SB3329 98TH GENERAL ASSEMBLY

LRB098 19584 MGM 54776 b

98TH GENERAL ASSEMBLY
State of Illinois
2013 and 2014
SB3329

Introduced 2/14/2014, by Sen. Ira I. Silverstein

SYNOPSIS AS INTRODUCED:

225 ILCS 732/1-35
225 ILCS 732/1-65

Amends the Hydraulic Fracturing Regulatory Act. Establishes insurance requirements for operators when submitting a registration form. Authorizes the Department of Natural Resources to establish separate insurance requirements by rule if necessary. Adds references to "horizontal drilling with fracturing operations". Changes bonding requirements. Authorizes the Department to establish separate bonding requirements by rule.

FISCAL NOTE ACT MAY APPLY

A BILL FOR

AN ACT concerning regulation.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 5. The Hydraulic Fracturing Regulatory Act is amended by changing Sections 1-35 and 1-65 as follows:

(225 ILCS 732/1-35)

Sec. 1-35. High volume horizontal hydraulic fracturing and horizontal drilling with fracturing operations permit application.

(a) Every applicant for a permit under this Act shall first register with the Department at least 30 days before applying for a permit. The Department shall make available a registration form within 90 days after the effective date of this Act. The registration form shall require the following information:

(1) the name and address of the registrant and any parent, subsidiary, or affiliate thereof;

(2) disclosure of all findings of a serious violation or an equivalent violation under federal or state laws or regulations in the development or operation of an oil or gas exploration or production site via hydraulic fracturing or horizontal drilling with fracturing by the applicant or any parent, subsidiary, or affiliate thereof within the previous 5 years; and

(3) proof of insurance to cover injuries, damages, or loss related to pollution or diminution in the amount of at least $5,000,000, from an insurance carrier authorized, licensed, or permitted to do this insurance business in this State that holds at least an A- rating by A.M. Best & Co. or any comparable rating service. Subject to the operator's right to maintain reasonable deductibles, and subject to a maximum deductible or self-insured retention of $250,000, the operator shall obtain insurance coverage in the following types and amounts:

(A) Workers' compensation insurance with statutory limits.

(B) Employer's liability insurance with the following minimum limits for bodily injury: by accident, $1,000,000 per accident; and by disease, $1,000,000 per employee with a per-policy aggregate of $5,000,000.

(C) Business automobile liability insurance covering owned, hired, and non-owned vehicles, with a minimum combined bodily injury, including death, and property damage limit of $1,000,000 per occurrence.

(D) Commercial general liability insurance covering explosion, collapse, underground blowout, cratering, premises and operations, personal and advertising injury, products and completed operations, independent contractors, and contractual liability with the following minimum combined bodily injury, including death, and property damage limits of: $1,000,000 per occurrence; $2,000,000 products and completed operations aggregate, and $2,000,000 general aggregate.

(E) Environmental impairment or pollution legal liability insurance covering handling, removal, seepage, storage, testing, transportation, and disposal of materials. The coverage shall include loss of use of property, cleanup cost, and defense, including costs and expenses incurred in the investigation, defense, or settlement of claims in connection with any loss arising from the operation site. The coverage shall apply to sudden and accidental pollution resulting from the escape or release of smoke, vapors, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste material, or other irritants, contaminants or pollutants; and, must be maintained with a minimum combined bodily injury, including death, and property damage limit of $10,000,000 per occurrence;

