Deep Injection Wells: EPA Needs to Involve Communities Earlier and Ensure That Financial Assurance Requirements Are Adequate
Published: 2003-06-13T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Billions of gallons of hazardous liquid waste are injected into underground wells each year. These Class I hazardous deep injection wells are designed to inject waste into an area below the lowermost underground source of drinking water. EPA and the states grant permits to commercial operators to construct and operate these wells and must obtain public comments on the permits. Communities often raise concerns about well safety and other matters. GAO examined the extent to which EPA and the states (1) address these community concerns, (2) consider environmental justice issues, and (3) ensure that financial assurances adequately protect the taxpayer if bankruptcy occurs. GAO, among other things, examined the permit process in the four states that have commercial Class I wells.
section_title: What GAO Found
paragraphs: Although EPA provides opportunities for public comment on proposed commercial Class I deep injection wells as required by regulations, these opportunities come late in the process, after a draft permit has been prepared and this timing may limit the extent to which concerns are addressed. EPA responds to all public comments, but it cannot deny a permit on the basis of community concerns if all regulatory requirements for protecting drinking water are met. However, earlier involvement could give communities more time to contact appropriate state or local officials to address concerns that are not within the scope of EPA's authority. In Michigan, where EPA issues injection well permits, communities believe that their concerns are often not fully resolved; in some instances, communities have filed legal actions and complaints to prevent well construction. In contrast, the three states to which EPA has authorized responsibility for issuing permits have enacted requirements for earlier and more public involvement. Overall, they believe that early involvement better addresses community concerns, mitigates controversial issues, and avoids litigation. EPA addresses environmental justice issues in two basic ways--first, as part of its process for deciding whether to issue a permit for well construction, and second, in response to specific civil rights complaints filed with the agency after permits are issued. EPA encourages its regional offices issuing construction permits to determine if minority and low-income populations are disproportionately affected by a proposed well's location. Individuals and communities may appeal EPA permit decisions with EPA's Environmental Appeals Board or, for other permit decisions, file complaints under Title VI of the Civil Rights Act with EPA's Office of Civil Rights. Only one community has filed complaints related to deep injection wells; these complaints did not result in changes to the permit decisions. Court decisions have recently limited the basis for filing Title VI complaints, making the process an unlikely avenue for changing permit decisions. Current financial assurance requirements may not ensure that adequate resources are available to close a commercial deep injection well in the event of bankruptcy or ceased operations. While only four sites have gone into bankruptcy or ceased operating since the program began in 1980; two did not have adequate financial resources to plug and abandon wells and for the other two, financial assurance was not tested because other companies purchased and continued operating the wells. EPA has questioned the adequacy of some financial assurance requirements in other programs that are similar to those for Class I deep injection wells. EPA's Office of Inspector General has reported that financial assurance requirements for another waste management program, which the requirements for deep injection wells mirror, may not be adequate to close facilities; an EPA working group is also reviewing similar aspects of financial assurance requirements for a different type of injection well for possible changes.

section_title: Letter
paragraphs: Billions of gallons of hazardous liquid waste are injected into underground  wells each year. These wells, known as Class I deep injection wells, are  built to contain hazardous waste—from the pharmaceutical, chemical  manufacturing, and metalworking industries, among others—below the  lowest underground source of drinking water. Class I deep injection wells  may either be owned and used by a facility to handle the waste it generates  itself (noncommercial wells) or may be wells operated by companies that  accept waste from multiple facilities and may be far from any particular  waste-generating site (commercial wells). Thirteen commercial wells  operate in the United States; they are located in Louisiana, Ohio, and  Texas. In addition, two commercial wells have been constructed in  Michigan but are not yet operating. Under the Safe Drinking Water Act  (SDWA), the Environmental Protection Agency (EPA) is responsible for  establishing standards for and issuing permits for the construction and  operation of these wells. EPA can authorize states to administer the  program—giving them primacy—as long as the state requirements are at  least as stringent as the federal requirements. EPA has granted primacy to  Louisiana, Ohio, and Texas. Michigan has not applied for primacy and has  no plans to do so because it does not believe it has enough wells to  warrant devoting staff and resources to permitting and regulating them.
In order to operate a commercial well that accepts hazardous waste, well  owners need to obtain several different permits that establish conditions,  including requirements under EPA regulations. First, under  the Underground Injection Control (UIC) program, owners must obtain a  construction permit, which, among other things, specifies how the well is  to be constructed to prevent the injected waste from migrating to sources  of drinking water. The wells must also be located in geologically suitable  areas—areas that are not susceptible to earthquakes—to ensure that the  waste will not migrate. Second, under the Resource Conservation and  Recovery Act (RCRA), owners must obtain a permit to ensure that any  above-ground treatment and storage facilities can be operated safely;  owners frequently treat and store the waste on the surface before injecting  it below ground. Under RCRA, they must also demonstrate that injected  waste will be contained within a defined underground area. Finally,  owners must have a UIC operating permit from EPA or the state before  injecting any waste. Both UIC and RCRA regulations require EPA or the  state to obtain public comments before they issue permits.
According to a 2001 EPA study of the risks associated with Class I wells,  deep injection wells are relatively safe. Nonetheless, communities where  commercial wells are located have raised concerns about the hazards that  these wells may pose. In particular, they point out that the aboveground  activities at the well site, such as trucks that transport waste and  treatment and storage facilities that handle waste, increase the possibility  of accidental hazardous waste spills, noise, and odor pollution, and may  reduce property values.
Several grassroots and environmental organizations have also voiced  environmental justice concerns, charging that low-income, minority  communities are unfairly targeted as locations for hazardous facilities of  all types, including commercial deep injection wells. Executive  Order 12898, issued in 1994, directs federal agencies, as appropriate, to  identify and address the disproportionately high and adverse health and  environmental effects of its programs, policies, and activities on minority  and low-income populations. Although this order does not create a right to  judicial review, individuals who have environmental justice concerns may  file a petition for review with EPA’s Environmental Appeals Board, if EPA  is the involved party, or a Title VI complaint with EPA’s Office of Civil  Rights, if the involved party is a recipient of EPA financial assistance, such  as a state office.
