency, we also include the DEP’s response to this portion of the auditor’s findings: “Staff attempt to inspect every producing Marcellus well site at least once a year. Every effort is made to inspect active well sites multiple times including, but not limited to, the pre-operational phase (pad construction, erosion and sedimentation controls are put in place, but prior to drilling), during or immediately after spudding the well, all phases of drilling” (DePasquale 2014). There were also instances in which the DEP did not conduct inspections, which would also depress inspection trends, as noted by the grand jury report: “We were additionally troubled by testimony concerning the conduct of inspections, such as when a spill was reported. We learned that DEP regulations require well operators to report spills of more than five gallons. Several employees testified that, in order to make determinations in such situations, they would simply take the operator’s word for it about the existence or amount of a spill. These employees told us that they trusted the industry to follow the rules and self-report accurately” (Shapiro 2020, 58–59).

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Table 5.2. Identification of Violations by Type (logistic units) Administrative violations (n = 234,068)

Environmental health and safety violations (n = 234,068)

Any enforcement action (n = 234,068)

Intercept

−2.93

−3.27

−2.14

Horizontal well

−.43*

−.19*

−.32*

Unconventional well

.25*

−.09

.11*

Gas well

−.40*

−.37*

−.49*

Oil well

−.23*

−.22*

−.31*

Combined oil and gas well

−.32*

−.26*

−.40*

Follow-up inspection

−.33*

.16*

−.17*

*Reached .1 level of statistical significance Source: Generated by authors

Identification of Violations by Type What drives the identification of a violation when the focus is limited to site-level characteristics? After controlling for differences that might exist between operators, counties, and time periods (random effects), the data reveals a complicated picture and one that is divided based on the type of violation (e.g., administrative or health and safety) and several of our sitelevel characteristics including well type (e.g., unconventional or resource extracted). Results are shown in table 5.2 and figures 5.1–5.2, with several key relationships highlighted below. Across 234,068 inspections including forty-three counties and 1,660 operators (over the years 2000–2014), results suggest the probability of an inspection resulting in an administrative violation increases in specific contexts. More specifically, after holding other factors constant and accounting for variation between operators, counties, and years, the predicted probability of inspections resulting in the identification of an administrative violation is as follows: The odds increase by about 4 percent for unconventional wells. The odds decrease by about 4 percent for a combined oil and gas well. The odds decrease by about 5 percent for a horizontal well.

Site-Level Factors

133

Figure 5.1. Likelihood of Identifying an Administrative Violation

The odds decrease by about 3 percent for an oil well. The odds decrease by about 4 percent if the inspection is a follow-up inspection. These results are also displayed graphically in figure 5.1, which shows the probability of an administrative violation. As table 5.2 and figure 5.1 show, several factors report statistical significance but in opposing directions. The classification of a well as unconventional was the only driver relating to increases in the probability of an administrative violation. By comparison, other well types, combined wells, horizontal wells, and oil wells contributed to declines in the probability of identifying an administrative violation. Finally, we note that violations were less likely during a follow-up inspection, possibly suggesting that the operator satisfactorily addressed the violation. Many of our site-specific context variables also mattered in inspections that resulted in the identification of an environmental health and safety vio-

134

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Figure 5.2. Identification of Environmental and Safety Violation

lation. During the years 2000–2014 (n = 234,068), the data again points to small but important contextual effects. As shown graphically in figure 5.2, the probability of inspections resulting in this type of violation increases by about 1 percent if the inspection is a follow-up inspection; decreases by about 2 percent for combined, gas, horizontal, and oil wells; decreases for unconventional wells. Results in figure 5.2 highlight how site-level and well-type factors influence the likelihood of an inspection leading to an environmental health and safety violation. Interestingly, compared to administrative violations, unconventional well types were associated with a small drop in the likelihood of an environmental health and safety violation. These results generally support the findings of the grand jury, which found during the boom’s beginnings that there were just not many violations (Shapiro 2020, 6–7). The prevailing

135

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Figure 5.3. Administrative Responses to Violations

attitude at the time, according to the grand jury, was to keep regulatory actions to a minimum and to leave the industry alone (a point we return to in chapter 7) (Shapiro 2020, 6–7).

Any Administrative Action Taken Site-level factors again mattered, with data showing small impacts on whether any administrative action was taken following the identification of a violation, shown in figure 5.3 and table 5.2. The predicted probability of violations resulting in any administrative action is as follows: The odds increase by about 0.5 percent for unconventional wells. The odds decrease by about 2 percent for combined wells. The odds decrease by about 3 percent for gas wells. The odds decrease by about 1.5 percent for horizontal and oil wells.

136

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Table 5.3. Probability of Administrative Responses by Type Enforcement action taken (logit coefficients) Notice of violation (n = 234,068)

Consent order decree (n = 234,068)

Penalty (n = 234,068)

Intercept

−39.16

−4.70

−4.66

Horizontal well

10.49*

−.01

−.12

Unconventional well

−153.42*

.20*

.29*

Gas well

1.23

−.76*

−.60*

Oil well

−.05

−1.03*

−.74*

Combined oil and gas well

−2.83*

−.79*

−.47*

Follow-up inspection

8.11*

.22*

.04

*Reached .1 level of statistical significance Source: Generated by authors

The odds decrease by about 1 percent for follow-up inspections. Figure 5.3 presents the results of site-specific factors. Similar to the identification of violations, several variables reported statistical significance. Unconventional wells were slightly more likely than other well types to have a violation that leads to an administrative action. Results here, we should note, may be skewed, as the DEP’s response to unconventional operations has changed over the years. As the grand jury report noted, “When the Department discovers that an operator is not in compliance with a regulation, the Department is supposed to issue a Notice of Violation, or ‘NOV.’ DEP failed to do much of that in the formative years of fracking, which is when oil and gas violations were much more likely to occur” (Shapiro 2020, 62). The report explained that the DEP’s enforcement practices had evolved over time and that the agency in recent years had identified a greater number of violations than in the boom’s early years (Shapiro 2020, 63). Other variables contributed to small declines in administrative actions. These include factors categorizing a well as gas, horizontal, oil, or combined. We also note that follow-up inspections were associated with a slight decrease in probability, which may suggest that operators do take steps to resolve violations once they are notified of the violation.

137

Site-Level Factors

Specific Administrative Responses What drives the use of specific compliance tools when the focus is limited to strictly site-level characteristics? Data again paints a complex picture and one that is shaped by the type of action. We should note that inspectors relied mainly on NOVs rather than more coercive measures such as an administrative order or financial penalty. We highlight key relationships from table 5.3. The probability of a notice of violation (NOV) (only among those with enforcement action) is higher for follow-up inspections and horizontal wells; lower for combined and unconventional wells. The probability of a consent order decree (COD) (only among those with enforcement action) increases by about .5 percent for follow-up inspections; increases by about .5 percent for unconventional wells; decreases between 1 and 2 percent for gas, oil, and combined well types. The probability of an administrative order was also studied, but results were as follows: There were only fifteen administrative orders and thus not enough cases to run analysis. Among those fifteen, five were horizontal, ten were in one county, and none had a follow-up inspection or received a penalty. As shown in table 5.3, the DEP has a range of options available following a violation, the choice of which is left to the inspector, although DEP policy describes the preferred order and criteria to shape decision-making. Here, it is noteworthy that overall, administrative actions following a violation represent a small number of inspections (for reasons documented in chapter 4). We note that unconventional wells were less likely to receive an NOV, which fits with DEP priorities at the time and with the grand jury report (Shapiro 2020). It is also noteworthy that the DEP issued few administrative orders compared to NOVs. This trend seems to fit within the DEP’s preference for progressive enforcement and avoiding litigation with the industry.

138

Site-Level Factors

Table 5.4. Likelihood of a Penalty and Predicted Penalty Amounts Penalty (n = 234,068)

Predicted penalty amounts ($)

Intercept

−4.66

1081.1

Horizontal well

−.12

−389.4

Unconventional well

.29*

724.5

Gas well

−.60*

−580.2

Oil well

−.74*

−977.6

Combined oil and gas well

−.47*

613.7

Follow-up inspection

.04

−102.5

*Reached .1 level of statistical significance Source: Generated by authors

Increases in the Probability of the Issuance of a Penalty The issuance of fines or financial penalties (and the amount) is among the most severe type of administrative action that can be taken by the DEP. Results are shown in table 5.4, with figure 5.5 displaying factors associated with penalty amounts and figure 5.6 identifying operators that receive penalties. Like other administrative responses, the probability of the issuance of a penalty and the amount of that penalty are shaped in the following ways: The probability of the issuance of a penalty increases by about 5 percent for unconventional wells. The probability of the issuance of a penalty decreases by about 13 percent for gas wells. The probability of the issuance of a penalty decreases by about 10 percent for oil wells. The probability of the issuance of a penalty decreases by about 6 percent for combination wells. Penalty amounts are higher for combined and unconventional well types. Penalty amounts differ across operators and years.

139

Site-Level Factors

Figure 5.4. Likelihood of a Penalty and Predicted Penalty Amounts

Figure 5.5. Probability of Any Penalty, by Year

140

Site-Level Factors

Figure 5.6. Operators and the Likelihood of a Penalty

Table 5.4 includes the penalty amount (n = 234,068). We note that site-level characteristics again report levels of statistical significance and include unconventional, gas, oil, and combined. However, we again point to a divergence between unconventional wells and other well types. In short, the penalty amount increases by nearly 5 percent for unconventional wells but drops by 10 and 13 percent respectively for oil and gas wells. Data presented in figure 5.4 shows predicted penalty amounts over time, whereas results included in figure 5.5 depict the probability of a penalty in the selected years. When viewed in tandem, there is variation in the likelihood of a penalty over time and in dollar amounts, with some years having a greater likelihood of more penalties and at higher dollar amounts. Results do point to a decrease in the odds of a predicted penalty starting around 2011–2012, which coincides with changes in Pennsylvania’s political leadership (addressed in chapter 7). However, we should note that penalty amounts can take years to determine and can be difficult to accurately calculate, as they often require obtaining predrilling data, knowing what contaminants and chemicals to test for (which was difficult because, at the time, operators used trade-secret exemptions to avoid disclosure), and isolating the causes of contamination. Moreover, the infrequent use of penalties may mean that a high penalty amount in one year skews our overall

141

Site-Level Factors

Figure 5.7. Context of Compliance

results. Finally, we should note that unconventional wells are more likely than other well types to receive higher penalty amounts for reasons we note above. As shown in figure 5.6, penalty amounts vary greatly across operators; several operators appear to be penalized more severely than others. Among the firms likely to receive higher amounts were Chevron Appalachia, Hilcorp Energy, JKLM Energy, Alpha Shale Resources, Titusville Oil and Gas, and Synd Enterprises, as shown in figure 5.6. While it is beyond the scope of this project to examine why, prior research points to several possibilities: that they may be more likely to operate at unconventional sites (which are larger), that they may be less likely to employ a compliance officer on-site, or that they may be affected by operator experience, prior history, poor behavior, accidents, or random events.

DISCUSSION OF RESULTS What is the site-level context that “surrounds” oil and gas inspections? We return to the context of compliance first outlined in chapter 1, shown here as figure 5.7. One word of caution is that the variables in this chapter cluster around technology, timing, and mission or policy. As such, not all aspects of figure 5.7 are directly addressed in this chapter.

142

Site-Level Factors

Context for the Identification of Administrative Violations Results align well with the data presented in chapters 3 and 4 that describes which wells are more likely to be inspected by the DEP. The DEP, like many administrative agencies, is limited in its human and financial resources and has concentrated on certain activities over others. As a result, it has prioritized which wells it inspects annually and which wells it does not or cannot inspect (Huba 2019). In this case, inspectors are likely inspecting unconventional wells and subsequently identifying administrative violations at a greater rate than other well types (older and conventional). Both, we should note, can be fracked by operators. The purchasing of new iPads that were designed to improve efficiencies and oversight of the extraction industry may also have assisted inspectors in processing violations, although much of our data predates the news story about this purchase. The context surrounding administrative violations may also be a function of a “learning curve” by the DEP and industry, especially as unconventional operators may have been less familiar with state oil and gas rules and more likely to commit an administrative violation. The reverse for conventional operators may also be true in that they were more familiar with state rules and less likely to violate administrative rules. The small drop for conventional wells and administrative violations may also highlight the close relationship that conventional operators have enjoyed with state lawmakers. In 2014, for example, committees in both the House and Senate praised the “conventional” industry by declaring that the “conventional oil and gas industry has had a benign impact on human health and the environment in Pennsylvania since the 1984 Oil and Gas Act established the first permits and thorough standards for well construction and operation” (Legere 2015). House Speaker Mike Turzai, a Republican from Marshall Township, Pennsylvania, added, “You all have been nothing but good stewards of the environment over the years” (Legere 2015).

Context for the Identification of Environmental and Health Violations This second set of results also aligns well with previous oil and gas research and points to several possibilities as to why the likelihood of environmental and health violations is lower at unconventional well sites. First, unconventional wells are likely to be newer, with operators adhering to more rigorous technological and performance standards than older or conventional wells. They are also less likely to be abandoned or orphaned and more likely to have active production than conventional wells. The rapid deployment of new oil and gas technologies also created substantial information asymmetries between the DEP and industry. This last point was highlighted by a state grand jury report:

Site-Level Factors

143

DEP employees didn’t just need new rules; they needed new knowledge. The Department was faced with novel extraction technologies that no one knew anything about. In the early days of the industry, DEP endeavored to better understand aspects of the process by performing its own study. And yet, the agency did not effectively share the information among its own staff once it was acquired. We learned that expert training is available that could assist DEP employees in their ability to effectively regulate this industry. In spite of its availability, the agency hasn’t found a way to avail itself of many of these training opportunities. (Shapiro 2020, 5)

Relatedly, environmental health and safety violations may be more difficult to identify and detect than administrative violations, again suggesting the learning curve for the DEP was steep (Wiseman 2012). A second explanation looks to the goals of the DEP and elected leaders of Pennsylvania, many of whom have openly supported unconventional oil and natural gas production (Rabe and Borick 2013). DEP leaders, including the last five agency secretaries, possessed prior experience with oil and gas in their background (Hopey 2013). Selected observations from elected statewide officials are included below: Current Pennsylvania governor Tom Wolf (D) observed, “Pennsylvania’s natural gas development is providing economic benefits to the commonwealth. But these benefits should not require a choice between them and public health or safety. . . . It is essential that as we realize economic benefits, we ensure the public is protected, especially our children, and take the necessary steps to aggressively regulate resource development” (Hopey and Templeton 2019). Former Pennsylvania governor Tom Corbett (R) opined that Pennsylvania “is reaping an economic bounty from natural gas despite predictions of disaster and the fearful warnings from people with no understanding of the industry” (Associated Press 2012). A third reason relates to the economics of oil and gas production. Operators seeking to develop unconventional shale gas sites require significant upfront financial investment. This “entry barrier” encourages larger operators, who have sufficient financial capital to develop sites, rather than smaller organizations. Larger operators, according to Wiseman (2012), may have more experience and resources, including compliance officers, resulting in fewer environmental and health and safety violations. They may also have the resources for dedicated staff, such as an environmental health officer, to address potential violations prior to an inspection.

144

Site-Level Factors

Context for Specific Administrative Responses General trends suggest that DEP inspectors follow the department’s policy of a progressive approach toward enforcement, as NOVs were by far the most common tool utilized by inspectors. This pattern makes sense given the DEP’s stated policy of how and when NOVs should be issued: “The minimum action for any violation is a written notification in the form of a NOV or a copy of an inspection report that notifies the operator or other responsible person (operator) of the violation” (DEP 2015). The DEP attempted to limit the use of more aggressive measures, such as civil penalties, to violations that “include a threat to public health, safety or the environment; repeat violations; failure to apply for and obtain permits or registrations; and failure to submit reports.” With that logic, lower overall numbers for administrative orders and penalties make sense, as most violations do not “ jump” up to these administrative actions. It may also suggest that most operators, once notified of a violation, tend to take steps to return to a state of compliance without the DEP needing to rely on more coercive measures.

Issuance of a Notice of Violation (NOV) The DEP defines the purpose of an NOV as a document that “requests the notified party to respond to the NOV and describe the actions they have taken or will take to correct the violation” (DEP 2015). First, we note that NOVs were the result of a small fraction of inspections. That said, why then is the use of an NOV significantly lower for an unconventional well than for others? Here, we point to a similar set of arguments for what may depress the identification of an environmental health and safety violation. These factors are associated with unconventional wells being newer and built to satisfy DEP performance standards. They may also be operated by larger operators who have more experience or who have environmental officers present to interface with the DEP and to help prevent or redress violations. This dynamic may also be associated with political pressures, especially early in the boom, that tended to be supportive of the unconventional oil and gas industry. Finally, it may be a function of difficulties in identifying environmental violations and DEP’s internal challenges described by the grand jury’s report earlier in this chapter. DEP data did not include enough cases to run an analysis on administrative orders, as it only recorded fifteen such cases. Among those fifteen orders, five occurred after an inspection at a site with horizontal drilling sites, ten were in one county (McKean), and none resulted in a follow-up inspection or received a financial penalty. These results also match a 2014 auditor’s report that documented, “Our audit found that DEP did not consistently issue administrative orders to operators who had been determined

145

Site-Level Factors

by DEP after investigation to have adversely impacted water supplies, despite a legal requirement to do so” (DePasquale 2014, 8). The report added, “Despite this mandate, in many cases, DEP chose instead to seek voluntary compliance and encouraged operators to work out a solution with affected parties” (DePasquale 2014, 8). In its response, the DEP explained its preference for voluntary compliance in greater detail, noting the complexity associated with determining causality: DEP stated that water supply impact investigations can be complex and may involve multiple rounds of testing before DEP is able to make its determination (positive or negative). For more complex cases, DEP stated that the investigations may require sophisticated isotopic testing, which can run into tens of thousands of dollars and months of research. In many of these cases, the well operators assist with—and even pick up the costs for—the complaint investigation. In this manner, DEP stated that it believes it is working cooperatively with the well operators to resolve the complaint, and that this approach brings about better compliance, which is DEP’s ultimate goal. DEP officials also noted that operators are sensitive to potential water contamination cases and desire to be “good neighbors.” To this end, DEP stated operators have supplied residents with fresh water, drilled new water wells, paid for connections to public drinking supplies, or installed water filtration systems—all without an order from the department requiring the operator to do so. In these situations, DEP claimed that since the operator had willingly taken steps to restore or replace the water supply, an order was unnecessary. In fact, DEP’s policy Enforcement Actions by DEP’s Oil and Gas Management Program shows DEP’s preference for voluntary compliance. (DePasquale 2014, 8)

Penalty Amounts The DEP assesses fines amounts based on “exact damage and penalties,” which can take time to fully calculate and are a limited measure of overall compliance (DEP 2002). The fine’s dollar amount and the raw number of fines vary significantly over time, as shown in table 4.11. In fact, the DEP issued fewer fines in 2013 than in 2012 and 2011, but the average fine was larger, as state law raised the maximum civil penalty in 2012 (Legere 2015). As noted earlier, DEP spokesperson Amanda Witman said, “DEP waits until the site has been completely cleaned up in order to calculate the total days of the violation. Each day constitutes a new violation for penalty calculation purposes” (McKelvey 2015a; Woodall 2015). However, negotiating with the

146

Site-Level Factors

operator often reduces the likelihood of an appeal and can save the DEP time and other resources (Woodall 2015). For unconventional wells, several aspects of the DEP’s penalty formula are relevant and may help to explain why the penalty amounts increase at unconventional wells, and why there is variation over time and in number. First, unconventional wells are typically larger and consume more acres than many traditional wells (many of which are no longer producing), meaning that potential violations could cause greater overall damages than they would in conventional wells. Given the formula that takes into account damages, the finding that the size of the well matters makes intuitive sense; that is, newer wells are larger than older ones. Second, unconventional sites are likely to have some predrilling data available (unlike older sites) meaning that while it may take longer to calculate, actual damages can be determined. Third, unconventional wells compose much of the state’s active production, meaning that they are more likely to receive an inspection than inactive sites. Finally, the average number of penalties represents a tiny fraction of administrative actions and an even smaller number of total inspections. In effect, the issuance of just one or two large fines can contribute to the changes observed here, but it does not reflect overall compliance trends. For example, in January 2020 the DEP issued a $30 million fine following a 2018 natural gas pipeline explosion and fire (Gough 2018). The agency also issued a $1.7 million fine to one company for several problematic gas wells in 2018 (Sisk 2018). In 2015, an operator faced an $8.9 million fine (McKelvey 2015b). By comparison, most fines are less than $10,000 (Deto 2017). To summarize, the nature of unconventional sites and technology affected penalties in several ways: These sites involved new technologies that required a steep learning curve from DEP staff, who as noted by the grand jury were slow to respond to the burgeoning boom and had limited training opportunities. These sites tend to consume a larger number of acres than vertical wells do. Given their sheer size and depth, violations, when they are found, are likely to inflict greater damages than conventional wells, and as such, incur higher penalty amounts. Unconventional sites are likely to have predrilling data available. They are newer sites and included environmental data as part of the permitting process, unlike older sites. In other words, because the DEP had more data that addresses predrilling conditions, it is possible to calculate actual damages.