(F) As an alternative to providing environmental impairment or pollution legal liability insurance as defined in this subsection, the operator may purchase an umbrella policy that meets the requirements of subparagraph (G) of paragraph (3) of subsection (a) of this Section, or the operator may provide evidence of self-insurance. The operator shall remain sufficiently self-insured until the operation site is abandoned and restored. The operator shall provide the Department with evidence of sufficient self-insurance every 6 months. This provision does not limit the operator's full responsibility in the event of a loss. An operator is sufficiently self-insured and the environmental impairment and pollution legal liability insurance shall be waived if the operator provides one of the following as evidence of self-insurance: a restricted cash fund equal to the required environmental impairment or pollution legal liability insurance, or a surety bond, in a form acceptable to the Department, equal to the required environmental impairment or pollution legal liability insurance. An operator is sufficiently insured and the environmental impairment and pollution legal liability insurance shall be waived if the operator obtains an umbrella liability insurance following the form of the primary liability coverage described in this subsection and providing coverage with minimum combined bodily injury, including death, and property damage limit of $25,000,000 per occurrence and $25,000,000 annual aggregate. Increased primary liability limits equivalent to the umbrella liability insurance limits specified will satisfy the umbrella liability insurance requirements.

(G) If the operator does not purchase environmental impairment or pollution legal liability insurance or is not sufficiently self-insured, then umbrella liability insurance with minimum limits of $35,000,000 per occurrence and $35,000,000 annual aggregate is required. A copy of the declaration page of the policy shall be attached to the certificate of insurance and the coverage shall include explosion, collapse, underground blowout, cratering, sudden and accidental pollution, handling, removal, seepage, storage, testing, transportation and disposal of materials. A copy of the endorsements providing this coverage shall be attached to the certificate of insurance.

(H) Control-of-well insurance to provide coverage for the cost of regaining control of an out-of-control well including the cost of re-drilling and clean up of an incident with minimum limit of $10,000,000. This coverage shall include seepage, pollution, stuck drill stem, evacuation expense of residents, loss of equipment, experts, and damage to property that the operator has in the operator's care, custody, or control.

(4) If the insurance required in paragraph (3) of subsection (a) is written on a claims-made form, coverage shall be continuous, by renewal or extended reporting period, for at least 60 months after the Department approves the abandonment and restoration of the operation site. Coverage, including renewals, shall contain the same retroactive date as the original policy.

(5) The operator shall require each subcontractor performing work on the operation site to obtain insurance approved by the State, with an AM Best Rating of A or better, or any comparable rating, that is appropriate for the services the subcontractor is performing as follows:

(A) The subcontractor shall provide the subcontractor's insurance at its own expense.

(B) The subcontractor's insurance shall name the operator as an additional insured.

(C) The subcontractor shall keep the subcontractor's insurance in effect until the Department approves the abandonment and restoration of the operation site.

(D) The operator shall provide the Department with a copy of the certificates of insurance for each subcontractor at least 30 days before the subcontractor begins work at the designated site. The operator shall provide to the Department copies of the subcontractor's insurance policies and all endorsements upon request at no cost to the Department.

(6) All insurance contracts and certificates of insurance shall have an endorsement:

(A) stating that the State is an additional insured to all applicable policies;

(B) stating that coverage may not be cancelled, non-renewed, or materially changed in policy terms or coverage without 30-days advance written notice by mail to the Department;

(C) waiving subrogation against the State, its officials, and employees, for bodily injury, including death, property damage, or any other loss;

(D) stating that the operator's insurance is the primary insurance;

(E) stating that liability, duty, standard of care obligations, and the indemnification provision are underwritten by contractual liability coverage that includes these obligations: identifying the operation site by address; identifying the Department as the certificate holder; and striking the wording "endeavor to" and "failure to mail" under the cancellation provision on the certificate of insurance.

(7) The approval, denial, or failure to act by the Department regarding any insurance supplied by the operator or a subcontractor does not relieve the operator of subcontractor of full responsibility or liability for damages and accidents. Bankruptcy, insolvency, or the insurance company's denial of liability does not exonerate the operator or the subcontractor from liability.

A registrant must notify the Department of any change in the information identified in paragraphs (1), (2), or (3) of this subsection (a) at least annually or upon request of the Department.

