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Auditor General Report Blasts Pennsylvania DEP, Finds Regulatory Failures

Pennsylvania's Auditor General on Tuesday released a scathing 158-page report criticizing the state's Department of Environmental Protection (DEP) for failing to keep pace with the breakneck rate of oil and gas development in the Marcellus Shale. It proposed dozens of fixes to improve regulatory oversight. 

The audit, launched in January 2013 shortly after Auditor General Eugene DePasquale took office, reviewed DEP operations from Jan. 1, 2009 through Dec. 31, 2012. It mainly focused on the DEP’s Oil and Gas Program well inspection process, the agency's response to shale-related complaints from the public and how regulators were tracking the generation and disposal of waste.

The report said the agency had largely failed to fulfill its duties during the period in question. DePasquale put forward 29 recommendations aimed at updating a program that his office found to be hampered by outdated technology, inadequate resources and a lack of staff to monitor the nation's largest gas field.

In a letter that accompanied the report, which was submitted to Republican Gov. Tom Corbett, DePasquale wrote that the "DEP needs assistance." While he commended the work of DEP employees and acknowledged the economic benefits that shale development has brought to the state, he said "it is underfunded, understaffed, and does not have the infrastructure in place to meet the continuing demands placed upon the agency by expanded shale gas development."

"There are very dedicated hard-working people at DEP, but they are being hampered in doing their jobs by lack of resources -- including staff and a modern information technology system -- and inconsistent or failed implementation of department policies, among other things," DePasquale said. "It is almost like firefighters trying to put out a five-alarm fire with a 20-foot garden hose. There is no question the DEP needs help, and soon, to protect clean water."

The audit revealed that DEP failed to consistently issue official orders to well operators that were found to have harmed water supplies. The Auditor General's staff reviewed 15 complaint files for confirmed water supply impact and discovered DEP issued just one order to a well operator to restore or replace the affected water supply.

"When DEP does not take a formal, documented action against a well operator who has contaminated a water supply, the agency loses credibility as a regulator and is not fully accountable to the public," the Auditor General said. "When DEP has enforcement authority under the law it must exercise that authority routinely, consistently and transparently."

In an attempt to gauge the amount of well inspections being conducted regularly across the state, the report said auditors "were thwarted by the DEP's lack of reliable data, learning that only a needle in a haystack review of thousands of hard-copy files would ever yield a conclusion." Most stunning, the report said, was that the agency relies on a 25-year-old policy to determine the frequency of its inspections.

That policy, crafted in 1989, only contemplated conventional oil and gas wells that typically take just days to drill, unlike unconventional wells that can take weeks or even months to complete.

"It is unfathomable to us that for a basic responsibility of DEP -- inspecting oil and gas facilities -- little criteria exists for when those inspections should occur," DePasquale said. "Until DEP updates its out-of-date inspection policies, to include mandated inspections at specific critical drilling stages and during the life of the well, it will be nearly impossible to measure DEP's performance in conducting this very basic responsibility."

To be sure, regulators across the country have struggled to keep state policies and regulatory efforts in tune with the rapid pace of shale development in recent years. In Pennsylvania, that development has been meteoric. According to DEP data, unconventional operators produced 3.3 Tcf of natural gas last year (see Shale Daily, Feb. 20), a staggering increase of 1.3 Tcf from 2012 alone, putting the state second only to Texas in natural gas production.

In 2009, agency personnel conducted 2,337 compliance inspections at 923 unconventional wells. By 2012, the DEP had conducted 12,201 compliance inspections at 4,716 wells, according to agency data provided to NGI’s Shale Daily.

In a written response to the Auditor General's report, DEP Secretary Chris Abruzzo said it failed to acknowledge the progress his department has made in the short time since 2012. He added that his staff remains committed to updating its policies and agreed with some of the report's recommendations.

"To a great extent, the audit report reflects how the oil and gas program formerly operated, not how the program has made great strides improving the effectiveness of its regulatory efforts and its transparency to the public," Abruzzo said. "Additionally, Act 13 of 2012, the first significant amendment to Pennsylvania's oil and gas laws in over 30 years was enacted towards the end of the audit period."

He said Act 13 has created "comprehensive changes" for the DEP's regulatory authority over the unconventional shale industry in the state. The agency is currently working on an extensive package of new oil and gas environmental regulations as a result of that legislation (see Shale Daily, May 13).

In 2004, just 64 people worked for the DEP's Oil and Gas program. Today it has 202 full-time employees. Last month, the agency said it would hire more personnel with revenue generated by an increase in well permitting fees (see Shale Daily, June 13).

Although the agency disagreed with the report's key findings, it did support the majority of its recommendations. When it comes to issuing formal orders for water contamination, the DEP said that such action is not always procedurally necessary, noting that voluntary compliance and working closely with operators to craft a solution is often a better choice.

The agency also claimed that its well inspection procedures are adequate because inspectors are on site for the critical stages of drilling and completing a well, such as stimulation, casing and plugging operations.

The audit report recommended that the agency find the financial resources to hire additional inspectors, while calling for the implementation of a new well inspection policy that outlines explicitly the requirements for timely and frequent visits to well sites.

The report was also highly critical of department technology and said the DEP's electronic management systems must be updated to adequately monitor waste, compile reliable data and help reply to public complaints or inquiries, which were found to be too slow in some cases.

The Auditor General forwarded some of the report’s recommendations to lawmakers in the General Assembly, as well.

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