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Pipelines have benefits, but also concerns
Pipelines have benefits, but also concerns
Underground (and sometimes above-ground) pipelines are a necessary part of the fabric of a developed nation. Yes, they are necessary. Yes, they are everywhere. When dealing with land sales a goodly number of buyers, sellers and their advisers give little heed to the passing reference in the paperwork for “rights of way and easements of record.” I invite the reader to review public records of any South Dakota county; look for pipeline easements — the reader will be taken aback. Oftentimes when hiking whether I know it or not I am crossing over a pipeline. The question then is how does the nation manage this necessity and the issue of pipeline hazards? Let us consider some questions. We will use a CO2 pipeline for the discussion. Carbon dioxide (CO2) is a heat-trapping gas, or greenhouse gas, that may come from the extraction and burning of fossil fuels. Could it be reused for other things? Yes.
First, we should discuss a few relevant points. One is, what is a commodity? The other consideration is the broad issue on the use of eminent domain, or taking, by a for-profit business to take real property from private property owners for the development of a pipeline. In common terms the legal process, or taking, is called condemnation. I wrote some thoughts a while back on eminent domain under the circumstances of a for-profit party acting as the taking party. Please see this piece on compensation fairness: https://rapidcityjournal.com/news/opinion/yours-what-is-a-fair-price-for-pipeline-easements/article_2bec9c4a-310b-5054-83d0-46c0f9a5eebc.html
What is a commodity? We start with the definition of a commodity. A commodity is a good or thing that is interchangeable. A commodity is an economic good each of whose parts is indistinguishable from any other part. It is usually a standardized good which is traded in bulk and whose units are interchangeable. Elected officials seem to struggle with whether CO2 as a transported gas is a commodity. A gas has matter and is a mass. Nothing to struggle about, something that is itself interchangeable as a mass and transported from one place to another for sale or even for disposal (if someone is paying for the disposal of the gas as a waste) is a commodity.
Let us look at pipelines. Approximately 5,000 miles of pipeline carry CO2 in the United States, primarily linking natural CO2 sources to aging oil fields where the CO2 is used for enhanced oil recovery. According to the federal government a much more expansive CO2 pipeline network could be needed for carbon capture and storage systems to meet national goals for greenhouse gas reduction.
What are the hazards? An industry group which supports CO2 pipelines has written on the issue stating, “Multiple analyses have found that to achieve net-zero emissions, a substantial buildout of CO2 pipeline infrastructure will be needed to transport large quantities of CO2 from industrial facilities, power plants and direct air capture facilities to points of utilization and/or permanent storage. CO2 pipelines have operated in the United States for nearly 50 years and have a strong safety record. However, in anticipation of an expanding CO2 pipeline network, we must make sure the regulatory framework enables efficient permitting while also ensuring CO2 pipelines are designed, constructed, managed and maintained at standards delivering the highest levels of reliability and safety.”
Now my questions: 1. Have the risks to human health and livestock, including the potential for loss of life from ruptures of a pipeline which could spread carbon-related gases from the point of rupture been adequately studied? CO2 pipelines transport the gas at higher pressures than natural gas. Natural gas is transported at pressures between 800-1,160 psi. CO2 gas is odorless, colorless, does not burn and is heavier than air.
2. Have the risks and potential loss of reduced crop yields been calculated, as well as any restrictions for the use of productive farmland which may occur, due to a proposed pipeline, been adequately studied? (https://www.cals.iastate.edu/news/releases/pipeline-study-shows-soil-compaction-and-crop-yield-impacts-construction-right-way)
3. Has the absence of competent federal regulation and oversight, as suggested by the federal agency with jurisdiction – the Pipeline and Hazardous Materials Safety Administration (PHMSA) – concerning the design, construction, operation, and maintenance of the carbon pipeline been addressed? Critics say that the PHMSA has missed congressional deadlines on safety rules because of technical issues, industry pushback and limited staffing, with some rules finished more than a decade behind schedule.