Finally, EPA requires a Class I well owner or operator to establish  financial assurance to cover the estimated cost of the plugging and  abandonment of the well. Financial assurance can be provided in several  approved forms, such as trust funds or as surety bonds. Each year, the  owner or operator must review the cost estimate on which the financial  assurance is based to determine whether it is still adequate to cover  anticipated costs due to inflation and make any needed changes.
You asked us to examine the extent to which EPA and the states  (1) address community concerns in permitting well construction,  (2) address environmental justice issues in the construction permit  process, and (3) ensure that financial assurances adequately protect the  taxpayers if an owner goes bankrupt. To address these issues, we, among  other things, examined the permitting process in the four states that have  commercial Class I deep injection wells: Louisiana, Michigan, Ohio, and  Texas. Because Michigan does not have primacy, EPA manages the  permitting process.
subsections: section_title: Background
paragraphs: Disposing of wastewater through underground wells began in the 1930s,  when oil companies started pumping brine produced from oil and gas  production into porous rock formations underground. This disposal  method is more cost effective than treating and reusing wastewater. This  disposal method was increasingly used by the chemical and petrochemical  industries in the 1960s and 1970s, and EPA raised concerns that injected  waste could contaminate underground drinking water. Underground water  supplies are used to provide about 50 percent of the public water in the  United States and are vulnerable to contamination. The Safe Drinking  Water Act (SDWA) of 1974 authorized EPA to regulate underground  injection wells in order to protect drinking water sources. EPA published  regulations establishing the Underground Injection Control (UIC) program  in 1980, specifying safeguards to prevent injection wells from endangering  underground sources of drinking water.
The UIC program encompasses five classes of underground wells.  Class I wells, which are the focus of this report, inject hazardous and  nonhazardous waste from manufacturing and other sources below  the lowermost underground source of drinking water located within a  quarter mile of the well. Approximately 500 Class I wells operate  nationwide, many concentrated in midwestern and southern states. The  other four classes range from Class II wells involved in oil and natural gas  production to Class V wells that include waste from agricultural runoff and  septic systems.
Of the 473 Class I deep injection wells that exist nationwide, only 13 wells  are at commercial sites that accept and inject hazardous waste from  various manufacturing facilities, according to the most recent EPA data  (2001). Two more commercial wells have been constructed in Michigan  and are awaiting final approval for operation. The other noncommercial  Class I wells are owned by companies that use them exclusively to  dispose of their own manufacturing waste. Because hazardous waste is  injected into Class I wells, EPA imposes stringent technical requirements  on the wells to protect drinking water supplies through both UIC and  RCRA regulations.
Class I hazardous well owners and operators must meet certain  requirements to construct a well. For example, they must review the area  to ensure that the site is geologically suitable. One purpose of this review  is to ensure that other existing or abandoned wells nearby do not provide  avenues for the injected waste to enter underground sources of  drinking water.
To obtain final approval to operate a deep injection well, owners and  operators are required to, among other things    properly design the well to ensure that the waste will not migrate into an  underground source of drinking water;    assure that injection pressure does not cause fractures in the injection  zone or migration of fluids;    provide plans for closing the well and post-closure care;    demonstrate and maintain financial assurance (trust fund, bond, or other  approved forms) to ensure that the well can be properly plugged and  abandoned;    establish monitoring and reporting requirements; and    demonstrate that the injected waste will not migrate beyond the injection  zone for 10,000 years, if otherwise prohibited hazardous waste will be  injected into the well.
Well owners must design and construct a well shaft that is made of three  or more protective layers of pipe or tubing that go into the injection zone.  Wastewater is injected through the innermost part of the constructed well  shaft, referred to as the injection tubing. (See fig. 1.)
Owners of Class I injection wells must obtain RCRA permits if they plan  to treat and store waste before injecting it. These permits are for building  and operating treatment and storage facilities. RCRA prohibits the land  disposal of restricted hazardous waste unless EPA determines the  prohibition is not required in order to protect human health and the  environment for as long as the waste remains hazardous. Under UIC  program regulations, EPA requires owners to demonstrate, among other  things, that, to a reasonable degree of certainty, the restricted hazardous  waste will not migrate out of the injection zone for 10,000 years. EPA  determines compliance with this requirement through its computer  simulation models, which the owners use to enter their specific data to  demonstrate the movement of injected waste under certain geologic  conditions. If the owner successfully demonstrates that waste will not  migrate out of the injection zone, EPA will grant an exemption to the  RCRA regulation, sometimes referred to as a land ban petition or a  no-migration petition.
The permitting of deep injection wells can raise environmental justice  concerns within a community, and permit decisions may be challenged  based on environmental justice concerns. Executive Order 12898,  issued in 1994, directed federal agencies to incorporate environmental  justice as part of their missions. Agencies are to identify and address  disproportionately adverse human health or environmental effects on  minority or low-income populations of their programs, policies, or  activities. Title VI of the Civil Rights Act of 1964 prohibits discrimination  on the basis of race, color, or national origin in any program or activity  that receives federal funding; individuals may appeal permit decisions if  they believe the prohibited discrimination occurred. Section 601 of the act  prohibits intentional discrimination on the basis of race, color, or national  origin in programs or activities receiving federal financial assistance.  Section 602 provides federal departments or agencies with the authority  to issue rules or regulations implementing the objectives contained in  section 601.
To ensure that financial resources are available to close wells if they  cease operation, EPA requires financial assurance from owners under the  UIC and RCRA programs. Owners must provide financial assurance for  plugging and abandonment of wells and closing associated RCRA  treatment and storage facilities. For both the UIC and RCRA programs,  owners can provide financial assurance through approved methods such  as trust funds, surety bonds, letters of credit, or insurance. The amount of  financial assurance needed is based on the estimated cost of the plugging  and abandonment of the well or closing the treatment and storage facility.
