The Illinois General Assembly recently passed, and the governor has signed, the Illinois Hydraulic Fracturing Regulatory Act (P.A. 098-0022). The final bill was the result of an unusual collection of environmental activists and industry representatives, who produced what some describe as the toughest regulatory regime associated with oil and gas exploration in the country. Others continue to seek a moratorium on hydraulic fracturing in Illinois, but with the governor’s signature, a moratorium on hydraulic fracturing in Illinois is now merely a protest. Some are concerned that the protests will continue and impact rulemaking. To the contrary, rulemaking will not be the forum to watch competing interests sort through the issues. Rather, the registration, permitting siting will be the most likely public battleground as this process enters the next phase. And, we can expect enforcement actions to provide another arena where disputes will be public. Both sides are well advised to consider the impact of the Administrative Record in challenging or supporting compliance with this law and the laws of the state – most notably, the Illinois Environmental Protection Act.

Rulemaking

While Section 1-130 of Public Act 098-0022 provides that the Illinois Department of Natural Resources ("IDNR") "shall have the authority to adopt rules as may be necessary to accomplish the purposes of this Act." It is also clear in the new statute, that "[a]ny and all rules adopted under this Act by [IDNR] are not subject to the review, consultation, or advisement of the Oil and Gas Board."

In addition, while the Illinois General Assembly created a "Task Force On Hydraulic Fracturing Regulation" at Section 1-99 of Public Act 098-0022, the Task Force will not likely provide much of a public forum to address challenges. The purpose of the Task Force is limited to preparing a report evaluating hydraulic fracturing activity in the State and making recommendations to the General Assembly on the need for further legislation. The report is due September 15, 2016. Under the circumstances, it is clear that the Illinois General

Assembly is comfortable with both the current scope and specifics identified in the statute, and with IDNR’s capability in promulgating forms and rules. Indeed, the final rules will likely mirror the statutory requirements.

Rulemaking will not be the next battleground for hydraulic fracturing in Illinois.

The Administrative Record and a Deferential Standard of Review

Indeed, the statute is very clear, with very specific terms regarding the technical requirements regarding registration, application, and operation of hydraulic fracturing operations. The General Assembly itself has already established setback requirements for well operations with a request for a detailed description of the process to be employed by the operator. In addition, the Illinois General Assembly has already adequately and clearly articulated the requirement that the applicant/ operator locate the hydraulic fracturing operations outside of prescribed distances from sensitive receptors (i.e., drinking water sources and people), with a requirement that the applicant/operator provide a detailed the disclosure of hydraulic fracturing fluids, sources of the water to be used in the process, waste water disposal practices, well casing and cement sealing techniques, and public notice and participation. Unlike other compliance and regulatory enabling statutes, this one has many of the specifics that are found in regulation. In other words, little detail needs to be added in rulemaking.

What is necessary now, and will be equally necessary after rulemaking, is an adequate and defensible Administrative Record. We can expect challenges to each step in the pre-permit statues – from registration, application, public participation, permit issuance/denial and appeals. It is remarkably important – critical – that the parities make and supplement an administrative record because the judicial review of those activities will be based solely on the admissible evidence in the administrative record. For those unfamiliar with administrative review in Illinois, the agency’s interpretation of the law it administers (and some facts) will be entitled to judicial deference so long as the interpretation is not unreasonable. And, the evidence that will be subject to judicial review will be only the admissible evidence that was generated and properly supplemented in the Administrative Record. There are some exceptions to these rules, but by and large the agency’s determination will not be overturned upon judicial review unless the decision is arbitrary, capricious or unlawful.

To put that in context, some courts have indicated that they would not have ruled differently, but the court affirmed the agency’s decision, because the court could not conclude that the agency had been arbitrary, capricious or that the decision was unlawful. While the court may disagree with the agency’s determination, the court will not overturn it under what is correctly termed a deferential standard of review.

The Presumption and Enforcement Actions

Interestingly, what is not being discussed in the popular press is the remarkable “Presumption of pollution or diminution” described at Section 1-85 of Public Act 098-0022.

That section provides:

  1. This Section establishes a rebuttable presumption for the purposes of evidence and liability under State law regarding claims of pollution or diminution of a water source for use regarding the investigation and order authority under Section 1-83.
  2. Unless rebutted by a defense established in subsection (c) of this Section, it shall be presumed that any person conducting or who has conducted high volume horizontal hydraulic fracturing operations shall be liable for pollution or diminution of a water supply, if:
    1. the water source is within 1,500 feet of the well site;
    2. water quality data showed no pollution of diminution prior to the start of high volume horizontal hydraulic fracturing operations; and
    3. pollution of diminution occurred during high volume horizontal fracturing operations or no more than 30 months after the completion of the high volume horizontal hydraulic fracturing operations.
  3. To rebut the presumption established under this Section, a person presumed responsible must affirmatively prove by clear and convincing evidence any of the following:
    1. the water source is not within 1,500 feet of the well site;
    2. the pollution or diminution occurred prior to high volume horizontal hydraulic fracturing operations or more than 30 months after the completion of the high volume horizontal fracturing operations; or
    3. the pollution or diminution occurred as the result of an identifiable cause other than the high volume horizontal fracturing operations.

The enforcement regime described in the statute is where we will see the most interesting disputes between the parties with differing issues challenging each other’s theories and conclusions.

And, while the regulatory enforcement authorities – which can include private parties seeking enforcement of the law (see Section 1-102 providing that “any person having an interest” can “compel compliance”) – have a rebuttable presumption that establishes a prima facie case, that presumption is rebuttable only so long as the operator provides “clear and convincing evidence” to the contrary. That evidence must be in a properly developed and supplemented Administrative Record.

As you will note, the typical burden of proof in enforcement actions changes in this statute, and the evidentiary standard articulated in this statute clearly requires more persuasion from the operator (i.e., not merely a preponderance of the evidence, but clear and convincing evidence). Perhaps most importantly, compliance with the regulatory regime described in this statute must be with admissible evidence that was developed in the Administrative Record.

Both industry and activists will need an Administrative Record that supports their respective position when it comes to challenges to permits and activities that are alleged to create environmental damage. On the one hand, many hail this statute as the toughest regulatory regime in the country. Another way of looking at it is that both sides now have an opportunity to prove their case. Does the record show real evidence of safe operations and compliance? Or, does the record contain real evidence that will support a challenge?

The real beauty of this Act is not its perceived tough regulatory teeth. Rather, no party can rely only on anecdotal references, and there must be proof in a properly prepared and supplemented Administrative Record.

Conclusion

Just because a fact is obvious, it will not be admissible evidence unless it is in the Administrative Record. On the one hand, this standard may limit unsupported and anecdotal claims, but the unwary may not adequately or properly supplement the Administrative Record with admissible as need be. While other states are less regulated, operators in those states have less opportunity to provide evidence of compliance. Especially to the extent that regulators in Illinois now have a rebuttable presumption, operators will be well served to discuss evidence of compliance with counsel and to develop a defensible Administrative Record with admissible evidence of compliance.