Tag Archives: Public Records Act

Confession is Good for the Soul

August 6, 2015.  Back to an issue mentioned briefly in earlier posts on regulatory reform legislation — efforts to  make environmental audits confidential and to extend immunity from penalties to environmental violators who self-report violations. In an environmental audit, a business or industry reviews its own operations for compliance with environmental standards.  The N.C. Senate has made several attempts to enact legislation  protecting the confidentiality of  audit reports  and provide immunity for violations identified in an audit and voluntarily reported to state regulators.

The most recent version of an  environmental audit privilege/immunity  provision appears in the Senate version of House Bill 765.  That bill is now in a conference committee to work out differences between the House and the Senate.  The Senate provision has two parts:

1. The bill  creates an audit “privilege”  to prevent  state regulators from obtaining  or using an audit report in  environmental enforcement. The privilege does not apply in a criminal investigation, but In practice only  the most egregious, intentional violations would be referred for criminal prosecution. Agencies rely almost entirely  on civil penalty assessments to enforce environmental standards and the bill would prevent use of a company’s environmental audit report in a penalty  case. The  audit privilege does not cover Information the company has a legal obligation to report to the state or  information independently discovered by state regulators. The bill also excludes other kinds of information  from the privilege (such as records gathered  before or after the certified dates of the audit and information deliberately withheld from an audit report.)

2.  The bill offers immunity from civil penalties to a violator who voluntarily discloses an environmental violation to state regulators. (The bill does limit how often a company can claim immunity based on a self-reported violation.) Immunity would not extend to a criminal prosecution.  To be considered  “voluntary”, the  disclosure must meet specific criteria.  If there is a legal obligation to report the violation, disclosure would not be considered voluntary and the violator could not receive immunity.  Other criteria in the bill condition immunity on  prompt disclosure of the violation and timely action to correct the violation. See the text of the bill for a complete list of the  factors  used to distinguish voluntary disclosures from disclosures that would not qualify for immunity.

One way to understand  the scope of the Senate proposal may be to compare it  to an existing Department of Environment and Natural Resources (DENR) self-disclosure policy that has been in place since 2000 and to the  U.S. Environmental Protection Agency’s enforcement policy on self-disclosed violations.

For DENR’s  existing policy on enforcement discretion for self-reported environmental violations,  see the DENR environmental self-audit policy (1995, updated in 2000).  The longstanding DENR policy differs from the Senate proposal in several ways:

♦ The DENR policy provides guidance to DENR staff on the exercise of enforcement discretion for self-reported violations, but does not  grant  new legal rights to environmental violators. The Senate provision creates a both a new legal privilege (limiting the use of audit information in state enforcement cases) and  statutory  immunity from civil penalties.

♦  In allowing reduction or waiver of  penalties for a self-disclosed violation, the DENR policy assumes full disclosure. Although the policy indicates DENR will not necessarily request the  audit report, the policy  encourages complete disclosure  — including providing the audit report to document  the existence of an internal management system to identify and correct violations. The Senate proposal tilts toward limiting both agency and public access to audit reports rather than encouraging full disclosure.  Nothing in the bill assures DENR access to a full audit report, so  a company could self-report a violation and provide DENR only as much information about the violation as it chooses.  The  one reference in the bill to the public’s right to information concerns information the company voluntarily provides DENR in self-reporting a violation.

♦ Unlike H 765, the DENR policy does not prevent the department from obtaining and  using information in an environmental audit to enforce environmental standards.

♦  The DENR policy does not apply to  investigative costs,   natural resource damages, or to recovery (through penalties) of any economic benefit the company may have realized as a result of the violation.  The Senate provision does not  distinguish between different types of civil penalties and fines, so it isn’t clear whether the immunity provided under  H 765 could also apply to investigative costs and natural resource damage assessments.  Instead of clearly excluding recovery of economic benefit from the grant of immunity, the Senate provision makes “substantial economic benefit” a reason to consider the self-report of a violation involuntary — but puts the burden on the agency to show the company had a substantial economic benefit.