4. Have potential reduced property values for land acquired for construction and operation of the pipeline as well as reduced values for properties that are located up to a mile or more from the carbon pipeline which are at risk from a pipeline rupture been adequately studied?
5. When a pipeline is proposed what is the status, readiness and training of local first responders to correctly assist parties or victims in the event of a rupture?
6. Are current safety radius distances around planned pipelines adequate? One former federal official who is now a pipeline consultant stated in an article that the federal regulatory body, the PHMSA, chose to use an industry-commissioned formula in order to avoid opposition from pipeline companies. Pipeline regulators, he said, have long relied on industry resources because of underfunding.
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The graveyard for consumer, agricultural and industrial waste
The graveyard for consumer, agricultural and industrial waste
Local governments in South Dakota manage several large regional landfills. When I was a kid a landfill was known as a dump. We kids had no idea how significant a dump would become in the stewardship of the environment and in consideration of the natural environment, human health and safety. We thought landfills around Brown County were an unperfumed place where we could hunt rats and find treasures. Temporibus mutata. The operation of a modern landfill, also known as a solid waste facility, involves environmental risks such as possible damage caused by landfill-based liquids leaking into ground water causing contamination of ground water.
Modern landfills are often constructed with liners and other collection systems designed to prevent contamination of the ground, ground water and the air. Despite this protection, in 2003 the U.S. Geological Survey (citing the EPA) opined that “all landfills eventually will leak into the environment.”
A landfill can be a large pit or sectioned-off area of surface land. One of the goals of a managed landfill is to protect the surrounding watershed and ground water. The liners or membranes are used to attempt to stop liquids from passing outside of the landfill.
The landfill liner is usually made of clay, which is bonded to or layered between some type of textile, according to a fact sheet from the U.S. Environmental Protection Agency. Lining is the first step, because water percolation through a landfill is inevitable.
Except in Indian Country and on certain federal lands, state government is responsible for regulating storage, treatment, and disposal of solid waste in South Dakota. The waste management world created a separate operating system from hazardous wastes which have their own rules. For solid waste systems the state provides technical assistance, issues solid waste permits (licenses to operate), conducts solid waste facility inspections and investigates solid waste disposal complaints.
Exotic wastes like ‘cannabis waste disposal’ and such mundane items as discarded tires are both regulated solid wastes in South Dakota. The state has administrative rules governing the collection, transportation, storage, processing and disposal of waste. The permit holder is however the party obligated to actually manage and control the facility and must prepare periodic reports showing the safety and efficacy of the landfill.
In South Dakota ground water monitoring systems should be located by the permit holder near a landfill. These are designed to determine ground water quality and to detect any migration of leachate constituents from a landfill. Leachate is liquid percolating from a landfill containing soluble substances or substances in solution. Leachate may include several different chemical constituents.
For safe drinking water standards the state has adopted ‘maximum contaminant level goals’ established by the EPA for chemicals that may be found in water. The EPA created a comprehensive list of chemicals. The EPA tells us that its list reflects the maximum level of a contaminant in drinking water below which there is no known or expected risk to health.
A landfill permit holder is to submit an annual report to the state summarizing and interpreting ground water monitoring data. The ground water data is to be statistically analyzed. Let us look at the 2022 Brown County report concerning ground water at its permitted landfill. I will provide some questions.
In the report the amount of manganese tested was higher than the limit suggested by the EPA. Was any remedial action recommended because of the test? The state has previously published a comprehensive discussion of manganese at the following link: https://danr.sd.gov/OfficeOfWater/DrinkingWater/manganese.aspx
And for a number of chemical tests, the Brown County report generalized the results instead of providing specific information on quantities. Why was it done this way? References to the EPA’s maximum contaminant levels are a preferred method. Several chemicals were listed in tested amounts higher than what the report called a ‘laboratory reporting limit’. ‘Laboratory reporting limits’ are values set in a particular report which may be based on project-specific reporting limits, regulatory action levels, etc. To confuse matters, laboratory reporting limits are not the EPA maximums discussed above. I did not see an explanation of the methodology used to establish laboratory reporting limits in the report. Additionally, both glyphosate and atrazine – chemicals found in common herbicides, are included in the EPA list discussed above and are found in the state’s groundwater chemical lists with designated maximum concentration limits. Why did the county not test for these chemicals?
