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Delaware Basin Ruling Leads to More Questions

A lawsuit that sought an extensive environmental review of hydraulic fracturing (fracking) in the Delaware River Basin by the State of New York and a coalition of environmental groups has been dismissed by a federal judge, but the ruling left open to question whether an environmental assessment (EA) may be required in the future.

U.S. District Judge Nicholas Garaufis of the New York Eastern District last week ruled for the federal government and tossed the lawsuit, filed in 2011, ruling that it was premature because the Delaware River Basin Commission (DRBC) has yet to issue updated drilling rules. The risks from natural gas drilling currently are speculative, Garaufis wrote (State of New York v. Army Corps of Engineers et al., (No. 1:11-CV-02599).

"While plaintiffs provide a great deal of support for how their interests may be threatened if natural gas development is allowed in parts of the basin, as of now it is not allowed, and the mere existence of proposed regulations is not sufficient to allow this court to say plaintiffs' interests are at risk," Garaufis said in his opinion.

The DRBC in late 2010 issued a proposed rulemaking to allow natural gas development projects in some areas of the basin (see NGI, Dec. 13, 2010). The multi-state federal compact governs water use in the Delaware watershed and is composed of the governors of Delaware, New Jersey, New York and Pennsylvania, as well as an Army Corps of Engineers representative. It has yet to promulgate final drilling rules for the basin (see NGI, Sept. 24).

After the DRBC issued its draft rules, the state of New York filed a lawsuit, joined by a coalition of environmental groups, to compel a full EA as required under the National Environmental Policy Act (see NGI, June 6, 2011). The Army Corps of Engineers had said the DRBC was not a federal agency subject to NEPA mandates. The state and the coalition expanded the lawsuit to sue the U.S. Environmental Protection Agency, the U.S. Fish and Wildlife Service and other agencies for not conducting an extensive environmental review.

And herein lies the rub. Although the lawsuit was dismissed, Garaufis found that federal agencies may be forced to do an EA for the Delaware River Basin under NEPA. With only a draft of the rules in place, the court cannot at this time determine reliably "how probable it is that the regulation will be enacted and thus [it has] no way of judging whether risks that natural gas development may create are more than conjecture," Garaufis wrote.

"The courts will be available if and when the DRBC adopts final regulations permitting natural gas development and are more than capable of preliminarily enjoining any development so that no wastewater is created before the courts have evaluated whether the DRBC and the federal defendants are obligated to follow NEPA in this instance."

A spokesman for the industry's Marcellus Shale Coalition said, "The tightly regulated development of clean-burning American natural gas is helping to create tens of thousands of good jobs at a time when they're most needed while protecting and strengthening our environment. We remain hopeful that misguided lawsuits such as these will not jeopardize or undercut these undeniable benefits."

Companies considering whether to drill in regulated interstate river basins should familiarize themselves with issues facing regulators before making a final decision to proceed, according to an industry attorney. While moderating a discussion on river basin commissions at the Marcellus Shale Coalition's Shale Gas Insight 2012 Conference in Philadelphia, attorney Marc Gold said the industry is carefully watching the issues unfold, especially where the DRBC is concerned.

"It appears that for this industry, the DRBC is really being put under the microscope," Gold, a partner with the law firm Manko, Gold, Katcher & Fox LLP, told the audience. "I think a lot of what's being set up outside in the street [by anti-shale gas development demonstrators] is really aimed at continuing the moratorium on drilling within the Delaware River Basin, despite the DRBC staff's efforts to prepare regulations and put them up for a vote by the commissioners. And the commissioners haven't seemed willing to get together to have that vote."

DRBC's Bill Muszynski, the water resources manager, said, "I think we are going to get to a majority. The commissioners are going to reach an agreement on what scheme they're going to use for mutual protection. The states [within the DRBC] retain their sovereignty, but by joining the commission they have also somewhat agreed to be treated like a club member."

In an interview with NGI, Muszynski confirmed that negotiations among the states were taking place and indicated that some progress had been made, but he declined to speculate on when an agreement would be reached. "The commissioners and their technical staffs have had meetings and discussions in depth about specific issues," Muszynski said. "They're trying to resolve any differences, primarily starting off from places of common understanding."

Gold concurred that DRBC staff was working to harmonize the regulations among the states and address the commissioners' concerns, but he didn't think an agreement would be reached until after the upcoming election in November. But he added that even if the commissioners did come to an agreement, actual drilling within the Delaware River Basin could still be a long way off. "When the regulations are adopted, the litigation that will flow from the adoption of those regulations could defer even further -- perhaps significantly further -- actual development of the resources within the basin," he said.

Meanwhile, New York Attorney General Eric Schneiderman indicated last week that the state could refile its complaint against the DRBC depending on whether drilling is allowed to proceed.

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