Storm Water Pollution: Information Needed on the Implications of Permitting Oil and Gas Construction Activities
Published: 2005-02-09T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: To prevent pollutants from entering storm water runoff, the Clean Water Act's National Pollutant Discharge Elimination System Storm Water Program requires controls for construction activities that disturb land. Phase I of this program requires permitting for construction activities that disturb 5 acres or more, while Phase II requires permitting for activities disturbing between 1 and 5 acres. The Environmental Protection Agency (EPA) extended the Phase II compliance date for discharges associated with oil and gas construction activities until March 2005 to analyze the impact of Phase II on the oil and gas industry. GAO was asked to provide information about oil and gas construction activities--such as well drilling and pipeline construction--affected by Phase I and likely to be affected by Phase II, as well as Phase II's financial and environmental implications.
section_title: What GAO Found
paragraphs: A small fraction of total oil and gas construction activities have been permitted under Phase I of EPA's storm water program. Phase I storm water permit data for three of the six largest oil and gas producing states--Louisiana, Oklahoma, and Texas--showed that 433 construction activities were permitted under Phase I over the most recent 12 months for which data were available. About 70 percent, 304 of the 433, were oil and gas pipeline activities, most of which were much larger than the 5 acre criterion under Phase I. About 17 percent, 72 of the 433, were drilling activities. In comparison, these three states reported drilling an average of about 10,000 wells for each of the past 3 years. Industry must decide whether to seek permit coverage, and it has sought to have its drilling activities permitted on few occasions because it has determined that most drilling activity involves distinct projects that disturb less than 5 acres each. In states we reviewed, there were few reported compliance problems associated with oil and gas construction activities. While it appears that most oil and gas construction activities may have to be permitted under Phase II, the actual number of activities that could be affected is uncertain, and the financial and environmental implications are difficult to quantify. The oil and gas construction activities affected by the rule may lead to increased financial costs for the oil and gas industry and federal agencies implementing the rule. Many of the potential costs stem from meeting permit requirements to review the impact of construction activities on endangered species, although this impact would be site specific and difficult to quantify. Potentially offsetting these costs, the rule may lead to additional environmental protections that are difficult to quantify, such as decreased levels of sediment in water and benefits for endangered species and their habitat. After delaying implementation of this rule for oil and gas construction activities for 2 years to study the impact of Phase II, EPA is analyzing the impact but, as yet, has not quantified the number of activities affected or the potential financial and environmental implications.

section_title: Letter
paragraphs: Polluted storm water runoff can lead to U.S. surface water degradation.  Runoff from sites where the ground has been disturbed—in particular,  construction sites—can deposit sediment and other harmful pollutants into  rivers, lakes, and streams. Sediment—the primary environmental concern  associated with construction activities—clouds water, decreases  photosynthetic activity; reduces the viability of aquatic plants and animals;  and, ultimately, destroys organisms and their habitat. According to the  Environmental Protection Agency (EPA), sediment runoff rates from  cleared and graded construction sites are typically 10 to 20 times greater  than those from agricultural lands and one-thousand to two-thousand times  greater than those from forest lands.
Storm water discharges from certain construction activities, as well as  from other defined industrial sources and municipal storm water sewer  systems, are subject to the Clean Water Act’s National Pollutant Discharge  Elimination System (NPDES) Storm Water Program. This program is  designed to reduce the impact of storm water by requiring the  implementation of controls designed to reduce harmful pollutants from  being washed by storm water runoff into local water bodies. The NPDES  program regulates a variety of municipal, industrial, and construction  activities, such as oil and gas construction activities. Oil and gas  construction activity includes clearing, grading, and excavating activities  associated with oil and gas exploration and production, processing and  treatment operations, and transmission facilities. These activities are often  associated with oil and gas well drilling and pipeline construction, as well  as other oil and gas construction.
Phase I of this program, which became effective in 1990, regulates storm  water discharges from construction activities that disturb 5 acres or more  of land, as well as smaller construction activities that are part of a common  plan of development that disturbs 5 acres or more. Phase II of the storm  water program applies to construction activity disturbing between 1 and 5  acres of land. EPA published the Phase II rule in December 1999 and set a  March 2003 compliance date for permit coverage for discharges from small  construction sites. EPA had originally assumed that few oil and gas  construction activities would be affected by Phase II; but subsequent to  rule promulgation, EPA became aware that as many as thirty-thousand oil  and gas sites per year might be affected. So that EPA could perform further  analysis of key issues, including the likely impact of Phase II’s permitting  requirements on the oil and gas industry, EPA postponed the Phase II  compliance date for storm water discharges from small oil and gas  construction sites until March 10, 2005.