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Site-Level Factors

These sites are more likely to receive an inspection, and thus inspectors have more opportunities to identify a violation, even in a political environment largely supportive of production.

RETURNING TO THE MODEL Our exploratory model, first introduced in chapter 1, identified key points within the family of compliance activities: inspections, violations, and administrative actions following a violation. Results here suggest that site-level characteristics are influential throughout, but the magnitude of the impact appears to change depending on the compliance activity taking place and the well type.

Mission and Policy The Pennsylvania Department of Environmental Protection’s mission states, “Oil and Gas Management is responsible for the statewide oil and gas conservation and environmental programs to facilitate the safe exploration, development, recovery of Pennsylvania’s oil and gas reservoirs in a manner that will protect the commonwealth’s natural resources and the environment” (DEP 2019a). The presence of these goals contributes to how state oil and gas agencies ensure compliance and how such agencies engage in their associated activities (Davis 2012; Fisk 2017). On one hand, state law and policy required implementing agencies to maintain a business environment that permits the oil and gas industry to efficiently extract natural resources. To this end, they may incentivize industry-favored inspection schedules as well as more relaxed enforcement efforts vis-à-vis violations and administrative responses to violations. On the other hand, implementing agents are required to still engage in compliance activities that protect health and environment, which may contribute to more inspections, more violations, and more coercive administrative actions. We should note that our focus here on formal regulations and goals is an important starting point. It, however, does not tell the whole story. In some cases, the absence of policy or overly specific testing procedures is a policy choice pursued by stakeholders. As noted in the grand jury report, “The Department says formal regs are subject by law to an inherently slow review process beyond DEP’s control. But we’ve seen the agency issue and enforce informal rules, when it elected to do so; and on many occasions it hasn’t availed itself of that option either. As a consequence, companies were free to continue environmentally hazardous activities that DEP had the power to stop” (Shapiro 2020, 5). In other words, it is inherently difficult to find violations if the agency fails to adopt up-to-date standards or tests, if there are exemptions, or if rules and processes are overly restrictive. A prode-

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Site-Level Factors

velopment set of priorities appeared to influence the rate at which violations were detected at unconventional and conventional sites. A similar dynamic was observed for the use of administrative actions following a violation.

Politics and Economics Data here links political and economic factors to inspections, violations, and administrative actions, albeit in less visible ways than other sets of explanatory factors. State political leaders, for example, voiced their support for robust production levels and advocated for unconventional production. This may have placed pressures on agency leaders and in turn inspectors to prioritize inspections at certain wells over others (a theme we address again in chapter 7), to create a business-friendly climate that encourages efficient production, and to favor industry-supported administrative actions following a violation. Each of these political priorities can shape the actions and decisions of agency leaders, inspectors, and regional office staff to favor one outcome over another (e.g., development over environment). Economic reasons also help explain compliance outcomes at unconventional sites. First, unconventional sites are likely to be productive and active, and as such, more likely to have staff and workers to liaison with state inspectors. Unconventional operators are also more likely to have operators who have invested significant resources in the site. As Nelson and Fisk (2021) explain, unconventional production sites require significant upfront investment, which may preclude smaller operators from engaging in unconventional production. During economic downturns or when natural resource prices are low (as the result of oversupply or low demand), larger operators may shift production to smaller firms who then operate wells with lower profit margins and have fewer compliance resources (Nelson and Fisk 2021). Unlike larger firms (operating at highly productive sites), smaller firms may have less staff and fewer resources to invest in compliance or environmental protection (Nelson and Fisk 2021).

Budget and Personnel Quantitative variables included in this chapter did not directly approximate or test budgetary or personnel characteristics. We do believe, however, that there is ample evidence that DEP personnel and staff were challenged by the emerging technologies as well as budgetary limitations. We note that budgetary restrictions forced the DEP to conduct inspections as budget and personnel forces allow. Secondly, as production at unconventional sites became part of the industry’s standard toolkit, the practice presented organizational, learning, knowledge, and training challenges for the DEP. We also draw attention to the grand jury report that noted the learning chasm faced by the DEP: “The Department was faced with novel extraction tech-

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Site-Level Factors

nologies that no one knew anything about. We learned that expert training is available that could assist DEP employees in their ability to effectively regulate this industry. In spite of its availability, the agency hasn’t found a way to avail itself of many of these training opportunities” (Shapiro 2020, 5).

Technology, Timing, and Data Two examples exemplify the ways that the factors of technology, timing, and data shaped the context of compliance. First, the advent of hydraulic fracturing and horizontal drilling made the widespread development in the Marcellus Shale possible. This technological change is noted in state policy that mandates that such wells are prioritized when it comes to inspections and unconventional production. The timing or the well’s life cycle also matters as wells and sites that are actively producing are more likely to receive an inspection. This set of characteristics also influenced enforcement and administrative outcomes. Calculating specific penalty amounts, for example, requires predrilling data or data at large. Regulators must identify precise causal relationships between oil and gas violation and damages, so when agents lack data, it may delay or compound difficulties in assessing a penalty amount or even placing blame on an operator. If DEP regulators cannot determine the extent of the contamination, cannot acquire the requisite data that addresses conditions prior to development, or cannot determine the baseline for environmental quality, then it becomes difficult to fully determine whether the suspected contamination is related to the violation or is naturally occurring (Fisk 2017). This challenge is magnified in light of the agency’s decision to follow its own policies. According to the grand jury report, “The Department sometimes failed to take advantage of the law’s most powerful feature: the ‘zone of presumption.’ If water sources near a gas well showed contamination in the period soon after drilling and hydraulic fracturing, the burden was on the operator to disprove responsibility. But that presumption was not consistently enforced” (Shapiro 2020, 6). Finally, violations and penalties that incurred after the boom’s start may have had better and more complete data available, especially as regulations and violation criteria were updated in light of new technologies, so that a precise dollar amount could be more easily calculated and assessed.

SUMMARY AND CONCLUSIONS When it comes to fracking and other forms of unconventional oil and gas extraction, what does site-level data show? In general, there is support for each component of our context of compliance framework. Statewide law and regulations prioritized inspections at unconventional production sites. These inspection priorities were contingent upon staff limitations but were

150

Site-Level Factors

seemingly described in a clear and cogent manner so that agents and management understood, prioritized, and implemented inspection protocols in accordance with the desired policy direction (Fisk 2017). State political actors also clearly indicated their preferences in favor of development. There was a significant information asymmetry between industry and DEP staff. Whereas the DEP appeared to respond slowly to this gap initially, it has closed somewhat over time (Shapiro 2020). Variables representing our data and technology quadrant appeared to influence each stage of the compliance process. Reflective of DEP policy, these wells are also more likely to receive an inspection. They are more likely to receive an administrative violation, but less likely to receive an environmental health and safety violation. Violations at unconventional locations are also more likely to be subject to DEP enforcement actions. Unconventional wells that are inspected and penalized for violations are also more likely to face steeper fines than other well types face. That said, the reverse was generally true for the conventional gas industry, as such wells are less likely to receive inspections and report violations and, as a result, are less likely to face administrative actions necessary for compliance.

Chapter 6

COUNTY-LEVEL AND SUBSTATE FACTORS

Chapter 6 continues the process of unpacking oil and gas compliance with a focus on county-level and other substate characteristics. Even within Pennsylvania, data shows each county is different and so are their experiences with oil and gas compliance, the real and perceived risks created by oil and gas production, and the benefits generated by production. Like chapter 5, the issues relative to compliance and enforcement remain hotly contested. However, unlike the preceding chapter, we look not only at the characteristics of the extraction site but also at county-level characteristics, meaning the contextual variables are broader and more diverse. When both the site-level and county characteristics are involved, Department of Environmental Protection staff must still weigh site-level differences related to well type and resource extracted. To these variables, we add considerations about how compliance outcomes may impact the surrounding area and how they may be influenced by factors approximating economics, social characteristics, and the utility of citizen complaints. As such, chapter 6 is guided by three questions: 1. What county-level characteristics shape the detection of total violations, administrative violations, and environmental health and safety violations? 151

152

County-Level and Substate Factors

Table 6.1. Variables of Interest Variable

Coding

Horizontal well

0=Vertical 1=Horizontal

Unconventional well

0=No 1=Yes

Type of well

0=Gas only 1=Oil only 2=Combined oil and gas

Salary

Inspector salary by year

Total gas wells

Total number of gas wells in county

Unemployment rate

County unemployment rate

Total Act 13 funds

Total impact fees remitted to county

Total complaints

Total count of spills per county each year

Total waste incidents

Total count of waste incidents

Population

Population in county

% white

Percentage of nonminority residents located within county

% bachelors or higher

Percentage of residents holding a bachelor’s degree or higher

% employed in mining, quarrying, and oil and gas extraction

Industry by occupation for employed civilian population 16 years and over

% employed in agriculture, forestry, fishing, and hunting

Industry by occupation for employed civilian population 16 years and over

Average income

Median household income (in 2015 inflation-adjusted dollars)

Average home value

Mean home value of all occupied housing units

Total oil production

Annual gross withdrawals (barrels) of crude oil, for the year specified in the variable name

Total gas production

Annual gross withdrawals (thousand cubic feet) of natural gas for the year specified in the variable name

Source: Generated by authors

153

County-Level and Substate Factors

a. What factors are associated with an increased probability of the above? b. What factors are associated with a decreased probability of the above? 2. What county-level characteristics shape the use of administrative tools including notices of violations and penalties? a. What factors are associated with an increased probability of the above? b. What factors are associated with a decreased probability of the above? 3. Do relationships remain when they are considered alongside site-level characteristics? To answer the questions above, this chapter incorporates a multitude of county-level and substate variables, informed largely by state oil and gas policy research, such as population, education, inspector characteristics, and citizen complaints. These variables are then combined with site-level factors including well direction, unconventional or conventional wells, and type of well (oil, gas, or combined) to further build the context of oil and gas compliance as shown in table 6.1.

RESULTS Results are based on the years 2000–2015 and include 285,536 inspections across forty-seven counties. Models are controlled for variation between county and years rather than operators. In chapter 6, we are assuming (for theoretical purposes) that there are no differences between operators for administrative violations or our other dependent variables, meaning that some of the operator variance is wrapped up in the estimate for unconventional production. In short, our purpose in chapter 6 is no longer just the exploration of site-level variation but rather how a more diverse context that includes environmental characteristics shapes compliance outcomes of the DEP.

Inspections As we described in chapter 5, we do not present results of which wells received or did not receive an inspection.

Identification of Violations by Type Table 6.2 unpacks and highlights factors that affect the identification of both administrative violations and environmental health and safety violations. Data here also includes results for factors that shape the likelihood that DEP personnel would use specific administrative options. Combined results for models are presented in table 6.2. We begin by examining administrative violations. In general, data suggests that administrative violations are more likely to be observed in counties with a greater number of gas wells, oil wells, and combined oil and gas

154

County-Level and Substate Factors

Table 6.2. Examining Compliance Outcomes Dependent variable (only including those in which models converged/sufficient cases to estimate). Coefficients reported in logit units. Any Environmental administrative health and action safety violation

Consent order decree

Independent variable

Administrative violation

Horizontal well

−0.782***

−0.863***

−0.842***

−1.180***

Unconventional well

−0.720**

−0.631**

−0.749***

0.229

Gas well

1.713***

0.905***

1.387***

1.202***

Oil well

2.353***

0.827**

1.666***

1.252*

Combined oil and gas well

0.899***

−0.188

0.391**

0.983*

Follow-up inspection

−0.814***

0.205

−0.290*

−0.26

Inspector salary

−0.00002***

−0.00001***

−0.00002***

−0.00002**

Total number of gas wells

0.001*

−0.0002

0.0002

−0.001

Unemployment rate

0.327

4.419***

1.461***

10.280***

County Act 13 funds

−0.00000***

0.00000***

−0.00000***

0

Total complaints

0.019**

−0.050***

0.003

−0.029

Waste incidents

−0.001**

0.001***

−0.0004*

−0.001

Population

0.0001

−0.0002**

0.0002***

−0.0001

% white

0.272

−0.023

0.118

−1.975*

% bachelors or higher

-0.023

0.675***

0.238***

0.771*

% employed in mining, quarrying, and oil and gas extraction

−6.321

−119.747***

−46.686**

119.388

% employed in agriculture, forestry, fishing, and hunting

−665.641***

−174.503

−95.086

910.916

Average income

−0.00001

−0.0001

−0.00004

0.0002

155

County-Level and Substate Factors Average home value

0.0001**

−0.0001***

0.00001

−0.00001

Total oil production

0.00001***

−0.00001***

0.00001***

−0.00001

Total gas production

0.000***

−0.00000***

0.000**

0

*Reached .1 level of statistical significance **Reached .05 level of statistical significance ***Reached .01 level of statistical significance Source: Generated by authors

wells. Administrative violations were also more likely in counties with more complaints and higher home values. Other significant relationships include, after holding other factors at their medians: Administrative violations are 1.4 times more likely for every 1 percent increase in unemployment. Administrative violations are 1.02 times more likely for every 1 additional complaint. Administrative violations are 1.3 times more likely for every 1 percent increase in white population. Conversely, administrative violations were less likely in counties with a greater number of horizontal wells, unconventional wells, and follow-up inspections. Additionally, data shows they are less likely in counties that have higher inspector salaries, that receive higher Act 13 impact fees, that have fewer waste incidents, and that have a greater percentage of citizens employed in agriculture, forestry, fishing, or hunting industries. We turn to environmental health and safety violations next. Results link DEP compliance outputs with county-level socioeconomic data. In general, violations were more likely in counties with higher levels of unemployment, more gas and oil wells, a higher number of waste incidents, and a greater number of college-educated residents. For example, environmental health and safety violations were about two times more likely for each 1 percent increase in the number of county residents holding a bachelor’s degree or greater. Conversely, these violations were less likely to observed in counties with the following: lower DEP inspector salaries, more complaints from stakeholders including citizens, fewer residents, higher percentage of citizens working in mining industries, stronger home values, and greater volumes of oil and gas production.

156

County-Level and Substate Factors

Any Administrative Action Taken As shown in table 6.2, administrative actions following a violation were more likely in counties with higher unemployment, more residents, and higher levels of education. By comparison, the probability of violations that did not result in an administrative action was lower in counties where inspectors had higher salaries, where more waste incidents occurred, and where more citizens were employed in mining or other extractive industries. Finally, the likelihood of penalties was associated with higher inspector salaries. We should note that, with regard to the following, we did not have enough cases to estimate the likelihood of an NOV being issued.

DISCUSSION OF RESULTS What is the county-level context of oil and gas inspections, violations, and administrative actions? What explains our results? Results touch on multiple dimensions and seem to cluster on political, economic, budgetary, and technical characteristics. It should be noted that many of the site-level characteristics retained their statistical significance and direction, as reported in chapter 5.

Context for the Increased Probability of Identification of Administrative Violations Which factors influence the probability of the identification of an administrative violation? The data reveals a complex picture that is shaped by site- and county-level characteristics such as the presence of total wells, complaints from citizens, higher home values, higher county population, and a larger volume of overall oil and gas production. The relationship between county-level production and administrative violations is noteworthy. We highlight two possible explanatory mechanisms. One possible explanation is that more production is a result of a greater number of actively producing sites. As noted in chapters 3 and 4, active wells are a DEP inspection priority and more likely to receive an inspection, which may lead to inspectors identifying a greater number of violations. A second argument is that with increasing production or changing priorities, state regulators are seeking ways to balance production with environmental and quality-of-life goals—that is, to satisfy multiple compliance goals (Detrow 2013). As an industrial practice, production contributes to rising air particulate emissions, high levels of salience and attention, citizen complaints, threats to public health and safety, and worries over potential drinking water contamination. The risk of fire also exemplifies this dynamic (Fisk 2017). According to Skip Roupp, Bradford County’s deputy emergency management director, well fires are a rarity—he equated a major well fire

County-Level and Substate Factors

157

to a one-in-a-thousand event. However, he cautioned that the county is nearing two thousand wells (Detrow 2011). The observed increase in the likelihood of an administrative violation may be the result of the DEP’s attempt to mitigate these potential risks (either real or perceived) and to respond to stakeholder pressure relative to more detectable violations (Davis 2012; Fisk 2017; Rabe and Borick 2013). Results also indicated that complaints mattered with regard to the odds of identifying an administrative violation. Given the DEP’s limited budget and personnel resources, the role of complaints may become increasingly important for a number of reasons. First, citizen-involved oversight is decentralized and requires fewer centralized resources (e.g., the DEP’s fiscal and personnel resources). In effect, this form of oversight permits citizens and other groups to engage with administrative actors and to report to the DEP when they believe oil and gas operators have violated applicable rules. Responding to complaints also enables DEP staff to spend time investigating potential trouble spots or areas in which there has been a reported complaint. Much of the initial cost is incurred by citizens (time) and if there is a violation, the operator or guilty party will likely incur some financial liability to cover the DEP’s costs (McCubbins and Schwartz 1987). It should be noted that citizen oversight should not be confused with the traditional form of oversight as practiced by the DEP. There are significant differences between the expertise of the DEP’s inspectors and interested stakeholders, and not all complaints are valid. The connection between higher population and home values and greener environmental outcomes is well known in environmental policy research. Thus, it is not surprising to observe this relationship as it relates to oil and gas compliance. A common logic for this association is found in Abel, Stephan, and Kraft (2007), who argue that greater citizen affluence is tied to greater environmental awareness, state environmental commitment, and citizens’ educational attainment (Daley and Garand 2005; Matisoff 2008; Wood 2011). Researchers have also connected increasing wealth to states committing more resources to environmental regulators and regulatory agencies (Davis 2012; Wood 2011). Finally, previous research has also found that less wealth harms political efficacy and can make it more difficult to overcome collective action problems (Hamilton 1995). The dynamics described above may be in play when it comes to oil and gas development. Both conventional and unconventional production produces tangible risks and disruptions to communities through spills, noise, dust, vibrations, accidents, emissions, and heavy truck traffic, which in larger communities would affect a greater number of residents (Fisk 2017). As applied to oil and gas compliance, this may mean residents in poorer counties are less likely to be engaged with the DEP, to file a complaint, or to believe

158

County-Level and Substate Factors

that their involvement with the DEP’s enforcement will make a difference (Hamilton and Viscusi 1999; Opp 2012). By comparison, in more populated and wealthier counties, DEP inspectors are conducting more inspections and are more willing to identify violations, so these effects are lessened. A second possibility about larger populations is not related to organizational commitment; rather, larger communities are home to a greater number of wells and residents at risk. In these areas, oil and gas operations have less physical space to drill or produce and are more likely to impact a higher number of residents (who may oppose oil and production either as an issue or because it is near their backyard), which can necessitate more inspections, and that can lead to violations.