Brown County could suggest that my concerns and questions are ill-founded. The county might argue I do not understand their testing protocols or reporting system. Indeed, that may be the case because in the conclusion to the report the county stated that there are no indications of a problematic buildup of fluid and/or leachate in the landfill.
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Can the law defeat inflation?
Can the law defeat inflation?
For those readers in a deep state of prolonged unconsciousness for the last couple of years, welcome to the world of inflation. Inflation – the devils economic playground. Inflation reduces the purchasing power of the dollar. Inflation manifests as in increase in the cost of goods and services. To put inflation in a correct theological context: a purse with useless money gives the devil happiness. Inflation practices no prejudices, political or otherwise. It affects anarchists and post-modern Marxists alike.
Let us look at two ways created by law to fight inflation. The first is based on federal law. Congress established the Federal Reserve Banking System and its Federal Reserve Board to oversee the nation’s banking system. Federal Reserve board members manage “the” monetary policy of the United States. The system uses its legal power to manage the U S money supply through lending policies to control, among other things, inflation. The board is fond of increasing interest lending rates in times of inflation. Modern economists, an unenlightened cabal of professionals, think inflation is ok and should continue at low rates. To fight inflation by increasing the interest rate on money lent by the fed is like running through a supermarket naked. Running naked creates a present commotion, but you still must pay for the groceries before you leave. The U S was once on a gold standard money supply policy. The policy was eliminated in favor of a floating dollar valuation not linked to a set price for gold under President Nixon. Since the abandonment of the gold standard the U S has no legal anchor which controls the baseline value for the dollar. A gold standard is a monetary system in which the country’s paper money has a value directly linked to the price of gold. Today the primary federal reserve monetary policy tools are interest rate setting and mandatory bank reserve requirements. Current U S legal monetary tools are a weak combatant against inflation.
Concerning the second method for fighting inflation we look to a reactive way in which individuals and businesses should engage in the legal battle. This approach is a limited option and only works prospectively. In the world of contracts and long-term agreements, individuals and businesses can protect themselves against future inflation with proper contract language. Cost-of-living clauses included in an agreement or contract are a legal mechanism for dealing with the eternal problem of inflation and government’s mismanagement of the U S money supply system.
Long-term projects as well as continuing service contracts are at the mercy of inflation. This past week, the CPI released data that prices grew 9.1 percent over the last 12 months from June 2021 through 2022. A party is naturally dissuaded from starting a new project when the party cannot reasonably predict its true end costs or its potential profits. While the most well-known approach is the cost-of-living adjustment clause (COLA), there are other approaches.
Some standard form contracts include payout provisions based on CPI costs. In general, the CPI covers a national market for a list of goods. This list of products may fluctuate in price with the season. In contrast, some materials under a particular or specialty contract have prices that move against these general fluctuations. By modifying the categories of the CPI or limiting the CPI index to the region where the contract is located, the clause will better reflect actual changing regional costs. Inflation clauses also often call for reevaluating a pegged indexed price on a yearly basis. Instead, one could track the prices on a semiannual basis. More frequent evaluations would more accurately reflect inflation.
Because the government’s monetary policymaking is intentionally insulated from substantive public input and common sense, the individual’s and a business’ efforts should pay more attention to inflation clauses within an agreement. This is an individual form of monetary policy.
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Toto, it aint a laissez faire environment any more
Toto, it aint a laissez faire environment any more
The federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), also known as “Superfund,” was established to address abandoned hazardous waste sites.
Among other things, and in addition to its Superfund notoriety, CERCLA created a liability scheme to determine who could be held at law accountable for the release of hazardous substances. The astute reader should not just think of well publicized Superfund sites as the only goal of the law. The overall purpose of CERCLA is that of a pollution enforcement statute.