Both phases of the rule allow oil and gas companies to obtain storm water  permit coverage for their discharges under a general permit. In many other  environmental programs, regulated entities obtain individual permits  tailored to site-specific conditions. Though oil and gas companies may  obtain individual storm water discharge permits, they almost always elect  to obtain coverage under an NPDES general permit that contains general  conditions applicable to a large number of sites. To obtain coverage,  companies file a Notice of Intent to be covered under a general permit. This  generally informs the permitting authority—EPA or the state, depending on  the type of entity and its location—of planned activities that might involve  storm water discharges and requires the operator to develop a plan to  manage storm water pollution caused by these activities. The operator  must also evaluate other potential impacts, including whether the  construction activity is likely to adversely affect endangered or threatened  species or their habitats before seeking coverage under EPA’s Construction  General Permit.
This report provides information about (1) oil and gas construction  activities that have obtained permit coverage under Phase I and (2) oil and  gas construction activities that are likely to be affected by Phase II and its  financial and environmental implications.
To gather information about the oil and gas construction activities that  have sought permit coverage under Phase I, we spoke to oil and gas  industry associations representing both large and small companies, and  government representatives, to get a national perspective on the number  and types of sites affected. Because there is no centralized database that  tracks nationwide oil and gas construction activities subject to Phase I, we  reviewed the storm water permitting history of Louisiana, Oklahoma, and  Texas—three of the nation’s six largest oil and gas producing states. EPA  administers the permitting process for oil- and gas-related projects in  Oklahoma and Texas, while Louisiana administers the entire NPDES Storm  Water Program for its state. We reviewed EPA’s and Louisiana’s storm  water databases and spoke with the administrators of these databases to  assess the reliability of these data, which we found to be sufficiently  reliable for our purposes. In addition, in order to gather information about  the characteristics of oil and gas construction activities, we visited oil and  gas construction sites in Louisiana, Oklahoma, and Texas. To obtain  information about the number of oil and gas construction activities  potentially affected by Phase II, we spoke with industry and government  representatives. We discussed the financial and environmental implications  of Phase II with storm water stakeholders, including representatives of  various federal agencies, an environmental group, and oil and gas  associations and member companies. A more detailed description of our  scope and methodology is presented in appendix I. We conducted our  review between August 2004 and January 2005 in accordance with  generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: According to EPA, polluted storm water runoff is a leading cause of  impairment to the nearly 40 percent of surveyed U.S. water bodies that do  not meet water quality standards. Pollutants in storm water can  significantly impact the environmental quality of U.S. waters by destroying  aquatic habitat and elevating pollutant concentrations and loadings. Storm  water discharges from construction activities can increase pollutants and  sediment amounts to levels above those found in undisturbed watersheds.
The NPDES Program was created in 1972 under the Clean Water Act to  control water pollution from point sources—any discernible, confined, and  discrete conveyance. Though EPA has had authority since 1972 to regulate  storm water discharges, it declined to require permits for most of these  discharges for over 15 years. However, in 1987, Congress passed the Water  Quality Act, which amended the Clean Water Act to require the regulation  of storm water discharges. Accordingly, EPA established the NPDES  Storm Water Program, which requires certain municipal, industrial, and  construction sources to obtain permit coverage for storm water discharges.
The storm water program was implemented in two phases:  1. Phase I, adopted in 1990, which applies to medium and large municipal  separate storm sewer systems and 11 categories of industrial activity  (including large construction activity disturbing 5 or more acres of  land); and  2. Phase II, adopted in 1999, which applies to small municipal separate  storm sewer systems and small construction activity disturbing  between 1 and 5 acres of land.
The Phase II final rule was published on December 8, 1999, and required  storm water dischargers to obtain permit coverage by March 10, 2003.  When promulgated, EPA assumed that few, if any, oil and gas sites would be  impacted by the construction component of the Phase II rule. Subsequent  to rule promulgation, EPA decided to reevaluate how many oil and gas  construction sites would be subject to the rule and postponed the deadline  for seeking coverage to March 10, 2005, for oil and gas construction  activities disturbing between 1 and 5 acres of land. The postponement  was designed to allow EPA enough time to analyze and better evaluate the  impact of the permit requirements on the oil and gas industry and to  reconsider how key elements of the Phase II regulations would apply to  small oil and gas sites.
