The long-awaited hydraulic fracturing (“fracking”) legislation (HB2615/SB1715) just passed by the Illinois General Assembly is now on its way to the Governor’s desk, where his signature is widely anticipated. Supporters of high-volume horizontal fracking who see the potential for enormous economic benefits are looking eagerly ahead to when permitted drilling operations can begin in the Illinois portion of the New Albany Shale reserve. But, even with passage of the fracking legislation, significant challenges still lie ahead. The next stage of this process — the promulgation of rules that will implement the legislation and govern the application process — will begin almost immediately and will significantly impact how the applications are reviewed. The legislation itself creates significant substantive and technical requirements that must be addressed in the application, and the public comment and hearing process will be fraught with challenges and pitfalls for the unwary. In other words, passing the bill was just the first step, not the last, before actual drilling can commence.
Given the opposition that the legislation, and fracking in general, has seen in Illinois (and indeed, nationwide), we expect opposition to remain active, with numerous objections and challenges to be raised, during the application process. The successful permitting of the first wells under the new legislative framework will depend on the industry’s ability to successfully “make its case” before the Illinois Department of Natural Resources (“IDNR”) in the first set of permit applications that will be filed. Any misstep during the pioneering attempts at permitting will have serious repercussions on the statewide viability of horizontal fracking for the foreseeable future, and the industry must be well aware and advised of the procedures and potential pitfalls that await in this process. Furthermore, once the first permits are approved, the opportunity for judicial appeal still looms, which makes establishing a solid record in the application process that much more critical.
This article outlines the major steps and procedures contemplated in the current legislation that will govern the issuance of permits to conduct high-volume horizontal fracking. Only the most significant points are covered here, and the full text of the legislation should be reviewed for a complete understanding of the procedure. Indeed, as discussed below, even after the bill becomes law, the IDNR must still develop and issue additional rules and regulations for conducting the permitting hearings, which may take several months.
Step One – Registration: Every prospective applicant for a permit must first “register” with the IDNR at least 30 days before applying for a permit (Section 1-35(a)). The legislation provides that registration forms will be developed by the IDNR within 90 days after the effective date of the legislation, and presumably no entity can even register until the forms are available from the IDNR. Among other requirements, the application must include proof of insurance and disclosure of any serious oil or gas industry violations within the previous five years. (Failure to have abated any such violation can be used as a basis by the IDNR to deny the permit application, as noted below).
Step Two – Application: Thirty days after registering, one may submit an application (again, on a form provided by the IDNR) that identifies the applicant and provides a detailed description of the proposed well (including but not limited to compliance with setback criteria, overall depth of the well, the length and direction of horizontal wellbores, geologic information, disclosure of the chemicals to be used in the fracking fluid, a plan for management and reuse/disposal of the fracking fluid, a fresh water withdrawal and management plan, a casing and cementing plan, and many other criteria) (Section 1-35(b)). In addition, drafts of the required public notices (discussed below) and the names and addresses of all landowners within 1500 feet of the well must be submitted. Water use is a significant concern, and thus a certification of compliance with the Water Use Act of 1983 and “applicable regional water supply plans” is also required. The legislation provides that the IDNR also has the authority to require additional information as it sees fit, to be set forth in the anticipated hearing rules. The application also requires payment of a non-refundable fee of $13,500. If the IDNR deems the application is lacking in any of the required information, it will notify the applicant in writing of the application’s deficiencies, and allow the applicant to correct the deficiencies, but may then reject the application if the applicant fails to provide sufficient supplemental information.
Step Three – Public Notice: The legislation contains significant and detailed public notice requirements, some of which are the responsibility of the IDNR but most of which fall upon the applicant. Within five days of the IDNR’s receipt of a permit application, the IDNR must post a copy of the permit application on its website and indicate the period for public comment (Section 1-40). The applicant must provide notice of the application to the general public by newspaper publication, and by mailing notice to all property owners of record within 1500 feet of the proposed well site.