For example, the estimated cost for plugging and abandonment of one  well in Michigan was $25,000, while the estimate for another well in Ohio  was $250,000; the variation in cost was due to difference in the sizes and  depths of the two wells. Each year owners must also certify that the  financial assurance is adequate and make any necessary changes to the  type or amount of financial assurance.
section_title: Community Concerns Could Be More Comprehensively Addressed Before Draft Permits Are Completed
paragraphs: Under EPA regulations, communities can raise concerns during the  required public comment process for deep injection well permits after a  draft permit is issued. EPA bases final approvals on whether a proposed  well meets technical and safety requirements under its regulations and  does not have authority under the Safe Drinking Water Act to deny a  permit on the basis of other concerns. Earlier public involvement would  allow more time for individuals to approach appropriate state or local  officials with any other concerns. When states are the permitting authority,  they provide more and earlier opportunities for obtaining community  concerns. The National Academy of Public Administration believes that  states can pay more attention to these concerns than EPA can and that  these actions mitigate or avoid controversial issues and possible litigation.
subsections: section_title: EPA Completes Draft Permits Before Addressing Public Concerns
paragraphs: EPA regional offices, or state offices for states with primacy, obtain  information about community concerns regarding UIC permits through  public comment processes. These offices first request public comments  after working with a prospective well owner to complete a draft permit,  which may take as long as 2 years for a construction permit. When the  draft is complete, EPA or state officials establish a list of interested  parties—citizens and local government representatives—and mail a fact  sheet describing the proposed well. The public must be given at least  30 days from the date of the draft permit notice to submit written  comments or request a public hearing, in which case the hearing time and  place are also published in the local newspapers. Last, EPA or a state  office makes a final permit decision and prepares written responses to the  public comments. Figure 2 shows the permitting process, including  opportunities for public comment.
Because the agency and the prospective well owner have already  expended time and resources to develop the draft permit, communities  have raised concerns that the opportunity for commenting on the  proposed construction permit is often too late in the process to have any  effect. EPA does not have authority under the Safe Drinking Water Act to  deny a permit if it meets technical and safety requirements, even if the  application raises other community concerns. We also believe that, after  this much investment, well owners may not be as willing to make changes  in their planned operations and communities may not have enough time to  contact appropriate state and local officials to have their nontechnical  concerns addressed.
Both EPA and the National Academy of Public Administration (NAPA)  have noted the importance of getting the public involved early in the  permitting process. For example, in January 2001, EPA reported that it is  important to involve the public early in its decision-making process  because stakeholders (such as owners or city officials) and the public  have perspectives that can greatly improve the quality of decision making.  Similarly, in December 2001, NAPA raised concerns about how the public  has missed opportunities to provide timely input in the permitting process.  Without timely participation, the public is less able to affect important  decisions at the state and local level, such as site location.
Not providing an opportunity for early public involvement may result in  extensive community opposition to proposed wells. For example, the two  proposed wells in Romulus, Michigan generated extensive opposition.  Community concerns included issues such as possible damage to the  interstate highway as a result of increased traffic traveling to the wells.  EPA only has authority to base permitting decisions on SDWA  requirements and does not consider the impact of traffic on the interstate  highway or the safety of transporting hazardous waste to Class I facilities.  These particular wells have generated substantial public comment and  legal action by community members. In 1996, the applicant, Environmental  Disposal Systems (EDS), applied for a construction permit. The public was  first notified of the draft permit 15 months later. After another 2 years, and  significant public comments, EPA issued the construction permit without  significant modifications. As of April 2003, EPA was still engaged in  resolving community concerns through public hearings relating to the no- migration petition.
section_title: Some States Require Community Concerns to Be Addressed Early in the Permitting Process
paragraphs: Recognizing the importance of public involvement in making decisions  that affect the environment, Texas, Ohio, and Louisiana have gone  beyond the federal minimum public notice and comment requirements to  address community concerns. For example, the Texas Commission on  Environmental Quality (TCEQ) must notify the public when it first  receives a completed permit application—unlike EPA, which requires  public notification after the permit is drafted. Texas’s process increases  the opportunity for the public to provide comments at a point when the  state can better address the comments. In addition, in making permitting  decisions, TCEQ must determine that the well is in the public interest,  considering the following issues:    compliance history of the applicant;    whether the applicant will maintain adequate insurance for bodily injury  and property damage caused by accidents, or will otherwise demonstrate  financial responsibility; and    whether there is a reasonably available practical, economic, and feasible  alternative to an injection well.
In addition, the well must not impair existing rights, including mineral  rights. If the well is not in an industrial area, the applicant must make a  reasonable effort to ensure that the burden on local law enforcement,  emergency medical or fire-fighting personnel, or public roadways will be  reasonably minimized or mitigated.
All three states have also enacted additional requirements to address  community concerns. For example, under its RCRA program, Texas  requires that new commercial hazardous waste management facilities,  including those associated with Class I deep injection wells, be more than  2,640 feet from an established residence, church, school, day care center,  surface water body used for a public drinking water supply, or public park.
States have also taken other steps to address community concerns. For  instance, for one commercial Class I deep injection well in Ohio, state  officials assisted a community in speaking directly with the prospective  well owner. During these discussions, community residents raised  concerns about transporting waste under dangerous weather conditions  and the increased likelihood of spills. In response, the company agreed not  to transport waste to the well site during adverse weather conditions.
section_title: Environmental Justice Concerns Are Addressed during the Permitting Process and in Response to Civil Rights Complaints
paragraphs: EPA addresses environmental justice issues during the process for  deciding on a construction permit and when civil rights complaints are  filed with the agency after permits are issued. While EPA has yet to issue  a national policy on environmental justice, some regional offices have  independently developed and implemented their own guidelines for  considering environmental justice during their decision-making processes.  After permit decisions are made, individuals and communities may raise  environmental justice issues by appealing permit decisions with EPA’s  Environmental Appeals Board or filing complaints under Title VI of the  Civil Rights Act with OCR. Recent court decisions, however, have limited  the basis for filing these complaints, making the process an unlikely  avenue for changing permit decisions. EPA’s Title VI regulations and  administrative processes for Title VI complaints remain in effect.
subsections: section_title: EPA Regions Are Encouraged to Consider Environmental Justice Issues for Proposed Well Sites
paragraphs: In 1995, in response to Executive Order 12898, EPA incorporated  environmental justice considerations into its approval process for  construction permits. Under EPA’s strategy, staff must integrate  environmental justice into every EPA program, policy, and activity. EPA’s  Office of Environmental Justice oversees the implementation of  environmental justice, and it has drafted national guidance that will assist  EPA staff in evaluating potential environmental justice concerns and  taking actions to address them. To date, the national guidance has been  reviewed internally within EPA, but EPA has not yet published it for  comment in the Federal Register. In reviewing the draft guidance, EPA’s  Office of General Counsel raised a number of policy concerns that will be  resolved before the guidance is released for public comment. As of May  2003, Office of Environmental Justice officials could not say when the  guidance would be released for public comment.