(b) Every applicant for a permit under this Act must submit the following information to the Department on an application form provided by the Department:

(1) the name and address of the applicant and any parent, subsidiary, or affiliate thereof;

(2) the proposed well name and address and legal description of the well site and its unit area;

(3) a statement whether the proposed location of the well site is in compliance with the requirements of Section 1-25 of this Act and a plat, which shows the proposed surface location of the well site, providing the distance in feet, from the surface location of the well site to the features described in subsection (a) of Section 1-25 of this Act;

(4) a detailed description of the proposed well to be used for the high volume horizontal hydraulic fracturing operations or horizontal drilling with fracturing operations including, but not limited to, the following information:

(A) the approximate total depth to which the well is to be drilled or deepened;

(B) the proposed angle and direction of the well;

(C) the actual depth or the approximate depth at which the well to be drilled deviates from vertical;

(D) the angle and direction of any nonvertical portion of the wellbore until the well reaches its total target depth or its actual final depth; and

(E) the estimated length and direction of the proposed horizontal lateral or wellbore;

(5) the estimated depth and elevation, according to the most recent publication of the Illinois State Geological Survey of Groundwater for the location of the well, of the lowest potential fresh water along the entire length of the proposed wellbore;

(6) a detailed description of the proposed high volume horizontal hydraulic fracturing operations or horizontal drilling with fracturing operations, including, but not limited to, the following:

(A) the formation affected by the high volume horizontal hydraulic fracturing operations or horizontal drilling with fracturing operations, including, but not limited to, geologic name and geologic description of the formation that will be stimulated by the operation;

(B) the anticipated surface treating pressure range;

(C) the maximum anticipated injection treating pressure;

(D) the estimated or calculated fracture pressure of the producing and confining zones; and

(E) the planned depth of all proposed perforations or depth to the top of the open hole section;

(7) a plat showing all known previous wellbores well bores within 1,500 750 feet of any part of the horizontal wellbore well bore that penetrated within 400 vertical feet of the formation that will be stimulated as part of the high volume horizontal hydraulic fracturing operations or horizontal drilling with fracturing operations;

(8) unless the applicant documents why the information is not available at the time the application is submitted, a chemical disclosure report identifying each chemical and proppant anticipated to be used in hydraulic fracturing fluid or fracturing fluid for each stage of the hydraulic fracturing operations or horizontal drilling with fracturing operations including the following:

(A) the total volume of water anticipated to be used in the hydraulic fracturing or fracturing treatment of the well or the type and total volume of the base fluid anticipated to be used in the hydraulic fracturing treatment, if something other than water;

(B) each hydraulic fracturing or fracturing additive anticipated to be used in the hydraulic fracturing or fracturing fluid, including the trade name, vendor, a brief descriptor of the intended use or function of each hydraulic fracturing or fracturing additive, and the Material Safety Data Sheet (MSDS), if applicable;

(C) each chemical anticipated to be intentionally added to the base fluid, including for each chemical, the Chemical Abstracts Service number, if applicable; and

(D) the anticipated concentration in the base fluid, in percent by mass, of each chemical to be intentionally added to the base fluid;

(9) a certification of compliance with the Water Use Act of 1983 and applicable regional water supply plans;

(10) a fresh water withdrawal and management plan that shall include the following information:

(A) the source of the water, such as surface or groundwater, anticipated to be used for water withdrawals, and the anticipated withdrawal location;

(B) the anticipated volume and rate of each water withdrawal from each withdrawal location;

(C) the anticipated months when water withdrawals shall be made from each withdrawal location;

(D) the methods to be used to minimize water withdrawals as much as feasible; and

(E) the methods to be used for surface water withdrawals to minimize adverse impact to aquatic life.

Where a surface water source is wholly contained within a single property, and the owner of the property expressly agrees in writing to its use for water withdrawals, the applicant is not required to include this surface water source in the fresh water withdrawal and management plan; .