Context for the Decreased Probability of Identification of Administrative Violations Table 6.2 also revealed factors that account for decreased probability of an inspector identifying administrative violations. Results indicate that this circumstance is associated with counties with more horizontal drilling, more production at unconventional sites, higher inspector salary, more Act 13 funds, more follow-up inspections, and a higher percentage of residents employed in agriculture, forestry, fishing, and hunting. As applied here, data shows an association between inspectors with more years of experience or pay and a lower likelihood of administrative violations. Our review of the applicable literature points to several possibilities and offers leverage for explaining the dynamics described above. More experienced inspectors, for example, may have prioritized specific environmental health and safety violations or some agency goals over others, such as extraction over environment or vice versa (Lipsky 1980). An inspector with more experience may differ from a less experienced inspector in his or her relationship with central agency leadership or oil and gas operators. Interestingly, the data suggests that higher-paid inspectors are more likely to record higher penalties. This is addressed later in this chapter. The DEP defines a follow-up inspection as an administrative action to assess whether “previously issued violations have been sufficiently resolved” (DEP 2015). Thus, if violations are less likely during an inspection that is conducted following a violation, it is likely that the operator has returned to a state of compliance and that the violation has been resolved in the eyes of the DEP. The data shows that these counties with more unconventional sites and more Act 13 funds are less likely to receive administrative violations. What explains this puzzling result? One possible explanation relies on the allocation of Act 13 dollars. In effect, jurisdictions whose local economies rely more on production (for the associated economic and employment ben-

County-Level and Substate Factors

159

efits, as described in chapters 1 and 4) or which receive direct economic benefits (Act 13 dollars) are more inclined to support the industry. In this scenario, the relationship may mean that inspectors are less likely to identify an administrative violation as there are pressures to support the local economy and operators. Another possibility is that unconventional production, especially with horizontal drilling, typically involves newer and larger wells and sites (or alterations), and as a result often requires significant upfront investment, as the wells are larger and more technologically complex. These initial costs can limit market entry to only larger firms or those with more expertise. Wiseman (2012) suggests that as firms increase in size and sophistication, they are likely to acquire additional experience and human resources (environmental officers), meaning fewer administrative violations.

Context for the Increased Probability of Identification of Environmental and Health Violations Table 6.2 also permits us to identify which factors influenced the likelihood of identifying an environmental health and safety violation. The data again reveals a set of complicated relationships with specific results showing that counties with more gas and oil wells, more waste incidents, a larger population, and more college-educated residents are likely to have more environmental health and safety violations. Results linking counties with more overall gas and oil wells with an increase in the odds of an environmental health and safety violation seems in line with the DEP’s priorities of inspecting producing wells, many of which are unconventional (Huba 2019). In fact, these results fit with previous scholarship that links conventional sites with environmental health and safety violations (Abualfaraj et al. 2016; Rahm et al. 2015). Why is this the case? We believe the answer may lie in the historical nature of many of the wells. The wells are older, which can lead to cement, equipment, or casing failures. The wells are abandoned, not active, or are no longer receiving general maintenance or upkeep. These wells were built to standards of the time, which may mean they are no longer in compliance with current construction or performance standards. Older wells, often abandoned, have had a handful of reported explo-

160

County-Level and Substate Factors

sions, fires, and methane leaks, which may precipitate greater attention from the DEP inspection staff (Associated Press 2011). The wells may be atop conventional resources and may be subject to less intense state support than unconventional sites. Davis (2012) argues that oil- and gas-related events, because they are unexpected, have the potential to become drivers of citizens’ activism and nonincremental policy change and can even shift bureaucratic priorities. They are also important factors for understanding how and why citizens support or oppose fracking (Fisk 2017; Fisk, Park, and Mahafza 2017). As incident reports are filed or as reports of events surface, an array of factors may contribute to a higher number of environmental health and safety violations. The incident, for example, may have been the result of an actual violation, which leads to an inspection, testing, and possibly an environmental health and safety violation. The incident may have also increased risk perceptions associated with the site among inspectors or nearby stakeholders. This in turn is likely to lead to more inspections (or follow-up inspections) or inspectors being primed to find an environmental health and safety violation (Slovic 1987). Understanding the nature of waste incidents and their risks to the public helps explain the linkage between the number of wells and environmental health and safety violations. Wastes are part of the life cycle of oil and gas production and include both produced or fracked waters and construction wastes (from site preparation and drilling). Both, if left unaddressed, can pose a risk to the environment and public, as described by the grand jury report: First, there are the drill cuttings—the rock and mud that is ground up and brought out to create the well. The drill cuttings are mixed in with the sludge of industrial chemicals used for the drilling processes. This is not just normal rubbish that can be tossed onto a regular garbage dump. The chemicals in drill cuttings are potentially hazardous even beyond the standards of landfill sites used for municipal trash. Second, there is the wastewater—which is not just water at all. The fluid injected into a fracking well cannot perform its function with mere H20. Frack fluid is an elaborate and, as we mentioned, secret chemical cocktail of lubricants, biocides, solvents, and other agents. And the issue isn’t just the composition, but the quantity. A single well may create millions of gallons of contaminated water over its lifetime. The movement of this waste presents a risk to the public. (Shapiro 2020, 97–99)

County-Level and Substate Factors

161

The connection between higher population and socioeconomic characteristics with health and safety violations was also observed for administrative violations. We believe many of these arguments also hold true for the increased probability in the identification of environmental health and safety violations. In short, higher socioeconomic statuses in localities often enjoy an environmental protection dividend through heightened environmental awareness, greater organizational capacity, awareness and knowledge of environmental resources, more resources, higher levels of political efficacy, and willingness to engage in collective action (Abel, Stephan, and Kraft 2007; Daley and Garand 2005; Matisoff 2008; Wood 2011).

Context for the Decreased Probability of Identification of Environmental Health and Safety Violations County context may also lessen the likelihood of recording an environmental health and safety violation. Results indicated that counties with more unconventional production, higher inspector salary (already addressed in the administrative violation section), and a higher percentage employed in the industry are associated with lower odds that the inspector will identify an environmental health and safety violation. Why, as unconventional production increases, do environmental health and safety violations tend to decrease? There are several possibilities ranging from technology used in the extraction process to the economics of contemporary oil and gas: Unconventional wells are generally newer and must meet today’s technical requirements, including casing and cement. As a result, they are less likely to have failures that damage the environment. They are more likely to have an owner and more likely to be producing, meaning they are more likely to receive needed maintenance if necessary. Operators with a portfolio of unconventional wells tend to be larger and have greater organizational resources, including the capacity to hire compliance officers (Abualfaraj et al. 2016). There may also be political and economic reasons that unconventional operators receive fewer environmental health and safety violations (Rabe and Borick 2013). Their production is associated with higher revenues, taxes and fees, royalty payments, and employment gains. Portions of these new revenue streams may be threatened by violations. One possible explanation is the economic and political clout that the industry wields throughout the DEP and with elected officials (as described in chapter 3), who seemingly have prioritized extraction and development over other DEP goals. Sec-

162

County-Level and Substate Factors

ond, given the industry’s important role as an economic game changer (as described in chapter 3), there may be pressure to avoid antagonizing the industry in counties with a higher number of industry employees (that is, to avoid threatening employment). In either case, the result is the identification of fewer environmental health and safety violations.

Inspectors Some of our most interesting findings relate to personnel. The agency’s contingencies on inspections are well documented, but this chapter also demonstrated the importance of individual inspectors in terms of compliance, especially the relationship between higher inspector salary and fewer identifying violations. Social science research has long observed that the culture, salary, experience, and values of agency personnel, including frontline inspectors, affect their compliance priorities and decisions. The question behind all of this is why. The literature points to several possibilities, which are subject to future research. First, street-level actors have interests and objectives that may not align with their agency or the regulated entity. They also possess other resources such as greater expertise, discretion, and delegated authority that they may utilize to reach their goals. Data here suggests this to be the case, as inspectors varied in the rates of identifying violations and in their use of specific compliance or management tools. Much like other street-level bureaucrats, DEP inspectors, we surmise, hold varying impressions about, beliefs in, and relationships with our site-level factors such as the operator or other on-site industry personnel, the DEP as a regulatory agency, and the entire oil and gas industry. Based on these varying beliefs and perceptions, inspectors may have subtle differences in their decision making. Performance differences relative to experience may also stem from variations in inspectors’ levels of knowledge about fracking and conventional production, when they received training, their willingness to seek out training, their knowledge of pertinent loopholes, their relationship with centralized management or the operator, and even whether they intend to stay with the DEP. The grand jury report identifies another possible reason that as inspector salaries increased, reported violations declined slightly: We saw staffing issues at DEP that caused us concern. But among the most troubling was the fact that DEP employees were frequently lured away to work for the oil and gas operators they were supposed to be regulating. In a way, this should be no surprise. The industry is far better funded than government, and can offer far better compensation to state employees who have developed, at state expense, an expertise in this regulatory field. But the resulting potential for conflict

County-Level and Substate Factors

163

of interest cannot be ignored. If DEP employees know there may be a big paycheck waiting for them on an operator’s payroll, they may be reluctant, consciously or otherwise, to bring to bear the full force of the law. The solution is to do what Pennsylvania has done in other areas: impose a “cooling-off” period that would prohibit DEP employees from jumping directly into a job with an oil and gas company. To be clear, this would not be a complete solution to the personnel issues we saw at DEP. We believe the agency has been understaffed and undertrained; even the Department’s own representative testified to the need for more resources. DEP must have an appropriate, sustainable funding source in order to ensure that it can hire, train, and retain the people necessary to perform the challenging tasks required to regulate this complex industry. (Shapiro 2020, 100)

Complaints What is the role of complaints and how could this style of oversight be useful to the DEP? Table 6.2 indicated that complaints were associated with outputs in two different directions; that is, complaints were associated with more administrative violations and fewer environmental health and safety violations. What explains these results? Part of this discrepancy may be due to the nature of some environmental health and safety violations, the use of specific technology over others, strategies used by the DEP, and even DEP staff attitudes, as noted by the grand jury: We were also disturbed by testimony about how the Department failed to test, ineffectively tested, water samples to find contamination caused by fracking. The law requires the Department to conduct water quality tests in response to citizen complaints. We learned that DEP performed that obligation by relying on a set list of known parameters to test for, such as chloride and sediment levels. The list was called a “suite code” and could be effective only to the extent that it accurately identified the appropriate factors for which to test in particular situations. One of these lists, suite code 942, had been developed by DEP before fracking, for old-fashioned conventional drilling. Since conventional drilling did not use the same chemicals or techniques as fracking, suite code 942 could not accurately indicate whether water was contaminated; yet many DEP employees relied upon it to the exclusion of any additional investigation. Eventually, a new list was developed, suite code 946, but many employees didn’t know about it, and kept on using suite code 942. (Shapiro 2020, 55)

164

County-Level and Substate Factors

DEP employees would investigate citizen complaints simply by calling the operator and asking him what happened. “We had so many complaints,” testified one employee. “It was impossible for us to respond to every one.” So, instead, the first step was often to telephone the well site operator. If the operator sent in a photo purporting to show that no spill had occurred, the matter could be closed without ever leaving the office. (Shapiro 2020, 59) We heard too many stories of complaints unanswered, or cavalierly dismissed. Some employees refused to consider evidence of problems presented by citizens, while at the same time readily accepting and believing information supplied by operators. Even when homeowners went to the trouble and expense of hiring their own experts, some DEP employees did not listen. We appreciate that not every complaint is founded. (Shapiro 2020, 7)

Higher Number of Enforcement Actions The context surrounding compliance continues to be important as we move toward the use of corrective and enforcement actions. Results indicated that counties with more gas and oil wells, citizen complaints, population, and educational attainment are associated with more enforcement actions. The relationship between higher socioeconomic status and regulatory attention has appeared previously in this chapter. Thus, it should not be surprising that areas reporting more violations report an uptick in administrative actions so that violations are addressed and the site returns to a state of compliance. This relationship is likely also shaped by some combination of greater environmental awareness of stakeholders, increased organizational capacity or willingness to deploy staff in more affluent locations, an awareness of environmental issues, and willingness to participate in collective action by residents in the county (Abel, Stephan, and Kraft 2007; Daley and Garand 2005; Matisoff 2008; Wood 2011). Data also shows that complaints are associated with more administrative responses. Why? There are several possible answers: Unconventional oil and gas sites and fracking are salient for many of the commonwealth’s citizens, especially as they relate to potential drinking water contamination. These sites are larger and often more visible than conventional sites. Because of this salience and visibility, residents may be more likely to report and make complaints to the DEP, which upon investigation issues an NOV or other action.

County-Level and Substate Factors

165

The fracking boom has elevated citizens’ evaluation of contamination and their real and perceived risk of exposure, again leading to more complaints. There have also been several explosions and other incidents involving older wells, which may heighten risk perception for all development (Fisk 2017). The industry has visible surface-level impacts including spills, dust, and noise. These may lead to more complaints, and if a violation is identified, inspectors are required to notify the operator of the violation (or pursue other actions). A higher number of wells within the county was also associated with an increased probability of administrative actions. As Abualfaraj et al. (2016) and Rahm et al. 2015, remind us, older and more conventional wells are more likely to have environmental health and safety violations through structural failures, leaks, and poor or eroding construction. Such violations are more likely to have a direct impact on the environment and public health and require an administrative response. These violations need to be viewed with a handful of facts in mind. First, there are thousands of wells in the commonwealth and a small percentage of them are actively producing. Second, if DEP personnel determine the violation represents a threat to public health or the environment, the agency is more likely to utilize more stringent enforcement actions (DEP 2015). Recall here that one of the main goals of the DEP is the protection of human health and the environment (DEP 2015). Third, while the conventional fuels industry has historically enjoyed support from elected state officials, during our time period, state lawmakers were actively cultivating the unconventional fuels industry, as it was driving growth in production more than conventional wells. Fourth, because conventional wells still represent a greater number of overall wells, it is not surprising that a county with more overall wells was associated with a greater likelihood of an administrative action, especially considering unconventional wells were linked to fewer enforcement actions.

Lower Number of Enforcement Actions The context of compliance remains important as we shift toward factors associated with a smaller number of enforcement actions. These include higher inspector salary, employment in the oil and gas sector, Act 13 monies, and unconventional wells. Increases in the number of unconventional wells, more Act 13 dollars, and a higher percentage employed in the industry were associated with fewer environmental health and safety violations, which may help explain why

166

County-Level and Substate Factors

there were fewer enforcement actions in these counties. Arguments seeking to explain these findings mirror those described earlier in this chapter but center on modern construction standards that govern unconventional production. These wells are actively producing, meaning they are more likely to receive maintenance, and are operated by firms with greater organizational capacity. A second set of possibilities relates to the politics and economics of unconventional production and statewide support. Unconventional wells in these counties have contributed directly to the collection and distribution of Act 13 dollars, new state and local tax dollars and fees, royalties for property owners, and job gains. Enforcement actions may be seen as a threat to these economic benefits, and as a result, might contribute to the decline observed in enforcement actions.

Penalty Amounts Higher inspector salary was linked to greater penalty amounts. Interestingly, this relationship was not observed for any other administrative actions. We believe two potential dynamics may underpin this finding. First, as Maynard-Moody and Musheno (2000) note, bureaucrats tend to exercise greater control during periods of crisis, such as a scandal or emergency. During a crisis, managers may mobilize their more experienced inspectors to respond to the heightened levels of attention, issue saliency, and problem severity. DEP policy may be reflective of this dynamic. According to DEP policy, orders and penalties are more appropriate “when a site condition creates an existing or imminent danger to health or safety, or is causing, or can be expected to cause, pollution or other environmental damage; or when the operator indicates a failure to comply with a previously cited violation” (DEP 2015). A second possibility is that violations that pose a danger to the public contribute to more antagonistic relationships between the DEP and operators. When coupled with narrowed discretion and heightened public attention, inspectors are more likely to issue greater penalties. Once attention wanes and public health threats are mitigated, bureaucratic behaviors may return to equilibrium. At this point, we believe that more traditional sources that influence DEP decision-making, such as political and economic pressures, resume exerting influence on compliance outcomes.

RETURNING TO THE MODEL We return here to our exploratory model of compliance, as shown in figure 6.1. In general, county and substate level data offers additional explanatory leverage and deepens how the context surrounding compliance shapes outputs related to inspections, violations, and administrative actions.

County-Level and Substate Factors

167

Figure 6.1. Context of Compliance

Mission and Policy We did not directly examine variables approximating mission and policy, although we should note that the DEP’s regulatory footprint seemed lighter at counties with more unconventional production facilities. This trend, also observed in chapter 5, fits with stated policy goals of elected state officials and with the Pennsylvania Department of Environmental Protection’s mission, which includes the goal “to facilitate the safe exploration, development, recovery of Pennsylvania’s oil and gas reservoirs in a manner that will protect the commonwealth’s natural resources and the environment” (DEP 2019a).

Politics and Economics Data here suggests that factors such as Act 13 monies and higher home values shaped the context of compliance directly. Act 13, supported by state leaders, was seen as a win for the industry and as a policy tool designed to support robust production levels, which in turn would create millions of dollars in new state and local revenues. The combination of a highly supportive political environment and the potential for a new stream of revenue likely contributed to a lax regulatory environment that sought to support the industry. We also note that resources within the industry mattered, as observed by the grand jury report: “What was consequential for [the industry]

168

County-Level and Substate Factors

was time, not so much money. . . . They had a lot of resources. They could spend the money” (Shapiro 2020, 51).