The U.S. Environmental Protection Agency also has a self disclosure policy.  If a violator meets all nine conditions in the policy (including documenting use of an environmental audit or other internal environmental management system to improve compliance), EPA can completely waive penalties above recovery of any economic benefit realized as a result of the violation. If a violator  meets all of the conditions in the policy other than documenting use of  an environmental audit or environmental management system,  EPA can reduce the part of the penalty that exceeds economic benefit recovery by 75%. EPA will not generally  make a  criminal referral of a violation meeting the conditions of the self-disclosure policy;  the conditions  tend to exclude violations likely to result in a criminal referral in any case. The federal policy does not provide legal immunity from penalties;    does not apply to  recovery of any economic benefit realized by the violator; and does not limit EPA’s ability to obtain and  use environmental audit information in either a civil or criminal enforcement action. In fact, EPA’s self-disclosure policy makes a strong statement opposing both legal privilege for environmental audit materials and statutory immunity from penalties as inconsistent with effective enforcement of environmental standards.

So the  H 765 provisions would  go significantly beyond  existing DENR and EPA  self-disclosure policies in  both creating a legal privilege shielding environmental audit reports from use in enforcement cases and  in granting statutory immunity from civil penalties for many self-reported violations. The  immunity provided under  H 765  may also extend to investigative costs; natural resource damages; and  recovery of some economic benefit realized by the violator as a result of the violation.

The Senate proposal recognizes the need for EPA approval of the privilege/immunity provisions as they apply to enforcement of federally delegated environmental programs. As a result, the provision would only go into effect following EPA review.

Delayed Discussion of Fracking Chemical Disclosure Rule

October 18, 2013.  According to  staff in the Department of Environment and Natural Resources,  the October 25, 2013 meeting of the Protection of Trade Secrets and Proprietary Information Study Group has been cancelled. The study group will next meet in November.

As mentioned in an earlier post,  the study group has been working to resolve the  controversy   over  a draft Mining and Energy Commission (MEC) rule on disclosure of chemicals used in hydraulic fracturing fluid.  Last spring, the  MEC’s Environmental Standards Committee approved a draft rule requiring  drilling operators to disclose all  chemicals used in hydraulic fracturing fluid  to DENR, but  limiting  the amount of information  provided to the public on  trade secret chemicals. The controversy arose  because  oil and gas industry representatives objected to routine disclosure of   trade secret  information  even to state regulators. The industry preferred alternative language  allowing  the drilling operator to  withhold specific information on trade secret chemicals  unless DENR needed the information to respond to a   threat to the environment or public health.

You can find more about  the controversy over the disclosure rule and existing state law on protection of  trade secret information here and here.

N.C. Fracking Disclosure Rule: Update

October 8, 2013. The state’s Mining and Energy Commission (MEC) has still not  moved  forward with a  rule requiring disclosure of chemicals used in hydraulic fracturing fluid, although the commission’s  Environmental Standards Committee approved a draft rule in the spring. The  draft rule  requires a drilling  company to  give  the Department of Environment and Natural Resources (DENR)  specific information identifying  all chemicals used  to hydraulically fracture a natural gas well. The draft rule also requires public disclosure of  fracking chemicals,  but allows information about any chemical legitimately designated as a trade secret to be kept confidential and identified to the public only by  chemical “family”.   (The draft rule allows more specific information to be  requested by  a health professional or  by emergency   response personnel  to diagnose and  treat a health condition  or  respond to  an emergency.)

A recap of the controversy around the draft rule. Following committee approval of the draft rule, the Mining and Energy Commission delayed consideration of the rule because of oil and gas industry opposition.  Industry representatives objected to  including trade secret chemicals in  the disclosure to DENR staff. The industry  preferred an earlier rule draft that allowed  drilling companies to withhold information on trade secret chemicals  from state regulators as well as the public unless DENR needed the information to respond to environmental damage or a specific health concern. See an earlier post for more on the MEC decision to delay consideration of the disclosure rule. The important thing to remember — the conflict over the draft rule has to do with providing complete information on hydraulic fracturing chemicals to state environmental regulators.  Every  draft of the chemical disclosure rule has allowed drilling companies to withhold  trade secret information from the public.