(11) a plan for the handling, storage, transportation, and disposal or reuse of hydraulic fracturing or fracturing fluids and hydraulic fracturing or fracturing flowback. The plan shall identify the specific Class II injection well or wells that will be used to dispose of the hydraulic fracturing or fracturing flowback. The plan shall describe the capacity of the tanks to be used for the capture and storage of flowback and of the lined reserve pit to be used, if necessary, to temporarily store any flowback in excess of the capacity of the tanks. Identification of the Class II injection well or wells shall be by name, identification number, and specific location and shall include the date of the most recent mechanical integrity test for each Class II injection well;

(12) a well site safety plan to address proper safety measures to be employed during high volume horizontal hydraulic fracturing operations or horizontal drilling with fracturing operations for the protection of persons on the site as well as the general public. Within 15 calendar days after submitting the permit application to the Department, the applicant must provide a copy of the plan to the county or counties in which hydraulic fracturing operations or horizontal drilling with fracturing operations will occur. Within 5 calendar days of its receipt, the Department shall provide a copy of the well site safety plan to the Office of the State Fire Marshal;

(13) a containment plan describing the containment practices and equipment to be used and the area of the well site where containment systems will be employed, and within 5 calendar days of its receipt, the Department shall provide a copy of the containment plan to the Office of the State Fire Marshal;

(14) a casing and cementing plan that describes the casing and cementing practices to be employed, including the size of each string of pipe, the starting point, and depth to which each string is to be set and the extent to which each string is to be cemented;

(15) a traffic management plan that identifies the anticipated roads, streets, and highways that will be used for access to and egress from the well site. The traffic management plan will include a point of contact to discuss issues related to traffic management. Within 15 calendar days after submitting the permit application to the Department, the applicant must provide a copy of the traffic management plan to the county or counties in which the well site is located, and within 5 calendar days of its receipt, the Department shall provide a copy of the traffic management plan to the Office of the State Fire Marshal;

(16) the names and addresses of all owners of any real property within 1,500 feet of the proposed well site, as disclosed by the records in the office of the recorder of the county or counties;

(17) drafts of the specific public notice and general public notice as required by Section 1-40 of this Act;

(18) a statement that the well site at which the high volume horizontal hydraulic fracturing operation will be conducted will be restored in compliance with Section 240.1181 of Title 62 of the Illinois Administrative Code and Section 1-95 of this Act;

(19) proof of insurance to cover the requirements under paragraph (3) of subsection (a) injuries, damages, or loss related to pollution in the amount of at least $5,000,000; and

(20) any other relevant information which the Department may, by rule, require.

(c) Where an application is made to conduct high volume horizontal fracturing operations or horizontal drilling with fracturing operations at a well site located within the limits of any city, village, or incorporated town, the application shall state the name of the city, village, or incorporated town and be accompanied with a certified copy of the official consent for the hydraulic fracturing operations or horizontal drilling with fracturing operations to occur from the municipal authorities where the well site is proposed to be located. No permit shall be issued unless consent is secured and filed with the permit application. In the event that an amended location is selected, the original permit shall not be valid unless a new certified consent is filed for the amended location.

(c-5) The Department, in consultation with the Illinois Emergency Management Agency, shall investigate and determine the liability resulting from the operation of Class II injection wells that accept oil, liquid natural gas, or natural gas waste and fluids with regard to the financial responsibility typically tied to plugging costs of the well or other consequences of the injection operations. The Department shall establish separate insurance requirements by rule if necessary.

(d) The hydraulic fracturing or horizontal drilling with fracturing operations permit application shall be accompanied by a bond as required by subsection (a) of Section 1-65 of this Act.

(e) Each application for a permit under this Act shall include payment of a non-refundable fee of $13,500. Of this fee, $11,000 shall be deposited into the Mines and Minerals Regulatory Fund for the Department to use to administer and enforce this Act and otherwise support the operations and programs of the Office of Mines and Minerals. The remaining $2,500 shall be deposited into the Illinois Clean Water Fund for the Agency to use to carry out its functions under this Act. The Department shall not initiate its review of the permit application until the applicable fee under this subsection (e) has been submitted to and received by the Department.

(f) Each application submitted under this Act shall be signed, under the penalty of perjury, by the applicant or the applicant's designee who has been vested with the authority to act on behalf of the applicant and has direct knowledge of the information contained in the application and its attachments. Any person signing an application shall also sign an affidavit with the following certification:

"I certify, under penalty of perjury as provided by law and under penalty of refusal, suspension, or revocation of a high volume horizontal hydraulic fracturing permit, that this application and all attachments are true, accurate, and complete to the best of my knowledge.".