Budget and Personnel Oil and gas inspectors, much like other street-level bureaucrats, have varying impressions, interpretations, and relationships with industry even within the same regulatory framework. In this case, inspectors likely held differing opinions about (or history with) the operator, the DEP’s inspection process, their own professional goals, the adequacy of state rules, private property rights, whether a violation is observed, and the most effective course of action so that the operator may return to a state of compliance (Lipsky 1980; Winter 2006). Each of these, according to the discretion literature reviewed in chapter 2, can influence outcomes and the use of discretion. This chapter also revealed the DEP and challenges (real and perceived) relative to citizen and third-party complaints. Data limitations preclude a precise explanation, but the relationship between more complaints and fewer environmental health and safety violations was surprising. We note that this relationship could be related to some or all of the following: unofficial department policy, a lack of training or resources, employee burnout, being overly responsive to the needs of the industry, or the behavior of rogue staff.

Technology, Timing, and Data Our county-level variables did not address technology or time variables directly. We do note that our variable measuring well type did maintain statistical significance even with the addition of county and substate variables. See chapter 5 for a more in-depth discussion of well type and compliance.

SUMMARY AND CONCLUSIONS This chapter finds evidence to support each component of the model that approximates the context of compliance, albeit some of our variables provide more direct support than others. When it comes to conventional and unconventional oil and gas production, which county-level characteristics matter? Do they wash away site-level factors? The short answer is no. We also note the peculiar relationship between citizen complaints and violations. The context that thus far shapes the detection of violations and the use of administrative tools is a function of a site’s characteristics and the county (and its characteristics) that the site calls home. Unconventional wells, when examined at the county level, are less likely to receive either type of violation or any type of administrative action. This key finding, as the chapter highlights, is likely a function of several contextual factors such as the economics of Act 13’s impact fees and socioeconomic characteristics, the important role of inspectors, and the type of well.

Chapter 7

STATE-LEVEL FACTORS

Previous chapters demonstrated that site- and county-level differences account for some of the variation in inspections, violations, and administrative responses. They also elucidated several of the priorities of the DEP and state leaders. This chapter narrows in on actions taken by state leaders that shape compliance outcomes. Questions relative to compliance and enforcement increase in scale and saliency at the state level and are likely to interact with multiple goals related to extraction, economic growth, budget and electoral politics, and environmental protection. Prior research has already shown that the state’s political battles over fracking are less about whether the practice should be allowed and more about the extent it should be regulated. In this sense, the debate over oil and gas management is more about where, when, and how, and no longer about “if.” We begin our discussion over the political aspects of oil and gas compliance by looking at attitudes and expectations of citizens. The section then pivots to describing how political characteristics of the state have shaped the context of compliance and concludes by returning to our context of compliance.

STATE POLITICAL CONTEXT A representative survey of oil and gas attitudes of Pennsylvanians, taken during the height of the boom, revealed the following (Rabe and Borick 169

170

State-Level Factors

Table 7.1. Tax Collections by County Type

County Type

Average percent change in state sales tax by county (2007–2010)

County type

Average percent change in state income tax by county (2007–2008)

150 or more Marcellus wells drilled

11.36

Ten or more Marcellus wells drilled

6.96

At least one but fewer than 150 Marcellus wells drilled

−3.11

At least one but fewer than ten Marcellus wells drilled

3.08

Zero Marcellus wells drilled

−6.55

Zero Marcellus wells drilled

0.89

State average

−3.77

State average

2.04

Source: Kelsey 2016

2011; see also Boudet et al. 2014; 2016; Choma et al. 2016, Davis and Fisk 2014; Theodori 2013; Veenstra et al. 2016): 41 percent believed fracking’s benefits outweighed its costs. 50 percent perceived fracking’s future benefits outweighed its costs. 60 percent believed that fracking threatened the state’s water resources. 58 percent were not concerned with the idea of additional state regulation. The public’s attitudes over fracking are not set in stone. Yet, according to the literature cited above (in 2011—the midst of our sample years), Pennsylvanians harbored some doubts about the process and only half believed that its future benefits outweighed costs. As noted in chapter 2, these attitudes are influenced by factors including partisanship, education, risk tolerance, and proximity to extraction sites. Whereas the public held some reservations toward fracking, much of the state’s elected leadership was openly optimistic about oil and gas development. Their support was reflected in public statements, policies, and goals of the DEP (Rabe and Borick 2013). Additionally, many DEP leaders, including the last five agency secretaries, had previous experience working with the oil and gas industry (Hopey 2013).

171

State-Level Factors Table 7.2. Economic Benefits by County Type Percent change in taxable compensation

Percent change in rights, royalties, and patent income

Percent change in net profits

Ten or more Marcellus wells drilled

4.2

325.3

10.8

At least one but fewer than ten Marcellus wells drilled

3.3

107.8

7.1

Zero Marcellus wells drilled

3.0

86.6

1.5

State average

3.2

119.2

3.7

Source: Kelsey 2016

Statewide Benefits to Pennsylvania State-level oil and gas supporters, including many statewide official holders, quickly point to optimistic economic forecasts and examples of substantial economic growth. Growth forecasts also highlight the political risks to state officials should they seek to impede growth or be seen as unfriendly to the industry. Considine, Watson, and Blumsack (2010), for example, estimated the following: Each $1 that Marcellus operators spend in Pennsylvania yields approximately $1.90 in economic output. Production in Pennsylvania strengthened the state’s economy through direct and indirect economic benefits. Direct contributions totaled nearly $2 billion, with indirect and induced spending adding another $2 billion for a total of $3.87 billion in economic contributions in 2009. Production in Pennsylvania supported over 21,000 jobs and indirectly created another 23,000 for a total employment impact of 44,098 throughout the state. Employment impacts tended to cluster in shale gas–producing regions and counties. Production in Pennsylvania generated new federal, state, and local tax revenues, including nearly $390 million in additional state and local tax revenues and $1 billion in new federal taxes.

172

State-Level Factors

Table 7.3. Growth and Decline in the Industry 2017 Q3 2017 Q2 2017 Q1

Decline

2016 Q4

Decline

2016 Q3

High decline

2016 Q2

High decline

2016 Q1

High decline

2015 Q4

High decline

2015 Q3 2015 Q2 2015 Q1 2014 Q4

High growth

2014 Q3

High growth

2014 Q2 2014 Q1 2013 Q4 2013 Q3 2013 Q2

High growth

2013 Q1

High growth

2012 Q4

High growth

2012 Q3

High growth

2012 Q2

High growth

2012 Q1

High growth

2011 Q4

High growth

2011 Q3

High growth

2011 Q2

High growth

2011 Q1

High growth

2010 Q4

High growth

2010 Q3

High growth

2010 Q2

Growth

2010 Q1

Growth

Categories are as follows: • High Growth: Four consecutive quarters of year-over-year employment growth, with annual growth rate of at least 5% and annual net employment gain of at least 25. • High Decline: Four consecutive quarters of year-over-year employment decline, with annual decline rate of at least 5% and annual net employment loss of at least 25. • Growth: Year-over-year employment growth of at least 5% and net gain of at least 25. • Decline: Year-over-year employment decline of at least 5% and net loss of at least 25. • Blank cells indicate that data did not meet aforementioned criteria describing high growth, growth, decline, or high decline.

Source: Pennsylvania Department of Labor and Industry 2017, reformatted for this book

173

State-Level Factors Table 7.4. Outflow Capacity (million cubic feet per day) 2010

2011

2012

2013

2014

2015

2016

2017

Pennsylvania 16,860 17,885 18,725 19,611 21,900 24,608 25,290 26,713 Source: EIA, n.d., reformatted for this book

Recent work by Kelsey (2016) also supports a positive relationship between oil and gas production and economic growth. Specifically, Kelsey (2016) compared counties with more and less shale activity and found the following: shale gas counties reported larger gains in employment, sharper reductions in unemployment, greater business profits, and higher sales tax collections than non–shale gas counties. Additional results are shown in tables 7.1 and 7.2. We draw the reader’s attention to the top row in table 7.1. In areas with the greatest number of wells, there were positive changes in both state sales taxes and income taxes. In fact, while state sales taxes as a whole dropped by nearly 4 percent, sales taxes collected in oil- and gas-heavy counties increased by over 11 percent over time. State income taxes in oil and gas counties also significantly outperformed the state average. Table 7.2 also revealed more economic gains for citizens in counties with oil and gas wells than those without. Fracking counties, on average, enjoyed more taxable compensation, a larger increase in royalties, and a positive change in their net profits that nearly quadrupled the state average. Like the booms of the past, however, Pennsylvania’s economic impacts are cyclical and are subject to changes in supply and demand. This dynamic is captured in the Quarterly Census of Employment and Wages, as presented in table 7.3. Of note is the clear boom-and-bust nature of oil and gas production, trends which are also shown in chapter 4. During boom periods, economic optimism, revenues, industry’s profits, and political support are likely to run high. Yet, because oil and gas (especially oil) is subject to market cycles, oversupply, drops in demand, regulation, and competition (domestic and international), there are also busts, in which support may become more muted and industry may curtail operations. The economics of oil and gas production and the political incentives to support production are further supported by the state’s location and role as a major supplier of energy to end users throughout the mid-Atlantic, Northeast, and Southeast, as shown in tables 7.4 and 7.5. Data in tables 7.4 and 7.5 demonstrates the regional reach of Pennsylvania’s natural resources through significant pipeline outflow capacities to states including Delaware, Maryland, West Virginia, New York, and Ohio. In other words, the decisions made by regulators in the commonwealth have implications for millions of consumers in other states. In turn, decisions by

174

State-Level Factors

Table 7.5. Pennsylvania Gas Outflow Capacity, 2017 Outflow capacity (million cubic feet per day) Pennsylvania (total) Delaware Columbia Gas Trans. Corp.

26,713 729 174

Eastern Shore Nat. Gas Co.

80

Texas Eastern Trans. Corp.

295

Transcontinental Gas P. L. Co. Maryland

180 2,869

Columbia Gas Trans. Corp.

57

Dominion Transmission Co.

924

Eastern Shore Nat. Gas Co.

145

Texas Eastern Trans. Corp. Transcontinental Gas P. L. Co. New Jersey

300 1,443 10,681

Columbia Gas Trans. Corp.

423

Penn Jersey Pipeline Co.

10

Tennessee Gas Pipeline Co.

1,586

Texas Eastern Trans. Corp.

3,850

Transcontinental Gas P. L. Co.

4,812

New York

4,648

Central New York Oil and Gas Company

812

Columbia Gas Trans. Corp.

281

Dominion Transmission Co.

1,113

Empire Pipeline Inc.

350

National Fuel Gas Supply Co.

757

Norse Pipeline Co.

10

Penn York Energy Corp.

95

Tennessee Gas Pipeline Co. Ohio Dominion Transmission Co. Tennessee Gas Pipeline Co. West Virginia

1,230 2,170 595 1,575 5,616

Columbia Gas Trans. Corp.

2,380

Dominion Transmission Co.

245

Equitrans Inc.

70

Texas Eastern Trans. Corp. Source: EIA, n.d., reformatted for this book

2,921

175

State-Level Factors Table 7.6. Impacts of the Production in the Marcellus (2005–2012) Environmental impact

Scale

Pennsylvania wastewater generated (in millions of gallons)

1,200

Total water used between 2005 and 2012 (in millions of gallons)

30,000

Instances where drilling affected drinking water wells

161

Particulate matter (in tons in 2012)

800

Nitrogen oxides

10,000

Carbon monoxide (in tons in 2012)

15,000

Volatile organic compounds (in tons in 2012)

1,000

Sulfur dioxide (in tons in 2012) Greenhouse gases (in tons from 2005 to 2012) Acres damaged between 2005 and 2012

30 8,300,000 33,000

Source: Ridlington and Rumpler 2013

state lawmakers in these states vis-à-vis their energy production mix impact Pennsylvania producers. For example, if lawmakers in New York sought to reduce their state’s coal consumption in favor of natural gas, Pennsylvania production is likely to benefit. Conversely, if those state lawmakers pursue wind or solar power options, Pennsylvania natural gas producers may see a drop in demand from out-of-state consumers. Through 2022, officials at the Energy Information Administration (EIA) expect continued growth in the state’s pipeline infrastructure. Of note, there are several interstate lines that will deliver Pennsylvania’s natural gas to end users as far away as Alabama, Kentucky, Louisiana, and Mississippi. These lines are expected to cost several billion dollars, generate new jobs (especially during construction), and support overall growth in the industry.

Environmental Costs to Pennsylvania Groups and elected officials less inclined to support production tend to focus on environmental harms and the credibility of the state’s Department of Environmental Protection. They are concerned that production harms air and water resources, damages viewsheds, and disrupts the quality of life for residents. They are also quick to highlight oil and gas’s harmful environmental impacts, many of which have been quantified (estimated) by Environment America. These are presented in table 7.6. Fracking generates an array of environmental externalities. Data included in table 7.6 notes that fracking’s environmental impact involves wastewater, air particulate emissions, greenhouse gases, land fragmentation,

176

State-Level Factors

Table 7.7. DEP and the State Government Trends 2000–2007 2000

2001

2002

2003

2004

2005

2006

2007

Governor

Rep

Rep

Rep

Rep

Dem

Dem

Dem

Dem

Legislature

Rep

Rep

Rep

Rep

Rep

Rep

Rep

Rep

New discoveries*

0

33

0

21

0

0

13

7

Producing gas wells

36,000

40,100

40,830

42,437

44,227

46,654

49,750

52,700

Total GDP**

408,556 426,020

437,895

456,705 483,757 506,505 525,979

559,876

DEP budget**

325,934

Full-timeequivalent (FTE) budgeted

3,181

348,361 286,387 179,365 220,753 172,153

3,206

3,211

3,071

3,094

3,122

177,768

201,867

3,132

3,079

* Pennsylvania dry natural gas reserves new field discoveries (billion cubic feet) ** Total gross domestic product (GDP) by state (millions of current dollars) *** In thousands from general fund Source: Generated by authors

and smog-inducing compounds such as nitrogen oxides and volatile organic compounds. Skeptics also point to the DEP and suggest that the state’s main regulatory agency in charge of compliance is overly responsive to the needs of the industry and favors development over environmental concerns (Rabe and Borick 2013). Eric Friedman of the Middletown Coalition for Community Safety, an anti-pipeline group, also notes the frustrations that many environmental groups have with the state’s DEP. Friedman criticized the DEP and suggested that “the fines levied by DEP are trivial. . . . Their ability to deter continued unlawful behavior by [Sunoco] is insignificant” (Phillips and Hurdle 2017).

IDENTIFYING STATE-SPECIFIC VARIABLES There are several additional mechanisms by which state lawmakers and governors have shaped the context of compliance, including setting the DEP’s budget, the recruitment and retention of full-time-equivalent employees, DEP inspector salary and compensation, specific work and reporting processes, and appointment powers. State lawmakers also affect the context of compliance through legislation, the establishment of agency goals and

177

State-Level Factors Table 7.8. DEP and the State Government Trends 2008–2015 2008

2009

2010

2011

2012

2013

2014

2015

Governor

Dem

Dem

Dem

Dem

Rep

Rep

Rep

Rep

Legislature

Split

Split

Split

Split

Rep

Rep

Rep

Rep

New discoveries*

61

128

50

165

414

36

7

0

Producing gas wells

55,631

57,356

44,500

61,815

62,922

61,838

67,621

68,536

579,432 573,964 596,662

615,411

637,896

659,792 684,781

708,402

207,156 212,813

139,968 126,564

127,618

139,924

149,375

2,722

2,696

n.d.

Total GDP** DEP budget*** FTE budgeted

3,088

2,955

157,013 2,839

2,784

2,784

* Pennsylvania dry natural gas reserves new field discoveries (billion cubic feet) ** Total gross domestic product (GDP) by state (millions of current dollars) *** In thousands from general fund Source: Generated by authors

priorities, the enactment of budgets, oversight hearings, research, and the placement of issues on the agenda. Many of these data points are presented in tables 7.7 and 7.8. The DEP’s budget and personnel have decreased (in raw numbers) since 2000 even as the number of wells (chapter 4) have increased (in the same time period). This trend took place during Democratic and Republican administrations. The number of new discoveries surged between 2008 and 2012 and dropped significantly after 2012. The number of producing gas wells has increased since 2000 and has topped 68,000 (as of 2015). The start of the boom overlapped with a Democratic governor and grew annually. However, this also coincided with the advent and quick proliferation of hydraulic fracturing and horizontal drilling. The number of producing wells peaked under Republican control of state government and dropped slightly thereafter. Act 13 monies have generally increased at a faster pace than the state’s total GDP and represent new revenues for state lawmakers.

178

State-Level Factors

Table 7.9. State Characteristics and Identifying a Violation Independent variable

Administrative violation

Environmental health and safety violation

Intercept

NS

NS

DV prior year (1 year lag)

NS

NS

State natural gas price

NS

NS

State DEP operating budget

NS

NS

State population

NS

NS

State per capita income

NS

NS

Number Republican seats

Decrease in the probability

NS

Republican governor

Decrease in the probability

NS

NS = not significant Source: Generated by authors

As tables 7.7 and 7.8 show, the number of producing natural gas wells grew nearly every year, from 36,000 wells in the year 2000 to over 68,000 in 2015. DEP full-time-equivalent staff during that same time frame dropped from over 3,100 to 2,696 and its overall budget also dropped, even as its oil and gas enforcement responsibilities expanded. It should be noted that the DEP has leveraged new technologies to improve operational efficiencies, but in general, the agency has had to do more with less.

FOCUSING ON STATEWIDE RESULTS We focus here on state-level compliance outputs, which are shown in tables 7.9 and 7.10–7.12. In general, data suggests the following: Inspections were less likely to result in administrative violations and notices of violations under Republican governors. Inspections were more likely to result in administrative orders with increases in state natural gas prices, but less likely when the state DEP operating budget decreased. Higher levels of inspections resulting in NOVs in one year suggest NOVs will be higher the following year. Data limitations preclude more precise modeling, but as tables 7.9 and 7.10 show, state politics and party matters with the presence of a Republican gov-

179

State-Level Factors Table 7.10. State Characteristics and Administrative Responses Likelihood of Varying Administrative Responses Independent variable

Notice of violation

Presence Consent Penalty Administrative of penalty order amounts order violation decree

Intercept

NS

NS

NS

NS

NS

DV prior year (1 year lag)

Increase in odds

NS

NS

NS

NS

State natural gas price

NS

NS

Increase in odds

NS

NS

State DEP operating budget

NS

NS

Decrease in odds

NS

NS

State population

NS

Increase in odds

NS

NS

NS

State per capita income

NS

Decrease in odds

NS

NS

NS

Number Republican seats

NS

NS

NS

NS

NS

Republican governor

Decrease in odds

NS

NS

NS

NS

NS = not significant Source: Generated by authors

ernor are associated with a decline in administrative violations and a drop in the number of NOVs. Descriptive statistics point to several interesting relationships regarding state-level politics and the evolution of the parties relative to oil and gas enforcement, as noted in tables 7.11 and 7.12. The averages presented in table 7.11 fit within the state oil and gas policy literature that suggests partisanship matters and the state’s governor are influential actors. We note that during the years 2000–2010, the years with Republican governors, on average, witnessed more violations of both types than the years with Democratic governors. However, the parties “switched places” for years following 2010. With Democratic governors, average annu-

180

State-Level Factors

Table 7.11. Compliance Characteristics and Identifying a Violation Average over years 2000–2015 (unless otherwise noted) Independent variable

Administrative violations (count)

Environmental health and safety violation (count)

Republican governor

2,242

911

Democratic governor

1,586

793

Republican governor after year 2010

2,021

1,325

Republican governor before 2011

2,536

359

Democratic governor after year 2010

4,392

1,753

Democratic governor before year 2011

1,235

674

Source: Generated by authors

Table 7.12. Compliance Characteristics and Administrative Responses Average count over years 2000–2015 (unless otherwise noted) Independent variable

Notice of violation

Consent Administrative order order decree

Any penalty assessed

Average Penalty amounts ($)

Republican governor

165

346

1

437

11,654

Democratic governor

4

276

1

367

8,579

Republican governor after year 2010

0

549

0

628

19,963

Republican governor before 2011

385

76

1

182

576

Democratic governor after year 2010

35

297

0

351

9,547

Democratic governor before year 2011

1

274

1

369

8,458

Source: Generated by authors

181

State-Level Factors

Figure 7.1. Administrative Violations and Governor’s Party

al administrative violations neared 4,400, whereas with Republican governors they were approximately half that number. Environmental health and safety violations also flipped but the interparty difference was less. Specific administrative actions, as shown in table 7.12, also show significant enforcement divides between Democratic and Republican governors. This is especially pronounced for NOVs after the year 2010. Additionally, other findings at the state level show that patterns of violations (both administrative and environmental health and safety) and penalty amounts have substantially increased since the year 2000, as noted in figure 7.2. However, following the fracking boom, the parties, led by their governor, have seemingly diverged, with Republican leaders seemingly inclined to support fewer compliance activities than Democrats as shown in figure 7.1.

