by M. Ann Bradley, as published in IOGA of West Virginia newsletter, October 2010   

   There appears to be an increasing trend among certain regulatory agencies to issue policies or guidance when a change in some regulated activity is needed or desired, rather than undertaking formal rule-making procedures to adopt such a change. In West Virginia this phenomena has occurred with some frequency with regard to oil and gas activities, and, in particular, oil and gas activities related to the development of the Marcellus Shale using horizontal drilling techniques. This article examines instances when agencies have issued this sort of guidance or policy, analyzes the potential legal deficiencies with the approach chosen, and discusses whether there may be an alternative which would provide more input from the regulated community before new obligations or requirements were put into place.

   One example of this type of agency action occurred on December 16, 2008, when West Virginia Department of Environmental Protection Secretary Randy Huffman issued a “directive” to all natural gas well operators utilizing pits or ponds with a capacity greater than 5,000 barrels to conduct immediate inspections of these structures to evaluate their structural integrity. While the directive did not explain why DEP thought it necessary to take this action, subsequent discussions with DEP staff suggest that concerns had been raised regarding the potential failure of large volume impoundments associated with Marcellus drilling operations that had not been properly engineered. The directive required that the inspections be repeated every three days, any deficiencies identified be corrected immediately and that the operator furnish monthly to the DEP an affidavit attesting that all required inspections for the preceding month had been completed. The directive was effective immediately and was not subjected to public review or comment before it was issued.1

   On March 23, 2010, James Martin, Chief of WVDEP’s Office of Oil and Gas, citing his Office’s review of Marcellus drilling and an intent to “ensure protection of the environment,” issued a memorandum which directed, among other requirements, that all cuttings from drilling through Marcellus Shale disposed of at the drilling site had to be solidified in a lined pit, that the liner had to remain intact throughout the reclamation process and that the pit had to have a liner as a cap. These requirements were effective immediately and were not subjected to public review or comment. 

   On August 4, 2010, Secretary of Transportation Paul Mattox, citing the inability of local roads to withstand the “repeated heavy loads” that were attributable to “the boom in oil and gas drilling in West Virginia” - and also noting the frustration of residents in these areas - issued a policy (the “Oil and Gas Policy”) that required, among other provisions, that every oil and gas operator enter into an agreement with the Division of Highways that identified highway improvements required before, during and after closure of the project and that required the operator to post a bond for each mile for state roads traversed by the project in amounts ranging from $50,000 for each mile of “tar and chip” roadway to $100,000 per mile of paved roadway. This policy was effective immediately. To Secretary Mattox’s credit, once it became clear that  =this policy would cause many small operators drilling conventional wells to cease operations because they would be unable to meet the bonding requirements, he issued a revised policy on August 20, 2010 (“Interim Oil and Gas Policy”) and he and his staff continue to work with oil and gas operators to come up with an effective process for addressing issues raised by high volume, heavy vehicle traffic on rural roads. 

   In each of the instances cited above I believe it is clear that the agency heads were responding to what they considered to be immediate threats to public safety or the environment. What is not clear is whether the impetus for the agency actions were isolated occurrences or common activities within the industry. Regardless of the motivation, these agency actions impacted a broad array of operators.

Agency Policy/Guidance vs. Rules
   Agency pronouncements, whether described as policy or guidance, that have not been adopted through rule-making processes are not legally binding. They are considered as recommendations or advice. With regard to the distinction between a binding rule and a non-binding policy under the federal Administrative Procedure Act, a U.S. appellate court has stated:

A general statement of policy. . . is not finally determinative of the issues or rights to which it is addressed. The agency cannot apply or rely upon a general statement of policy as law because a general statement of policy only announces what the agency seeks to establish as policy. A policy statement announces the agency’s tentative intentions for the future. When the agency applies the policy in a particular situation, it must be prepared to support the policy just as if the policy statement had never been issued. An agency cannot escape its responsibility to present evidence and reasoning supporting its substantive rules by announcing binding precedent in the form of a general statement of policy.
Pacific Gas & Electric Co. v. Federal, Power Commission, 506 F.2d 33, 38-39 (D.C. Cir. 1974)

   Under West Virginia law there are no prescribed procedures that must be followed when an agency issues guidance or adopts a policy. Rulemaking on the other hand is a much more formal process that generally requires the issuance of notice to the public that a draft regulation is being considered, an opportunity for the public to comment, either through written submissions or through oral comments provided at a public hearing (typically a minimum of 30 days is allowed for public review), followed by a written response from the agency addressing the comments received. In West Virginia the Administrative Procedures Act (“APA”) defines a rule to include “every regulation, standard or statement of policy or interpretation of general application and future effect… affecting private rights, privileges or interests, ... adopted by an agency to implement … the law enforced or administered by it or to govern its organization or procedure.” W. Va. Code § 29A-1-2(i). Our APA also requires that certain rules – termed legislative rules2 - must be approved by the legislature before they can become effective. Typically, the rule-making process for legislative rules will require 12 to 15 months to complete.

   To address the situation where a legislative rule may be needed but the rule be effective much sooner than the normal rule-making process would allow, the APA allows the use of “emergency” rules. An emergency rule is authorized when “the promulgation of an emergency rule is necessary (1) for the immediate preservation of the public peace, health, safety or welfare, (2) to comply with a time limitation established by this code or by a federal statute or regulation, or (3) to prevent substantial harm to the public interest.” W.Va. Code § 29A-3-15(f).

   An emergency rule becomes effective 42 days after it is filed with the Secretary of State unless it is approved or disapproved within that time by the Secretary of State or the Attorney General. A disapproval must be based upon a finding that the rule (1) does not satisfy the criteria for an emergency set forth in the APA; (2) is beyond the rulemaking authority granted the agency by statute; or (3) was not issued in accordance with the procedures for emergency rules established under the APA. Once an emergency rule takes effect, it can remain in place no longer than 15 months, by which time the normal procedures for legislative rule-making can be completed and the emergency rule can be replaced with a legislativelyapproved version.

   Clearly, the inclusion of specific criteria in the APA on what may qualify as an emergency rule was intended to assure the emergency rule provisions were not used to circumvent the normal procedures attendant to legislative rules. It is equally clear that the process for legislative review of agency rules is time consuming and does not lend itself to prompt correction or fine-tuning of legislative rules. Thus, where an agency head deems that conditions subject to his or her jurisdiction require immediate corrective action, it is not surprising that alternatives to formal rule-making might be pursued.

Conclusion
   Under the APA and other cited authorities I believe that the actions by the WVDEP and the Division of Highways clearly constitute legislative rule-making. The fact that no legal action has been initiated to challenge this action may indicate that these agencies are applying reason and flexibility in implementing these policies. A legally supportable and more effective approach to these issues would be to make these pronouncements either (1) as emergency rules - if indeed an adequate case can be made that an emergency exists; or (2) as non-binding agency guidance and to implement them in that manner. In my experience regulated businesses have generally supported the issuance of guidance by agencies when intended to clarify or to interpret regulations and statutes because of the flexibility that is inherent in the application of the guidance and ease with which changes can be made as warranted by specific circumstances.