April 2, 2013

An earlier post talked about the N.C. Public Records Act and protection of trade secrets. Drilling companies and their suppliers sometimes want to withhold the  identity of a chemical used in hydraulic fracturing as a “trade secret”  to avoid sharing commercially valuable information with competitors. The N.C. Public Records Act generally gives the public a right to information gathered by  a state agency in doing the public’s business, but makes an exception for certain types of personal  data  and for information that is legitimately a  trade secret.

Last week, the Mining and Energy Commission’s (MEC) Environmental Standards Committee approved a draft rule requiring  disclosure of chemicals used in hydraulic fracturing. The  draft rule allows a drilling operator to withhold from the public the identity of a fracking chemical that the operator or  supplier designates as a trade secret.   In  the  required  disclosure  to  the public,  the drilling operator would identify a trade secret  chemical  by its chemical  “family”.   More specific information could be  requested by  a health professional or  by emergency   response personnel if necessary to diagnose and  treat a health condition  or to respond to  an emergency.

The rule draft  presented at the start of the  meeting  also  allowed  a drilling operator  to withhold  trade secret  information  from regulatory staff in the Department of Environment and Natural Resources (DENR).    The trade secret information would only have been provided to DENR if  requested  by the department in response to a spill or health concern.  Entirely relying on disclosure  after an environmental emergency or health impact  raises at least two concerns.  In a real-time emergency — such as a major spill or fire —  it may be difficult to  get information from the drilling operator or  supplier quickly enough. For longer term problems (such as groundwater contamination),  the length of time between completion of the well and discovery of the problem may make it difficult to get accurate information at all.

The committee amended the trade secret protection  language  to require the operator to provide  the  trade secret information  to DENR  at roughly the same time the operator  claims the trade secret protection and discloses other  information to the public.   (All disclosure — to DENR and to the public —  would still happen after completion of the hydraulic fracturing operation.) The new language also requires the operator to provide the justification for trade secret designation.

The rule approved by the committee  limits the ability of the public to challenge a decision to  keep information about a fracking chemical  confidential — directly conflicting with the N.C. Public Records Act.  The Public Records Act allows “any person” to request records from a public agency and to take legal action  challenging an agency decision to withhold  the information. That includes the right  to challenge the appropriateness of a decision to keep information confidential under the trade secret exception. Under the  draft MEC rule, a decision to  keep   the identity of a fracking chemical confidential  could only be challenged by  a person who owns or rents  land where  a wellhead is located; the owner of  land adjacent to  a wellhead site; any other person who has “a legal interest in real property”; or a state agency having an interest that may be adversely affected by a chemical used in the fracturing fluid.

Under the draft rule, some  people  who  have a right  under the Public Records Act  to challenge  the withholding of  requested information  would not be allowed to challenge a decision to withhold information about  a fracking chemical.  Renters  would  be unable to challenge the withholding of information about chemicals used in nearby drilling operations.  Depending on how the rule is interpreted, it may also  affect the ability of  nonprofit organizations, news media, and local governments to challenge the appropriateness of  treating a fracking chemical as a trade secret.

An amendment to remove this  language from the rule and simply  follow  the Public Records Act  was voted down in committee.  Some committee members acknowledged the inconsistency with the Public Records Act, but indicated an intent to ask the General Assembly to change the law.  Two  things to note about the committee action:

On  several  issues, members of the Mining and Energy Commission have  discussed the possibility of adopting a rule that  conflicts with  existing state  law on the assumption that the commission can persuade the General Assembly to  conform the law to the rule.    The chemical disclosure rule is the first MEC rule to receive committee approval and may be the test of how these conflicts will be resolved.   This would not be the first controversy over consistency of a  rule with  state law, but  usually  the argument comes out of  differing  interpretations of the law.  I can’t think of another example of an agency proposing a rule knowing that it is inconsistent with  existing  law.

To make the Public Records Act consistent with the proposed  MEC  rule,  the General Assembly would need to change the Public Records Act to  either: 1.  limit challenges to all  trade secret claims;  or 2.  give  hydraulic fracturing  special treatment, making it more difficult to challenge  those particular  trade secret claims .  It isn’t clear  how much interest legislators will have in  a fight over public records law in order to provide special treatment for the oil and gas industry.

From here, the draft chemical disclosure rule goes to the Rules Committee of the Mining and Energy Commission  and then to the full commission for discussion.

NOTE: The original post has been revised to  make it clear that the draft rule  as amended on March 25  requires that trade secret information be provided to DENR staff  at the same time the operator discloses  nonconfidential information to the public.