In the absence of national EPA guidance on environmental justice,  EPA’s offices in regions V and VI have developed guidelines for evaluating  potential environmental justice considerations; these regions cover the  four states that have commercial Class I deep injection wells. Regional  officials said that environmental justice assessments are routinely being  performed for Class I deep injection wells, although the regional  guidelines only encourage EPA staff to conduct an assessment that  considers demographic make up and the potential health risks that the site  might pose to area residents. For example, in assessing demographics for  issuing a permit for a facility, such as a waste treatment facility, staff in  EPA region V would determine whether the number of low-income and  minority residents living within a specific radius of the facility is greater  than or equal to two times the average low-income and minority  population in the state. If that were the case, EPA staff would conduct  community outreach efforts, such as holding public meetings or  workshops, to better understand and respond to community concerns.  Regional officials said they might decide that issuing a permit would  present additional risks to a community already affected by other  environmental sites and they would, therefore, impose special permit  requirements, such as limiting the amount of waste injected into wells or  requiring increased monitoring, to ensure safe operation. EPA region VI  has performed demographic analyses on all current Class I deep injection  wells and will perform them on any new Class I deep injection wells that  submit no-migration petition applications in the future.
Officials from the three states that have primacy for deep injection wells— Louisiana, Ohio, and Texas—told us that they are not required under state  law to specifically consider environmental justice issues during permitting  processes. However, Title VI prohibits discrimination in any program that  receives federal funds. The state officials were not aware of any  communities that had raised environmental justice concerns.
section_title: Individuals Can Raise Environmental Justice Concerns through Civil Rights Complaints Filed with EPA
paragraphs: Individuals or communities with environmental justice concerns may file  petitions with EPA’s Environmental Appeals Board (EAB) to review  permit decisions or file complaints under Title VI of the Civil Rights Act  with EPA’s Office of Civil Rights (OCR). These complaints involve a broad  range of facility permit decisions, not just deep injection wells. Members  of only one community—Romulus, Michigan—have challenged permit  decisions for a commercial Class I deep injection well on environmental  justice grounds. In 1998, two individuals filed petitions with EAB to review  EPA’s issuance of construction permits to Environmental Disposal  Systems (EDS). Among other things, the petitions claimed that (1) the  permits and EPA’s response to written comments were not provided in a  timely manner for public review to two libraries, (2) EDS should be  required to conduct a survey of the surrounding area to determine the  location of other deep injection wells because the Michigan Department of  Environmental Quality information was unreliable, and (3) the EPA  environmental justice demographic analysis was flawed because it used  data from a 2-mile radius instead of a 4-mile radius, which would have  included a larger minority population. In October 1998, the EAB concluded  that the petitions did not provide a basis for review of the permit decision.  Specifically, the board found that the alleged delay in permit notification  and responses to comments did not affect the petitioner adversely because  EPA provided 6 extra days for public comments. Regarding the survey for  other wells, the EAB stated that the petitioner did not provide any support  for his claim that data from the Michigan Department of Environmental  Quality was unreliable. The EAB stated that the region did not rely only on  this data and that there was no indication that EPA’s conclusion was  erroneous. Lastly, regarding the use of the 2-mile radius for the  demographic analysis, the EAB deferred to the EPA region’s decision that  2 miles was an appropriate radius for the analysis, stating that determining  the radius is a highly technical judgment based on the probable dispersion  of pollutants.
Another Romulus citizen filed a Title VI complaint with EPA’s OCR,  which was accepted for review in December 2001, raising three issues  regarding Michigan’s RCRA permit decisions on the sites’ treatment and  storage facilities. (Michigan has primacy for RCRA.) Two of these issues  concerned procedural matters which OCR rejected. OCR dismissed the  third issue: that citizens of Romulus were disproportionately exposed to  pollution and other environmental dangers. OCR found that the facility  would not adversely impact the community because EPA had concluded  that the wells would not damage water, air, or soil quality, nor would they  increase noise pollution. Moreover, OCR found that the potential facility  impacts would not have a disparate effect on African-Americans for  Title VI purposes. A chronology of the events for the EDS site is presented  in appendix I.
Since 1992, in addition to the Romulus petition, EAB has received one  other petition involving environmental justice concerns related to a Class I  deep injection well. In that case, which involved a noncommercial well in  Michigan, individuals claimed that the well permits should be denied  because the area surrounding the site was already host to numerous  burdensome land uses and that the 2-mile area analyzed by EPA was  too small to allow for proper evaluation of the sociological, health, and  financial impacts. The board rejected these claims and denied review on  these issues, stating that the petitioner had failed to show that the permit  would not protect drinking water sources of populations within 2 miles  of the well site or that citizens at a greater distance would not  be protected. Since 1993, OCR has received 135 Title VI complaints— including complaints not related to deep injection wells. Most of these  complaints—91—were rejected for investigation or dismissed. Table 1  shows the disposition of all Title VI complaints as of February 2003.
Recent court decisions have limited the basis for filing Title VI complaints,  making the process an unlikely avenue for challenging permit decisions.  In 2001, the Supreme Court ruled that individuals do not have a cause of  action for violations of disparate impact regulations—those regulations  which prohibit activities that are not intentionally discriminatory but  which, in fact, that have the effect of discriminating. Later in 2001, the  U.S. Court of Appeals for the Third Circuit, relying on the Supreme Court  decision, held that individuals could not challenge disparate impact  regulations and that Title VI only prohibits intentional discrimination. The  federal government, however, can still bring enforcement actions.
section_title: Financial Assurance Requirements May Not Be Adequate for Closing Wells
paragraphs: It is uncertain whether the financial assurance requirements for closing  deep injection wells can adequately provide the needed financing in cases  of owner bankruptcy or other events that force well closure. EPA and  state officials believe that financial assurance requirements are adequate  and would cover the closing costs for the 13 commercial wells currently  in operation. While only four sites have ceased operation since the UIC  program began in 1980, two did not have adequate financial resources to  plug and abandon the wells, resulting in additional costs to taxpayers.  For two other sites, the financial assurance was not tested because  other companies purchased and continued operating the wells. EPA  has questioned the adequacy of similar aspects of financial assurance  requirements in other programs. In 2001, EPA’s Office of Inspector  General stated that financial assurance requirements for RCRA facilities,  on which financial assurance requirements for deep injection wells were  based, needed improvement, and EPA is currently requesting public  comments on the Inspector General’s conclusions and recommendations.  EPA has also initiated an internal review of financial assurance  requirements for Class II oil and gas deep injection wells because of  concerns that aspects of current requirements, similar to aspects of the  Class I deep injection well requirements, may not be adequate.