Under CERCLA, individuals, corporations, and governments (yes governments) may be liable for the cost of fixing abandoned hazardous waste sites. Liability is based on property ownership, or by virtue of activity of a party that had an effect on a particular site. For property sites from which there is a chemical release or threatened release of hazardous substances, the categories of “potentially responsible parties” include:
• Current owner or operator of the property
• Past owner or operator of the property at the time of disposal of hazardous substances
• Current or past agent who arranged for hazardous substances to be disposed of or transported to the site for disposal
• Current or past agent who transported hazardous substances to the site
Consider however that the agricultural production world, mostly farming, holds legal exemptions from certain federal environmental laws. This is because of the agricultural sector’s political clout as well as the acknowledged necessity of food production in the U. S. Agriculture is exempt from compliance with federal statutes such as the Clean Water Act, Clean Air Act, and CERCLA. While states have some authority to step in and regulate these areas of environmental oversight, states do not, leaving a large sector of the economy excluded from much of the liability inquiry discussed in this piece.
An example of an exception granted to agricultural is the act of waste sludge applied to farm fields. Using sludge (in bureaucratic parlance “biosolids”) on cropland is a nutrient rich use of so-called natural fertilizers. If the sludge is applied following certain EPA rules the activity is allowed under CERCLA. A problem in circular logic remains unresolved from this practice. Past pollution caused by sludge is a legal issue in no-man’s-land because CERCLA is the principal federal code for holding polluters liable for environmental contamination. And questions remain regarding the sludge-spreading effects on groundwater and indirectly on livestock heath and production.
What is CERCLA liability? Under CERLA, liability may be applied retroactively against past or present owners that release or threaten the release of hazardous substances. This includes the owners and former owners of buildings, equipment and land. Courts have found liability in situations where there was little or no activity on the part of the current owner/operator concerning a hazardous substance. And the recent acquisition of a property could result in the assumption of liability for the previous hazardous contamination of the property whether or not the innocent buyer looked into the situation.
Common sense applies to property ownership in the new world of environmental stewardship. Modern property management how-to manuals include a detailed litany of things recommended in this new world order. But let us start with some basic rules. Research, due diligence, and simple questioning of those who should know about the property is the first step by those in ownership or those about to take ownership of property. As boring as it is, creation of a policy for detecting hazardous releases as well as a policy dealing with the release when it occurs is the best remedy. These protocols also provide a defense should a claim or problem occur later in the life of the property.
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Property Rights Anyone?
Property Rights Anyone?
A pipeline company has plans to construct a pipeline of about 2,000 miles in length. A good number of miles of the project would cut through South Dakota. This pipeline would be a carbon-dioxide carrier and would run under landowners’ private properties in the state with a goal of carrying the commodity to its end user. For my discussion on the fairness of a private business using the process of eminent domain as a part of its plans for profit – see my article: lexenergy.net/south-dakotas-approach-condemnation/
South Dakota landowners recently received from the pipeline developer an advance notification of what I call pre-construction activity in order that the developer, in compliance with a unique statute, follows the state’s private property access ‘notification law.’ The notices to landowners indicated the developer’s intent under the auspices of state law to enter private property for the purpose of “making survey for civil construction, biological, and cultural reasons.” The notices also disclosed the use of shovels and spades, while others included backhoes, trenches, and drilling. Developer’s proposed activity would be done not as a part of an ongoing or completed legal condemnation proceeding, but rather before any formal construction of a pipeline and before any condemnation or other similar legal taking may have occurred. No court order is needed. No consensual easement need be recorded. No agreement is required between the developer and the property owner. Welcome to the new Soviet Union — South Dakota style.
The poorly written South Dakota statute we review allows pipeline permit applicants entry onto private property for the examination and survey of potential projects for an indefinite ‘look-see.’ The statute provides no time limit. This anomalous right-of-entry law was written to stack the cards against property owners. If harm to the property from the developer’s visit occurs, the property owner must prove “actual damages.” One will not find that phrase elsewhere in the legal world of eminent domain. No sir. The lobbyists had a field day drafting this stuff while the attorneys consulted on the proposed law must not have taken a course in constitutional law.
