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Brownfield Due Diligence – Don’t Get Married, Get Engaged

Posted on: October 22nd, 2016
by David Ganje

Let’s not pretend.  We have messed up parts of mother earth.  Now let’s use the tools at hand to undo the mess and be good stewards again.  Brownfield recycling, that is the brownfields program is one means to that end. If you are looking to start a new redevelopment project don’t get married, get engaged. Do your due diligence and explore the possibilities from exposing a brownfield.

The EPA defines a brownfield as “real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant”. The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) mandated that the purchasers of property are liable for any contamination on this property regardless of when they acquired a site. However, CERCLA also created a defense known as the “innocent landowner defense” that can only be used if “appropriate due diligence” was conducted prior to the acquisition of the property. Appropriate due diligence has been exercised if an environmental site assessment (ESA), a thorough investigation of a sites current and previous owners, has been prepared.

ESA’s have an average cost of about $4,000 for a small business acquisition and can vary depending on variety of factors specific to the job. The typical businesses that leave behind brownfields include gas stations, dry cleaners, railroads, oil refineries, liquid / chemical storage facilities, and steel / heavy manufacturing plants. Typical hazardous materials they leave behind include hydrocarbons, solvents, pesticides, heavy metals such as lead, and asbestos. Much of the information about previous and past owners is public.

What is so dangerous about leaving these brownfields alone? Many of these brownfields are abandon commercial properties and tend to be an eyesore in the community. Not only can this lead to decreased property values in surrounding neighborhoods but the property can also pose serious health risks for new tenant and their neighbors. For example, the Love Canal disaster in Niagara Falls, in the late 70’s. Hooker Chemical Co. dumped over 20,000 tons of chemical waste in the unfinished and abandoned Love Canal. The canal was later paved over and sold to the city. The city then developed residential neighborhoods and schools on top of the contaminated land. About 25 years later, after an unusual amount of rain, a large amount water absorbed by the land upwelled the “entombed” chemical waste. Residents complained of chemical burns, organ failures, mental disabilities, and congenital birth defects. Eventually local families were relocated and the land was cleaned up. However, in recent years, residents on the rebuilt lands have complained of health issues similar to the ones originally reported 35 years earlier and have filed lawsuits against Hooker Chemical Co.’s parent company.

Once you suspect that the land you are planning to purchase could be a brownfield in need of cleanup what can you do? If you have not purchased the land yet you could include provisions in the purchase agreement that can indemnify you from liability for claims associated with existing contamination.

If you have done your due diligence and you know what you are getting into then you should already know that the Environmental Protection Agency (EPA) has set up the Brownfield Cleanup Program (BCP) “to encourage private-sector cleanups of brownfields and to promote their redevelopment as a means to revitalize economically blighted communities.” The BCP provides incentives through, grants, loans, training, and tax benefits to aid with the cleanup. Since the cost of cleanup is considerable the BCP may provide several hundred thousand dollars towards the cost of cleanup. This money comes with strings attached of course. Among other things, the costs are shared with the property owner, up to 20%, and the brownfield site must be cleaned up within a three-year period. In addition to tax incentives and financial assistance provided through the various governmental programs the land developer should be comforted by the fact that his contributions have also helped the environment. Furthermore, awards are given out by the NYC Brownfield Partnership providing public recognition for the most successful brownfield redevelopment projects.

Additionally, taking on a new brownfield project in NYC grants access to special municipal assistance programs through the NYC Office of Environmental Remediation (OER). The OER was established in 2009 to “design, build, and operate a set of world class municipal programs to advance cleanup and redevelopment of brownfield sites.” Since then they have developed over thirty new programs that take some of the most blighted properties in some of the most disadvantaged neighborhoods, cleans them up, makes them safer, and enables new development that brings new jobs and affordable housing.