The oil and gas industry’s  objection to routine disclosure of trade secret chemicals to DENR staff comes in part out of concern about  the department’s ability to keep the information confidential. The  N.C.  Public Records Act  generally requires state agencies to provide agency records to any citizen on request;  information submitted to DENR by a drilling company would be considered a “public record” under the law.    The Public Records Act, however,  has  existing  provisions to protect the confidentiality of trade secrets and  other DENR programs have successfully used  those provisions  to withhold trade secret information  from the public.  You can find an earlier post about  the N.C. Public Records Act protection for trade secrets  here.

Legislative intervention.  During the legislative session, the N.C. Senate  moved  to resolve the chemical disclosure issue in favor of the oil and gas industry position. A Senate  committee  approved language allowing  drilling companies to withhold information on a trade secret chemical  used in hydraulic fracturing fluid from DENR  unless  the Secretary of Environment and Natural Resources requested the information to “respond to a situation that endangers public health or the environment”.  Senators  added the language to House Bill 94 (Amend Environmental Laws), which had already passed the House and was moving through the Senate.  In response to a backlash from both the public and the Mining and Energy Commission itself, the Senate amended the bill to allow DENR staff to review — but not receive — information on trade secret chemicals used in hydraulic fracturing. You can find earlier posts on the two different Senate proposals here and here.  In the end, House Bill 94  died and the General Assembly did not adopt any legislation on disclosure of hydraulic fracturing chemicals.

Back at the Mining and Energy Commission.  When the MEC delayed consideration of the draft chemical disclosure rule, the  commission created a new  Protection of Trade Secrets and Proprietary Information Study Group to look into the issues around disclosure of trade secret information to DENR.  Legislative activity overtook the study group’s work for awhile, but failure of the Senate legislation  puts the issue back in the hands of the MEC without any particular legislative direction.  The MEC will need to resolve on its own the tension between the oil and gas  industry’s desire to withhold trade secret information from environmental regulators and DENR’s need  for information that may be critical to understanding the environmental impacts of hydraulic fracturing. The next meeting of the study group has been scheduled for October 25, 2013 following the MEC meeting.

N.C. Senate Tries to Quiet Controversy over Disclosure of Fracking Chemicals

July 2, 2013: Earlier today, the Senate  took a first vote on  the Senate version of House Bill 94 (Amend Environmental Laws).  The Senate version already looked significantly different from the bill that came over from the House, but senators approved several more floor amendments before voting on the bill. One amendment attempts to calm a controversy over new language  on disclosure of fracking chemicals that senators added to House Bill 94 in committee.  The new language allowed drilling companies to withhold information on “trade secret” chemicals from state regulators; those chemicals would only be identified if  needed  to address an environmental emergency or health hazard. An earlier post talked about the disclosure language and some of the problems with after-the-fact disclosure of fracking chemicals.

The proposed limits on chemical disclosure were not well-received.  Members of the state’s  Mining and Energy Commission —  many appointed by legislative leaders — objected strenuously to the bill language. The commission had already drafted a disclosure rule that required drilling companies to fully disclose the chemicals used in hydraulic fracturing to staff in the Department of Environment and Natural Resources (DENR), but protected trade secret information from disclosure to the public. Because of objections from Halliburton lawyers, the Commission had delayed action on the draft rule to allow more time for DENR to  address concerns about trade secret protection.

The Senate bill language clearly caught members of the Mining and Energy Commission by surprise. Although DENR had signed off on the new legislative language, no one had consulted the MEC.  On behalf of the Mining and Energy Commission, Chair James Womack delivered a letter to legislators  expressing concern  about allowing an energy company to  unilaterally decide to withhold information from the state by labeling it a trade secret. The letter also noted that the bill would be inconsistent with the way trade secret information is normally handled under the state’s  Public Records Act.  Full text of the MEC letter here:  H94 Concerns_MEC Memo_30Jun2013 (1).

