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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. In addition to the individuals above, James W. Turkett, Paige Gilbreath, Omari Norman, Carol Bray and Nancy Crothers made key contributions to this report.

Summary:
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. 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.