August 2, 2013: Highlights of energy legislation.
Shale Gas/Hydraulic Fracturing. This is one area where the big news may be the legislative proposals that failed. The Senate adopted two controversial shale gas provisions, but neither passed the House. Legislation adopted in 2012 effectively put a moratorium on hydraulic fracturing by prohibiting issuance of permits until the Mining and Energy Commission adopted rules and the General Assembly acted to specifically allow permitting. The N.C. Senate had always wanted to set a specific date for permitting to begin and tried again this year in Senate Bill 76 (the Domestic Energy Jobs Act). The version of the bill that came out of the Senate repealed the 2012 language and authorized the Department of Environment and Natural Resources to begin issuing permits for hydraulic fracturing on March 1, 2015 without any further legislative action. The House had concerns about the change. After back and forth on alternative language and intensive lobbying in the last days of the legislative session, the final bill kept the permitting moratorium in place.
The other controversial Senate proposal had to do with disclosure of information on chemicals used in hydraulic fracturing fluid. The Senate intervened on behalf of the oil and gas industry when energy giant Halliburton expressed concern about a chemical disclosure rule drafted by the Mining and Energy Commission. The commission’s draft rule requires drilling companies to disclose all chemicals used in hydraulic fracturing fluid to the Department of Environment and Natural Resources, but allows DENR to keep any trade secret information confidential. You can find more about the chemical disclosure rule and trade secret protection in this post. In an effort to make the rule more acceptable to the oil and gas industry, the Senate adopted language directing the Mining and Energy Commission to revise the rule to allow drilling operators to withhold information on trade secret chemicals unless DENR needed the information to respond to environmental damage or a specific health problem. In the face of significant opposition, the Senate modified the language to allow state regulators to review information on trade secret chemicals at the same time the drilling company disclosed other chemicals used in the fracturing fluid. The revised language did not allow DENR to actually receive information on trade secret chemicals — the department could only review information that remained in the drilling company’s possession. In the final days of the legislative session, the bill containing the Senate language died and the restriction on chemical disclosure died with it. Failure of the legislation allows the Mining and Energy Commission to move ahead with the original draft rule on chemical disclosure.
The final version of Senate Bill 76 signed by the Governor included a number of less controversial changes related to shale gas and hydraulic fracturing:
– Rules adopted by the Mining and Energy Commission are exempted from the requirement for a fiscal analysis. State law generally requires every proposed rule that has an economic impact of $1 million or more (based on the total impact on everyone affected by the rule) to be accompanied by a fiscal analysis.
– Minor changes in the makeup of the MIning and Energy Commission.
– Three new studies to look at: 1. creation of a coordinated permitting process that will allow issuance of a single environmental permit for all oil and gas exploration and production activities; 2. the appropriate level of severance tax for oil and gas resources; and 3. implementation of the 2012 registration requirement for people involved in purchase or lease of property for oil and gas exploration and development.
– Technical amendments to an existing law allowing the state to limit the total amount of oil and gas produced in the state (G.S. 113-394).
– New criteria for setting the amount of the reclamation bond required for oil and gas activities and a process for either the drilling company or the property owner to appeal the bond amount.
LEED Certification. House Bill 628 (Protect/Promote Locally Sourced Building Materials) was signed into law after a major rewrite in the Senate. The original House bill would have prohibited state building projects from seeking Leadership in Energy and Environmental Design (LEED) certification under U.S. Green Building Council standards because few North Carolina forestry operations meet standards necessary to earn LEED credit for sustainable wood products. You can find more explanation of the controversy over sustainable forest practices and the LEED standard here. The Senate rewrote the bill to allow construction of state projects under “green” building standards that give credit for use of local building materials — which LEED standards do. The final bill also calls for study of the energy efficiency standards for state buildings that were adopted in 2007.
