Water Quality Rulemaking in Response to Senate Bill 820 Evan Kane NC DENR – Division of Water Quality

Background 2008-2010: Work by NC Geological Survey documenting & publicizing potential shale gas resource in NC Triassic Basins Map included here just to make you aware that we are not talking about a statewide phenomenon such as the Marcellus shale, but a potential resource that spans several counties. From Reid and Milici. 2008. “Hydrocarbon Source Rocks in the Deep River and Dan River Triassic Basins, North Carolina”

Background 2011: SL 2011-276 directed DENR to study potential environmental, economic, and social impacts of shale gas development March 2012: DWQ update to the EMC on water quality considerations of shale gas development May 2012: Release of DENR study DENR study concluded that the development of shale gas could be done safely if adequate regulatory safeguards and programs were in place. The study included 27 recommendations for regulatory improvements, administration of the program, and additional study.

Background June 2012: USGS estimate of gas resources Technically Recoverable Undiscovered Unconventional Resources Assessment Unit Volume Gas (mean, BCFG) Natural Gas Liquids (mean, MMBNGL) NC Triassic Basins1 1,709 83 Marcellus Shale (PA, NY, WV, OH)2 84,198 3,379 Barnett Shale (TX)3 26,228 1,049 Black Warrior Basin (AL, MS)4 7,056 In June of 2012 the USGS was finally able to produce an estimate of the amount of gas in NC Triassic Basins, something DENR had hoped to have during preparation of the study report. The USGS estimate shows that NC’s potential shale gas resource is very small compared to the resources in other states – about 2% of the amount of gas and NGL in the Marcellus shale. Given the current low price of natural gas, it would seem the prospects for development of this resource in North Carolina are small over the next several years. However, this is the first quantitative estimate of NC’s natural gas, and factors such as entrepreneurial innovation, wildcatting, natural disasters, or geopolitical events could change the situation. Sources: BCFG: billion cubic feet of gas (1) USGS Fact Sheet 2012-3075 MMBNGL: million barrels of natural gas liquids (2) USGS Fact Sheet 2011-3092 (3) USGS Fact Sheet 2004-3022 (4) USGS Fact Sheet FS-038-03 (2003)

Background July 2012: Passage of S820 (SL 2012-143), “Clean Energy and Economic Security Act”

Major Provisions of S820 Creates Mining & Energy Commission Authorizes hydraulic fracturing and horizontal drilling Prohibits issuance of drilling permits until legislature acts Improves some regulations of oil & gas activities Directs EMC, Commission for Public Health, and Mining & Energy Commission to adopt necessary regulations by October 1, 2014 S820 actually acknowledged most of the 27 recommendations in DENR’s report as necessary for “a modern oil and gas regulatory program”

Mining & Energy Commission Rulemaking Responsibilities Drilling permit application requirements Baseline sampling rules Oil and gas well construction standards Siting standards for oil & gas wells and other production infrastructure Limits on water use and establishment of water management plans Management of wastes MEC has the lion’s share of regulatory development to do; I’m highlighting just the environmental issues to provide clarity about the environmental issues under MEC’s purview, where it might be assumed the EMC would have authority Minimal O&G well construction standards currently in Departmental rules in 15A NCAC 5D Siting standards: Infrastructure such as storage pits and tanks, including appropriate setback requirements and identification of areas, such as floodplains, where oil and gas exploration and production activities should be prohibited. Siting standards adopted shall be consistent with any applicable water quality standards adopted by the Environmental Management Commission or by local governments pursuant to water quality statutes, including standards for development in water supply watersheds.

Mining & Energy Commission Rulemaking Responsibilities Prohibitions on use of certain chemicals Disclosure of chemicals used Blowout and spill prevention and response Well closure and site reclamation

EMC Rulemaking Responsibilities Stormwater control for oil & gas exploration and development sites Regulation of toxic air emissions from drilling operations “For matters within its jurisdiction that allow for and regulate horizontal drilling and hydraulic fracturing for the purpose of oil and gas exploration and development.” S820 specifically directs the EMC to address two rulemaking subjects: stormwater and air toxics. It also amends the EMC’s authority and responsibilities (in GS 143B) to include regulation of matters related to horiz drilling and HF. The Division of Air Quality is also here to address any questions you may have regarding the relevance of S820 to your air quality regulations. DWQ staff has examined the EMC’s other rules for water quality protection, the mandate in SL 2012-143 to the EMC, the Mining & Energy Commission, and the Commission for Public Health. The staff involved in the review was the same staff involved in the DENR study of potential shale gas development and represented a broad cross-section of DWQ programs.

Rules Needing Revision 15A NCAC 2H .1000 - Stormwater rules 15A NCAC 2T – Wastes not discharged to surface waters Stormwater from E&P operations is exempted from federal NPDES. The well pad is generally maintained for the life of the well (on the order of a decade) in order to allow for re-fracking of the well or drilling additional wells. During initial site construction, you have sediment and erosion control considerations that may be adequately handled through sediment & erosion control programs, but even after site stabilization, there’s a few acres of heavily compacted soil that generates runoff during drilling, fracking, and during production. There are materials handled and wastes generated during each of these phases that may not be effectively managed by sedimentation and erosion control measures. Dealing with these phases of stormwater and these types of stormwater pollutants was one of the recommendations in the DENR report as well as a third-party review of NC’s regulatory programs. The 2T rules are largely okay, as they are based on performance standards that pertain regardless of the source of the waste. There is one specific area that we believe needs to be fixed.

