United States: EQT's Lengthy Battle With The Pennsylvania Department Of Environmental Protection Gets Its Day In State Supreme Court

On November 17, 2015, Pittsburgh-based energy company EQT Production Co. ("EQT") presented its oral argument before the Pennsylvania Supreme Court, requesting it set aside a February 20, 2015, ruling of Commonwealth Court Judge Rochelle S. Friedman. Specifically, she had held EQT could not bypass the state's administrative Environmental Hearing Board ("EHB") stage in its efforts to contest the Pennsylvania Department of Environmental Protection's (the "DEP's") determination regarding fines EQT owes for a fracking water leak. EQT v. DEP, 114 A.3d 438 (Commw. Ct. Pa. 2015).

The basis of this dispute stems from EQT's discovery on May 30, 2012, that one of its impoundments, located in Tioga County, Pennsylvania, was leaking water generated from hydraulic fracturing. Id. EQT emptied the site of impaired sludge and began a formal cleanup process under the state's "Land Recycling and Environmental Remediation Standards Act." Id. EQT has continued to remediate the affected soil and groundwater. Id.

On May 9, 2014, the DEP presented a proposed Consent Assessment of Civil Penalty to EQT, seeking a penalty of over $1.2 million. Id. Importantly, this fine calculation included $900,000 for ongoing discharges, based on the DEP's interpretation that the state's Clean Streams Law permitted inclusion of such amounts. Id.

On September 19, 2014, EQT filed its complaint directly to the Commonwealth Court. The EHB generally has jurisdiction over penalty calculations, including the review of such recommendations by the DEP. Id. Even so, EQT's position was, and continues to be, that as the DEP's broad interpretation of the Clean Streams Law was the basis of the bulk of the fines, and was solely a legal conclusion, the court, rather than the administrative body, was the proper entity to expeditiously review whether penalties can include "ongoing discharge" beyond the few days where actual discharge occurred. Id.

On October 7, 2014, DEP filed a separate complaint against EQT seeking penalties, including amounts for ongoing discharge, and also filed preliminary objections requesting that Commonwealth Court Judge Friedman dismiss EQT's court complaint. Id. She agreed with the DEP, holding EQT could not support its claim for declaratory relief because:

Here, there is no actual controversy because it is the EHB, not DEP, that imposes civil penalties. In accordance with the [Clean Streams] Law, where a complaint for civil penalties has been filed, the EHB makes an independent determination of the appropriate penalty amount.

Id., at 441. Thus, she concluded, because the DEP only has the power to recommend rather than impose fines, which is the EHB's purview, any real harm by waiting to go through the EHB process was speculative. Id.

After this ruling, the DEP continued with its EHB complaint, increasing its proposed penalties to over $4.5 million to account for more days of ongoing discharge having occurred since the matter began. See DEP v. EQT, EHB Docket No. 2014-140-CP-L, 2015 WL 4977769 (Pa.Env.Hrg.Bd. Aug. 13, 2015).

EQT appealed the Commonwealth's ruling to the Supreme Court, and oral argument occurred on November 17, 2015. EQT asserted it should not have to wait through a prolonged administrative hearing process to receive the administrative body's ruling, as the interpretation of the Clean Streams Law was a discrete legal issue, which the Commonwealth Court can resolve quickly.

The ability for EQT to secure a speedy court decision on the DEP's interpretation of the Clean Streams Law would also ameliorate the very real risk of even more "ongoing discharge" days being added to the tally. Specifically, as the matter winds its way through the administrative process, the DEP could calculate more fees, as its increase of fines to $4.5 million already demonstrates.

There is currently no concrete indication of how the Supreme Court will rule, but should EQT prevail, it could represent a win for the industry as a whole. The ability to have such narrow legal issues resolved judicially might remove some of the leverage power regulators have, by allowing the penalized party to bypass the arduous (and costly) administrative process, even if only in limited circumstances.

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