Please good reader do not consider that the legislature will make amends for this statutory aberration. Once the state legislature puts something in concrete, after it cures, it only later steps in it. The statute is so arguably unconstitutional that the legislature chose not to grant this right of legal trespass to any government entity. “This section does not apply to the state or its political subdivisions.”
The South Dakota Constitution directs that, “Private property shall not be taken for public use, or damaged, without just compensation … .” The law under review however includes no findings indicating the authorized trespass in done for public use; not does it provide a process for compensation. The South Dakota Legislature adopted the statute in 2016. It applies to a development project which requires a siting permit under chapter 49-41B. The law liberally allows an “examination and survey to be made as necessary for its proposed facilities.”
The statute also creates a false sense of due process. Although the notification mechanism for giving landowners 30 days’ written notice before entry attempts to address constitutional due process concerns, the statute is vague; the law does not include a provision specifying the length of time a permit applicant is able to be on the landowner’s property; and it does not attempt to limit the scope of the on-site examination and survey which a developer might perform. This special law, which creates a unique access right to private property, and an unusual term for possible damages, makes no mention of a right to a jury trial to determine damages. While a jury trial is probably still available, it is clear the legislature prefered to avoid the nicety of a jury trial. The law giveth to others and taketh away from thou. Welcome to the new world order.
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The State should not defer Powertech regulation
The state should not defer Powertech regulation
Powertech is a Canadian-owned business which has applied for licenses and permits for the Dewey-Burdock in situ uranium mining project to be located in the southern Black Hills. The mining project is also commonly called the Powertech project and has been in process since 2009.
Powertech expects to install approximately 1,461 injection wells and 869 production wells over the life of the project as well as an undetermined small number of disposal wells. Powertech anticipates it will take six years of decommissioning wellfields as each wellfield is restored, then decommissioned in sequence. The project involves the use of 3 aquifers. The company recently obtained various permits and a license to proceed from federal agencies.
This authorization is currently subject to several unresolved appeals. If Powertech is successful in the appeals and completion of any appeal-related requirements, the project would be further subject to final consideration and approval by the state of South Dakota and its boards. In 2013 the state issued a stay, that is a hold, on state hearings to allow Powertech to focus on necessary permits and licenses from federal agencies who have jurisdiction over parts of the mining project.
Powertech understandably wants to now restart the state portion of permit applications even though appeals are pending. The state has argued that the process should wait until the federal agency issues are resolved. In the event federal issues are resolved, the state is the last stop for Powertech on the way to an approved project. Sooner or later, more likely sooner, the application will be back in front of South Dakota government for its decisions on permitting issues within the state’s control.
The state in the Powertech matter has displayed a preference for deferring much of the decision making to federal agencies. This is a mistake. In 2013 one of the state boards said that the federal government has preempted the state’s ability to regulate nuclear materials. That is not the whole picture. The lead federal agencies in this process – The Nuclear Regulatory Commission (NRC) and the Environmental Protection Agency (EPA) – do not have authority to displace the state’s jurisdiction to apply state law to land within South Dakota and apply state law to its surface and groundwater.
South Dakota law declares that the state will determine in what way the water of the state, both surface and underground, should be developed for the greatest public benefit. The South Dakota Supreme Court has ruled, “The people of the State own the waters themselves, and that the State, not as a proprietor, but as a trustee, controls the water for the benefit of the public.” Such a trustee must perform its duties whatever might be the influence or reputation of large federal agencies.
Deference between government agencies means yielding responsibility for action to the judgment of another agency. Because of the fragmented multiple-agency oversight in this project, I am concerned the state may limit its existing and established legal authority.