Analyzing the impact of storm water permitting on oil and gas construction  activities is important because this type of construction requires  companies to undertake a number of earth disturbing activities. These  activities include clearing, grading, and excavating, associated with oil  and gas exploration and production; processing and treatment operations;  and transmission facilities. For example, to prepare a site for drilling,  operators must create a pad to support the drilling equipment, such as the  derrick. Creating the pad generally requires clearing and grading—or  leveling—an area and then placing rock, concrete, or other materials on it  to stabilize the surface. If necessary, companies may also construct access  roads to transport equipment and other materials to the site as well as  additional pipelines to connect the site to existing pipelines. As with other  construction activities, storm water runoff containing sediment from oil  and gas construction can lead to the degradation of nearby waters if not  properly managed. Figure 1 identifies activities, including oil and gas  construction, covered under Phase I and II of the NPDES Storm Water  Program.
NPDES storm water programs are administered at both the federal and  state level. Under the Clean Water Act, states whose programs EPA has  approved may manage their state’s programs. Forty-five states, including  Louisiana, are responsible for administering their own NPDES program,  including its storm water component; and EPA is responsible for  administering and enforcing the NPDES Storm Water Program in five  states. In addition, EPA is the NPDES storm water permitting authority  for oil and gas activities in Oklahoma and Texas.
In many environmental programs, regulated entities obtain individual  permits. In contrast, under the storm water program, regulated entities may  seek coverage under a single document called a general permit. A general  permit is issued by EPA or by the state environmental regulator and is  available to all eligible operators in the EPA or state program. With  respect to regulated discharges of storm water associated with  construction activity, EPA’s general permit is called the Construction  General Permit. Each general permit, whether it is issued by EPA or by a  state program, sets forth many steps that regulated entities must take to  ensure the minimization of storm water pollution.
To obtain coverage under the EPA Construction General Permit, regulated  entities must file a complete and accurate Notice of Intent to be covered  under the general permit prior to initiating the construction activities. The  Notice of Intent includes a signed certification statement from a company  official acknowledging that the operator has met all eligibility conditions of  the permit, including development and implementation of a plan to control  the discharge of pollutants from the site. Examples of types of sediment  and erosion controls that can be included in the plan consist of vegetative  cover, rocks, and hay bales to filter storm water, or terracing slopes to  divert and slow runoff. Figure 2 diagrams the steps that must be completed  to obtain coverage under EPA’s Construction General Permit.
One of the steps operators must complete when filing a Notice of Intent  involves determining whether the construction activity meets the permit’s  eligibility conditions that address endangered species. The purpose of the  Endangered Species Act is to conserve endangered and threatened species  and the ecosystems upon which they depend. The act prohibits the  “taking” of any endangered fish or wildlife. Under the act and  implementing regulations, federal agencies, including EPA, must determine  whether their activities might affect a listed species or habitat identified as  critical. If effects are likely, the agencies, including EPA, must consult with  the Fish and Wildlife Service (FWS) or the National Marine Fisheries  Service (NMFS) to ensure that the activities, such as issuing permits, will  not jeopardize a species’ continued existence or adversely modify its  designated critical habitat.
In an effort to satisfy its responsibilities under the Endangered Species Act,  EPA consulted with FWS and NMFS to create language for its Construction  General Permit that requires operators to self-certify that they have  examined their project’s potential effects on endangered species.  Specifically, language in appendix C of EPA’s Construction General Permit  sets out the procedures operators are to follow in meeting permit  conditions that address endangered species for coverage under the permit.  Briefly, the procedures in the permit require companies to  determine if federally listed threatened or endangered species or their  critical habitats are present on or near the project area,  determine if the construction activity’s storm water discharges or  related activities are likely to affect any threatened or endangered  species or designated critical habitat on or near the project area,   determine if measures can be implemented to avoid adverse effects, and  if adverse effects are likely, work with FWS or NMFS to modify the  project and/or take other actions to gain authorization for the activity.
section_title: Permit Coverage under Phase I Has Been Obtained by a Small Fraction of Total Oil and Gas Activities
paragraphs: A small fraction of total oil and gas construction activities have sought  permit coverage under Phase I of EPA’s storm water program. Industry and  state officials we spoke with confirmed that few of their sites obtained  permit coverage under the Phase I rule, since their activities rarely  exceeded Phase I’s 5-acre size threshold. However, EPA clarified that since  industry decides whether to seek permit coverage for their oil and gas  construction activities, the total number of activities for which permit  coverage should have been obtained is unknown. EPA representatives told  us they expect that pipeline projects are more likely to obtain permit  coverage than individual drilling sites due to the higher visibility of  pipelines, additional preconstruction approval processes under other laws,  and the higher likelihood of pipeline construction being conducted by  larger companies with more experienced legal and environmental staff.