Renewable Energy. Legislation to repeal the state’s Renewable Energy Portolio Standard died. With the support of a number of conservative political organizations — including Americans for Prosperity — House Bill 298 and Senate Bill 365 (both titled the Affordable and Reliable Energy Act) proposed to repeal the 2007 state law requiring major electric utilities to generate an increasing percentage of power from renewable energy sources. An earlier post talked about the politics of the renewable energy standard and the practical problem the bill presented for Republican legislators. The tension between the practical (jobs) and the political (conservative opposition to subsidies for renewable energy) played out in both the House and the Senate. In the end, neither bill got all of the committee approvals needed to get to a floor vote.
The General Assembly adopted legislation setting up a permitting program for wind energy projects (House Bill 484). The bill largely responds to concerns about the potential impact of wind turbines on military training activities in the coastal area. Two onshore coastal wind projects already proposed for the coastal area had generated questions about interference with radar and risk to pilots flying low-level military training routes. Aside from establishing environmental criteria for permitting wind turbines, the bill requires DENR to provide notice of the permit application to commanders at nearby military installations and to the Federal Aviation Administration. The bill makes interference with military operations a basis for denying a wind energy permit.
The final budget for 2013-2015 eliminated state funding for the N.C. Biofuels Center. The General Assembly created the Biofuels Center in 2007 to encourage biofuels production in N.C. using non-food crops. The Biofuels Center set a goal of replacing 10% of the state’s imported petroleum with homegrown biofuels. To develop biofuels production, the Biofuels Center made grants to support biofuels research and to develop pilot projects. Late in July, the N.C. Biofuels Center board decided that it would not be practical to continue operations without state funding; the Center will close by the end of October and unused grant money will be returned to the state.
Offshore Energy. Senate Bill 76 also addressed offshore energy production. One section of the bill creates a plan for allocating revenue from offshore energy production off the N.C. coast. The first $250 million in royalties to the state would go into an Offshore Emergency Fund to be used for emergency response and cleanup in case of an offshore oil or gas spill. Any royalties to the state beyond the first $250 million would go largely to the General Fund (75%); the remaining 25% would be divided among the Highway Trust fund (5%), the Community College System (5% for programs to train students in fields related to energy development), DENR (5% for coastal projects), the UNC system (5% for energy-related research and development); State Ports Authority (3% for ports infrastructure associated with energy production); and Department of Commerce (2% to recruit energy-related industries to the state).
Note: Offshore oil and gas production would almost certainly occur in federal waters beyond the three-mile limit of state jurisdiction. North Carolina will not receive any royalties from offshore production in federal waters unless Congress specifically authorizes revenue-sharing with the state.
The bill also encourages the Governor to negotiate a regional energy compact with the states of Virginia and South Carolina to develop a regional strategy for offshore energy production in the three-state region. The General Assembly directs Governor McCrory to work with his counterparts in those states to encourage the U.S. Department of Interior to amend the national 2012-2017 Five Year Leasing Plan to include leasing for oil and gas exploration and development in waters of the Atlantic Ocean off the VA-NC-SC coast.
Energy Policy Act. Senate Bill 76 makes significant changes to the state’s Energy Policy Act (the Act begins at G.S. 113B-1). The changes generally run in the direction of reducing the emphasis on energy efficiency and renewable energy and increasing the emphasis on job creation. The amended Energy Policy Act has more to say about expanding development of all energy sources – including natural gas and nuclear power — and much less about energy conservation. The bill changes the makeup of the Energy Policy Council (an advisory board created to guide state energy policy) along the same lines:
– The seat on the Council for a person with experience in alternative fuels or biofuels becomes a seat for a representative of an investor-owned natural gas utility.
– The seat designated for a person with experience in energy efficient building design or construction becomes a seat for an energy economist.
– The seat on the Council for a person with experience in renewable energy becomes a seat for an industrial energy consumer.
The General Assembly also consolidated state energy programs in the Department of Environment and Natural Resources. The budget bill moves the State Energy Office (which has largely carried out federally funded energy efficiency programs) from the Department of Commerce to DENR. Senate Bill 76 moves the Energy Policy Council, which had also been under the Department of Commerce, to DENR. The Council will be staffed by the Division of Mineral, Energy and Land Resources.