THE INTERACTIVE PICTURE We turn here to the interactive picture of compliance by assessing a sample of inspections and violations. This includes forty-three counties and municipalities contained in a universe of 285,536 inspections recorded in Pennsylvania between 2012 and 2015 and includes factors representing

182

State-Level Factors

Figure 7.2. Patterns of Environmental Health and Safety Violations

Figure 7.3. Penalty Amounts

183

State-Level Factors Table 7.13. Frequency of Compliance Actions Action

Count

Total inspections

285,536

Total inspections resulting in enforcement action description and used for analyses

15,758

Administrative violation

10,014

Environmental health and safety violation

5,744

Administrative order

632

Consent order and agreement

546

Notice of violation

12,699

Average active well count for 2012–2015

65,608

Source: Generated by authors

site, county, and state levels. Like earlier chapters, compliance is measured via seven interrelated and dichotomous dependent variables (DV), each of which is a potential action following an oil and gas inspection. The first DV captures the extent to which inspections resulted in any enforcement action (DV1). Remaining DVs measure the extent to which inspections resulted in an enforcement action—administrative (DV2) or environmental violations (DV3), a notice of violation (DV4), a consent order decree (DV5), or an administrative order (DV6)—as well as the assessed penalty amount (DV7) associated with inspections resulting in an enforcement action. Counts for each of the DVs are presented in table 7.13 with the independent variables shown in table 7.14. Results point to several expected relationships but also to some unexpected surprises with political variables. Full results are shown in table 7.15. The first model accounts for any administrative action post-inspection in order to return the operator to a state of compliance. We observed several statistically significant relationships related to state factors. Higher inspector salaries and more years of experience contributed to a greater likelihood of an inspection resulting in any type of enforcement action. Similar relationships were observed for higher unemployment rates and total state revenues and the likelihood of an enforcement action. Yet as oil- and gas-related revenues grew along with population, we observed a drop in the likelihood of enforcement action. Models two and three focused on the identification of specific violation types. Higher inspector salary, unemployment, and revenue were associated with an increased likelihood that the inspector would identify an

184

State-Level Factors

Table 7.14. Independent Variables Variable Name

Operationalization

Lag

Previous year DV

Governor’s party

0=Republican 1=Democrat

Producing gas wells

Pennsylvania natural gas number of gas wells (count)

Residential price

Pennsylvania price of natural gas delivered to residential consumers (dollars per thousand cubic feet)

Unemployment rate

Unemployment rate

Oil and gas GDP

Oil and gas gross domestic product (GDP) by state (millions of current dollars)

DEP budgeted amount

Dollars in thousands budgeted in state’s general fund

FTE budgeted

Full-time-equivalent employees budgeted in state’s general fund

Impact fee collections

Impact fees

Well direction and configuration

0=Vertical 1=Horizontal

Unconventional

0=No 1=Yes

Well type

0=Gas only 1=Oil only 2=Combined oil and gas

Percentage employed in mining

Industry by occupation for employed civilian population 16 years and over

Area socioeconomic status

Median household income (in 2015 inflation-adjusted dollars) Mean home value of all occupied housing units Percentage of residents holding a bachelor’s degree or higher

Municipal financial health

Fund balance, dollars per year General revenues per year General expenses per year

Municipal impact

Number of wells spud in the municipality Number of fee-paying wells in the municipality

Municipal defiance

3=Entities challenging Act 13 2=Amicus brief filed 1=Resolutions or letters of support for commonwealth court decision 0=No action taken

Source: Generated by authors

Experience

Population

Revenue

Act 13 funds

Unemployment

Total wells

Democrat governor

Salary

Intercept

-0.979***

(2.117)

0.136

-6.866**

(0.700)

(3.519)

(0.847)

-2.073**

29.505***

2.605**

-0.054 (0.561)

(0.240)

(0.299)

(0.172)

-0.733**

1.934***

0.663***

-0.037 (0.592)

-0.289

(0.287)

(0.163)

(0.257)

-0.124

(0.379)

(0.195)

-0.159

2.348***

(0.331)

0.969***

-2.286***

(0.244)

Admin

-3.905***

Any

Table 7.15. The Interactive Picture

0.979***

(2.009)

6.866***

(3.334)

-29.505***

(0.562)

0.054

(0.299)

-1.934***

(0.592)

0.037

(0.287)

0.124

(0.379)

-2.348***

(0.331)

2.287***

EHS

-0.472

(3.252)

9.189**

(4.625)

-11.706*

(0.615)

-1.882**

(0.101)

-0.870***

(0.705)

1.811*

(0.119)

0.048

(0.398)

-1.543***

(0.243)

2.651***

NOV

1.037

(6.442)

-20.433**

(8.317)

23.470**

(3.319)

-5.885

(0.378)

1.256***

(4.006)

3.716

(0.394)

0.057

(0.836)

5.874***

(0.754)

-8.182***

COD

-1.19

(4.596)

2.02

(8.475)

-18.800*

(2.420)

-5.691*

(0.410)

0.304

(2.730)

0.389

(0.431)

-0.401

(0.839)

0.634

(0.568)

-3.705***

Admin. order

27419.305***

(47,748.073)

-150048.659**

(70869.695)

228237.641**

(12679.058)

11764.964

(2181.742)

1252.399

(13969.998)

-39700.234**

(2342.680)

-6785.464**

(9045.809)

96591.602***

(5543.899)

-32807.564***

Penalty

State-Level Factors 185

State-Level Factors 186

Var: COUNTY (intercept)

Num. goups: YEAR

Num. goups: COUNTY

Num. obs.

Log likelihood

BIC

AIC

0.009

1.268

4

42

100529

-24905.384

49937.467

49832.767

(0.139)

Any

0.026

0.750

4

34

8144

-4816.762

9732.580

9655.525

(0.293)

Admin

0.026

0.750

4

34

8144

-4816.762

9732.580

9655.525

(0.293)

EHS

0.000

0.476

4

34

8144

-4197.487

8494.030

8416.975

(0.346)

NOV

0.028

3.886

4

34

8144

-1219.292

2537.639

2460.584

(0.607)

COD

0.044

1.113

4

34

8144

-1582.590

3264.236

3187.181

(0.900)

Admin. order

109.945

306074569.139

4

34

8144

-100357.829

200823.719

200739.659

(6981.920)

Penalty

2996290987.44

Var: Year (intercept) Var: Residual

***p < 0.001, **p < 0.01, *p < 0.05

187

State-Level Factors Table 7.16. Summary of Results Model

Summary of results

Model 1 (all inspections)

Higher inspector salary and experience were associated with an increased likelihood of enforcement action.

Models 2 and 3 (violation types among all inspections resulting in enforcement action)

Increased inspector salary and less inspector experience are associated with an increased likelihood of administrative violations. Decreased inspector salary and increased inspector experience are associated with an increased likelihood of recording environmental health and safety violations.

Models 4, 5, 6, and 7 (enforcement actions among all inspections resulting in enforcement action)

Decreased inspector salary and experience were associated with an increased likelihood of notices of violations. Increased inspector salary and experience were associated with an increased likelihood of a consent order decree. Neither salary nor experience had a statistically significant effect on the likelihood of an administrative order. Declines in Act 13 funds and total revenues led to a decrease in the odds of administrative orders. Increased salary and experience were associated with increased penalty amounts.

Source: Generated by authors

administrative violation, while higher population and years of experience were associated with a decreased likelihood of an inspector identifying an administrative violation. Next, we examined the identification of a health and safety violation. Higher population and inspector experience were tied to an increased likelihood of identifying an environmental health and safety violation. However, higher inspector salary, unemployment, and revenue were associated with a lower likelihood of the inspector recording an environmental health and safety violation. Our next set of models examined the use of specific compliance instruments. Here, we focused on four outcomes: a notice of violation, consent decree, administrative order, or financial penalty. For the issuance of a notice of violation, a higher number of wells and population were associated with the increased likelihood of the inspector issuing a notice of violation. However, higher inspector salary, unemployment, oil and gas revenues, and total revenue were associated with a drop in the odds of an inspector notifying the operator of a violation—instead, some other compliance tool would be

188

State-Level Factors

used. Results suggested that higher inspector salary, unemployment, total revenues, and experience were linked to an increased chance of the inspector electing to rely on a consent decree. However, a one-unit increase in oil- and gas-related revenues and population was linked to a decline in the likelihood of a consent order decree. For more stringent administrative actions, there was significant variation among inspectors. Fewer administrative orders were linked to higher oil and gas revenues and greater total revenues. Finally, we examined the use of financial penalties by inspectors. Here, higher salary, total revenue, and inspector experience were associated with higher penalty amounts. However, higher well counts, higher population, and a Democratic governor were associated with lower penalty amounts. Results are summarized in table 7.16.

LOOKING TOWARD INTERGOVERNMENTAL POLITICS Intergovernmental tensions quickly followed development and extraction in the Marcellus Shale. Led by Republican governor Tom Corbett, the state sought to encourage production, centralize decision-making authority, capitalize on new revenues, and identify mechanisms to cover the costs of development. Many of these goals were codified in policy as part of Act 13. The act amended the state’s oil and gas laws and reshaped the intergovernmental landscape as it relates to managing oil and gas production (Rabe and Borick 2013). Specifically, according to Rabe and Borick (2013, 331), Act 13 highlighted substantial rule changes addressing well setback distances, established an impact fee, and preempted local authority. To enforce these new rules, state lawmakers authorized the state’s Public Utility Commission to withhold impact fees, should local governments pass policies that would exceed statewide standards. Soon after the law was enacted, Robinson Township, along with several other communities, filed suit against the state (Rabe and Borick 2013). We provide a brief timeline below: In 2006, unconventional development begins. Between 2008 and 2010, there is debate over fracking and unconventional production, including Act 13 and its predecessors. In January 2011, Tom Corbett (R), a vocal proponent of fracking, is sworn in as governor. In February 2012, legislators passed Act 13. In summer 2012, impact fees were collected for 2011–2012.

189

State-Level Factors

Between 2012 and 2013, there were examples of local defiance and pushback.

METHODS AND VARIABLES To assess compliance during local defiance, we utilized a unique countymonth subset of a larger dataset collating individual well-site, county-level, and state-level variables for years between 2006 and 2015. The unit of analysis is county-month, and the dependent variables are a percentage of inspections that led to the identification of a violation. We utilized a variety of variables previously deployed in studies focused on oil and gas management (see chapter 2 and chapters 5 and 6) and variables specific to local governments in Pennsylvania. Adopting an approach described by Singer (1998) and Singer and Willet (2003), we focus here on a growth-modeling analysis of health and safety violations contained in the Pennsylvania county dataset. This data consists of compliance output collected over three consecutive years (2006–2008) for all counties with active extraction during this period. We treat the data across the years as equally and identically spaced (e.g., the year 2006 is one year apart from the year 2007). Because of this, the time variable can be coded with integers to reflect equal spacing distances of one year. Singer and Willet (2003) demonstrate there are numerous ways to code time to ease interpretation of the intercept (e.g., 0 to 4 for expected growth from initial measurement; −2 to 2 at the middle time point; or −4 to 0 to reflect the last measurement occasion intercept). Here, we opt to use the middle time point for three reasons. First, as described by Pastor and Lazowski (2018), centering at the midpoint of time allows us to interpret the intercept as the estimated average HSV status (expected HSV when year = 2008), and the slope as the average linear trend. Perhaps more important, because the length of time that oil and gas operations have existed per county varies, the years 2006 to 2010 are but a snapshot across time. Because wells in some counties have likely existed for longer periods of time, having a meaningful comparison time point is useful. Moreover, we are interested in the impact of enforcement relative to what we consider a major shock: the 2008 recession and related rapid rise in oil and gas production in the US. This unconditional model is as follows: Level 1: Yij = π0i + π1i(TIMEij) + rij (1) Level 2: π0i = β00 + u0i (2) Level 2: π1i = β10 + u1i (3)

190

State-Level Factors

Figure 7.4. Compliance during Defiance

Combined: Yij = β00 + β10(TIMEij) + u0i + u1i(TIMEij) + rij (4) In figure 7.4, we present results graphically as they relate to violations. Results suggest the following: Time is significant, but it only accounts for 10 percent of the variability. We do, however, see increase in enforcement overall through this period. For each $1 million increase in revenues, we report a corresponding 2.5 percent decrease in the likelihood of recording of violations. For each $1 million increase in expenditures, we report a corresponding 5 percent increase in violations, though increases were slow after 2008.

191

State-Level Factors

We also note the impact on inspections: As we see increases in revenue, we report an increase in inspections over time. Inspections are less likely to occur in areas with lawsuits. Act 13 counties are more affluent (have more revenues each year). Why might there be compliance during defiance? We turn to the literature for clues. One possibility is that more affluent areas challenged Act 13 and were less dependent on the funds that unconventional production generated. Wright’s (1988) overlapping federalism framework points to additional reasons. It is possible that these jurisdictions and the state held differing goals, understood their roles and powers differently, or were using lawsuits as part of their negotiations. Data also points to a drop in state inspections while there was active litigation. While more research is needed, it is possible that state DEP officials sought to inspect less to encourage industry growth, wanted to punish local governments, or hoped to avoid creating additional legal complications by inspecting counties in a lawsuit. It is also possible that inspectors had other wells that were a higher priority than wells in jurisdictions suing the state.

MAKING SENSE OF STATE POLITICS Interestingly, little variation exists at the state level (compared to what we demonstrated in the site- or county-level chapters), and only one predictor of interest explained statistically significant amounts of variation relative to compliance. Our early results do not paint the whole picture. Between the years 2000 and 2005, the number of violations (both types) and penalties remained relatively consistent, and fracking had yet to become part of the standard industry toolkit. In fact, before the fracking boom, the DEP under Democratic governors issued fewer administrative violations than Republican governors. When the same, albeit time-limited, comparison is made after the boom, Democratic governors issued far more administrative violations than Republican governors. We observed a similar relationship for environmental health and safety violations. This relationship, we believe, makes intuitive sense, as DEP personnel are responsive to the governor and his priorities.

The Governor and Additional Administrative Processes Governors have shaped the context of compliance through rulemaking, appointments, agenda setting, goal setting, budgetary politics and resource availability, and procedural changes:

192

State-Level Factors

In 2015, the budget proposed by the Wolf administration included resources for the DEP to hire up to fifty additional inspectors and increased the DEP’s overall budget by 3 percent (McKelvey 2015c). Pennsylvania governor Tom Wolf (D) has linked natural gas development with economic benefits but has publicly stated the need for more aggressive regulatory oversight and has sought new taxes on production (Hopey and Templeton 2019). Former Pennsylvania governor Tom Corbett (R) has repeatedly praised the economic implications and benefits of oil and gas development within the state (AP 2012). Both Governors Wolf and Corbett have openly weighed in on and pushed for or against policies touching on public safety, economic development, taxes, intergovernmental relations, and so forth. They also hold appointment power, oversee the DEP, and propose its budget (McKelvey 2015a; 2015b; 2015c). Governors have also shaped compliance politics through their appointment powers. The grand jury report linked the priorities of elected officials to DEP decision-making: “Two former DEP Secretaries voiced similar opinions before the Grand Jury. Both felt an obligation under Article 1, Section 27 of the Constitution of the Commonwealth of Pennsylvania, known as the Environmental Rights Amendment. That provision, adopted by the voters in 1971, gives citizens the right to clean water and air, and makes the Commonwealth the trustee of the environment for present and future generations. Yet both Secretaries felt that the oil and gas industry had its own pipeline to elected officials, and both felt pressure to permit production of shale gas” (Shapiro 2020, 49–50). One example illuminates the potent procedural and appointment politics associated with compliance. Inspections are typically carried out by regional offices. However, for a short period in 2011, the DEP required all shale violations to be reviewed by Michael Krancer, the DEP secretary appointed by Republican governor Tom Corbett (McKelvey 2015a). Later in 2011, oversight of the oil and gas division was removed from the regional offices in favor of the central office in Harrisburg, Pennsylvania. The purpose of this administrative change, according to George Jugovic, director of the DEP’s Southwest Regional Office from 2008 through 2011, “was to elevate those decisions to Harrisburg” (McKelvey 2015a). It should be noted that the DEP secretary at the time, Michael Krancer, stated that the intent behind the administrative change was to encourage uniformity in

State-Level Factors

193

how violations were issued and for leadership to gain additional knowledge about the DEP’s enforcement protocols (McKelvey 2015a). It should be noted that Krancer also changed how the agency counted violations: multiple violations during one inspection would be considered one violation in the DEP’s computer system. After leaving office, Governor Corbett reflected that his administration did not pressure inspectors, noting, “No inspectors received a direction from the governor’s office [to] turn your head and avoid it. . . . If there’s a violation there, fine them” (McKelvey 2015a). Using his appointment power, Governor Corbett also formed a thirty-member Marcellus Shale Advisory Commission dominated by representatives of the oil and gas industry, including four members who lived outside Pennsylvania. As summarized by the grand jury report, this episode signaled the administration’s priorities: In fact, in 2011, the Department issued a directive prohibiting oil and gas NOVs unless they were personally reviewed and approved by the Secretary himself, the top official in the Department. The message to employees, intended or otherwise, was to leave fracking alone. That message was reinforced by the Department’s failure to use another powerful tool at its disposal: referral of cases for possible criminal prosecution. Even in recent years, when things have gotten better in some other respects, the number of criminal referrals for fracking infractions has been close to zero. We heard evidence indicating that in at least some cases DEP staff’s reluctance to issue oil and gas NOVs may have been a consequence of policy decisions made at the top of the Department. We reviewed an email from the then executive deputy secretary of DEP, dated March 23, 2011. The email directed that every single NOV had to be personally approved by the highest official in the agency, then-Secretary Michael Krancer. The email stated emphatically that “I need to repeat no final actions are to be taken unless . . . with clearance from Mike. Any waiver from this directive will not be acceptable.” We should add that Secretary Krancer described the email as a misunderstanding. (Shapiro 2020, 52)