In an effort to quiet the controversy, the Senate amended the bill on the floor to revise the disclosure language again.  The amended language requires the Mining and Energy Commission to adopt a chemical disclosure rule that will do two things:

1.  The rule would allow  DENR and the MEC  to  “review” information on chemicals used in fracking fluid, but not  actually “take possession or ownership” of trade secret information. The amended language seems  intended to prevent creation of a public record that might become the focus of a lawsuit over disclosure. State regulators could see information on fracking chemicals,  but could not receive the information in writing and keep it on file with other information on the fracking operation. While that approach may make the industry more comfortable, it will make it very difficult for  DENR staff to have the information needed  to provide adequate oversight for drilling operations– a problem that would be compounded over time by staff turnover.  Allowing a DENR staff person to see the  list of  fracking chemicals  when fracking begins does not ensure the availability of that information to staff five years later.

It also isn’t clear whether the state would have any recourse if the information provided for review turned out to be inaccurate or misleading. Generally, state agencies can take enforcement action if a permit applicant submits inaccurate or misleading information; under the new Senate language, the information would be made available for review but never actually submitted to the agency.

2. The disclosure rule would also require public disclosure of the chemical family for each fracking chemical through an online chemical registry such as FracFOCUS. The draft MEC rule had similar language, except that the draft rule required disclosure of each specific fracking chemical unless the chemical constituted a trade secret.  Under the rule, disclosure of the chemical family in place of the specific chemical would only be allowed for chemicals designated as trade secrets.

The Senate has to take one more vote on the new version of House Bill 94. Once approved by the Senate, the bill goes back to the House for concurrence in the Senate’s changes.

N.C. Senate Intervenes in Fracking Issue

June 25, 2013: In May, the state’s Mining and Energy Commission (MEC) held up a draft rule requiring disclosure of  chemicals used in hydraulic fracturing  because of objections from lawyers representing energy contracting giant  Halliburton. The draft rule approved by the MEC’s Environmental Standards Committee would have required drilling companies to disclose all of the chemicals used in fracking fluid to staff in the Department of Environment and Natural Resources.  Consistent with the state’s Public Records Act, the rule protected trade secret information from disclosure to the public.  Halliburton wanted the ability to withhold trade secret information even from DENR staff unless the information was needed to respond to natural resource damage or a health threat. An earlier post talked about the controversy over disclosure of hydraulic fracturing chemicals and trade secret protection in more detail.

Today, the Senate’s Agriculture and Environment Committee approved a new version of House Bill 94 (Amend Environmental Laws) that resolves the issue in Halliburton’s favor. DENR Assistant Secretary Mitch Gillespie indicated DENR’s support. The new language, in Section 7 of the revised bill (not yet available on the General Assembly website), allows anyone covered by the shale gas legislation to withhold information on a chemical  used in hydraulic fracturing fluid by simply claiming that  the information is a trade secret. Once the drilling operator or supplier claims trade secret protection, DENR can only obtain the  information by request of the Secretary to “respond to a situation that endangers public health or the environment”.  The bill allows the trade secret claim to be challenged in the N.C. Business Court by the Department , another state agency,  a local government emergency response official, or the owner of the well site or property immediately adjacent to the well site.

There are at least two risks in withholding information on the chemicals used in hydraulic fracturing fluid from state regulators until after a problem has arisen: 1. In a real-time emergency — such as a major spill or fire –  it may be difficult to  get the necessary information from the drilling company (or its supplier) quickly enough; and 2.  the length of time between completion of the well and discovery of a hidden  problem (such as groundwater contamination) may make it difficult to get accurate information at all. With respect to groundwater contamination, it is not clear how the state can have an effective water quality monitoring program for hydraulic fracturing operations if the industry can  unilaterally withhold information on the chemicals used in the fracking  fluid.

