In our prior post on the BLM fracking rule, we discussed confidential information and trade secrets which the agency is proposing to collect and, in some cases, disclose. That issue concerns all businesses in the hydraulic fracturing industry. The issue here is of particular interest to “small entities” impacted by the proposal, which for legal purposes are those drilling, exploration, and development companies with 500 or fewer employees. BLM, in its economic analysis of the rule, estimates that 99% of all companies in the field meet the small business criterion.
Nevertheless, BLM has determined (“certified” in the terminology of the Regulatory Flexibility Act or “RFA”) that the proposed rule will not have a “significant economic impact on a substantial number of small entities.” That means the agency is neither required to consider alternatives to lessen adverse impacts nor undertake more thorough and rigorous economic analyses. Those who may beg to differ will want to participate in the public comment process and explain the actual effect of the rules on the industry and their own bottomline. Comments on the proposed rule are due by July 10, 2012.
What the Law Requires
The RFA, as amended by the Small Business Regulatory Fairness and Enforcement Act of 1996, requires federal agencies to assess the impact of proposed rules on small entities. Congress has long been concerned that regulations may pose different and disproportionate compliance challenges and costs on small businesses, and that agencies were not adequately accounting for these impacts. The RFA is meant to address that concern.
The law requires that at an early stage in the process, agencies assess the universe of impacted small businesses and whether the rule proposed will have “a significant economic impact on a substantial number of small entities” (“SEISNSE” for short). If not, as in the case with BLM’s fracking rule, the agency “certifies” that finding to the SBA’s Chief Counsel for Advocacy. If a rule will have a SEISNSE, then the agency prepares an Initial Regulatory Flexibility Analysis (“IRFA”), takes comment, and publishes a Final Regulatory Flexibility Analysis (“FRFA”) in conjunction with the final rule.
By design, an IRFA explains the reason and legal authority for the rule, the number of small businesses, organizations, or communities impacted, all recordkeeping and reporting requirements (along with the skills required to complete them), and any conflicting or duplicative rules on the subject. It should also describe “any significant alternatives to the proposed rule which accomplish the stated objectives of applicable statutes and which minimize any significant economic impact of the proposed rule on small entities.” The FRFA covers much of the same ground, albeit as informed by information gained during the rulemaking process. It also must explain all steps an agency took to minimize the impacts of the rule on small businesses.
The RFA allows small entities to challenge certifications of no SEISNSE believed to be faulty.
It is worth noting that President Obama has also shown a similar concern for the impact of regulations on small business. In a Presidential Memorandum issued January 18, 2011, entitled “Regulatory Flexibility, Small Business, and Job Creation,” the President stated: “My Administration is firmly committed to eliminating excessive and unjustified burdens on small businesses, and to ensuring that regulations are designed with careful consideration of their effects, including their cumulative effects, on small businesses.”
In a similar vein, Executive Order 13563 reflects President Obama’s commitment to ensuring that rules be based on the principle that benefits exceed costs. He also affirmed the principle that regulation be tailored “to impose the least burden on society, consistent with obtaining regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations.”
Is BLM’s Certification Based on Sound Analysis of Costs?
BLM published a 59-page economic analysis, attempting to estimate the costs of complying with the various elements of the proposed rule. In the end, BLM summarized its findings as follows:
For the preferred approach, the estimated costs per well stimulation is not significant when compared against the costs of drilling an oil and gas well. The average cost per well stimulation is estimated to be about $11,833 in 2013, which represents about 0.3% of the cost drilling a well.
On that basis, the agency concluded that the rule would not significantly impact small fracking companies, and certified as much to the SBA Office of Advocacy.
Each business will have to make an individualized assessment of the analysis and the impacts of the rule on its operations, profitability, and operating costs. In doing this analysis, here are some questions that should be asked:
- Did BLM adequately account for the costs of delays in projects due to new permitting procedures?
- Were the costs of collecting information, producing reports, undertaking analyses, and recordkeeping realistically estimated?
- Did BLM adequately account for existing state rules that overlap with and duplicate the proposed rule?
- Are there other costs or impacts that were not considered or properly assessed?
If you have any concerns about BLM’s economic analysis, or the impacts of the rule on your operation more generally, you would be well advised to contact your local SBA Advocacy representative and set up a meeting. You can find your local office here, or work with the staff here in Washington, by contacting the Office of Advocacy directly.
Our experience with Advocacy has been uniformly positive. Its staff and attorneys have the statutory mandate and authority to work behind the scenes with federal agencies to bring the unique concerns of small businesses directly to the decisionmakers.
There is no doubt that the proposed fracking rules on public and Indian lands will have a great impact. It is up to the public to ensure that the rules are based on a reasonable and clear-eyed assessment of the actual costs and benefits. To ensure that is the case, the industry will have to step up and provide information it believes lacking. It is good to know that it has an ally in this effort.