Although there is currently no centralized storm water permit database that  tracks storm water permit coverage nationwide, our review of Phase I  storm water permit data for three major oil and gas producing states— Louisiana, Oklahoma, and Texas—confirmed that permit coverage has  been obtained for only a small number of oil and gas construction  activities, compared with the thousands of drilling activities occurring in  those states. Our review found 433 sites in Louisiana, Oklahoma, and  Texas that have obtained construction storm water permit coverage for  their oil and gas activities in the most recent 12-month period for which  data were available. Table 1 shows the breakdown of permit coverage by  state for the most recent 12 months that data were available.
Further analysis of Phase I storm water permitting data showed that the  principal activity for which oil and gas companies sought storm water  permit coverage in these states was for pipeline construction. Three  hundred four of the 433 activities for which permit coverage was obtained  in the most recent 12-month period—about 70 percent—were for pipeline  construction activities. Table 2 shows the breakdown of permit coverage  by state and activity.
Fifty-four percent of the 304 pipeline activities in these states disturbed  more than 10 acres of land. Eighty-seven pipeline activities—almost 30  percent of all the pipeline permittees—exceeded 20 acres in size.
Another key oil and gas construction activity in these states was oil and gas  well drilling, with 72 of the 433 permits—about 17 percent—involving  drilling activities. Fifty-six percent of these drilling activities disturbed  between 5 and 8 acres of land. The drilling activities for which storm water  permit coverage was sought represents a small portion of the total number  of oil and gas drilling activities occurring in these three states. We reviewed  onshore well completion data for Louisiana, Oklahoma, and Texas and  found that between 2001 and 2003, an average of ten-thousand wells was  completed each year. Table 3 provides data on the number of wells  completed in these three states between 2001 and 2003 and the average  number of wells completed each year over the 3-year period.
Industry officials must decide whether or not they will apply for permit  coverage, and some may have applied for storm water permit coverage on  few occasions because they broke their construction activities—which  taken together would exceed 5 acres—into what they believed were  distinct projects that disturbed less than 5 acres each. During our site visit  to a Texas gas construction location, we observed three drilling sites  situated adjacent to each other with an attached pipeline. Although the  total acres disturbed by these activities exceeded 5 acres, industry officials  did not believe these three sites needed permit coverage because each of  the four activities—three drilling sites and a pipeline—was less than 5  acres, under construction at different times and stabilized prior to  constructing the next activity. Figure 3 illustrates the layout of this area.
Sites A, B, and C each disturbed approximately 3.5 acres of land and were  connected by pipeline to an existing pipeline located about a mile from this  site. According to industry officials, site A was financed, drilled, deemed a  productive well, shut-in and the area stabilized prior to subsequent wells  being drilled. The company did not decide to drill exploratory well B until A  was identified as profitable. Once it drilled well B and found it to be  profitable, the company drilled a well on site C between well A and B. Prior  to well C being drilled, a different company agreed to construct a pipeline  to connect this site with an existing pipeline. The industry officials  estimated the pipeline disturbed less than 5 acres and said it was stabilized  prior to starting construction on site C. The total acres disturbed by these  sites exceeded 5 acres; individually the sites disturbed less than 5 acres of  land. Neither the drilling company nor the pipeline company constructing  these activities obtained a permit under Phase I, although each of the four  activities would require permitting under Phase II after the postponement  period passes and small oil and gas sites are required to comply with the  Phase II rules.
EPA’s Phase I rule requires that activities disturbing 5 acres or more of  land—as well as smaller construction activities that are part of a common  plan of development that disturbs 5 acres or more—obtain permit  coverage. EPA guidance defines a common plan of development as a  contiguous area where multiple separate and distinct construction  activities occur under a single plan. As this definition relates to oil and gas  activities, EPA guidance considers lease roads, pipeline activities, and  drilling pads to be a single “common” activity if they are under construction  at the same time—provided there is an interconnecting road, pipeline or  utility project, or if the activities are within one-fourth mile of each other.  EPA headquarters officials said that the aforementioned example highlights  a unique situation in which the definition of the common plan is difficult to  interpret without more information from the site operator(s). They said  that depending on the operator’s reasons for drilling the second and third  wells, permit coverage may or may not have been required in this example.  Many oil and gas industry groups assert that EPA’s definition of “common  plan” is confusing and illegal because it does not adequately consider oil  and gas industry practices. These oil and gas groups have raised the issue  of EPA’s definition of “common plan” in two lawsuits pending against EPA  in federal courts.