The  trade secret protection provided for fracking chemicals in House Bill 94 also goes beyond the confidentiality provisions in the state’s Public Records Act. The Public Records Act already requires state agencies to keep  trade secrets confidential and G.S. 62-152(3) provides a definition of “trade secret”.  Although the Public Records Act protects trade secrets from disclosure to the public, it does not allow a business or industry to withhold trade secret information from state regulators. By authorizing drilling companies to withhold information from regulators, House Bill 94 allows  the natural gas industry a degree of  secrecy that appears to be unprecedented under the N.C. Public Records Act.  The House Bill 94 language also restricts challenges to  a trade secret claim by limiting who can bring a challenge.  The Public Records Act allows anyone to challenge a claim that information must be kept confidential as a trade secret; the House Bill 94 language appears to bar challenges by news media, nonprofit organizations, nearby (but not immediately adjacent) property owners and  any number of other interested parties. Another early post discussed the state’s Public Records Act and existing protection for trade secrets.

Halliburton, Fracking and the N.C. Public Records Act

May 3, 2013: The Raleigh News and Observer  reports today on Halliburton’s opposition to a draft North Carolina rule on disclosure of chemicals used in hydraulic fracturing. The Mining and Energy Commission’s Environmental Standards Committee had approved the draft rule for consideration by the full commission today. Commission chair, Jim Womack, told committee members yesterday that the rule would not be taken up by the commission as planned because of objections from Halliburton lawyers.

State law (G.S. 113-391)  specifically directs the  Mining and Energy Commission  to adopt rules for:

“Disclosure of chemicals and constituents used in oil and gas exploration, drilling, and production, including hydraulic fracturing fluids, to State regulatory agencies and to local government emergency response officials, and, with the exception of those items constituting trade secrets, as defined in G.S. 66‑152(3), and that are designated as confidential or as a trade secret under G.S. 132‑1.2, requirements for disclosure of those chemicals and constituents to the public.” G.S. 113-391(a)(5)(h).

You can find more here  on protection of  trade secret information under the  confidentiality provisions of the N.C. Public Records Act.

The draft rule approved by the MEC’s Environmental Standards Committee would have required oil and gas operations to disclose all chemicals used in hydraulic fracturing fluid to the Department of Environment and Natural Resources soon after fracturing the well.  Under the draft rule, information considered to be a “trade secret” under the state’s Public Records Acts would not be disclosed to the public. Based on the news story and other accounts of the committee meeting on Thursday, Halliburton objects to disclosure of trade secret information even to state regulatory staff except in response to actual environmental harm or a specific health concern.

An earlier post talked about the implications of only requiring  disclosure of trade secret information to  regulators after environmental damage or health effects have occurred.  There are at least two potential problems: 1.  in the aftermath of an emergency (such as a spill, leak or fire),  it would take more time to get information to state and local emergency responders;  and 2. groundwater contamination may not be discovered for years after an undetected  leak or spill occurs and lack of complete state records on the chemicals used to fracture wells  will  make it difficult to identify the contamination source.

The current controversy over the chemical disclosure rule raises several legal and policy questions for DENR and the Mining and Energy Commission:

●   Would a rule allowing the operator to withhold trade secret information from state regulators be consistent with G.S. 113-391? The law clearly protects trade secret information from disclosure to the public, but seems to intend disclosure to state regulators and in some circumstances to local emergency response agencies.

●   Is there reason to protect oil and gas industry trade secrets to a greater degree than trade secret information from other industries? Many state agencies receive trade secret information  and the Public Records Act allows that  information to be protected from public disclosure. The Public Records Act does not allow other industries to withhold information  needed by  state regulators on the grounds that the information is a trade secret.

● What is the right balance between the industry’s interest in holding information on hydraulic fracturing chemicals very close and the state’s need to understand and address risks to surface water, groundwater and public health?

● Can the state meet its responsibilities with something less than full disclosure of the chemicals used to fracture oil and gas wells?

Fracking Chemicals: The Most Secret of Trade Secrets

April 2, 2013

An earlier post talked about the N.C. Public Records Act and protection of trade secrets. Drilling companies and their suppliers sometimes want to withhold the  identity of a chemical used in hydraulic fracturing as a “trade secret”  to avoid sharing commercially valuable information with competitors. The N.C. Public Records Act generally gives the public a right to information gathered by  a state agency in doing the public’s business, but makes an exception for certain types of personal  data  and for information that is legitimately a  trade secret.