The NRC has legal oversight of nuclear materials and activities related to radiation hazards. Even if a state enters into a jurisdictional agreement with the NRC, or if state law limits South Dakota’s oversight responsibility concerning an in situ mine, the state still retains authority to regulate many non-radiation issues arising out of a uranium mining operation. Consider that the federal Atomic Energy Act states, “Nothing in this section shall be construed to affect the authority of any State or local agency to regulate activities for purposes other than protection against radiation hazards.”
In 2019 the U S Supreme Court further clarified the role of two governments with oversight over a project. The Court in a uranium mining case upheld state mining law and ruled that federal law does not preempt state mining law. In Virginia Uranium, Inc. v. Warren, the Court determined that state law could prohibit uranium mining on private land notwithstanding federal regulations controlling other aspects of the uranium industry. One of the Justices in the majority wrote, “Invoking some brooding federal interest or appealing to a judicial policy preference should never be enough to win preemption of a state law . . .” it is erroneous to argue that the NRC and EPA have preemptive or close to exclusive authority over the permitting of mines on non-government lands. As shown, these agencies do not have preemptive authority over relevant state laws on mining and water.
South Dakota is not a secondary player in the oversight of the proposed project. The mine will exist on land within the state. The water which is owned by the people of the state is managed by state government as the trustee. As a decision maker concerned with the authorization of a mining application, even one involving federal law, the state DANR (formerly the DENR) and the state boards each have a duty of independent judgment.
To date the state has issued two conditional approvals to Powertech. One conditional approval covers the large-scale mining permit. The other covers water permit applications. Neither of these are a final approval but their terms and conditions are meant to establish material positions of the state concerning the applications. In neither conditional approval is environmental liability insurance coverage or general liability insurance coverage required for the project, its construction, and operations.
The state’s initial recommendation for the large scale mine permit states, “At the time of this recommendation, it is the intention of the [the state] to enter into a Memorandum of Understanding (MOU) with the NRC regarding bonding for the entire mine site, subject to approval by the board. . . . the NRC will hold the state’s portion of the bond and that the parties to the agreement jointly manage the bond in terms of adjusting it as site conditions change through the mine life. . .” The NRC’s surety estimates for these subjects were not established by South Dakota. The proposed agreement includes the following covered matters established by the NRC as an initial surety cost estimate for the project: the costs of reclaiming the land; facility decommissioning; groundwater restoration; and certain well plugging. On these issues and several others at the NRC’s request the state reviewed the NRC’s analysis of the initial cost estimate for a surety. The state provided no comments. South Dakota in its conditional approval on ground water restoration and other issues also asserted, “These elements will be regulated by the U.S. EPA and the federal Nuclear Regulatory Commission.”
The filings in this project do not reflect where, or how, South Dakota did its own financial analysis of the proposed agreement with the NRC. And no written analysis on the issue of financial assurance is provided in the two conditional approvals. As general matter financial assurance policies require companies to commit funds or some form of surety against the costs of mine remediation and decommissioning. In 2012 Powertech provided a preliminary estimate of the total cost of reclamation at approximately $27.1 million and estimated the financial assurance amount to be approximately $8.0 million for the deep disposal well option.
Several federal reports in recent years have been critical of whether even federal agencies have sufficient competency to set correct financial assurance terms in the permitting process. On this question, in a prior opinion piece a couple of years ago, I provided five examples of state and federal agencies which had imposed inadequate financial requirements meant to cover decommissioning costs.
In May of 2012, the federal General Accountability Office issued a report on the NRC regarding the NRC’s oversight of nuclear power reactors’ decommissioning funds. The report was critical of the NRC’s competency in calculating financial issues on the costs of decommissioning nuclear reactor facilities. Among its findings the GAO stated, “. . . the agency’s ability to ensure that licensees provide reasonable assurance that they will have adequate funds at the time of decommissioning may be limited by several remaining weaknesses in [the NRC’s] oversight.” In another finding the GAO reported that the NRC had not reviewed licensees’ compliance with the investment standards the agency has set for decommissioning trust funds.