The OER also distributes a variety of letters to aid sellers, lenders, and prospective buyers of brownfield properties. An “environmental review and assessment letter” is issued after the OER conducts an ESA on the property in question. It is used to provide assurances against liability. A “standstill letter” contains a preapproved remedy plan developed by a seller and the OER. The letter can be used to enroll the property in a brownfield cleanup program so that a prospective purchaser might receive financial assistance. This letter is intended to provide comfort to a prospective purchaser and its lender since the purchaser will be able to better estimate the cleanup costs.

If you have already started a construction on a new project and just learned of contamination, you may still be able to request a “look back letter” from the OER which would grant liability protection. Although a developer can gain liability protection after a project has started, they will not be eligible for brownfield funding incentives.

Many prime redevelopment sites are located on brownfields, don’t get married. Get engaged first and do your due diligence.

David Ganje practices law in the area of natural resources, environmental and commercial law.

Solid Waste Management In The Dakotas

Posted on: September 26th, 2016
by David Ganje

Municipal Landfills in North Dakota

The operation of a municipal landfill, also known as a solid waste facility, involves legal risk, such as damage caused from a landfill leaking or by landfill contamination of groundwater. Modern landfills are created with liners and other collection systems designed to prevent contamination of the ground, groundwater and the air. Despite good practices, in 2003 the U.S. Geological Survey (citing the EPA) opined that “all landfills eventually will leak into the environment.”

In North Dakota municipalities are required, in the event of a spill or leak, to show their financial ability to take corrective action, but only after the event has already occurred. North Dakota does not require municipal landfills to maintain environmental or pollution liability insurance. Consider a landfill just west of Watford City, which was recently found storing thousands of pounds of illegal radioactive material. The costs to clean up a landfill leak can be beyond the financial capability of a municipality if adequate preparations are not made. An operating landfill is not the only party who might be on the hook to pay for leaks. By way of illustration, Grand Forks has promised to indemnify the operator of their landfill from any and all claims, suits or causes of action that arise from the landfill.

To put this liability issue in financial perspective, the cost to clean up a leaking 150-acre landfill next to a drinking water supply in Burnsville, Minn., was recently estimated by the state at $64 million. These clean up events are the type addressed by landfill pollution insurance, but few municipalities seem inclined to carry the insurance. I am not aware of any North Dakota municipal landfill that carries pollution liability insurance. This is akin to riding a motorcycle without a helmet. Landfills in the state are, in many cases, owned and run by cities and counties. Understand that municipal landfills are dutiful in complying with state and federal environmental regulations. State regulators and municipalities are following relevant statutes and rules. That is not the issue. The challenge is the risk of pollution liability, also called environmental liability – no small matter in today’s world, with costs that can reach into the millions.

Municipalities in North Dakota are not necessarily alone when a leak occurs. North Dakota maintains the Municipal Waste Landfill Release Compensation Fund, which would reimburse municipalities for reasonable corrective costs, including labor, testing, machinery, and consulting fees. However, the owner or operator must pay the first $100,000 for corrective action. Moreover, the Fund will not protect owners and operators who are negligent, or who caused the leak through misconduct, at the sole determination of the State. The Fund will not even reimburse for costs incurred through bodily injury or property damage. It is not a catch-all for landfill environmental liability.

If the Municipal Waste Landfill Release Compensation Fund cannot handle the issue, the release might be enough to trigger the State Disaster Relief Fund, which is there to help deal with a variety of issues, including widespread and severe water or air contamination. A problem on the scale experienced in Burnsville could be met with this State fund to help. A $64 million cleanup would however reduce the Disaster Relief Fund to near-empty, as North Dakota has just over $70 million currently in the fund.

Unfortunately for municipalities, when a serious landfill leak that cannot be handled at the city level occurs, the Environmental Protection Agency may become involved, triggering a Federal cleanup. Once the EPA gets involved, costs can skyrocket for everyone, and the EPA will bring suit against every party, including a negligent municipality, involved in the leak to pay for the cleanup costs. Facing off against the EPA in a million-dollar suit is the last place a municipality wants to be. It would be better to be able to handle landfill leaks with insurance, rather than involving other bureaucratic organizations who will use money inefficiently and then demand repayment.