(g) The permit application shall be submitted to the Department in both electronic and hard copy format. The electronic format shall be searchable.

(h) The application for a high volume horizontal hydraulic fracturing permit may be submitted as a combined permit application with the operator's application to drill on a form as the Department shall prescribe. The combined application must include the information required in this Section. If the operator elects to submit a combined permit application, information required by this Section that is duplicative of information required for an application to drill is only required to be provided once as part of the combined application. The submission of a combined permit application under this subsection shall not be interpreted to relieve the applicant or the Department from complying with the requirements of this Act or the Illinois Oil and Gas Act.

(i) Upon receipt of a permit application, the Department shall have no more than 60 calendar days from the date it receives the permit application to approve, with any conditions the Department may find necessary, or reject the application for the high volume horizontal hydraulic fracturing permit. The applicant may waive, in writing, the 60-day deadline upon its own initiative or in response to a request by the Department.

(j) If at any time during the review period the Department determines that the permit application is not complete under this Act, does not meet the requirements of this Section, or requires additional information, the Department shall notify the applicant in writing of the application's deficiencies and allow the applicant to correct the deficiencies and provide the Department any information requested to complete the application. If the applicant fails to provide adequate supplemental information within the review period, the Department may reject the application.

(Source: P.A. 98-22, eff. 6-17-13; revised 11-12-13.)

(225 ILCS 732/1-65)

Sec. 1-65. Hydraulic fracturing permit or horizontal drilling with fracturing; bonds.

(a) An applicant for a high volume horizontal hydraulic fracturing or horizontal drilling with fracturing operations permit under this Act shall provide a bond, executed by a surety authorized to transact business in this State. The bond shall be in the amount of $100,000 $50,000 per permit, for the first 10 wells drilled per corporation, then the bond adjusts to $50,000 per well for any additional wells drilled after the first 10 wells, or a blanket bond of $1,000,000 $500,000 for all permits. If the applicant is required to submit a bond to the Department under the Illinois Oil and Gas Act, the applicant's submission of a bond under this Section shall satisfy the bonding requirements provided for in the Illinois Oil and Gas Act. In lieu of a bond, the applicant may provide other collateral securities such as cash, certificates of deposit, or irrevocable letters of credit under the terms and conditions as the Department may provide by rule.

(b) The bond or other collateral securities shall remain in force until the well is plugged and abandoned. Upon abandoning a well to the satisfaction of the Department and in accordance with the Illinois Oil and Gas Act, the bond or other collateral securities shall be promptly released by the Department. Upon the release by the Department of the bond or other collateral securities, any cash or collateral securities deposited shall be returned by the Department to the applicant who deposited it.

(c) If, after notice and hearing, the Department determines that any of the requirements of this Act or rules adopted under this Act or the orders of the Department have not been complied with within the time limit set by any notice of violation issued under this Act, the permittee's bond or other collateral securities shall be forfeited. Forfeiture under this subsection shall not limit any duty of the permittee to mitigate or remediate harms or foreclose enforcement by the Department or the Agency. In no way will payment under this bond exceed the aggregate penalty as specified.

(d) When any bond or other collateral security is forfeited under the provisions of this Act or rules adopted under this Act, the Department shall collect the forfeiture without delay. The surety shall have 30 days to submit payment for the bond after receipt of notice by the permittee of the forfeiture.

(e) All forfeitures shall be deposited in the Mines and Minerals Regulatory Fund to be used, as necessary, to mitigate or remediate violations of this Act or rules adopted under this Act.

(f) The Department, in consultation with the Illinois Emergency Management Agency, shall investigate and determine the bonding requirements for operation of Class II injection wells that accept oil, liquid natural gas, or natural gas waste and fluids. The Department shall establish separate bonding requirements by rule if necessary.

(Source: P.A. 98-22, eff. 6-17-13.)