Although actual compliance rates in the field are unknown, neither EPA  nor state officials reported many compliance problems associated with oil  and gas construction activities that are 5 acres or more in size in Louisiana,  Oklahoma, and Texas. Currently, EPA’s Region 6—responsible for  administering the Oklahoma and Texas storm water programs for oil and  gas activities—has not completed any enforcement actions against oil and  gas construction companies for violations of the storm water program,  although it currently has one enforcement action under way. Region 6  enforcement officials told us they primarily depend on citizen complaints  and state referrals to identify oil and gas construction activities that may  adversely impact water quality. Similar to EPA Region 6’s program, the  Louisiana Department of Environmental Quality’s (LADEQ) construction  storm water inspections are complaint driven. A Louisiana inspections  representative whom we spoke with said that due to the traditionally short  time frames for completing oil and gas construction activities, LADEQ  found including these activities in the state’s annual compliance monitoring  strategy to be impractical. As a result, the state relies on citizen complaints  and routine surveillance to provide cause for conducting storm water  inspections of construction activities. Although LADEQ does not track  storm water enforcement actions for oil and gas construction separately  from those of other types of construction activities, Louisiana officials with  whom we spoke said they did not believe the state had carried out any  storm water enforcement actions against oil and gas construction  activities.
section_title: Most Oil and Gas Construction Activity Will Likely Be Affected by Phase II, but the Financial and Environmental Implications of Phase II Are Difficult to Quantify
paragraphs: EPA, industry and state government representatives agree that Phase II  permit coverage will be required for most oil and gas construction  activities, but the actual number of activities that will be affected by the  rule is unknown. In addition, the financial and environmental implications  of implementing Phase II for oil and gas construction activities are difficult  to quantify. Phase II may lead to increased costs for federal agencies with a  role in the storm water permitting process, as well as for members of the  oil and gas industry who obtain permit coverage. However, Phase II may  also lead to environmental benefits for local waters and endangered  species and their habitats, even though these benefits are difficult to  quantify. As EPA approaches the end of a 2-year period to study the impact  of Phase II on oil and gas construction activities, EPA has not yet quantified  the number of sites impacted or the financial and environmental  implications of the Phase II rule’s implementation.
subsections: section_title: Most Oil and Gas Construction Activities Will Likely Be Required to Obtain Storm Water Permit Coverage under Phase II, but the Actual Number of Activities That Will Be Affected by the Rule Is Unknown
paragraphs: EPA, industry and state government representatives agree that most oil and  gas construction activities will disturb 1 acre or more of land and, as such,  will have to obtain permit coverage under the Phase II rule. However, the  precise number of oil and gas construction activities that will require storm  water permit coverage under the Phase II rule is unknown, and estimating  the specific number of sites that will be affected by Phase II is  problematical because there is no data source that comprehensively  identifies the disparate oil and gas construction activities subject to the  rule and categorizes them by size. Industry representatives that we spoke  with said most, if not all, of their oil and gas construction activities not  covered by Phase I would be required to seek permit coverage under Phase  II. These representatives said that their typical drilling construction site  disturbs more than 1 acre but less than 5 acres of land. Similarly,  representatives from the Oklahoma Corporation Commission and Railroad  Commission of Texas indicated that almost all of the oil and gas well  construction in their states would disturb over 1 acre of land and would  have to obtain storm water permit coverage. Furthermore, EPA officials  generally concurred that most oil and gas construction activities would  need to obtain coverage, or seek a waiver, under Phase II. A company may  receive an optional waiver from permit coverage in more arid areas where  there is low rainfall. EPA officials told us that in arid areas, such as western  Oklahoma and Texas, most operators could qualify for waivers with  expeditious construction schedules and careful timing.
section_title: Phase II May Lead to Additional Costs that Are Difficult to Quantify
paragraphs: The Phase II rule may lead to additional costs for industry and federal  agencies, but these costs are difficult to quantify. For example, the EPA  Construction General Permit requires companies to implement erosion and  sediment controls to minimize pollutants in storm water discharges, which  will lead to additional costs for operators. Industry representatives we  spoke with were less concerned with these particular costs, however,  because they said that the oil and gas industry routinely takes similar  preventative measures. These officials did express concerns about the  costs associated with storm water inspections required by the permit.  These inspections are designed to ensure companies properly implement  practices to minimize storm water pollution and require that sites be  inspected (1) at least once every 7 days or (2) at least once every 14 days  and within 24 hours of certain storm events. Industry officials explained  that oil and gas activities typically occur in remote, rural areas, which  makes it costly for them to inspect sites as required by the permit.  Furthermore, since sites may not always have personnel present, these  representatives said it can be difficult to determine when a storm event has  occurred. EPA maintains that it has reduced the inspection burden by  allowing less difficult pipeline inspections and authorizing monthly  inspections under certain circumstances, such as when a site is temporarily  stabilized or when winter conditions make runoff unlikely.