Other actions were memorialized in the 2020 grand jury report, several of which we highlight here: On employee behaviors: We were disturbed by what we heard. We believe that many DEP employees were doing the best job possible with the limited resources they had. We also believe there were others who appeared to show undue deference to the fracking industry, and undue indifference to

194

State-Level Factors

citizens with serious complaints about appalling effects they were suffering. (Shapiro 2020, 48–49)

On training and employment development: As fracking ramped up in Pennsylvania, DEP was attempting to perform its regulatory responsibilities with employees whose tenures largely predated unconventional drilling, and who knew little about the highly complex methods used to extract natural gas from shale. One employee, for example, told us he had never even seen an impoundment before. The testimony we heard established that agency personnel knew they were playing catch-up; yet many were unsatisfied by DEP’s efforts to train employees for the new challenges they would be facing. . . . Indeed, several employees testified that training opportunities that did arise seemed to be discouraged, both in earlier and in more recent years. One DEP employee testified that he traveled out of state for training on his own initiative, and met scientists (including one from Penn State, which has a Center for Marcellus Shale Research) who offered to provide training and assistance to DEP. The employee brought back the offer to supervisors, but nothing was ever done. Other DEP employees testified that they were told not to participate in training provided by outside entities because attendance would violate the administration’s “gift ban” policy. Another employee testified that he tried to institute bi-monthly training sessions within his district office, but that he was transferred after two or three sessions and the training stopped. (Shapiro 2020, 53–55)

On being prepared: The result, once again, was the absence of any comprehensive response to the new circumstances. One employee told us that, when fracking began, he felt his colleagues were “thrown into the fire.” Another testified that agency staff received only “on-the-job training” and “an occasional staff meeting.” As he pointed out, “When you learn from someone who learned from someone who learned from someone, you could have been doing it wrong the whole time.” DEP did provide us with a list of training sessions conducted by the agency over the years. Many of these, however, do not appear to have focused on fracking, and in several years it appears there was little or no training at all. We recognize that most government agencies lack significant funding for training. Indeed, an official DEP representative acknowledged to the Grand Jury that this remained an item

State-Level Factors

195

of need for the Department. For us the point is that fracking was the new challenge facing DEP, and that was the subject on which agency personnel most required information. As we heard from the employees who testified before us, they didn’t get it. (Shapiro 2020, 53–55)

On collaboration: DEP has assured us that its efforts from the beginning of the fracking boom included internal collaboration, and no doubt there was at least some in some form. But the testimony of the agency’s own employees persuaded us that, in the opening years of unconventional oil and gas activity, when the need was greatest, the Department’s efforts to coordinate its widespread staff were not sufficient. (Shapiro 2020, 54–56)

Many of these prodevelopment priorities were also felt at the state Department of Health, which reported similar issues related to training or lack thereof, staff members failing to respond to complaints, and data restrictions. Many of these were directed at the Corbett administration. Selected passages are included below: When reports started coming in from homeowners suffering the symptoms of exposure to frack-contaminated air and water, DOH was suddenly hands off. There was no special training for public health center staff in affected communities; no public education alerting people to the potential problem; no centralized collection of data that might help pin down what was making people feel sick. Instead, staff were directed, in effect, to leave fracking-related complaints alone. The agency actually constructed a list of approximately 20 words related to health complaints arising from unconventional drilling activity. Staff were instructed that if anyone called in, and used one of those words, the staff member should end the call and direct the caller to a central office at headquarters. After that, nothing happened. Callers who had been transferred to the central office never got anywhere. They would call back to their district office asking what happened. Meanwhile, DOH employees who could see that something was going on in their communities, and who were trying to educate themselves about it, were instructed that they could not attend meetings or events related to fracking without applying for and receiving special permission that was not required in other areas. (Shapiro 2020, 8)

In the interest of transparency, we also include portions of the DOH’s response. The response focuses on actions largely taken with the inauguration of the Wolf administration in January 2015. Specific items include the following:

196

State-Level Factors

Beginning in 2015, DOH brought in new staff to the Bureau of Epidemiology to reassess needs, including those related to environmental health. Since then, DOH has continued to build its staff and expertise to better address existing and emerging issues in environmental health, such as fracking, lead, and PFAS. DOH hired Dr. Anil Nair as the Director of the Environmental Health Division of the Bureau of Epidemiology. A PhD-level consultant also has been retained by DOH to focus specifically on fracking. The DOH hired a full-time toxicologist with expertise in reviewing environmental testing samples and assessing the associated health risks. Since 2016, DOH has been presenting fracking data at state and national conferences, and discussing fracking issues in connection with other state programs. For example, DOH staff attends the annual conference of the Council of State and Territorial Epidemiologists, including participating in roundtables and workshops related to fracking. From 2016 to 2018, DOH personnel attended the annual Shale in Public Health Conference hosted by the Pennsylvania League of Women Voters. In 2017 and 2018, DOH staff attended the Shale Network Conference at Penn State and, in 2018, participated in a fracking-related workshop by the National Academy of Science. These efforts help keep DOH up to date on the latest developments in public health related to fracking, and provide an opportunity for DOH attendees to educate others. DOH has requested and received approval for funding in the 2019– 2020 year for ten new positions dedicated to environmental health, including fracking. DOH set up regular meetings with DEP to facilitate coordination between the agencies and to receive health complaint referrals. In 2019, the Administration granted DOH funding of over $1 million per year for three years to study the health effects associated with fracking (Shapiro [Response] 2020, 5).

In sum, cooperation between the Republican governor and prodevelopment lawmakers created a more fracking-friendly regulatory environment and administrative rulebook (Rabe and Borick 2013).

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State-Level Factors

Interest Groups Scholarly research has also focused on the role of interest groups and environmental politics (Bowling and Ferguson 2001; Daley and Garand 2005; Lowry 2008; Matisoff 2008; Richardson et al. 2013). For example, Rinfret, Cook, and Pautz (2014) examined unconventional production policies in New York, Colorado, and Ohio. They concluded that the industry is influential in the state rulemaking process, especially as rules are being formulated. They noted that the state governor and regulatory agency staff were important for moderating and shaping the specifics of these regulatory policies. In Pennsylvania, research has shown that groups impact oil and gas policymaking in several ways: funneling campaign contributions, supporting the revolving door and lobbying, issuing reports, and exerting political pressure. 1. A report by the Public Accountability Initiative noted that more than forty state officials were associated with the energy industry and unconventional fuels regulation. This number included twenty-eight officials and at least five DEP secretaries who left state government and accepted employment within the energy industry. 2. The industry gives large sums of campaign donations. It, for example, supported former governor Corbett’s campaign with more than $1.8 million for his statewide runs for office. 3. Groups have joined together to leverage resources and push for preferred outcomes. Those opposing fracking, such as Pennsylvanians Against Fracking, have sought a statewide fracking ban, whereas the Marcellus Shale Coalition lobbies for favorable oil and gas regulation (Hopey 2013). 4. Groups may report violations and issue reports. One such effort, for example, requested Governor Wolf (D) to investigate public health and cancer clusters (Hopey and Templeton 2019). When it comes to enforcement, the “revolving door” is particularly noteworthy. Jeff Schmidt, the executive director of the Sierra Club in Pennsylvania, observed that the dynamic can lead to a brain drain among regulators, which can lead to drops in performance and enforcement as well as the belief that state leaders are being overly responsive to the industry. Schmidt added that he worries about “former industry executives coming to government and being in positions to weaken or reduce enforcement” (Hopey 2013).

RETURNING TO THE MODEL The exploratory model of compliance is again largely supported, especially our variables measuring politics and economics. In general, state-level data reinforces our belief that compliance and its attendant outputs are contextually driven.

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State-Level Factors

Mission and Policy Variables approximating mission and policies are reflected largely in the actions of state governors, who were influential in terms of establishing DEP and Department of Health priorities. This effort was essentially to support development. This was accomplished through public statements, appointment powers, providing access to interest groups, and agenda setting.

Linking Politics and Economics with Budget and Personnel Multiple scholars have identified the ways in which the street-level bureaucracy is controlled during policy implementation, which is supported by the DEP and DOH data here. Kaufman (2001), for example, argues that local implementers are “supervised” by a strong and extensive web of legal, political, and institutional constraints. Legislative bodies, according to Kaufman, hold the authority to adopt, alter, and repeal agency goals, budgets, standards, and problem-solving methodologies. They may also restrict bureaucratic discretion and tools, reorganize street-level agencies, and even eliminate entire organizations if they deem necessary. Additionally, legislative principals may exercise control of implementation practices through the appropriation and budgeting processes. Concomitantly, chief executives may also exert control over street-level implementing agencies. If the chief executive is not satisfied with organizational performance, he or she likely possesses the authority to remove or punish administrative officers. And since members of the bureaucracy know that these powers are in play, they are generally responsive to elected executives and lawmakers. This chapter identified several mechanisms by which political principals shaped the behaviors and outputs of DEP personnel, such as limiting training opportunities, cutting budgets, failing to facilitate collaboration (which may have been intentional), changing internal policies and procedures, failing to hold street-level agents accountable for behaviors, or pushing street-level agents to be unresponsive to citizens and complaints.

Technology, Timing, and Data Our state-level variables did not address specific technologies or time variables directly. See chapter 5 for a more in-depth discussion of well type and compliance.

SUMMARY AND CONCLUSIONS To understand how Pennsylvania’s statewide socioeconomic and political characteristics shape the context of compliance, this chapter assessed the following:

State-Level Factors

199

Which state-level characteristics shape the detection of total violations, administrative violations, and public health and safety and environmental violations? Which state-level characteristics shape the use of administrative tools including notices of violations and administrative orders? Results showed that state lawmakers are at the core of compliance. They have enacted laws and have charged the state’s DEP with oil and gas governance and with creating specific compliance goals related to efficient production and environmental protection. The governor, as demonstrated in this chapter, wields significant authority that further shapes the context in which inspectors visit oil and gas sites, identify violations, and make decisions about how best to ensure that operators remain in a state of compliance. This includes the use of budgetary tools and goal setting with the DEP as well as the administrative processes that shape the management of oil and gas production. At the same time, state-level factors account for only a fraction of the variation observed in the data. Of the variation that can be explained, it appears to point in the direction of the politics and economics of natural oil and gas. It is hard to determine, utilizing only state data, why violations do not increase at the same rate as spudded wells, or whether Republicans’ lax enforcement efforts were the singular reason for robust growth in the industry (and state coffers by extension). Yet, some dynamics are somewhat clearer. When the state’s economy shrank, so did the capacity of state agencies (such as the DEP) to ensure compliance. Data also shows that during the “boom,” partisan politics served as a catalyst for DEP goal prioritization in favor of natural resource extraction as opposed to other goals related to environmental protection.

Chapter 8

THE CONTEXT OF COMPLIANCE

As an industry, oil and gas’s historical legacy stretches to the nineteenth century (Fisk 2017). It is this historical footprint combined with contemporary factors related to the missions of oil and gas agencies, the type and age of the well, budgetary and political pressures, and limited human resources that have challenged applicable state agencies charged with ensuring compliance. Today’s fracking debate has enveloped more than twenty states, hundreds of local governments, more than 900,000 active wells, millions more wells that are no longer producing, and nearly every American. It involves claims and counterclaims of economic prosperity and environmental degradation. One part of this debate involves rule design and rule stringency. In other words, are the rules adequate? The other part of the debate is about compliance, legitimacy, and trust. The stakes are high. Millions of Americans live or have lived near an extraction site, thousands have registered complaints about the industry, tens of millions depend on natural gas for electrical generation, heating, and transportation, and most Americans have used consumer products made possible by oil and natural gas (Fisk 2017). Production has also reinvigorated state and local budgets, produced new millionaires, and supported new employment opportunities throughout the United States. Despite the economic optimism, skeptics highlight pernicious environmen200

The Context of Compliance

201

tal and public health impacts often related to water safety, quality of life, climate, and air pollution (Davis 2012; Davis and Fisk 2014; Fisk 2017; Warner and Shapiro 2013). Recognizing the growing importance of oil and gas production as a driver of economic growth, energy security, and environmental threats, we have taken a data-intensive dive into oil and gas compliance activities before and during the fracking renaissance. To do so, we focused on 2000 to 2015 in Pennsylvania, which ranks second in natural gas, and sought to understand how state agents enforce oil and gas regulations through a variety of inspections, violations, and administrative actions including NOVs, administrative orders, and fines with a particular emphasis on the challenges engendered by unconventional production. To guide our analysis, we asked the following: 1. What is the debate surrounding oil and gas compliance and enforcement, and why does it matter? 2. What are the rules that operators must follow? How is compliance ensured? 3. What factors may explain compliance activities related to inspections, the identification of violations, and the use of administrative actions? 4. What factors are drivers of increasing odds relative to compliance activities? 5. What factors are drivers of decreasing odds relative to compliance activities? The data needed to answer such questions, even for one state, is scattered across multiple state agencies, interest groups, and the industry. The DEP hosts thousands of unique industry records, geospatial data on thousands of communities and wells, citizen complaints, industry sites and locations, and land cover. Thus, identifying, collecting, cleaning, and then coding this data at the individual site level and combining it into one clean dataset is a significant and time-consuming undertaking. State inspection records in just Pennsylvania contain nearly a million unique cases after accounting for a time period of fifteen years. This includes inspections and related results, and whether the state pursued administrative actions for any observed violations. We also examined a multitude of state documents, reports, and summaries to provide a comprehensive accounting of the context surrounding compliance. The answers to the above questions are critical. Oil and gas rules are designed to protect environmental quality and public health while still permitting efficient development and extraction. The challenge for lawmakers and regulators, therefore, is to design rules, inspection protocols, and testing standards, and to employ strong enough corrective actions that satis-

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fy both goals. They must also have the resources, knowledge, and political support needed to fulfill both goals. The consequences of failure are serious. Overzealous rules and enforcement may stymie growth, hurt industry, raise costs, and lead to antagonistic relationships between regulators and regulated firms. Conversely, lax enforcement may lead to dangerous conditions related to environmental health and public safety and erode public trust. As the grand jury report noted, when oil and gas compliance fails to meet one or more goals, it has real harms. The first relates to the real dangers faced by individuals and damage done to the environment: The purpose of this Report is to present an account of the impacts of an industry that will affect Pennsylvanians for decades to come. We are aware that unconventional drilling brings significant economic benefits. But if the activity is to be permitted, it still must be regulated appropriately, in ways that prevent reckless harms. Instead, we believe that our government often ignored the costs to the environment and to the health and safety of the citizens of the Commonwealth, in a rush to reap the benefits of this industry. At the same time, we recognize that some progress has been made in recent years. (Shapiro 2020, 2–4)

The second is the harm, according to the report, done to public trust and the legitimacy of government itself: We saw evidence that government institutions often failed in their constitutional duty to act as trustee and guardian “of all the people,” as Article 1, Section 27 provides. (Shapiro 2020, 1) We are also aware of continuing debate about the nature and degree of health impacts related to unconventional drilling. We do not believe, however, that such uncertainty could ever be an excuse for inaction. The risks of this new industry should fall on the industry and the regulatory agencies, not on the public. As we see it, the purpose of government agencies like DEP and DOH is to proactively prevent harm, not to wait and see if the worst really happens. (Shapiro 2020, 2) We heard testimony from dozens of current and former employees of these departments, and learned that at least some of their failings are being somewhat addressed. But we strongly believe we have to examine and expose those failings, past and present, in order to illustrate the need for further improvement and to ensure that the mistakes of the past do not continue into the future. (Shapiro 2020, 2)

Compliance and oversight are not inherently negative nor are they static.

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The Context of Compliance

Previous research, in fact, has noted that robust environmental regulation may even contribute positively to firm profitability: It ensures and enhances the competitive environment for all firms operating within a specific industry or sector. A level playing field encourages those organizations to innovate and improve their efficiencies while limiting their externalities. Stability permits the business community to engage in long-term and strategic planning. With predictable regulation (even if inspections are unannounced), the regulated entity is well positioned to strategically address its strengths, weaknesses, challenges, and threats in its particular market. Through meaningful and robust compliance, firms can avoid future regulation and can identify more effective enforcement practices with regulators even when such practices may be more stringent or may impose greater controls (Gunningham, Kagan, and Thornton 2003). We set out with an ambitious goal: to understand compliance and its outputs. To reach this goal, we utilized hundreds of thousands of unique data points and dozens of reports related to unconventional and conventional oil and gas management to answer several foundational questions at the core of compliance. As the chapters address, the questions of compliance speak to the role and scope of governmental power, the utility of specific rules and policies, the extent and magnitude of environmental costs and economic benefits, and the trust citizens have in their government (Fisk 2017). Our larger story is that state oil and gas staff face a delicate and difficult balancing act. They must prioritize goals related to extraction and environmental protection as well as respond to changes in their internal and external operating environments. In their efforts to meet multiple goals, they inspect thousands of sites and conduct tests throughout the year to ensure compliance with scores of administrative rules. They also call upon multiple bureaucratic tools that range from notifying operators of a violation to issuing a financial penalty. As our results show, within some site, county, and state contexts, some stakeholders prefer more of a laissez-faire approach to compliance and are inclined to utilize tools and practices favored by industry. In other environments, staff opt for more rigorous enforcement actions that compel operators to quickly correct violations or face penalties.

THE BIG PICTURE Pennsylvania’s unconventional oil and gas politics are fairly standard and have been observed across multiple states (Rabe and Borick 2013). Vocal

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The Context of Compliance

supporters, often Republicans, are quick to highlight that fracking-fueled oil and gas production has recharged the state’s economy, expanded employment opportunities, and generated substantial royalty payments for mineral owners. Opponents (liberals and some Democrats) shift the narrative to oil and gas’s harmful impacts on the environment (air and water quality) and to how the practice harms the quality of life for residents. Additionally, they are more likely to call for greater state oversight and more stringent regulations. Compliance efforts in Pennsylvania, as well as in other producing states, share commonalities including the following: Conflicting mandates, e.g., balancing efficient production with health and safety Compliance as a set of administrative tasks replete with routines, discretion, and standard operating procedures Compliance as a set of discrete events including inspections, the identification and classification of a violation, and the use of administrative tools such as penalties A long history in oil and gas with a precipitous rise in production, indicating the presence of both older wells and newer unconventional wells Compliance activities in the context of economic development opportunities, new revenues, and environmental concerns Despite similarities, this book found several aspects of Pennsylvania’s oil and gas experience unique, including the presence of an Environmental Rights Amendment in the state’s constitution, episodes of divided state government, and the adoption of an impact fee. Both sides of the debate are important and shape the context of compliance. They also influence the perceptions associated with oil and gas’s costs and benefits. It should be noted that these dynamics are largely mirrored in public opinion research, as cited in chapter 7. Statements and goals of the DEP and elected leaders of Pennsylvania further reflect these schisms, as shown in chapter 7 (see also Rabe and Borick 2013).