This fund or ‘security account’ held by the state is not a complete answer, but it is a good start.  Compare this with South Dakota which leaves municipalities buck naked to the law. South Dakota leaves municipalities at great legal risk.  The South Dakota delegating law states that owners or operators of landfills are forever responsible for any pollution or legal problems caused by stored solid waste. The state has no special fund to deal with this issue. South Dakota’s rules allow a municipality to keep a separate fund (money deposited in a bank account, for example) to protect against the costs of a leaking landfill, or alternatively for coverage of such a leak by purchasing pollution insurance. Nevertheless, to maintain a separate fund large enough to cover a landfill leak is beyond the financial capability of municipalities in both states. Brown County, the third largest county in South Dakota, maintains a separate fund in the amount of $240,000. That is not enough money to cover a possible leak. Brown County is one of the municipalities that does not carry landfill pollution liability insurance. This is a problem, especially considering that the Brown County landfill makes a profit for the county. Yet Brown County will not consider pollution liability insurance to protect the landfill.

Just because the North Dakota has some financial support for landfills does not mean that preventative measures should be ignored. Government operated enterprises should not be so callous.  The old concept of sovereign immunity (“the king can do no wrong”) is quickly becoming old law. The growing need for landfills is not going away. To the contrary, solid waste is increasing yearly. While North Dakota is more prepared than its neighbor to the south, there are still things that should be done. The State should protect municipal landfills by requiring landfills to hold insurance covering operating pollution events, and municipal landfills should choose to do so whenever possible.

The Utility and Controversy of Disposal Wells

Posted on: March 24th, 2014
by David Ganje

                        The Utility and Controversy of Disposal Wells

Greater attention, rightfully, is now paid in the oil patch to our first natural resource: water. From all fronts affected, parties are more aware of the proper stewardship of water.  This stewardship does not come without controversy. That famous Geo-hydro geologist Mark Twain was correct:  Whiskey is for drinking, water is for fighting. The North Dakota State Water Commission projects the amount of water needed for developing a Bakken Formation well for natural gas production at approximately three acre feet. The required water must come from a freshwater source. With the oil patch growth through 2019, Bakken wells could require as much as 51,000 acre feet (a.f.) of water. The general uses of water in the oil patch include well drilling and completion, well production, the so called use of maintenance water which requires fresh water sources, and after-production. I will focus this article on the management and disposal of used water in the ‘after production phase’ which water is often referred to as produced water or saltwater. The other important aspects of water uses, as well as tribal regulations and water law, will be left for another discussion.

During hydraulic fracturing – commonly known as fracking – water mixed with industrial chemicals and proppants (a mix of sand or ceramic particles) are forced into the well system to release oil and gas. The waste water from the process is the so called produced water or salt water. Produced water is the largest volume by-product from an oil and gas well.  Along with the chemicals used during the drilling produced water is highly saline, usually 10 times that of ocean water. Its improper use or disposal would damage soil productivity or pollute near-surface water aquifers used for irrigation and drinking water. North Dakota statutes specifically prohibit this remaining produced water from polluting any freshwater supply in the state. Disposal wells are the most common final method for removal of unusable produced water or saltwater.  North Dakota currently has 470 active saltwater disposal wells.  The well process involves injecting the produced saltwater and associated wastes into naturally occurring subsurface formations called confining geologic zones.  As technology advances the industry has other non-well options for produced water management. Such technology includes obtaining fracking water from saline groundwater sources, or from municipal waste water. A fresh water source such as an aquifer must be allowed to replenish itself (recharge), so the careful stewardship and use of water in the oil patch continually relevant. Let us look at the current practice of disposal well procedures and issues.

Upon returning to the surface there are two common methods of handling produced water:

  1. Re-injection into the oil-producing formation for enhancing oil and gas production
  2. Injection into an underground formation that naturally contains saltine water. This second method is also known as Salt Water Disposal (SWD) which are also called disposal wells.

SWD is considered the most economic final disposal method. The U.S. Environmental Protection Agency classify these wells as class II wells used to inject fluids associated with oil and natural gas production operations.