The Phase II storm water rule may also lead to additional costs for federal  agencies and the oil and gas industry associated with the endangered  species requirements of the storm water permit. The EPA Storm Water  Construction General Permit provides coverage under the permit only if  the storm water discharges are not likely to jeopardize the continued  existence of any species that is listed as endangered or threatened,  pursuant to the Endangered Species Act, or result in the adverse  modification or destruction of critical habitat. Because companies seeking  storm water permit coverage must evaluate the impact their construction  activities might have on endangered species, the workload of agencies such  as the U.S. Fish and Wildlife Service (FWS) and National Marine Fisheries  Service (NMFS), which are the regulatory agencies for the Endangered  Species Act, could increase if a significantly larger number of sites initiated  communications or consultation requests. NMFS headquarters  representatives and FWS field representatives we spoke with indicated that  the increased workload from a greater number of Phase II consultation  requests could exceed staff capabilities. However, they also said they were  unsure what impact Phase II would have on their activities, because they  did not know how many additional oil and gas construction sites would be  affected by the rule.
Oil and gas industry representatives were most concerned about costs that  stem from delays companies may face when identifying a construction  activity’s impact on endangered species. These representatives said that  endangered species reviews are often extremely time intensive and require  interactions with federal agencies that introduce delays into the  construction process and lead to increased costs. Various forms of  interactions with FWS and NMFS (the Services) may be used to ensure that  provisions of the storm water permit concerning endangered species are  met—including the more common informal consultations and less frequent  formal consultations. Informal consultation can be used to determine  whether an activity will adversely affect endangered or threatened species  or critical habitat. If during informal consultation the action agency—in  this case EPA—determines that no adverse impact is likely and FWS and  NMFS agree, the consultation process is terminated with the written  concurrence of the Services. Although there is no regulatory deadline for  completing an informal consultation, the Services’ policy is to respond to  informal consultations about endangered species within 30 days. Formal  consultations are necessary if an activity is likely to adversely affect a listed  species. The Endangered Species Act requires most formal consultations to  be conducted within 90 days. In addition, the implementing regulations  require the Services to document in a biological opinion, within 45 days  after the conclusion of the consultation, whether the activity is likely to  jeopardize the listed species’ continued existence or adversely modify its  designated critical habitat. If necessary, the biological opinion may also  provide reasonable and prudent alternatives that, if taken, would avoid  jeopardizing a species or adversely modifying its critical habitat. However,  the Services may postpone the start of any of these time frames until they  have the best available information on which to base their opinions.
The total time needed to consult with the Services is difficult to quantify,  given that not all sites will have to perform the same level of review and  because not all construction activities occur in areas where endangered  species are present. In a March 2004 report on the overall consultation  process, we identified concerns from federal agencies and nonfederal  entities about the time it takes to complete the consultative process. In one  limited review that we conducted of 1,550 consultations, about 40 percent  exceeded established time frames. However, we found that FWS and NMFS  needed more complete and reliable information about the level of effort  devoted to the process. Specifically, these time frames did not capture  sometimes significant amounts of preconsultation time spent discussing a  project before the consultation officially was considered to have begun.  Even without the requirements of EPA’s Construction General Permit and  associated consultations under the Endangered Species Act, operators of  oil and gas construction activities would still have to spend time complying  with the act by ensuring that their activities do not result in a “take” of an  endangered species.
section_title: Phase II May Lead to Additional Benefits that Are Difficult to Quantify
paragraphs: The Phase II storm water rule may lead to additional environmental  benefits, although these benefits can be difficult to quantify. Officials from  EPA’s Office of Water indicated that while it is difficult to quantify all the  benefits associated with the rule, the principal benefits are based on  decreased quantities of sediment in water. These officials told us that  excess amounts of sediment in water can affect aquatic habitat, water  quality, waters’ use as a source of drinking water and water supply  reservoir capacity, navigation, and recreational activities. According to  FWS officials, construction activities may affect listed species in both  direct and indirect ways. Direct effects may include killing or injuring  members of listed species. Indirect effects may include changing essential  behavior patterns like feeding, breeding, or sheltering, as a result of  modifications to the species’ habitat. Additionally, the NMFS  acknowledged that land disturbance activities that increase the amount of  sediment in water and turbidity can indirectly influence endangered  species’ productivity and ultimately cause changes in migratory behavior,  reduce prey abundance, reduce the survival and emergence of larvae, and  contribute to increased temperatures and chemical pollutants that can  cause habitat loss.