The question of financial responsibility for a new project, any required bonds, sureties, financial assurance cost estimates, and the effects of a project on the land and environment are not the most interesting aspects of a proposed project. The size of a proposed new project, the creation of new jobs, the final product whether it is gold, uranium, energy, as well as the money a project brings into a community are more newsworthy. Yet the financial status of the applicant and project are relevant issues to be considered by the state.
South Dakota law directs the state to consider whether there is a significant risk of pollution, contamination, or degradation to the environment which is not covered by other financial assurance agreements or bonds. And if it is determined they are not adequately covered South Dakota can require, as a condition of a permit, appropriate coverage by an applicant.
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Who will be left holding the bag?
Natural resource development projects include government oversight in the permitting process because of a project’s environmental or property rights impacts. Regulations, sometimes frustrating, protect the public in the event a problem arises from a permitted project. End-of-project decommissioning is a typical regulated event. But government is not always well endowed with the skills of planning and foresight.
When a big project ends or is abandoned, will the government be left holding the bag? The phrase ‘left holding the bag’ is an old English phrase. A person left holding the bag is stuck with the stolen goods in hand. He or she will take the blame by the police while the rest of the enterprise escapes. Is that the way it should be with South Dakota state oversight of permitted projects? Governments left holding the bag, indeed, may be either the state or federal government. It matters not. They are the party stuck if a permitted project fails, is shut down, files for Chapter 7 Bankruptcy or is abandoned when the project’s end-of-operations plan is not funded properly. Left holding the bag is the equivalent of holding the responsibility for cleanup, remediation and reclamation if financial responsibility for the project’s end is not well planned.
Providing financial assurance at the end of a permitted project includes the use of bonds, letters of credit, cash deposits (rare) and sureties. All of these are often referred to as sureties. Government agencies and their boards set surety requirements. While setting the amount of a surety agencies run into several issues, some self-inflicted. A recent report by the GAO found that state agencies struggled with determining the financial health of an operator; and with determining whether the operator qualifies for self-bonding; determining the cost of reclamation; and determining the financial stability of surety companies.
The US DOJ Inspector General in a prior report opined, “Restrictions on states’ abilities to require reasonable levels of financial assurance could result in states’ inabilities to adequately respond to a catastrophic release of hazardous contaminants to the environment, such as occurred at the Summitville mine site in Colorado. If a state is unable to respond, EPA may have to assume responsibility under Superfund.” I have in prior pieces given challenging illustrations of surety problems in South Dakota and elsewhere.
If an agency or its board fails to set the surety correctly, the public is in danger of paying for that mistake. Montana provides an example of taking the bull by the horns. In 1996 operations ceased at Zortman and Landusky gold and silver mines. A couple of year later, in 1998, the parent company, Pegasus Gold, filed for bankruptcy. The reclamation bonds were well short of necessary cleanup costs. As a result, the State of Montana has allocated $32 million for reclamation, and it is estimated that the Federal Bureau of Land Management has contributed over $17 million. Montana responded to the incident with the Metal Mine Reclamation Act. This resulted in an increase from $198.7 million in bonds in 2004 to about $347 million in bonds in 2017. The Act also had other effects, like preventing former mining companies and executives from pursuing new projects in Montana if they have outstanding cleanup obligations to the state.
Setting surety amounts too low is not unusual. The GAO has found by way of some examples: 1/3 of the wind and solar rights-of-way were underfunded by as much as $15 million. And operators forfeited more than 450 sureties for reclaiming coal mines between July 2007 and June 2016, and that the amount of surety forfeited was sufficient to cover the cost of required reclamation in about 52% of the cases.
A better title for this piece may be ‘The greater fool theory.’ In the greater fool theory, the price of an object is determined not by its true value but rather by the demand of an irrationally exuberant consumer. The consumer is the government agency or board eager to support and approve complicated natural resource projects. Under my ‘The greater fool theory’ government places a greater value on approving and getting a project on the road rather than using proper oversight to protect the public and environment from the consequences of a closed project.