Under the guidelines of the Underground Injection Control Program established by the federal Drinking Water Safe Act, North Dakota has imposed regulations:

(a)              for pits and ponds containing saltwater liquids and brines produced by the hydraulic fracturing operations

(b)              Governing the process of underground injection wells.  A technical permit application is required for these SWD wells.

A disposal well must go through an application and approval process.  This is also called the siting of a well.  The information the state studies from an application is comprehensive and involves detailed geologic data.  A disposal well must also complete a mechanical integrity test before it becomes properly permitted and can operate. Information and data which must be submitted, and reviewed, before the state would approve an SWD well permit application include:

  1. Geologic name of lowest known fresh water zone
  2. A plat depicting the area and detailed description of the location, well name, and operator of all wells in the area of review. The area wide plat must include: nearby injection wells, producing wells, plugged wells, abandoned wells, drilling wells, dry holes, and water wells. The plat must also show seismic faults, if known or suspected
  3. Testing and recording the original bottom-hole injection of the well
  4. A description of the proposed injection program
  5. A quantitative analysis from the two nearest fresh water wells
  6. A written notice to all landowners within the area of review who must be notified of the proposed injection well.
  7. This notice informs the landowners that comments or objections may be submitted
  8. Schematic drawings of the well bore and surface facility construction.

The controversy surrounding salt water disposal wells concern spills, potential leaks and earthquakes. Spills occur. These events are saltwater surface spills not related to the disposal well or to the well integrity of a properly permitted well. Spills happen because of human error and bad equipment.   As with all Bakken oil and gas production procedures, it can be said: most in the industry do it right, but some just do it.  Saltwater spills occur on the surface, and are often a mechanical malfunction or error in human judgment. The risk of a spill from a saltwater disposal well is not from a properly permitted well itself.  When a spill occurs it is usually during the act of storing or delivering wastewater to the disposal well. Consider for example that there are 470 active operating disposal wells in North Dakota, but more than 2100 saltwater pipelines, and it is easier to understand that the ‘getting to the well’ is where problems arise. New rules have recently been promulgated by the Industrial Commission for ‘underground gathering pipelines’.  These regulations will address the construction and deconstruction [shutdown] of saltwater service pipelines.

Do disposal wells contaminate water wells and aquifers? The question is more properly stated:  Do disposal wells fail or leak? Thousands of disposal wells have been permitted in the U.S.  In 2012 a company called Halek Operating ND LLC was fined civilly and charged criminally by the Industrial Commission for illegal action and operating a disposal well after having been ordered to shut-in the well. In that case, among other things, the administrative law judge also found that the company had operated the disposal well without first completing a mechanical integrity test on the well. The state found no damage to aquifers from the illegal activity.  I know of no failures or leaks from properly permitted disposal wells located in North Dakota and South Dakota in my lifetime. And information from both states’ regulatory agencies report that such events have not occurred.

Do disposal wells cause earthquakes? Thousands of disposal wells have been permitted in the U.S. The state of Arkansas is in a region of the continent that has recognized natural earthquake activity. Because the Arkansas Oil and Gas Commission thought that disposal wells may have been causing or aggravating earthquakes in the state it ordered a study. After the study was completed in 2011 the state regulatory authority established a moratorium on new and on operating disposal wells in an area that resulted in the closure of 4 of the state’s 700 disposal wells. Natural earthquakes are more likely to occur of course in earthquake-prone geology. A region prone to natural earthquakes is more likely to be the place where a quake caused or affected by a disposal well might occur. The Bakken and Williston basin are not known as  geologically earthquake-prone areas of the continent, and the state permitting process does not authorize active disposal wells near a fault line. I know of no earthquakes caused by properly permitted disposal wells in North Dakota and South Dakota in my lifetime. And information from both states’ regulatory agencies report that such events have not occurred.

 

David Ganje of Ganje Law Offices practices natural resources, environmental and commercial law.     The website:  lexenergy.net           The contents of this article are intended for general information purposes only and are not intended as legal advice.