An environmental group representative we spoke with said that voluntary  initiatives are not a viable method for resolving storm water pollution  issues and that the permit process provides a mechanism for ensuring that  practices to mitigate water pollution from construction activities are  implemented. This representative also commented that EPA has not  provided any evidence that the environmental consequences of oil and gas  construction activities are different from those of other types of  construction activities or that the oil and gas industry’s controls are any  better. Finally, this representative said that a single industry should not be  exempted from regulations with which other industries must comply and  added that the large number of oil and gas activities potentially subject to  the rule shows the significant amount of environmental damage that could  occur if these activities went unregulated. EPA is currently studying the  environmental impact of oil and gas construction activities but has not  completed its analysis.
Industry representatives, however, believe that the Phase II storm water  rule provides only negligible environmental benefits and that the current  system of regulation encourages environmentally friendly construction  practices. For example, one industry representative stated that with only  the Phase I rule in effect, companies have an incentive to keep construction  activity to less than 5 acres—thus minimizing the land disturbance and  associated environmental effects. If the Phase II rule were implemented as  written, this representative maintained the industry would have no  incentive to minimize the acreage used in order to keep the site under 5  acres.
section_title: EPA Has Not Completed Its Assessment of the Number of Oil and Gas Sites Impacted by Phase II or Its Financial and Environmental Implications
paragraphs: Almost 2 years after delaying the implementation of Phase II for oil and gas  activities in order to study and evaluate the impact on the industry, EPA  initiated an analysis of the rule but has not completed the study, quantified  the number of activities affected, or determined its potential financial and  environmental implications. In March 2003, EPA extended the deadline for  operators to obtain Phase II permits for oil and gas activities in order to  allow itself additional time to analyze and better evaluate the impact of the  rule on the oil and gas industry. This 2-year extended deadline will expire  on March 10, 2005. However, as we performed audit work for this  engagement, EPA had not issued any analysis of the rule’s impact; nor  could EPA management representatives provide a specific estimate of  when its analysis would be completed or when a final decision would be  reached. We provided a draft of this report with our recommendation to  EPA. Subsequently, on January 18, 2005, the agency proposed a further  extension of the compliance date to June 12, 2006, to complete its review  and take final action. Within 6 months of a final action on the January 18,  2005, proposal, EPA intends to propose rulemaking to address storm water  discharges from oil and gas sites and invite public comment. Separate from  EPA’s efforts, oil and gas industry representatives informed us of a  Department of Energy (DOE) study to evaluate the impact of the Phase II  rule on the oil and gas industry. During our study, officials from DOE’s  Office of Fossil Energy told us that DOE’s study was still in draft form.  These officials would not provide an explanation of the purpose, costs, or  estimated completion date of the study.
section_title: Conclusions
paragraphs: Our review indicated that it is probable that substantially more oil and gas  activities will be impacted by Phase II of the NPDES storm water rule than  by Phase I. Given that EPA has not been able to quantify the number of oil  and gas activities required to obtain storm water permit coverage under  either rule, it remains important that EPA identify the universe of oil and  gas activities that would most likely be affected. This analysis would  provide the necessary foundation for understanding the implications that  the rule may have for the environment and the oil and gas industry and  determine the overall effectiveness of the NPDES storm water program.
section_title: Recommendation for Executive Action
paragraphs: So that EPA may fully understand the implications of Phase II of its storm  water rule prior to deciding whether the oil and gas industry should be  subject to it, we recommend that EPA complete its Phase II analysis before  making any final decision. Furthermore, as a part of this analysis, we  recommend that EPA assess  the number of oil and gas sites impacted by the Phase II rule;  the costs to industry of compliance with the rule and whether these  costs are solely attributable to the storm water rule; and  the environmental implications and benefits of the storm water rule,  including, but not limited to, potential benefits for endangered species.
section_title: Agency Comments and Our Evaluation
paragraphs: We requested comments on a draft of this report from the Administrator of  the Environmental Protection Agency (EPA). EPA provided oral comments  and agreed with our findings and recommendation. In addition, EPA  included technical and clarifying comments, which we included in our  report as appropriate.
As agreed with your staffs, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies of the report to the EPA  Administrator and other interested parties. We will also provide copies to  others on request. In addition, the report will be available at no charge at  GAO’s Web site at http://www.gao.gov.
Questions about this report should be directed to me at (202) 512-3841.  Other key contributors to this report are listed in appendix II.
section_title: Objectives, Scope, and Methodology
paragraphs: This report provides information about (1) oil and gas construction  activities for which permits have been obtained under Phase I and (2) oil  and gas construction activities that are likely to be affected by Phase II and  its financial and environmental implications.
