On June 24, the Obama Administration filed its notice of appeal to challenge last week’s federal court decision to strike down the newest regulation over hydraulic fracturing on federal and Indian lands by the Bureau of Land Management (BLM) as being “in excess of its statutory authority… and unlawful.” On June 21, District Court Judge Scott Skavdahl (Wyoming) issued the opinion detailing the limited authority of the executive branch to regulate activities absent congressional authority. 

Background

In May 2012, the BLM issued proposed rules to regulate hydraulic fracturing on federal and Indian lands. The generally stated purpose was to (i) publicly disclose the chemicals used in hydraulic fracturing, (ii) protect water supplies by strengthening well-bore integrity regulations, and (iii) ascertain environmentally responsible management of fluids that flow back to the surface during hydraulic fracturing. The proposed rules endured two public comment periods that generated more than 1.5 million comments and resulted in two revisions over three years.

In March 2015, the BLM issued its final “Fracking Rule” to become effective in June 2015. In response, petitions seeking judicial review were filed by industry petitioners alongside the states of Wyoming, Colorado, North Dakota and Utah, and the Ute Indian Tribe of the Uintah and Ouray Reservation. The court postponed the effective date of the Fracking Rule and later granted preliminary injunctions enjoining the BLM from enforcing the Fracking Rule until the court fully considered the merits of the petitioners’ challenges. 

Analysis

The court initially reviewed the two-step process necessary to decide if an administrative agency had the authority to regulate a particular activity. First, the court must determine if Congress has spoken to the precise question at issue. If so, the Court must give effect to the unambiguously expressed intent of Congress. Second, if Congress has not specifically addressed the precise question at issue, the court then gives deference to the agency’s statutory construction.

Judge Skavdahl, in a fairly detailed opinion, found that the BLM did not have the authority necessary to issue the Fracking Rule. Indeed, the court left no room for federal agency deference on hydraulic fracturing. The court found that Congress had spoken directly to this issue and unambiguously expressed its intent to exclude hydraulic fracturing from federal agency authority under the Energy Policy Act of 2005 (EP Act).  The court declared the Fracking Rule unlawful and stated that “the intent of Congress is clear, so that is the end of the matter.” 

In reaching this conclusion, the court provided some historical context. In 1974, Congress enacted the Safe Drinking Water Act (SDWA) that served to protect drinking water sources by regulating “underground injections” (defined as “the subsurface emplacement of fluids by well injection”). For two decades, the Environmental Protection Agency (EPA) interpreted “underground injection” to exclude regulation of hydraulic fracturing. In 1997, the U.S. Court of Appeals for the Eleventh Circuit then concluded that the unambiguous language of the statute made clear that Congress intended the EPA to regulate all underground injections including hydraulic fracturing. 

In turn, the EPA maintained regulatory authority over hydraulic fracturing until Congress enacted the EP Act in 2005. The act was intended to expedite oil and gas development in the United States. Congress recognized the EPA’s authority to regulate hydraulic fracturing under the SDWA. It therefore included an SDWA amendment to expressly and unambiguously revise the definition of “underground injection” to exclude “the underground injection of fluids or propping agents (other than diesel fuels) pursuant to hydraulic fracturing operations related to oil, gas, or geothermal production activities.” The court reasoned that the EP Act’s explicit removal of the EPA’s authority similarly precluded the BLM from regulating the activity under a more general statute.

The court analyzed BLM’s long list of dated statutes in its “attempted […] end-run around the 2005 EP Act.” The court ultimately explained how the “regulation of an activity must be by Congressional authority, no administrative fiat,” and that “[w]hen an agency claims to discover in a long-extant statute an unheralded power to regulate ‘a significant portion of the American economy, [the court] typically greet[s] its announcement with a measure of skepticism. [The court] expect[s] Congress to speak clearly if it wishes to assign to an agency decisions of vast ‘economic and political significance.’” The court held that the BLM lacked congressional authority to promulgate the Fracking Rule and therefore rendered it unlawful.

Appeal

On June 24, a notice of appeal to the U.S. Court of Appeals for the Tenth Circuit was filed by the Secretary of the Department of the Interior and the Director of the BLM. This notice simply secures their right to an appeal and includes no information on their specific intent or basis for an appeal.

Looking Forward

Standing alone, the court’s decision ought to bolster confidence within the fracking industry that encroaching regulations are held at bay for now. That confidence, however, may be placed in limbo by a reacting anti-fracking movement spurred in response to this decision. 

First, and most obvious, the Administration’s appeal injects a degree of uncertainty in the long journey toward a resolution of fracking regulations. It also signals a potential short-term run at securing fracking regulations before the presidential election this fall. It will be interesting to watch for any signals by the Administration on its intent to advance the appeal in the coming weeks or months. 

Second, the court expressly stated that the issue before the Court was not whether hydraulic fracturing was “good or bad,” but rather an analysis forced by laws enacted by Congress. This view signals an obvious workaround of the court’s decision—namely by way of legislation.  The fracking industry should certainly expect increased legislative efforts on Capitol Hill by the anti-fracking movement to directly regulate and/or authorize the BLM to regulate the fracking industry.