RETURNING TO THE COMPLIANCE MODEL Chapter 2 introduced a model that posited a multitude of factors affecting compliance: mission and policy; technology, timing, and data; personnel and budget; and politics and economics. These factors subsequently shape the institutional and external environment that compliance takes place in, as shown in figure 8.1.

The Context of Compliance

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Figure 8.1. Exploratory Model of Natural Resource Compliance

Informed by the literature, as reflected in the above model, we tested a series of hypotheses. Results from both quantitative and qualitative data were largely supportive of the model. In fact, we observed direct evidence for hypotheses addressing the following: 1. Contexts with more Democratic and liberal stakeholders and policy makers will have more robust compliance activities (chapter 7). 2. Agents will be responsive to political principals (chapters 5–7). 3. Contexts with greater wealth and affluence will have more robust compliance activities (chapters 6 and 7). 4. Contexts with clear policy guidance will be responsive to such guidance (chapters 5–7). 5. The inclusion of new technologies will directly impact the performance of organizations (chapters 5–7). The preceding chapters revealed that there are site-, county-, and state-level mechanisms by which policy makers have shaped the context of compliance and the specific actions that are part of compliance. These range from the well type and the inspector to decisions that involve setting the DEP’s budget and the recruitment and retention of full-time-equivalent employees. Thus, our results largely support our compliance model first developed in chapter 2. In numerous statistic models and qualitative data (see chapters 5–7), variables representing our four categories of factors were repeatedly associated with compliance outputs and outcomes. Yet, this observation obscures the variation within the actions (inspections, violations, and administrative responses) and is an area that is ripe for future scholarship. Data or lack thereof, for example, shapes the politics of determining a penalty amount more than it affects the presence or absence of a violation. Conversely, the well type does impact what gets inspected and how frequently, and it seems to be more indirectly connected to a penalty amount. Person-

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The Context of Compliance

nel-related and budgetary restrictions directly impact what wells receive an inspection, which in turn influences the likelihood of violations and administrative actions. In short, differing factors affect various stages or aspects of compliance in different ways and at different times. Results demonstrate that the use of specific compliance tools is related to the inspector, budgetary pressures, site and county factors, technology (e.g., well type and drilling direction), the availability of data, state policy and politics, and economics. We believe that these factors interact to shape how agency personnel prioritize policy goals, especially those related to extraction and development and environmental and public health and safety. Their decisions, for example, to issue a notice of violation or administrative order, are reviewed by the regulated entity and are overseen (and potentially overturned) by regional and centralized offices that may have differing priorities. The inspector may also be friendly or sympathetic to the oil and gas industry and prefer to allow the operator to voluntarily return to compliance through an NOV. In these cases, the operator or agency is prioritizing one aspect of compliance over another but is also likely acting in line with its agency priorities. However, with a different external environment, governor (e.g., the Wolf administration), or operator, the inspector may be less sympathetic to the industry and prioritize a differing aspect of the state’s oil and gas laws (e.g., public health and safety) and still be within compliance.

COMPLIANCE WITH MULTIPLE GOALS As the model in figure 8.1 suggests, compliance is a family of activities that are done in the pursuit of multiple goals. Overzealous enforcement may stymie growth and industry innovation, harm the industry’s competitiveness and raise its costs, and lead to antagonistic relationships between regulators and regulated firms. Yet, it may achieve compliance with environmental goals that are embedded in state policy and the Environmental Rights Amendment. Conversely, lax enforcement may lead to dangerous conditions related to environmental health and public safety, contribute to long-term site damage, and allow operators to create a variety of harmful externalities. However, less rigorous enforcement may also encourage extraction and its associated economic benefits, allowing regulators to achieve compliance with state oil and gas goals related to extraction. Thus, compliance with one aspect of state oil and gas policy may contribute to less compliance (and its associated activities) with another. Our results point to the nearly ubiquitous presence of multiple goals: economics and environmental production, as reflected in table  8.1. These values, we should note, can and do coexist. However, when it comes to oil and gas management, policy makers may not prioritize such goals equally. Moreover, they may use compliance activities as a means to achieve their pre-

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The Context of Compliance Table 8.1. Context and Compliance Outcomes Low development

High development

Low environmental

Narrow compliance

Extraction compliance

High environmental

Green compliance

Broad compliance

Source: Generated by authors

ferred policy objectives, which we find are influenced by the factors shown in figure 8.1 and first introduced in chapter 2. Low environmental commitment with low development (narrow compliance): Compliance activities, including inspections, will be limited in scope and nature with an emphasis on activities that are statutorily defined and limited by budget and personnel expenditures. Low environmental commitment with high development (extraction compliance): Compliance activities will likely support oil and gas development goals, including centralization of decision-making, in an industry-friendly Department of Environmental Protection or governor’s mansion. This may also involve the use of fewer inspections or fewer coercive administrative options such as notices of violations (NOVs). High environmental production with low development (green compliance): Compliance activities will be more likely to support public safety and environmental goals and may include more stringent enforcement than natural resource production would. High environmental production with high development (broad compliance): Compliance activities are indicative of an effort to balance oil and gas development goals with public safety and environmental goals. This is likely to involve the full spectrum of compliance tools including inspections, violations, and administrative actions. This “form” of compliance utilizes these tools strategically so that concurrent policy goals are met. In short, environmental actions are targeted to limit their impact on extractive goals and vice versa.

CONCLUDING THOUGHTS We opt to avoid making any normative conclusions about the state of compliance within Pennsylvania other than the idea that it is a political process as much as policy adoption. It also seems clear that the DEP was generally responsive to the needs and preferences of political leaders. That being said,

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political actors have weaponized compliance activities and outputs. In the grand jury’s report, the attorney general noted: We recognize that certain actions taken by DEP as described in this report were based on legitimate policy decisions. A deliberate policy decision was made to support the fracking industry in Pennsylvania as an important economic driver. However, policy decisions also have consequences, and in this case, one consequence of the decisions made by multiple administrations and DEP was inadequate supervision of an industry which had—and continues to have—significant impacts on the Commonwealth’s citizens. While it may not have been intentional or malicious, ultimately, DEP failed to meet its mission “to protect Pennsylvania’s air, land and water from pollution and to provide for the health and safety of its citizens.” (Shapiro 2020, 67) We are also aware of continuing debate about the nature and degree of health impacts related to unconventional drilling. We do not believe, however, that such uncertainty could ever be an excuse for inaction. The risks of this new industry should fall on the industry and the regulatory agencies, not on the public. As we see it, the purpose of government agencies like DEP and DOH is to proactively prevent harm, not to wait and see if the worst really happens. There has already been too much of that. (Shapiro 2020, 2)

Pennsylvania’s experiences provide important insights into how state regulators are enforcing applicable regulations and the fractured politics that may result. This may be especially true for other regulatory arenas with multiple goals (DEP 2018; 2015; 2013). Understanding the context of compliance and the multitude of tools available to policy makers is crucial, given that states are the dominant institutional actor when it comes to regulating unconventional oil and natural gas production (DePasquale 2014; Fisk 2017).

APPENDIX: METHODS

Collected variables are summarized in tables 1 and 2. All independent variables were scaled to 0–1 to enhance model fit and model comparisons. Appendix Table 1. Data Sources Source

Sources

State-level divisions related to oil and gas management

Governors’ offices, Pennsylvania Department of Environmental Protection, Pennsylvania Office of Administration Human Resource Management, Colorado Department of Human Resources, Pennsylvania Public Utility Commission

Census

Census—American Community Survey for years between 2000 and 2015

Interest groups

National Governors Association, National Conference of State Legislatures

Federal

Energy Information Administration, Occupational Safety and Health Administration, National Oceanic and Atmospheric Administration, Pipeline Hazardous Materials and Substances Administration, Federal Energy Regulatory Commission

Source: Generated by authors

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Methods

Appendix Table 2. Context of Compliance Data Variable name

Possible operationalization

Governor’s party

0=Republican 1=Democrat

Statehouse

0=Republican 1=Divided 2=Democratic

New field discoveries

Pennsylvania dry natural gas reserves new field discoveries (billion cubic feet) (Note, this is different from produced natural gas.)

Producing gas wells

Pennsylvania natural gas number of gas and gas condensate wells (count)

Residential price

Pennsylvania price of natural gas delivered to residential consumers (dollars per thousand cubic feet)

Unemployment rate

Unemployment rate

Oil and gas GDP

Oil and gas gross domestic product (GDP) by state (millions of current dollars)

Total GDP

Total gross domestic product (GDP) by state (millions of current dollars)

DEP budgeted amount

Dollars in thousands budgeted in state’s general fund

FTE budgeted

Full-time-equivalent employees budgeted in state’s general fund

Severance tax and impact fee collections

Impact fees Severance taxes collected

Spud date

Date/year that drilling began at well site

Well direction and configuration

0=Vertical 1=Horizontal

Unconventional

0=No 1=Yes

Well type

0=Gas only 1=Oil only 2=Combined oil and gas

Population

Population in county

Population density

Population density in county

Percentage of minorities

Percentage of minorities located within county

Percentage with a bachelor’s degree or higher

Percentage of residents holding a bachelor’s degree or higher

211

Methods

Percentage employed in agriculture, forestry, fishing, and hunting

Industry by occupation for employed civilian population 16 years and over

Percentage employed in mining

Industry by occupation for employed civilian population 16 years and over

Median household income

Median household income (in 2015 inflation-adjusted dollars)

Mean home value

Mean home value of all occupied housing units

2003 rural-urban continuum

1–9 based on population

2013 rural-urban continuum

1–9 based on population

County oil production

Annual gross withdrawals (barrels) of crude oil for the year specified in the variable name

County gas production

Annual gross withdrawals (thousand cubic feet) of natural gas for the year specified in the variable name

Percentage water area

Percentage of area in county with surface water

Natural amenity rank

1=Low 7=High (USDA)

Water supply complaint

Number of water-related complaints received per year (could also use a state-level count)

Overall complaints

Number of water-related complaints received per year (could also use a state-level count)

Health and safety violation found (NOV)

0=No 1=Yes

Administrative violation found (NOV)

0=No 1=Yes

Standardized violations

Percentage of health and safety violations, total number of health and safety violations in county per year, total number of inspections in county per year

Administrative order issued

0=No 1=Yes

Fine (following an NOV or admin order)

0=No 1=Yes Fine amount

Count of violations

Total count of violations per county each year

Citizen complaints

Total count of complaints per county each year

212

Methods Spills and other incidents

Total count of spills per county each year

Well and facilities locations

Total count of facilities per census tract

Land cover

Pipeline infrastructure, major roadways, water bodies such as rivers or lakes

Industry deaths

Total workplace deaths by year

Weather

Excessive heat days Precipitation amounts Excessive cold Deaths and/or damage

Inspector

Inspector name (will be coded to protect inspector’s identity)

Inspector salary

Salary by year

Inspection type

Inspection by type (multiple types—13 different types listed in PA as an example)

Source: Generated by authors

Appendix Table 3: Administrative Actions Name

Explanation

DV1

Any administrative action following an inspection

DV2

Identification of administrative violation

DV3

Issuance of an environmental violation

DV4

Issuance of a notice of violation (NOV)

DV5

Issuance of a consent order decree

DV6

Issuance of an administrative order

DV7

Issuance of a penalty

DV8

Assessed penalty amount

Source: Generated by authors

DEPENDENT VARIABLES Throughout chapters 5–8, we examine a series of interrelated and dichotomous dependent variables and one continuous, each of which is a potential action following an oil and gas inspection (DV).

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Methods

STATISTICAL APPROACH Generalized linear mixed-effects analyses (estimator: maximum likelihood—Laplace approximation with a binomial [logit] distribution) were conducted using the lme4 R package (Bates 2005; Bates et al. 2007; Bates, Maechler, and Bolker 2012; West, Welch, and Galecki 2014) to test the relationship of inspector and environmental factors on inspections’ propensity to result in various enforcement actions. For fixed effects, inspector and environmental factors were entered into each of the seven models. Additionally, two random effects were also entered into each model to account for idiosyncratic variation due to individual differences in county or municipality and time intercepts. Further specification of the model to account for autocorrelation among residuals and additional models will be conducted in the future.

NOTES

CHAPTER 2: DEVELOPING A THEORY OF OIL AND GAS COMPLIANCE 1. The General Security Service focusing events included the unlawful killings and torture of imprisoned terrorists, providing false testimonies to the courts, and investigative panels (Schwartz and Sulitzeanu-Kenan 2004). 2. Over eleven years, Israel’s leading banks manipulated their bank share sales so that true values of such sales were inflated by billions (Schwartz and Sulitzeanu-Kenan 2004). CHAPTER 3: PENNSYLVANIA, FRACKING, AND THE TWENTY-FIRST-CENTURY BOOM 1. The secretary of the DEP serves as the board’s chair with the remaining board members consisting of representatives of the Departments of Agriculture, Health, Transportation, Labor and Industry, and Community and Economic Development, as well as the Public Utility Commission, Fish and Boat Commission, Game Commission, Governor’s Office of Policy, Historical and Museum Commission, Citizens Advisory Council (five members), and the statehouse (four members). 2. The Robinson Township decision addressed local governments’ zoning authority and impact fees and less about the question of compliance activities or whether current regulations are adequate. This area of inquiry is certainly a ripe area of future research; however, we opted to touch on the 215

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Notes to Pages 100—120

Robinson decision only briefly here, as the major focus of this project was on the explanation of compliance outcomes and not on the intergovernmental implications of fracking. In chapter 8, we explore some of the potential linkages between intergovernmental relations and compliance. CHAPTER 4: COMPLIANCE TRENDS 1. This assumes that the constellation of institutions and stakeholders within the state’s oil and gas community do in fact shape the outcomes and outputs of compliance, especially those related to violations and administrative tools. 2. John Sengle is an inspector with the DEP with thirty-two years of experience.

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INDEX

Note: References in italic refer to figures and tables. Abel, Troy, 157 Abualfaraj, Noura, 165 Act 13, 35, 80, 82, 127, 165–66, 167, 177, 188, 191; funds, 158; impact fees, 84, 85, 115, 116, 155, 168; and preemption of local zoning rules, 86, 95; revenues allocations, 115, 116–17 actors, 14; administrative, 48, 52, 157; executive-level, 41; influential, 179; intergovernmental, 54; managing policy implementation, 45; national and subnational, 53; “on-theground”, 42; policy goals, 46; political, 44, 48, 51, 150, 208; public and private sector, 3; street-level, 39, 46, 162; third-party, 58 administrative actions, 97, 212; administrative order, 41, 90, 97, 130, 137, 144, 178, 188, 201, 206; county-level and substate factors and, 156, 158, 165, 168; fines/penalties, 91, 98, 138–40, 145–47, 149, 166, 182; NOV, 90, 97, 123, 128, 130, 136, 137, 144–45, 193, 206, 207; in oil and gas production in Pennsylvania,

122, 127; site-level factors and, 135–36; state-level factors and, 183 administrative conference, 90, 97 administrative fees, 26, 27 administrative inspection, 89, 96 administrative order, 41, 90, 97, 130, 137, 144, 178, 188, 201, 206 administrative responses to violations, 135, 137; complaints associated with, 164; compliance characteristics and, 180; context for, 144; probability by type, 136; state characteristics and, 179 administrative violations, 89, 122, 155; context for identification of, 142, 156–59; and governor’s party, 181; identification of, 133, 183, 187; site-level factors and, 130 Agranoff, Robert, 54 Alpha Shale Resources, 141 American Petroleum Institute, 26 Bank Shares incidents, 52 baseline data, 18 Bennett, Shawn, 114 Berman, Paul, 44 239

240

best management practices (BMPs), 96 Birkland, Thomas A., 41, 51 Blumsack, Seth, 171 BMPs. See best management practices Bond forfeiture, 90, 98 bond release inspection, 96 Borick, Christopher, 35, 95, 188 bottom-up policy implementation, 42–44 Bowling, Cynthia J., 55 budget and personnel, 63, 177; county-level and substate factors, 168; for site-level factors, 148; for state-level factors, 198 buffer shocks, 50 Bureau of Laboratories, 81 Bureau of Labor Statistics, 113 bureaucratic discretion, 49, 198 bureaucrats, 49, 52–53, 166; agency, 44; street-level, 43, 162 CAA. See Clean Air Act CACP. See Consent Assessment of Civil Penalty CEP. See community environmental project Chevron Appalachia, 141 civil penalty, assessment of, 98 Clair, Judith A., 54 Class II wells, 36, 37 Clean Air Act (CAA), 56, 76 Clean Streams Law, 80 Clean Water Act (CWA), 56, 76 CO&A. See consent order and agreement Coal and Gas Resource Coordination Act, 80, 82 coalbed methane, 10 COD. See consent order decree

Index

COGCC. See Oil and Gas Conservation Commission Colorado Oil and Gas Conservation Commission, 21 community environmental project (CEP), 98 Community Right to Know Act, 81 complaint for civil penalties, 98 complaint inspection, 89, 96 Complaint Tracking System (CTS), 96 compliance, 3–4, 7, 37–38, 99, 204–5, 205; accounting for context and behavior, 68; activities, 147, 206–7; administrative actions, 212; administrative order, 41, 90, 97, 130, 137, 144, 178, 188, 201, 206; agency discretion, 47, 48–49; bureaucrats role, 52–53; characteristics and administrative responses, 180; characteristics and identifying violation, 180; compliance dynamics, 91–92; consent order decree, 97, 130, 137, 188; corrective actions, 90; data sources, 209; DEP, 126; employment benefits and realities, 29–31; enforcement actions, 164–65; environmental costs, 31–34; environmental regulation, 203; evaluation inspection, 96; events and shocks, 51–52; external environmental factors, 40–41; frequency of compliance actions, 183; IGR, 53–55; infrastructure for oil and gas extraction, 37; inspection process, 87–89; interactive picture of, 181–88, 185–86; investigations,

Index

89–90; land fragmentation, 35–36; linking literatures, 60; with multiple goals, 206; natural resource, 61–65; normative concerns about, 8; NOV, 90, 97, 123, 128, 130, 136, 137, 144–45, 193, 206, 207; and oil and gas production, 8–9, 12, 14; operationalization of context within Pennsylvania, 65; operations, 9; outcomes, 14, 40, 43, 60, 67, 148, 151, 154, 169, 207; and penalties, 91, 98, 138–40, 145–47, 149, 166, 182; in Pennsylvania, 70, 204; personnel and budget, 20–21; policies in Pennsylvania, 86–87, 106–7, 113–14; policy implementation studies, 41–46; political control, 47–48; principal-agent, 47–48; public health protection, 34–35; public management approach, 49–51; regulatory, 5; revenues, 26, 27–29; scope and challenges of, 14, 16; state-level outputs, 178–81; states and oil and gas policymaking, 59–60; subnational environmental politics, 55–59; subnational politics, 55; surface-level disruptions, 35; use of compliance tools, 206; variation within actions, 205–6; violations, 89–91; waste management and safety, 36–37. See also administrative violations; environmental health and safety violations; exploratory model of compliance; unconventional oil and gas politics