subsections: section_title: Adequate Financial Resources Have Not Always Been Available for Plugging and Abandonment of Deep Injection Wells
paragraphs: When owners of commercial Class I wells have filed for bankruptcy or  ceased operating, they have not always had adequate financial resources  to cover the costs of plugging and abandonment of wells. Since 1980, when  the deep injection well program began, four owners have filed for  bankruptcy or ceased operating. In two cases, the adequacy of the  financial assurance was not tested because other companies purchased  and continued operating the wells. The new owners, according to state  officials, provided adequate financial assurance for these two sites. Two  other sites did not have adequate financial resources to shut down the  wells. In one case, the owner did not have adequate financial assurances in  place as required. The second case, although no permit was granted and  thus the financial assurance requirements were not tested, demonstrates  the potential cost to the public if adequate financial resources are not  available. Both of these cases occurred in Texas.
subsections: section_title: Malone Services Company Deep Injection Wells
paragraphs: Malone Services Company operated two wells under state-issued UIC and  RCRA permits. In 1983, to meet the UIC financial assurance requirements,  the company provided a surety bond as financial assurance for the wells.  In 1988, the insurance company that had issued the bond cancelled it,  leaving the company without financial assurance for the wells. In 1992, the  company submitted a new surety bond issued by a different insurance  company to meet its financial assurance requirements; however, the state  did not accept this assurance because the insurance company issuing the  bond was not an acceptable insurance provider. In 1997, citing several  environmental problems relating to UIC and RCRA requirements for  monitoring, testing, reporting, and financial assurance and the owner’s  lack of cooperation, the state revoked the company’s UIC and RCRA  permits. In July 1998, the state attorney general filed a petition to put  Malone Services Company into involuntary bankruptcy. Although state  officials were not concerned that the injected waste would migrate outside  of the approved injection zone, they were concerned about aboveground  contamination from surface spills. The surface had become so highly  contaminated that the site was classified as a Superfund site in June 2001,  with EPA leading cleanup activities. As of May 2003, EPA is overseeing the  Superfund cleanup and is using the well to dispose of liquid waste as part  of the site cleanup. In addition, EPA is contacting the primary responsible  parties, including the owner and the companies that sent waste to the site,  to encourage their participation in conducting and funding the site  remediation, in lieu of reliance on federal funds.
section_title: Wastewater, Inc., Deep Injection Well
paragraphs: In 1979, Wastewater, Inc., began converting a well originally used for oil  and gas exploration to an injection well. This conversion, which was  conducted under the authority of Texas Department of Water Resources,  took place 1 year before the federal UIC program began and 3 years before  Texas obtained primacy for the program. When it received primacy,  Texas required the company to reapply for a new UIC well permit for  construction and operation so that the state could issue the permit based  on the recently enacted federal UIC regulations, including the requirement  to provide adequate financial assurance. The company submitted a UIC  permit application to the state in July 1982 and provided a letter of credit  for financial assurance in July 1983. However, Texas never approved the  1982 application because the company requested that the state suspend  the application process while it resolved issues resulting from the death  of the company’s owner. In 1992, the company asked the state to withdraw  its application. In April 1998, the letter of credit for financial assurance  expired, but the company had ceased operating.
In May 2000, the state issued an enforcement order requiring the company  to plug the well. As of May 2003, the company had not done so, because  officials from the company that was formed after the bankruptcy—Future  Environmental Systems—were still discussing with state officials the  possibility of applying for an operating permit and providing adequate  financial assurance. While the well needs to be closed for safety reasons,  it does not pose immediate environmental concerns because construction  was not completed and waste had not been injected into the well,  according to EPA and state officials. If the company does not provide  adequate financial assurance and obtain authorization to operate the  well, the state will try to compel the company to close the well and, if  unsuccessful, will use its own funds to close it.
EPA and state officials responsible for overseeing the 13 commercial  Class I wells currently in operation believe that the owners’ or operators’  financial assurances provide enough funds to close their wells in the event  of bankruptcy. Seven of these well owners or operators have provided  financial assurance through insurance policies, while the other wells rely  on other forms of financial assurance.
section_title: Uncertainties Exist about the Adequacy of Financial Assurance Requirements in Other Programs
paragraphs: Uncertainties about the adequacy of RCRA financial assurance  requirements have been raised by EPA officials, and EPA’s Office of  Inspector General (OIG) recommended changes to the requirements in  March 2001. UIC financial requirements are based on RCRA requirements  and, therefore, the OIG recommendations are relevant to the UIC program.  According to the OIG, the risk associated with financial assurance  provided by insurance, surety bonds, and trust funds may be higher than  EPA initially estimated for its financial assurance regulations, and funds  may not be available when needed. Specifically, for state financial  assurance programs for RCRA facilities, insurance provided by captive  insurance companies may be inadequate for covering closure and  post-closure costs. Captive insurance companies are wholly owned  subsidiaries of the corporation they are insuring; if the parent company  experiences financial difficulty, state financial assurance programs can  have little confidence that the captive insurance company will provide the  funds needed to pay for closure. These insurance policies are also high  risk if they cannot be assigned to different owners when a RCRA facility is  sold. The OIG recommended that EPA issue guidance for state financial  assurance programs to reduce risks associated with insurance policies and  that EPA investigate complex insurance issues with states to determine  whether additional guidance is needed.
The OIG report also noted that state officials had difficulty determining  whether the dollar amounts provided for financial assurance were  adequate to cover all costs for closing facilities. Program officials  reviewing financial assurance statements often rely on subjective  judgment and are unaware of automated information available to assist in  their reviews. This situation prompted the OIG to recommend that EPA  help states obtain the automated information for reviewing cost estimates.