Step Four – Public Comment/Hearing: The legislation provides for a public comment period, beginning seven calendar days after the IDNR’s receipt of the permit application, which shall last for 30 calendar days (Section 1-45). Any person may file written comments with the IDNR related to the permit application and the Applicant’s compliance with the procedural requirements of the legislation, and “any other applicable laws.” A response to the public comments is not mandatory under the law, unless specifically requested by IDNR, but as a practical matter, an applicant would typically file responses to most substantive comments that are negative or that otherwise object to the permit application. Under the legislation, “any person having an interest that is or may be adversely affected (including government agencies and the county board of the county in which the well is to be sited) may request a public hearing,” although a request for a hearing must be supported by a statement of facts as to why the requestor will be adversely affected by the proposed well. (Section 1-50). In addition to the requesting party, “any person who could have requested the hearing” on the same basis may petition IDNR for permission to participate in the hearing on the same basis as the requesting party.
Under the legislation, IDNR must establish rules and procedures for conduct of the hearing, which rules must provide for notice to the public and for “reasonable opportunity for all the parties to provide evidence and argument, to respond by oral or written testimony to statements and objections made at the public hearing, and for reasonable cross-examination of witnesses.” (Section 1-50(c)). If a public hearing is requested, the comment period can be extended for 15 days to allow for comments in response to evidence and testimony presented at the hearing. However, overall, IDNR is allowed no more than 60 calendar days from the date it receives the permit application to approve or reject the permit application (although the applicant may waive the 60-day deadline, either on its own initiative or at the request of IDNR). (Section 1-35(i)).
Step Five – Determination/Appeal: After the hearing is conducted and the fact witness and expert witness testimony, documents, public comments and responses, and other evidence has been entered into the hearing record, the IDNR will then make a determination as to whether to issue the permit (with or without conditions) or reject the permit (Section 1-53). Among the several criteria that the IDNR must use to evaluate the merit of the permit applications, the IDNR must determine that the application meets all of the relevant technical requirements under the legislation (e.g., well setbacks, disclosure of fracking fluid constituents, etc.), and that the proposed hydraulic fracturing operations “will be conducted in a manner that will protect the public health and safety and prevent pollution or diminution of any water source.” Such determination will be made on the basis of the complete record, which shall include the application, all written comments and responses, the complete record from the public hearing (if any), as well as “any information known” to the IDNR, which may include inspections of the proposed well site.
The legislation provides that the IDNR’s decision to approve or deny a permit shall be considered a final administrative decision subject to judicial review under the Administrative Review Law, 735 ILCS 5/Art. III, which means that the issuance of a permit (or its denial) can be appealed to the state circuit court.
Conclusion and Next Steps
Once the legislation becomes law, the first group of permit applicants will face significant challenges. For starters, because no rules or regulations governing the hearing process currently exist, applicants must wait for the IDNR to develop the rules, including the required registration and application forms, before the permitting process can even begin. The rulemaking procedure itself is a critical part of the overall process, and those with an interest should be vigilant and would be well advised to participate during this proceeding.
Once rules are established, the burden on applicants to submit a thorough application and supporting materials will be significant, as the first applications most likely will be subject to immense scrutiny by objectors, who are likely to fight any application and assert the legal and substantive challenges they can at each step of the procedure. Thus, prospective applicants are well advised to carefully address these requirements (which necessitates assembly of a highly qualified and capable professional team of experts and legal counsel). The applicant must then prepare to defend the application during the public comment and hearing process by presenting expert testimony and evidence at hearing, cross examining opposing witnesses and experts, and addressing procedural objections to the application at virtually every step of the proceedings.
Industry investment in this process will be substantial, but it must be well prepared for the application process, beginning with the development and submission of the application package itself, in order to be successful. Successful defense of the application in the face of determined opposition will also be challenging. Because even a favorable final permit determination by the IDNR can be appealed, the establishment of a comprehensive, well-documented, and scientifically defensible record in the application (including responses to public comments and hearing testimony) is paramount to ensure that a favorable ruling from the IDNR will withstand an appeal. Only then can permitted high-volume horizontal fracturing operations finally begin in Illinois.