Last week, the Mining and Energy Commission’s (MEC) Environmental Standards Committee approved a draft rule requiring  disclosure of chemicals used in hydraulic fracturing. The  draft rule allows a drilling operator to withhold from the public the identity of a fracking chemical that the operator or  supplier designates as a trade secret.   In  the  required  disclosure  to  the public,  the drilling operator would identify a trade secret  chemical  by its chemical  “family”.   More specific information could be  requested by  a health professional or  by emergency   response personnel if necessary to diagnose and  treat a health condition  or to respond to  an emergency.

The rule draft  presented at the start of the  meeting  also  allowed  a drilling operator  to withhold  trade secret  information  from regulatory staff in the Department of Environment and Natural Resources (DENR).    The trade secret information would only have been provided to DENR if  requested  by the department in response to a spill or health concern.  Entirely relying on disclosure  after an environmental emergency or health impact  raises at least two concerns.  In a real-time emergency — such as a major spill or fire —  it may be difficult to  get information from the drilling operator or  supplier quickly enough. For longer term problems (such as groundwater contamination),  the length of time between completion of the well and discovery of the problem may make it difficult to get accurate information at all.

The committee amended the trade secret protection  language  to require the operator to provide  the  trade secret information  to DENR  at roughly the same time the operator  claims the trade secret protection and discloses other  information to the public.   (All disclosure — to DENR and to the public —  would still happen after completion of the hydraulic fracturing operation.) The new language also requires the operator to provide the justification for trade secret designation.

The rule approved by the committee  limits the ability of the public to challenge a decision to  keep information about a fracking chemical  confidential — directly conflicting with the N.C. Public Records Act.  The Public Records Act allows “any person” to request records from a public agency and to take legal action  challenging an agency decision to withhold  the information. That includes the right  to challenge the appropriateness of a decision to keep information confidential under the trade secret exception. Under the  draft MEC rule, a decision to  keep   the identity of a fracking chemical confidential  could only be challenged by  a person who owns or rents  land where  a wellhead is located; the owner of  land adjacent to  a wellhead site; any other person who has “a legal interest in real property”; or a state agency having an interest that may be adversely affected by a chemical used in the fracturing fluid.

Under the draft rule, some  people  who  have a right  under the Public Records Act  to challenge  the withholding of  requested information  would not be allowed to challenge a decision to withhold information about  a fracking chemical.  Renters  would  be unable to challenge the withholding of information about chemicals used in nearby drilling operations.  Depending on how the rule is interpreted, it may also  affect the ability of  nonprofit organizations, news media, and local governments to challenge the appropriateness of  treating a fracking chemical as a trade secret.

An amendment to remove this  language from the rule and simply  follow  the Public Records Act  was voted down in committee.  Some committee members acknowledged the inconsistency with the Public Records Act, but indicated an intent to ask the General Assembly to change the law.  Two  things to note about the committee action:

On  several  issues, members of the Mining and Energy Commission have  discussed the possibility of adopting a rule that  conflicts with  existing state  law on the assumption that the commission can persuade the General Assembly to  conform the law to the rule.    The chemical disclosure rule is the first MEC rule to receive committee approval and may be the test of how these conflicts will be resolved.   This would not be the first controversy over consistency of a  rule with  state law, but  usually  the argument comes out of  differing  interpretations of the law.  I can’t think of another example of an agency proposing a rule knowing that it is inconsistent with  existing  law.

To make the Public Records Act consistent with the proposed  MEC  rule,  the General Assembly would need to change the Public Records Act to  either: 1.  limit challenges to all  trade secret claims;  or 2.  give  hydraulic fracturing  special treatment, making it more difficult to challenge  those particular  trade secret claims .  It isn’t clear  how much interest legislators will have in  a fight over public records law in order to provide special treatment for the oil and gas industry.

From here, the draft chemical disclosure rule goes to the Rules Committee of the Mining and Energy Commission  and then to the full commission for discussion.

NOTE: The original post has been revised to  make it clear that the draft rule  as amended on March 25  requires that trade secret information be provided to DENR staff  at the same time the operator discloses  nonconfidential information to the public.