In October 2001, responding to the OIG report, EPA requested public  comments on the report’s conclusions. Specifically, EPA requested  comments from the states, the insurance industry, and the regulated  community on the need for additional guidance on insurance used as  financial assurance for RCRA facilities. In addition, EPA requested  comments on any additional requirements for insurers in general, such  as a possible requirement that insurers have a minimum rating from  commercial rating services. By requiring insurers to have ratings that  reflect relatively strong financial conditions, EPA expects to reduce the  risk to the agency or to a state if the insurer fails to provide the funding  required for closing a facility. According to an EPA official, as of May 2003,  the agency is continuing to review the public comments received and will  then decide whether proposed changes to financial assurance  requirements are needed. The agency has not set a specific time frame for  proposing changes.
In July 2002, EPA also formed a UIC work group to review the adequacy of  financial assurance requirements for Class II oil- and gas-related injection  wells, but not Class I deep injection wells because of their relatively small  number. However, the concerns about adequacy are similar. The work  group was formed because EPA officials recognized that the requirements,  issued in 1984, might need updating and because regional offices were not  implementing the requirements consistently. Specifically, the regional  offices were not using a standard approach for calculating the plugging  and abandonment costs, which posed problems for operators with  permitted facilities in more than one EPA region. Officials also observed  that under present economic conditions it is increasingly difficult for  owners to meet the financial assurance requirements, but failure to do  so risks contaminating underground drinking water sources. The work  group is to  identify financial assurance alternatives to those currently in use,    develop guidance for providing consistency in calculating plugging and  abandonment costs,    determine whether states are requiring adequate financial assurance for  plugging and abandonment of injection wells, and    prepare possible modifications of the financial assurance language  contained in the SDWA.
The work group expects to complete all of its objectives by April 2004.
section_title: Conclusions
paragraphs: The public participation process EPA currently uses is not as effective  as it could be in addressing the broad range of community concerns  about Class I deep injection wells. Because EPA’s current requirements  call for the agency to notify the public after it drafts the permit, rather  than when it receives a permit application, we believe the process is  essentially too late to have a meaningful effect, and that it reduces public  confidence in the process. In contrast, when states involve the community  early, they have experienced better community relations—which EPA  believes is important and wants to achieve—and have avoided costly,  time-consuming delays.
The ultimate test of whether financial assurances are adequate is an  owner’s bankruptcy. If an owner declares bankruptcy and the financial  assurances are found to be inadequate, drinking water sources may be at  risk and the public may be required to bear the cost of closing a well.  Consequently, any uncertainties about the adequacy of financial  assurances need to be minimized. Both the potential burden to the  taxpayer if adequate financial resources are not available and the potential  problems pointed out by the OIG and by EPA’s own working group call for  action to review and improve these requirements to determine if  improvements are necessary.
section_title: Recommendations for Executive Action
paragraphs: To allow more time for community concerns to be addressed, we  recommend that the Administrator, EPA, involve communities earlier in  the permitting process for constructing a well.
Furthermore, to ensure that requirements are adequate to cover the costs  of plugging and abandonment of Class I hazardous deep injection wells  and thereby reducing the public’s financial risk, we recommend that  the Administrator, EPA, review and, if warranted, strengthen financial  assurance requirements for Class I hazardous deep injection wells. In so  doing, the Administrator should    consider the applicability of the Office of the Inspector General’s findings  and recommendations for RCRA financial assurance, and    consider the applicability of the results and recommendations of the  ongoing work group for Class II wells.
section_title: Agency Comments
paragraphs: We provided a draft of this report to EPA for its review and comment. EPA  did not agree with the report’s conclusions and recommendations for  improving the UIC program and stated that the report contained various  factual and technical errors. We continue to believe that our report is  accurate and that our recommendations are sound. We have made some  changes to clarify our findings.
EPA raised several principal objections to the report. First, EPA stated  that our report mischaracterizes its authority under the UIC program and  the relevant scope of public involvement and comment; to this end it  suggested that our report and recommendations attribute responsibilities  to the UIC program beyond the scope of the SDWA. It was not our intent  to attribute responsibilities to the UIC program beyond the scope of the  SDWA and we have made clarifications to reflect that some community  concerns are not within the scope of EPA’s authority. The report clearly  sets forth the public comment process that EPA follows and explains that  the agency cannot deny a permit on the basis of community concerns if  the permit applicant meet all regulatory requirements. While EPA does not  have authority to address certain nontechnical community concerns under  the SDWA, we believe that public involvement before the draft  construction permit is issued would allow more time for the community to  have its nontechnical concerns addressed at the state or local level. In  addition, nothing in the SDWA precludes EPA from involving communities  earlier in the permitting process, before draft construction permits are  issued. Indeed, involving the community earlier in the process is  consistent with, and in the spirit of, EPA’s policy stressing the importance  of early public involvement.
Second, EPA stated that our report mistakenly implies a significant  deficiency in the financial assurance requirements for deep injection  wells and that this finding is inconsistent with a long history of success  of financial assurance provisions for Class I wells. We disagree that the  financial assurance requirements for deep injection wells have a long  history of success, and we believe there is sufficient evidence to suggest  a re-examination of these requirements. Our report describes instances  in which owners have failed to provide adequate financial resources  and demonstrates there is a potential burden to the taxpayer if financial  assurance requirements are not adequate. EPA further states that our  recommendation to review the financial assurance requirements  inappropriately relies on experiences from another program (RCRA).  We have clarified this section of our report to more clearly state that we  are in fact discussing financial assurance requirements for the RCRA  program. Nevertheless, we disagree that the lessons learned from the  RCRA financial assurance requirements are inapplicable to Class I  Hazardous deep injection wells. In the preamble to the final rule  promulgating the financial assurance requirements for Class I hazardous  deep injection wells, EPA stated that it had determined that most of the  RCRA financial assurance requirements should apply to Class I wells. EPA  noted that many wells have RCRA surface facilities that already must  comply with RCRA requirements and that wells are major facilities that  may require substantial resources to plug properly. We believe that this  reasoning still applies today, and that it is appropriate for EPA to consider  corresponding changes to the financial assurance requirements for Class I  hazardous deep injection wells. EPA further states that our discussion of  its financial assurance work group is misleading because the group is  examining an entirely different class of well. Our report acknowledges that  the EPA working group is examining the requirements for Class II oil and  gas wells, but we believe that certain aspects of those wells, such as a  standard method for calculating plugging and abandonment costs, may  also be applicable to Class I wells. We have clarified our recommendation  to state more directly that EPA should “consider” the results and  recommendations from the working group for Class I wells.