Combining departments is a mistake
The state has not learned from history. I refer to the merger of the South Dakota Department of Agriculture and Department of Environment and Natural Resources. These two agencies prior to the recent state-imposed merger did not create a plan describing future operation after the merger. Where is a report showing government dollars saved by the merger? No such report was provided. The news media reported that almost no details have been released about the merger.
A state spokesperson also acknowledged that details on the merger don’t exist. And to a further point, state government provides no reports concluding that either department had been failing in its duties. The merger is not based on money and it is not based on government failure. What is the basis for the merger? The merger was a political act rather than an effort to create better government efficiency.
A merger of government agencies is no different than a merger of businesses. The foremost argument by government (and business) in supporting the act of merger is the money argument: “the government will save money.” Will two state agencies merged as one save money and still each do their real job? No such evidence was presented. It is easy to cut and slash government departments to save money, but an economic advantage is hard to support if there has been no financial analysis. And just as relevant, how do you show an advantage if the merged agencies do not have related purposes along with some essential areas of comparable regulation?
These two different state agencies were created to serve separate goals. The Department of Agriculture is principally chartered to deal with supporting agriculture and economic development related to ag. It is agriculture’s advocate on behalf of the state. The Department of the Environment and Natural Resources is a regulatory agency meant to oversee, for good or ill, activity that affects the air, water, and earth in the state.
The DENR deals with mining, oil exploration, maintaining water quality standards and regulating issues of pollution and resource management. These issues are not within the field of knowledge of experts in the Department of Agriculture. Even when the interest of the two agencies at first glance overlap, the two have little to no interaction. For example, when a large-scale dairy milking operation applied a few years back for a 750,000 gallons-per-day water use permit, the DENR played an important and exclusive role in the permitting process. The Department of Agriculture was not involved at all in the permitting and the ensuing litigation affecting the permit application. The expertise of the two agencies are identified as different by their long-standing separate existence.
Those arguing for a merger often state that the merger is a ‘merger of equals’. Life does not work that way. In every merger one of the parties loses authority. To hold that a merger does not result in one party’s loss of authority is propagated hog manure. When observing a merger, think of submission and think of robust degrees of subservience to a single new boss. Think marriage.
Let me paint another picture. The DENR is the disciplinarian concerned with keeping the public in line on natural resource and environmental matters. The Department of Agriculture is the agency principally encouraging growth in the agricultural industry sector. On their own, both have a place and are essential. But when these two management approaches are housed under one roof natural conflict will occur.
The Department of Agriculture is a significant agency for the state. It is an active promotional spokesman for the state’s largest economic sector. Agriculture contributes 32 billion dollars to the state economy. Like it or not the DENR has the government role of a traffic cop. The DENR has too few advocates in the world of political influence. The DENR is an agency whose effectiveness political leaders would prefer to dilute. The DENR is the real target in this merger.
The DENR is patterned after and is the result of the earlier creation of the U S EPA. The purposes and origin of the DENR as well as its relationship with the EPA are lost on the current state administration. Richard Nixon established the EPA years ago to consolidate required environmental responsibilities overseen by different federal agencies all into one agency. He consolidated programs from departments including the US Department of Agriculture and the Interior Department. Nixon’s course of action had foresight. In support of the EPA as a new agency Nixon stated, “Restoring nature to its natural state is a cause beyond party and beyond factions. It has become a common cause of all the people of this country.” I do not suggest I think the EPA or DENR are anywhere near perfect. Far from it. I have my concerns and will continue to recommend that changes are in order. But a neutering job (taking the word ‘environment’ out of the title of the new merged department) is a not-too-subtle act by the administration reflecting its overall intent for the merger.
Government serves critical roles in society, and in some areas performs them well. In some areas not so well. Reform of government and the reorganization of government are a good thing. Transplant surgery in which the wrong organ is put in the wrong part of the body is not a good thing. South Dakota’s merger of two disparate departments is not based on saving money; not based on future efficiencies in new agency operations; and not based on existing failures of either agency. I invite the readers to let me know in ten years’ time the name of the party who will unhesitatingly acknowledge its success.