2T .0113(10) Permit Exemption “Drilling muds, cuttings, and well water…from other construction activities including directional boring” deemed permitted Intended to address operations like this Currently, 2T .0113 provides permitting exemptions for land application of a number of wastewaters or residuals that are generally inert or at produced in such low volumes as to make site-specific or even general permits unnecessary. One of these is for drilling muds, cuttings, and well water from the development of wells or from other construction activities including directional boring

2T .0113(10) Permit Exemption “Drilling muds, cuttings, and well water…from other construction activities including directional boring” deemed permitted NOT this Further evaluation of 15A NCAC 2T, with input from stakeholders, will determine whether there is a need for other rule revisions under 2T.

Rules Not Proposed for Revision 15A NCAC 2H .0900 – Wastewater Pretreatment 15A NCAC 2C .0100 – Well construction standards for water supply wells and certain other wells 15A NCAC 2C .0200 – Well construction standards and permitting requirements for injection wells 15A NCAC 2L – Groundwater classifications and standards Current pretreatment regulations require that that before a POTW accepts wastewater from an industrial facility it must be evaluated to determine if it fits the definition of Significant Industrial User. In the absence of effluent guidelines in a categorical classification, the wastewater characterization is evaluated for its potential to impact the treatment system. The current pretreatment regulations are sufficient to protect the POTW. EPA anticipates having effluent guidelines for wastewaters generated by oil and gas exploration and development in place by October 2014. SL2012-143 directs the Mining and Energy Commission to adopt construction standards for oil and gas wells, with specific charge to develop casing and cementing standards adequate for hydraulic fracturing and directional drilling. The scope of these well regulations will be significantly greater than the current scope of well regulations adopted under the Oil and Gas Conservation Act (15A NCAC 5D) and should alleviate the need to stretch the EMC’s well construction standards in 15A NCAC 2C .0100 to cover gaps in the 5D rules. Current federal and state regulations exempt fluids used in well stimulation from the definition of “injection” for the purposes of the federal Safe Drinking Water Act and for the purposes of North Carolina’s injection well rules. Hydraulic fracturing is regarded as well stimulation by all other states with active oil and gas exploration and production. Hydraulic fracturing has also been exempted from the federal injection well regulations under the Safe Drinking Water Act unless diesel fuel is used in the fracturing fluids. Thus while hydraulic fracturing entails physical injection of fluids, it is not injection for the purposes of 15A NCAC 2C .0200, and so no revision of these rules is necessary to allow for hydraulic fracturing. Finally, we are not proposing to amend the groundwater classifications and standards. At this point, there is sufficient uncertainty about the hydrogeology of the Triassic basins that we think that doing so would risk undermining long-standing protections while at the same time failing to provide the industry with regulatory predictably regarding compliance with appropriate groundwater standards.

Stakeholders Process S820 specifies particular groups to be involved Two stakeholder meetings planned for water quality regulations DENR has identified specific stakeholders DWQ will use the DENR organized group as a foundation for the water quality rulemaking Although this is a requirement of S820, it stems from a recommendation in DENR’s report and is consistent with how DENR and DWQ have been approaching rulemaking for many years.

Stakeholders Process Local Government: 2 from municipalities in the Triassic Basin, selected by NC League of Municipalities 2 from counties in the Triassic Basin, selected by NC Association of County Commissioners Industry: 1 from the American Petroleum Institute 1 from America’s Natural Gas Alliance Consumer Protection: 1 from Consumer Protection Section of the Department of Justice 1 from Rural Advancement Federation International - USA Agriculture: North Carolina Farm Bureau Water well drilling & utility contracting representatives We will of course, also be consulting with our staff counterparts in the DEMLR and DWM to ensure that the interfaces between the rules of the EMC, MEC, and CPH are seamless

Rulemaking Targets Deadline for adoption: October 1, 2014 MEC Information Item: January 2013 1st Stakeholder meeting: January/February 2013 2nd Stakeholder meeting: April/May 2013 Proposed rules for WQC Review: August 2013 WQC Action item - send proposed rules to full commission: September 11, 2013 Working backward from the legislative deadline, we have established the following targets for rulemaking. This schedule highlights the major targets; we will come back to the WQC, full EMC, and MEC with additional information items as necessary during the process of rule development. The purpose of the 1st stakeholder meeting and the MEC information item will be to provide an orientation to the stakeholders, to get their feedback on the scope of the proposed water quality rulemaking, and to solicit their suggestions for proposed rules. The purpose of the 2nd stakeholder meeting will be to get stakeholder feedback on conceptual rule proposals so that we can refine them into specific proposed rules for the WQC by August 2013.

Rulemaking Targets OSBM approval of Fiscal Note: November 2013 EMC Action item - send proposed rules to public comment: November 14, 2013 NC Register Filing deadline: November 21, 2013 Start of public comment period: December 16, 2013 Earliest Public Hearing: January 6, 2014 End of Public Comment Period: February 14, 2014

Rulemaking Targets OSBM Review of Fiscal Note for revised rule: May 2014 Revise Proposed Rule & Draft HOR: June 1, 2014 WQC Adoption: July 9, 2014 EMC Adoption: September 11, 2014 RRC Filing Deadline: September 19, 2014 RRC meeting: October 1, 2014 Adoption of the rules at the September 2014 EMC meeting will meet the required deadline of October 1, 2014.

For More Information Evan Kane, PG Groundwater Planning Supervisor Division of Water Quality 919-807-6461 evan.kane@ncdenr.gov DENR Shale Gas information on the web: ncdenr.gov I welcome your questions and suggestions now and as we proceed.