Finally, EPA stated that the report contains factual and technical errors  that it pointed out during the development of the report. We do not believe  this assertion is fair or accurate. In accordance with GAO’s normal  practice, based on oral comments received during our exit conference  with EPA officials we incorporated changes into the draft report. While  EPA may disagree with our interpretation of the facts, we are unaware of  any other instances in which EPA provided factual or technical comments  that we did not address. EPA’s comments and our detailed responses are  in appendix III.
We conducted our review from May 2002 through May 2003 in accordance  with generally accepted government auditing standards. (See app. II for a  detailed description of our scope and methodology.)
As arranged with your office, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 30 days after the  date of this letter. At that time, we will send copies to other appropriate  congressional committees and the EPA Administrator. We will also make  copies available to others upon request. In addition, the report will be  available at no charge on the GAO Web site at http://www.gao.gov/.
Should you or your staff need further information, please contact me on  (202) 512-3841. Key contributors to this report are listed in appendix IV.
section_title: Appendix I: Chronology of Events for the Construction of Deep Injection Wells by the Environmental Disposal Systems Company
paragraphs: Environmental Disposal Systems (EDS) is interested in constructing and  managing deep injection wells for treating and disposing of hazardous  wastewater from various industries, including, steel production, food  processing, automobile manufacturing, and oil and gas production. The  company initiated the process in 1990 by applying for two Class I deep  injection well construction permits. As of May 2003, EDS had not yet  started operating the wells due to a myriad of events that caused delays,  including relocating the well site, building a storage and treatment facility,  participating in several public hearings, and facing challenges to EPA’s  permit decisions filed with EPA’s Environmental Appeals Board and a  Title VI complaint filed with EPA’s Office of Civil Rights. EDS also needs a  RCRA operating permit from the state to begin hazardous waste  operations. EPA officials anticipate approving the no-migration petition in  mid-2003, and at that time Michigan’s Department of Environmental  Quality will consider the issuance of the RCRA operating license. The  following chronology details the significant events that occurred during  this lengthy process:    1990—EDS applied to EPA for construction permits for two Class I deep  injection wells in Romulus, Michigan, which is located near the Detroit  Metropolitan Airport. City council members supported the wells’  construction, adopted a resolution welcoming EDS and, under an  agreement with EDS, planned to receive around $1 million in royalties  from EDS once the wells began operating.    1991—In August 1991, the Romulus City Council passed a resolution  rescinding its earlier welcoming resolution to EDS. After obtaining  relatively few public comments on the draft construction permits, EPA  issued a final construction permit in October.    1993—EDS had almost completed the construction of one well when  significant public outcry developed because of the well’s location within  the city. Concerned members of the community were represented by an  environmental group called Romulus Environmentalists Care About  People (RECAP). As a result of this concern, the city of Romulus filed a  lawsuit against EDS claiming that the wells were in an area that was not  properly zoned for business activity. The city of Romulus won a  preliminary injunction prohibiting any further activity by EDS and  staying any further court proceedings until the city had exhausted its  administrative remedies. Members of RECAP were elected to the  Romulus City Council. The well that was under construction has since  been plugged.    1995—The local zoning board determined that the proposed well did  not fall within acceptable uses for the district in which it was to be  constructed. The board denied EDS’s request for a variance.    1996—The Wayne County Circuit Court affirmed both of the local zoning  board’s decisions. The state of Michigan passed a law requiring that any  company accepting commercial hazardous waste for disposal in an  injection well have treatment and storage facilities on site that have been  permitted by the Michigan Department of Environmental Quality (MDEQ).  Under the new law, EDS would need a storage and treatment facility  construction permit from Michigan’s Department of Environmental  Quality (MDEQ) if it planned to construct and operate wells in Michigan.  Also in 1996, because EDS was still interested in establishing its deep  injection well business, EDS purchased additional land in Romulus near  the Detroit Metropolitan Airport. In May, EDS applied to EPA for  construction permits for two injection wells.    1997—EPA issued draft construction permits in August and accepted  public comments from September through October.    1998—In March, after responding to a significant number of public  comments on the draft construction permits, EPA issued permits  for constructing the two wells. Members of the community raised  environmental justice concerns, and two citizens filed appeals with EPA’s  Environmental Appeals Board raising a number of concerns about the  wells, including environmental justice concerns. The board denied review.    1999—EDS submitted its permit application to the state for the planned  waste treatment and storage facilities for the wells. MDEQ officials found  the application technically complete and arranged to obtain public  comments on the draft permit. MDEQ referred the permit application to a  site review board---a 10-member board charged with investigating and  deliberating on the impact of the proposed facility on a local community.  The Site Review Board held numerous open meetings and public hearings,  receiving oral and written comments on many issues from local  community officials, the public, EDS, and MDEQ. In March 2000, the board  voted to recommend that the MDEQ deny the construction permit for  several reasons, including an increase in traffic volumes, and the lack of  need for the facility. The board did not find any fault with the technical  aspects of the facility’s design or operation.    2000—During the Site Review Board’s deliberations, it was disclosed that  the proposed storage and treatment facilities and wells were located in a  protected wetlands area. EDS applied for a wetlands construction permit  during the site review board process. The permit was issued by the MDEQ  in June. The wetlands permit was challenged by the cities of Romulus and  Taylor in a contested case hearing with MDEQ that was subsequently  dropped.    2001—After determining that the Site Review Board did not provide a  defensible basis for denial, the MDEQ issued a construction permit for the  treatment and storage facility associated with the injection wells. The  permit contained special conditions requiring EDS to mitigate the  legitimate concerns raised by the Site Review Board in its  recommendation for denial, including limiting the traffic volume and  adding an emergency access road. The cities of Romulus and Taylor and  Wayne County appealed the permit decision to the Wayne County Circuit  Court, arguing that the MDEQ should have followed the board’s  recommendation, that the facility is not needed, and that the facility  should not be allowed in a wetland. The circuit court affirmed the MDEQ  decision. The case is currently under review by the Michigan Court of  Appeals, and as of May 2003 no decision has been issued.    2002—A citizen filed a Title VI complaint with EPA’s Office of Civil Rights  raising a number of issues, including the fact that the community was  disproportionately exposed to pollution and other environmental dangers.  EPA’s Office of Civil Rights investigated the complaint but did not find any  violations of Title VI.    2003—In January and April public hearings were held on the EDS no- migration petition. Obtaining approval of this petition is one of the final  steps before operations begin.