To address the number of oil and gas activities for which permits have been  obtained under Phase I, we limited our analysis to three of the top five  natural gas producing states and three of the top six crude oil producing  states in 2003, according to available data from the Energy Information  Administration. We chose states with storm water programs implemented  by both state and federal authorities. Louisiana’s Department of  Environmental Quality administers the National Pollutant Discharge  Elimination System’s Storm Water Program (NPDES) for its state, while  Oklahoma’s and Texas’ storm water programs for oil and gas activities are  administered by the Environmental Protection Agency’s (EPA) Region 6.  Additionally, Oklahoma and Texas are unique in that only the oil and gas  portions of their storm water program are administered by EPA; the  remainder of their storm water program is administered by the state.
To determine the number of oil and gas construction activities requesting  storm water permit coverage under Phase I in those three states and to get  a national perspective on the number and types of sites affected, we spoke  with oil and gas industry and government representatives. We also  reviewed EPA’s (for Oklahoma and Texas) and Louisiana’s storm water  database that contains information about Notices of Intent filed with the  program authority to indicate a company’s plan to begin a construction  activity that disturbs 5 acres or more of land. We reviewed the most recent  12-month period of data available: EPA’s information for Oklahoma and  Texas from December 2003 to November 2004 and Louisiana’s information  from November 2003 to October 2004. Because the database contained  more than just oil and gas construction information, we isolated data for  those companies within the oil and gas industry and reviewed relevant  characteristics of those Notices of Intent. While this data provides  information about the number of companies that requested storm water  permit coverage for their oil and gas construction activities, it does not  indicate the universe of companies that should have filed. Furthermore,  these data are not generalizible to the nation as a whole. We spoke with the  administrator of this database to assess the reliability of this data and  found the data from 2003 and 2004 to be sufficiently reliable for our  purposes. Additionally, to provide us with context for understanding how  the number of drilling activities covered by Phase I compares with the total  number of oil and gas drilling activities being carried out, we reviewed oil  and gas well completion data from Louisiana, Oklahoma, and Texas. These  data provided us with an additional perspective about the magnitude of oil  and gas activities occurring in these states and proved sufficiently reliable  for our purposes. We gathered these data from the Louisiana Office of  Conservation, Oklahoma Corporation Commission, and Railroad  Commission of Texas. In order to gather information about the  characteristics of oil and gas construction activities, we visited oil and gas  construction sites in Louisiana, Oklahoma, and Texas and viewed pollution  control measures implemented in various terrains. In Louisiana and Texas,  we were accompanied by industry representatives who were members of  the Domestic Petroleum Council; in Oklahoma, we were accompanied by  EPA and oil and gas industry representatives. Both EPA and industry  officials provided perspectives on the choice of pollution control measures  implemented. We spoke with the storm water enforcement coordinator for  oil and gas activities in EPA’s Region 6, as well as the state official  responsible for storm water program permitting at the Louisiana  Department of Environmental Quality. We discussed their respective storm  water programs and strategies for enforcing the storm water regulations.  When possible, their offices provided data about enforcement actions and  inspections.
To determine the number of oil and gas activities that may be affected by  Phase II and the financial and environmental implications of implementing  Phase II for oil and gas construction activities, we spoke with storm water  stakeholders, including the Natural Resources Defense Council. Finally, we  spoke with oil and gas industry representatives, including the Domestic  Petroleum Council, the American Petroleum Institute, and the International  Petroleum Association of America and representatives from some of these  organizations’ members. These stakeholders offered contrasting views  about the environmental benefits and economic costs of these regulations.  We also reviewed written comments that environmental groups and oil and  gas industry groups provided to EPA when the agency first proposed  postponing the Phase II deadline for oil and gas activities.
To formulate a more thorough understanding of federal agencies with a  role in implementing the Storm Water Program and level of interagency  coordination, we spoke with U.S. Fish and Wildlife and National Marine  Fisheries officials responsible for carrying out section 7 of the Endangered  Species Act, which requires federal cooperation to protect endangered  species. Specifically, we spoke with representatives from the U.S. Fish and  Wildlife Service’s headquarters, Arlington, TX and Tulsa, OK offices, as well  as with the National Marine Fisheries Service’s headquarters and southeast  regional offices.
We conducted our review between August 2004 and January 2005 in  accordance with generally accepted government auditing standards.
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: In addition to the individuals above, James W. Turkett, Paige Gilbreath,  Omari Norman, Carol Bray and Nancy Crothers made key contributions to  this report.