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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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.

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.

The management of public waters

The Big Sioux Water System (Water System) received a large water use permit in May of this year. The aquifer from which the water is drawn lies in Lake and Moody County. The permit allows the use of 117.3 million gallons of water annually from a new well to be constructed.

The Water System permit decision issued by the state, and the state’s supporting report in favor of the permit application are a failed effort to balance different statutes which direct the state’s duties in the management of public waters. In administrative law it is often the case that overlapping statutes and administrative rules are to be considered. Under this application state water law was not correctly applied. State DANR staff in its record on the application noted there are “uncertainties” in the hydraulic budget of the waters to be used. “Uncertainties” should not be the basis for granting access to the waters of the people.

What is lost in the state’s decision in the Water System application is the fundamental legal principle: a particular statute with technical instructions must control — without an attempt to ‘balance’ that statute against other water management law. A related South Dakota water statute provides, “general welfare requires that the water resources of the state be put to beneficial use to the fullest extent of which they are capable … “. It is unquestioned that the waters of the state should be properly managed for domestic, agricultural and industrial purposes. However the statute mentioned here is an example of a general policy statement; this statute is not a directive with technical instructions on the management of water rights. Even if there were a conflict between a general provision of law and a specific provision (here there is not), the specific provision should prevail.

In a confusing manner the staff report on the application stated the estimated average annual recharge is 7, l 03 to 8,674 acre-feet per year and estimated average annual withdrawals are 9,917 acre-feet per year. The well-established ‘no mining of water’ statute of South Dakota directs the state overseers of public waters with instructions on water management, not general policies. The ‘no mining’ law is a particular statute with technical directions. This statute requires that no permit application should be approved when it is probable that “the quantity of water withdrawn annually from a groundwater source will exceed the quantity of the average estimated annual recharge of water to the groundwater source.” The application of this law is not to be modified or changed if the permit application might be for a future water use permit, or for a current use permit. The test related to water withdrawal versus water recharge applies to both types of permits. This well-established statute was not properly applied. The terms of a law addressing a particular subject should prevail over the terms of other related statutes.

The staff report of the DANR on the application also opines that due to ongoing development, average annual withdrawals of water systems will likely increase beyond historically reported water use. The staff recommendations stated, “It is recommended based on the current hydrologic budget for this aquifer, consideration be given to amending all water rights/permits and temporary use permits from this aquifer not currently required to report water use annually . . .requiring annual reporting of withdrawals.” The recommendation was made to “help reduce the uncertainty [in the hydraulic budget]”. The other water permits discussed in the recommendation are not related to the Big Sioux application and were in place and held by other non-related parties before the application was filed. The final approved terms for the permit did not adopt this recommendation. Why would the staff recommend that existing terms and conditions of other nearby existing water permits be revised to require an annual reporting of water withdrawals? The recommendation is an acknowledgement of the “uncertainties” in the hydraulic budget which must be considered when analyzing public water use.

In the permit process the DANR did not request an aquifer performance test. The approved permit record does not include the results an aquifer performance test. Such a test is an on-site field test used to determine the hydraulic properties of an aquifer. The DANR staff in its report which ultimately recommended approval of the permit application stated, “The exact amount of drawdown a pumping well will cause in an aquifer cannot be known without an aquifer performance test.” An aquifer performance test would provide relevant and material information from the state can determine whether an application should be approved. The state has, in a different permit application process, previously recommended that an applicant conduct a suitable aquifer performance test.

Nothing shames man’s intelligence more than when human design is employed to mismanage a natural resource. Good water management is one reason behind the concept of treating water as a public asset to be managed by the people of the state.

David Ganje is an attorney who practices natural resources, environmental and commercial law. The website is lexenergy.net