241

Consent Assessment of Civil Penalty (CACP), 98 Consent Assessments of Civil Penalties, 128 consent order and agreement (CO&A), 97, 98 consent order decree (COD), 97, 130, 137, 188 Considine, Timothy J., 171 context of compliance. See exploratory model of compliance contingent policy implementation approaches, 44–46 conventional wells, 106, 128, 130, 142, 165, 153, 165; identification of environmental and health violations, 142–43; spud counts, 111 Corbett, Tom, 31, 82, 143, 188, 192, 193, 194 corrective actions, 90; administrative actions, 97; penalty actions, 98 county-level factors: administrative action, 156; administrative violations, context for identification of, 156–59; budget and personnel, 168; compliance outcomes, 154–55; DEP inspectors, 162–63; enforcement actions, 164–66; environmental and health violations, context for identification of, 159–62; identification of violations by type, 153, 155; mission and policy, 167; oil and gas compliance, 151; penalty amounts, 166; politics and economics, 167–68; role of complaints, 163–64; technology, timing, and data, 168; variables of interest, 152. See also

242

site-level factors; state-level factors Coviello, Guy, 114 crude oil, 10, 71; Pennsylvania field production of, 104 CTS. See Complaint Tracking System CWA. See Clean Water Act Dam Safety and Encroachments Act, 80–81 Davis, Charles, 17, 52, 59–60, 70, 126, 160 decision-making, administrative, 46; compliance activities impacting, 64; lawmakers and, 48, 60; of street-level agents, 43 DEP. See Department of Environmental Protection Department of Energy (DOE), 74, 75 Department of Environmental Protection (DEP), 7, 16, 79, 87, 126, 142, 151, 198, 201, 207–8; administrative order, 97; Bureau of Laboratories, 81; Bureau of Safe Drinking Water, 81; conducting inspections in Pennsylvania, 87–89, 99; defining NOV purpose, 144; enforcement practices, 136; fine amounts, 128, 128; follow-up inspection, 158; goal prioritization, 199; inspection policy, 131; inspections in Pennsylvanian oil and gas production, 117–22; inspectors, 162–63; investigation of violations, 122–23; via OOGM, 82; policy for orders and penalties, 166; preference

Index

for voluntary compliance, 145; regulatory responsibilities with employees, 194; role of complaints, 163–64; and state government trends, 176, 176 Department of Health (DOH), 82, 195–96, 198, 208 Department of Labor and Industry, 31 dependent variables (DVs), 183, 212 Dews, Fred, 25 Dillon, Nara, 44 discrete events, 51, 61 DOE. See Department of Energy DOH. See Department of Health drill cuttings, 160 drilling/alteration inspection, 95 dry natural gas, 10 DVs. See dependent variables Eastern Gas Shales project, 74 eFACTS, 95–96 EHB. See Environmental Hearing Board EIA. See Energy Information Administration Emergency Planning and Community Right to Know Act, 76 Endangered Species Act, 56 Energy Information Administration (EIA), 11, 80, 175 Energy Policy Act, 14, 75 Energy Research and Development Administration (ERDA), 74, 75 environmental health and safety violations, 89, 123, 165–66; context for identification of, 142–43, 159–62; growth-modeling analysis of,

243

Index

189; identification of, 134, 187; patterns of, 182; site-level factors and, 130 Environmental Hearing Board (EHB), 81 environmental impacts of oil and gas extraction, 31, 32; air contamination, possible points of, 33, 34; water contamination, possible points of, 33, 34 Environmental Protection Agency (EPA), 36, 56, 76; collaboration with IOGCC, 78; and commonwealth, 77; New Source Performance Standards, 77–78; regulatory relationship, 78–79 Environmental Quality Board (EQB), 81 Environmental Rights Amendment (ERA), 70, 192 EPA. See Environmental Protection Agency EQB. See Environmental Quality Board ERA. See Environmental Rights Amendment ERDA. See Energy Research and Development Administration Evans, Tony, 44 events, 51–52; discrete, 51, 61; focusing, 51–52, 60; series of, 61 experimental policy implementation, 45, 46 exploration, 15 exploratory model of compliance, 16, 27, 39, 40, 41, 61, 64, 65, 147, 167, 197, 205, 207, 210–12; budget and personnel, 63, 148–49, 168, 177, 198; linking politics and economics, 21–27, 62–63, 148, 167–68,

198, 199; mission and policy, 16–17, 62, 99, 147–48, 167, 198; technology, timing, and data, 17–20, 64, 149, 198. See also compliance Federal Energy Policy Act, 74 Federal Energy Regulatory Commission (FERC), 79 Federal Resource Conservation and Recovery Act (RCRA), 76 FERC. See Federal Energy Regulatory Commission Findlay, Nora, 49 fines. See penalties Fisk, Jonathan M., 5, 19, 20, 31, 37, 60, 72, 126, 148, 160 follow-up inspection, 88, 95–96, 133, 134, 136, 144, 155, 158 Foran, Clare, 31 Ford, Gerald, 74, 75 fossil fuels, 9, 101 frack fluid, 93, 160 fracking, 3, 36, 164; boom in Pennsylvania, 4, 18, 104, 106, 113, 165, 181; counties, 173; creating job opportunities, 30–31; debate over, 4, 5–6, 80, 200; environmental footprint, 32; EPA’s role in debate of, 77; and funds, 27; generating array of environmental externalities, 175, 176; nuclear, 17; public’s attitudes over, 170 Friedman, Eric, 176 Gajanan, Shailendra N., 117 gas. See oil and gas generalized linear mixed-effects analyses, 213 General Security Service, 52, 215n1 (Chp 1)

244

“gift ban” policy, 194 Gill, Duane A., 54 Good, A. J., 60 Gottlieb, Robert, 55 Green State policies, 56–59 H + M1 model, 50 Halliburton and Stanolind Oil Company, 73 Halliburton Oil Well Cementing Company, 73 Hampton, Rachel L., 71 Hartman, Todd, 21 Haymaker Gas Well, 71 hazardous substance, 76 Hilcorp Energy, 141 Hill, Heather, 53 homeowners, 91–92, 164, 165 horizontal drilling, 4, 149; oil and gas extraction via, 11; in Texas, 74 hydraulic fracturing, 4, 15, 149; oil and gas extraction via, 11; in shale formations, 74 hydrocarbons, 5, 22, 80, 107 IGR. See intergovernmental relations impact fees, 26, 27, 71 incident-response inspection, 88, 96 infrastructure for oil and gas extraction, 37 in-kind donations, 26 inspections: of DEP, 162–63; of Marcellus well site, 131; notation in inspection report, 97; in Pennsylvanian oil and gas production, 117–22; process, 87–88; types, 88–89, 95–96; at unconventional production sites, 149–50

Index

intergovernmental relations (IGR), 53–55 Interstate Oil and Gas Compact Commission (IOGCC), 72, 73, 78 IVs. See variables of interest JKLM Energy, 141 Johnson, Kelly, 49 Jordan, Soren, 55 Jugovic, George, 192 Kapucu, Naim, 54 Kaufman, Herbert, 48, 198 Kelsey, Timothy, 173 Klyza, Christopher M., 55, 56, 57, 72 Kraft, Michael, 157 Krancer, Michael, 192–93 land fragmentation, 35–36 lax enforcement, 14, 199, 202, 206 Lazowski, Rory A., 189 lease payments and royalties, 26 Levine, Ken, 8 Lipsky, Michael, 43 lme4 R package, 213 Louisiana Office of Conservation, 7 Lubell, Mark, 54 Mahafza, Zachary, 160 managerialism, 52 Marcellus Shale Advisory Commission, 193 Marcellus Shale formation, 35, 69, 75, 80, 87, 100, 101, 106, 120, 175, 188 Material Safety Data Sheet (MSDS), 76 Matland, Richard, 44, 45

245

Index

Maynard-Moody, Steven W., 44, 166 McElwain, Gaye Greever, 19 McKenzie, Lisa, 35 Meier, Kenneth J., 49, 50, 64, 66, 68 methane, 10; coalbed, 10; emissions, 6, 32, 77, 78; leaks, 31, 160 Meyers, Marcia K., 44 Mischen, Pamela, 44, 53 Mitchell Energy, 74 Moe, Terry M., 43–44, 48, 52 Moynihan, Donald P., 54 MSDS. See Material Safety Data Sheet Musheno, Michael C., 44, 166 Myhill, Andy, 49 Nair, Anil, 196 Nakamura, Robert T., 42 National Environmental Policy Act, 76 natural gas, 94–95; extraction, 106; producing wells, 102; production in Pennsylvania, 71, 79, 102, 103; supply, 113; types, 9–10 Natural Gas Act, 72, 73 Natural Gas Policy Act, 74, 75 natural resource compliance, 64, 65; operationalization of compliance context, 65, 65; theory, 61, 64 Nelson, Steven, 20, 60, 148 New Source Performance Standards (NSPS), 78 Nicholson-Crotty, Sean, 51, 68 notice of violation (NOV), 90, 97, 123, 128, 130, 144, 193, 206, 207; issuance of, 136, 144–45; probability of, 137

NOV. See notice of violation NSPS. See New Source Performance Standards nuclear fracking, 17 Office of Oil and Gas Management (OOGM), 81, 82, 87 Ohio Department of Natural Resources, 34 Ohio Oil and Gas Association, 19 Oil and Gas Act, 80, 82, 142 Oil and Gas Conservation Commission (COGCC), 16 Oil and Gas Conservation Law, 80, 82 oil and gas extraction: employees, 30; gross economic output, 21 oil and gas management, 6, 9, 12, 16–17; site safety policies, 6–7; stages in, 15 Oil and Gas Management Program, 98 oil and gas production in Pennsylvania, 3, 12, 101–2; Act 13 impact fee collections, 115, 116; Act 13 revenues allocations, 115, 116–17; administrative actions, 122, 127; boom-andbust cycles, 114; compliance of, 8–9, 106–7, 113–14; county-level distribution, 116; domestic, 5, 20, 22; drilling process, 107; economics of, 114, 116–17, 173; electrical prices, 24; energy production estimates in physical units, 101, 102; field production of crude oil, 104; fracking boom, 104, 106, 113; gas prices, 23; growing importance of, 201; importance of well type,

246

11–12; inspections, 117–22; intergovernmental, 6; laws and regulations for, 104; location of development, 105; management and compliance, 12, 14; natural gas extraction, 106; natural gas-producing wells, 102; pipeline projects, 107, 108–10; place-specific with surface-level costs, 106; process, 93–94; retail gasoline prices, 25; spud counts, 111–12, 114; spud date by well type, 111, 112–13; unconventional, 5, 25; US Natural Gas Production, 13; US Oil Production, 13; US state’s contributions to, 10–11; violations, 122–27. See also unconventional oil and gas politics Oil and Gas Program, 96 oil reserves, 11, 12 OOGM. See Office of Oil and Gas Management O’Toole and Meier’s model (OTM model), 49–50 O’Toole Jr., Laurence J. Jr., 49, 50, 51, 64 PADCNR. See Pennsylvania Department of Conservation and Natural Resources PAGC. See Pennsylvania Game Commission Park, Yunmi, 160 Pastor, Dena A., 189 Pearson, Christine M., 54 penalties, 26; actions, 98; amounts, 140, 145–47, 166, 182; increases in probability of issuance of, 138–41, 139; like-

Index

lihood and predicted penalty amounts, 138, 139; operators and likelihood of, 140; for violations, 91, 98, 138–40, 145–47, 149, 166, 182 Pennsylvania: growth and decline in industry, 172; outflow capacity, 173, 174; timeline of oil and gas events and moments, 73–74; underground formations in, 73 Pennsylvania Department of Conservation and Natural Resources (PADCNR), 81 Pennsylvania Department of Environmental Protection, 34, 81, 147 Pennsylvania Game Commission (PAGC), 81 Pennsylvania Natural Heritage Program, 36 Pennsylvanians Against Fracking, 197 PHMSA. See Pipeline and Hazardous Materials Safety Administration Picou, J. Steven, 54 Pipeline and Hazardous Materials Safety Administration (PHMSA), 79 pipeline projects in Pennsylvania, 108–10 Plowshare program, 73 policy ambiguity, 45–46 policy conflict, 45–46 policy implementation studies, 41; bottom-up implementation, 42–44; contingent approaches, 44–46; implementation types, 45; top-down implementation, 41–42 policy makers, 8, 27, 48, 55, 205,

247

Index

206, 208; federal, 14; state, 30, 59 political control, 47–48 political policy implementation, 45, 46 political principals, 17, 48, 49, 198 property taxes, 26, 27 public health protection in oil and gas policies, 34–35 Public Holding Company Act, 72, 73 public management approach, 49–50; environmental factors, 50–51; management’s efforts to exploit opportunities and buffer shocks, 50 public management model, 64 Public Utility Commission (PUC), 79, 83, 85, 188 PUC. See Public Utility Commission Quigley, John, 7 Rabe, Barry G., 35, 71, 95, 188 rate-setting formulas, 74 RCRA. See Federal Resource Conservation and Recovery Act Reagan, Ronald, 57 residential natural gas prices, 74 revenues: from oil and gas production, 26, 27–29; sources, 28 revocation equity action, 97 Ringquist, Evan J., 42 Robar, Stephen F., 117 Robinson, Scott E., 54 Robinson Township decision, 215n2 (Ch. 2) Robinson Twp., Washington County v. Commonwealth case, 70, 86 Roupp, Skip, 156 Rouse, Amelia, 49

RRC. See Texas Railroad Commission Safe Drinking Water Act, 56 Safe Drinking Water, Bureau of, 81 Safe Water Drinking Act, 76 sales taxes, 26, 173 Sandoz, Chris, 7 Schmidt, Jeff, 197 Schwartz, Robert, 52 Section 29 Nonconventional Fuels Production tax credits, 74, 75 Sengle, John, 120, 122, 216n2 severance taxes, 21, 26, 27, 29, 71 shale gas. See unconventional natural gas Shapiro, Jennifer, 89 Singer, Judith D., 189 single-state case studies, 68–69 site-level factors, 129; administrative actions, 135–36; administrative responses to violations, 135, 136, 137, 144; budget and personnel, 148–49; environmental and safety violation identification, 134, 142–43; increases in probability of issuance of penalty, 138–41, 139; inspections of Marcellus well site, 131; likelihood of identifying administrative violation, 133, 142; likelihood of penalty and predicted penalty amounts, 138, 139; mission and policy, 147–48; NOV issuance, 144–45; operators and likelihood of penalty, 140; penalty amounts, 145–47; politics and economics, 148; technology, timing, and data, 149; variables of interest, 130; violations identification by

248

type, 132, 132–35. See also county-level factors; state-level factors site preparation, 5, 6, 15 Smallwood, Frank, 42 Solid Waste Management Act, 81 Sousa, David J., 55, 56, 57, 72 Standard Operating Procedure for Complaint Response Management, 96 Stanolind Oil and Gas Corporation, 73 state-level factors, 169, 199; budget and personnel, 198; compliance outputs, 178–81; DEP and state government trends, 176; economic benefits by county type, 171; environmental costs to Pennsylvania, 175–76; frequency of compliance actions, 183; impacts of production in Marcellus, 175; independent variables, 184; interactive picture of compliance, 181–88, 185–86; intergovernmental politics, 188–89; linking politics and economics, 198; methods and variables, 189–91; mission and policy, 198; patterns of environmental health and safety violations, 182; penalty amounts, 182; state-specific variables, 176–78; state politics, 169, 170, 191–97; statewide benefits to Pennsylvania, 171–75; summary of results, 187; tax collections by county type, 170; technology, timing, and data, 198. See also county-level factors; site-level factors

Index

state regulators, 4, 7, 8, 12, 18, 39, 67, 156, 176, 191, 197, 206; challenges to, 58, 92–93; considering policies and enforcement for resources, 71; considering site level factors, 129; governor’s role and administrative processes, 191–96; impact of decisions on oil and gas pipelines, 107; facing political and economic pressures, 21–22; financial implications for, 28; political actors, 150; regulations enforcement, 203, 208; role in designing policy options, 126; water contamination cases, 34 Stephan, Mark, 157 Stewart, Tom, 19 street-level actors, 39, 46, 162 street-level agency, 41, 43–44, 49, 198 street-level policy implementation, 42, 43 subnational environmental politics, 55; early environmental policy efforts, 55–56; unpacking Green State policies, 56–59 substate factors. See county-level factors Sulitzeanu-Kenan, Raanan, 52 surface-level disruptions, 8, 35, 70, 129 symbolic policy implementation, 45, 46 Synd Enterprises, 141 Texas Railroad Commission (RRC), 7, 19 Texas Sunset Advisory Commission, 8

Index

tight gas. See unconventional natural gas Tintera, John, 7 Titusville Oil and Gas, 141 top-down policy implementation, 41–42, 45, 46 Toxic Release Inventory, 76 Transportation Security Administration, 79 Turzai, Mike, 142 unconventional natural gas, 9, 131; growth of shale gas counties, 173; production, 103; role in US states, 10–11, 11; “shale” benefits, 5. See also natural gas unconventional oil and gas politics, 3, 203–4; debate over fracking, 5, 6; governance challenges, 7–8; hydraulic fracturing and horizontal drilling technologies, 4; oil and gas sites, 146–47, 164; state regulatory activity, 6–7. See also compliance; oil and gas production in Pennsylvania unconventional wells, 130, 146, 161, 165–66, 168; identification of environmental and health violations, 142–43; spud counts, 111 Underground Injection Control program, 76 Union Pacific Resources, 74 United States (US): environmental safety, 3; Geological Survey, 36; natural gas production, 13, 73, 74; oil and gas extraction gross economic output, 21; oil production, 13

249

variables of interest (IVs): countylevel and substate factors, 152; for site-level factors, 130 violations, 90, 91, 149; administrative, 89, 122, 130, 133, 142, 156–59, 155, 181, 183, 187; administrative responses to, 135; compliance characteristics and identifying, 180; environmental health and safety, 89, 123, 130, 134, 142–43, 159–62, 165–66, 182, 187; identification by type, 132, 132–35, 153, 155; odor and air quality, 92; in oil and gas production in Pennsylvania, 9, 122–27; state-specific, 178; at unconventional locations, 150; waste, 123, 123 waste: management and safety, 36–37; in oil and gas production, 160 wastewater, 84, 160; hydraulic fracturing, 36–37; management choices, 36; recycling, 126 water: analysis, 91; contamination, 33, 34; filtration systems, 145; flowback, 95; produced, 36, 94, 95; quality, 3, 34; use, 84 Waterman, Richard W., 49, 51 Water Resources Planning Act, 81 Watson, Robert, 171 Weaver, Jim, 114 well(s): Class II, 36, 37; construction and drilling, 15; fires, 156–57; gas well production, 74; Haymaker Gas Well, 71; natural gas–producing, 102. See also conventional wells; unconventional wells West Virginia regulators, 34

250

Willet, John B., 189 Winter, Søren C., 43 Wiseman, Hannah, 143, 159 Witman, Amanda, 128, 145 Wolf, Tom, 120, 143, 192, 195, 197 Wood, B. Dan, 49, 51 Wright, Deil, 49, 53–54, 79, 191 Wukich, Clayton, 54

Index