section_title: Appendix II: Scope and Methodology
paragraphs: To determine the extent that EPA and states address community concerns  in issuing permits for deep injection wells, we obtained information on the  criteria and processes from agency officials in the Office of Water, UIC  program, located in Washington, D.C., and from regional program officials  located in Chicago, Illinois, and in Dallas, Texas. We obtained information  on the criteria and processes from state program officials in the states  that have commercial Class I deep injection wells currently operating or  under construction (Louisiana, Michigan, Ohio, and Texas). Three of the  states—Louisiana, Ohio, and Texas—have regulatory authority (primacy)  for implementing the UIC programs in their states. In addition, we  identified and reviewed the applicable federal and state regulations and  other guidance that describe the criteria and processes for public notice  and comment. Because owners of commercial Class I wells may have to  obtain RCRA permits to construct and operate treatment and storage  facilities associated with the operation of the wells, we discussed these  requirements with the EPA and state officials and obtained supporting  documentation describing RCRA requirements. To further understand the  process for addressing community concerns, we obtained and analyzed  information on how the process worked for individual wells that were  approved for operation and for two wells under construction in the state  of Michigan. We also obtained and reviewed reports published by EPA  and NAPA that address the importance of involving citizens in the  permitting process.
In determining the extent that environmental justice issues are considered  during the construction permit process, we reviewed the executive order  on environmental justice issued in 1994 and Title VI of the Civil Rights Act  of 1964. We obtained information from EPA officials in the Office of  Environmental Justice and the Office of Civil Rights to determine how  EPA has implemented the executive order and the status of implementing  the environmental justice policy issued by the EPA’s Administrator.  We obtained and reviewed several reports prepared for the Office of  Environmental Justice that addressed how environmental justice could be  incorporated within existing programs, including permitting decisions. In  addition, we obtained and analyzed information on the number and status  of environmental justice appeals and Title VI complaints filed with the  agency, including those involving commercial Class I wells. We also  analyzed recent court decisions that impact the basis for determining  whether discrimination has occurred under Title VI. We interviewed  officials from EPA’s Office of Water and regional UIC offices, as well as  from the four states with commercial Class I deep injection wells in  operation or under construction to determine how they have incorporated  environmental justice practices into their permitting process. We also  verified with the officials the number of environmental justice appeals or  Title VI complaints involving deep injection wells.
To determine the adequacy of financial assurances for providing funds  to properly shut down Class I wells if owners go bankrupt, we reviewed  federal and state regulations to determine the financial assurance  requirements. We obtained information on how financial assurance  regulations are implemented from EPA and state program officials and  reviewed documentation for Class I wells currently operating, as well as  for wells with owners in bankruptcy, to determine if the owners had  provided sufficient financial assurances. We also discussed with EPA  officials the efforts of an ongoing agency work group that is assessing the  adequacy of financial assurance requirements for injection wells and  reviewed documentation on the issues the group is addressing. Because  the UIC financial assurance requirements were based on RCRA financial  requirements, we obtained information on recent reviews and proposed  changes to the RCRA financial assurance requirements. Specifically, we  obtained and reviewed an EPA Office of Inspector General report on the  adequacy of RCRA financial assurance requirements and proposed agency  changes to the requirements.
We conducted our work from May 2002 through May 2003 in accordance  with generally accepted government auditing standards.
section_title: Appendix III: Comments from the Environmental Protection Agency
subsections: section_title: GAO’s Comments
paragraphs: 1.  We agree that EPA’s UIC regulations establish procedures for  public involvement through public comment and hearings during  the permitting activities for Class I hazardous injection wells. We  have made changes to our report to further clarify EPA’s authority  and to explain that the agency does not have the authority to  address all community concerns. However, we believe that earlier  public involvement would allow communities a greater opportunity  to contact appropriate state and local officials regarding those  concerns not within EPA’s authority. No provisions in the SDWA  preclude EPA from involving communities earlier in the permitting  process, before draft construction permits are prepared. Involving  the community earlier is consistent with, and in the spirit of, EPA’s  policy stressing the importance of early public involvement.   2.  It is not our intent to imply that the UIC program has authority and  responsibility for siting hazardous waste treatment and storage  facilities. Our report clearly states that these facilities are covered  under RCRA. We also did not intend to suggest that the UIC  program provide additional opportunities to address citizen  concerns in Michigan. Our report describes the opportunities  provided for public comment in Michigan, but it does not conclude  that additional opportunities should have been provided. It should  be noted, however, that EPA Region V program officials did  provide additional opportunities to address citizen concerns by  conducting a second hearing on the no-migration petition for the  well site in Romulus, Michigan.   3.  We disagree with EPA that our characterization of the financial  assurance requirements is problematic and that the financial  assurance provisions for Class I wells have a long history of  success. We believe there is sufficient evidence to suggest a  reexamination of the financial assurance requirements. Our report  describes instances in which owners filed for bankruptcy and did  not have sufficient financial resources to close wells. While these  instances may be limited, they demonstrate there is a potential  burden to taxpayers if financial assurance requirements are  not adequate.  4.  We do not agree that the discussion of problems with RCRA  financial assurance requirements is inadequate support for our  recommendation to examine UIC financial assurance  requirements. The UIC regulations were based on the RCRA  regulations and, with few exceptions, are almost identical.  Potential deficiencies with the RCRA requirements would also  apply to the UIC program.   5.  We disagree with EPA’s statement that our discussion of the  financial assurance work group is misleading because the group is  examining the requirements for a different class of well. Our report  acknowledges that the working group is examining the  requirements for Class II oil and gas wells, but it may develop  information that is applicable to Class I injection wells. We have  clarified our recommendation to state more directly that EPA  should consider the group’s results and recommendations for Class  I wells.   6.  We disagree that on several occasions EPA has pointed out factual  errors during the development of our report that we did not  address. In accordance with our normal practice, we made changes  to the draft report based on comments received on a statement of  facts provided during our final meeting with EPA. The agency also  provided technical comments on the draft report. While EPA may  disagree with our interpretation of the facts, we are unaware of any  factual or technical comments that EPA provided and that we did  not address.
section_title: Appendix IV: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: In addition to the individuals named above, Mary Nugent and Kimberly  Clark made key contributions to the report. Important contributions were  also made by Carol Shulman and Amy Webbink.