Type of Protective Zoning: Additional Bonding or Insurance Requirements

Additional bonding or insurance requirements from fracking companies who apply for permits to develop in your area is an example of some ways you can use zoning to shift financial burden away from local governments (and hence, you, the taxpayer).

What it is:

The damage caused by fracking to both public and private property are well documented and the regulatory state agencies are well aware of various types of this damage. To protect against these harms, regulators will require bonds or other types of insurance from gas companies before they issue a permit. That way, if the gas company causes damage to public infrastructure - theoretically - the company and not the taxpayer will bear the cost.

A common example is that increased truck traffic to and from fracking sites can rapidly deteriorate the condition of roads. In order to offset the increase in costs for maintenance and repair the Pennsylvania Dept. of Transportation (PennDOT) requires that companies post bond for certain roads to cover what PennDOT predicts to be the increased cost of repair and maintenance.

Municipalities can require that certain activities carry insurance that is payable to the locality and not only to the permitting agency, like PennDOT. That way, a township or city won’t be financially liable if damage occurs to their property.

Examples of Road Bonding:

Here is one example of additional road bonding requirements from Richland Twp:

The applicant or operator shall post a bond or other financial security in favor of the Township and in a form acceptable to the Township prior to beginning operations to guarantee maintenance and repair during construction/drilling/fracturing and post-operation restoration of Township streets which may be determined in the reasonable opinion of the Township Engineer to be damaged as a result of traffic generated by gas and oil well use generated traffic.

In addition, if the Township Engineer concludes that gas and oil well generated traffic will cause substantial damage to a Township road, then the applicant must, before operations begin, enter into an agreement with the Township undertaking the responsibility to repair the road to the extent determined in the reasonable discretion of the Township Engineer, which agreement may provide for a bond to be posted in excess of otherwise applicable PennDOT limits when the Township Engineer has reasonably estimated that the cost of repair will exceed the PennDOT limits.

In addition, should the Township Engineer reasonably determine that preventive measures, such as shoring of bridges or putting protective mats over utility lines, should be taken to prevent damage to Township roads, bridges or utilities, then the applicant shall install such protective measures as directed by the Township Engineer, prior to beginning operations.

Here's another example of road bonding from Forest Hills:

B. The operator of the oil and gas development shall execute a roadway maintenance and repair agreement with the Borough and post a bond for the paved highway in favor of the Borough and in a form acceptable to the Borough prior to beginning any work on a drill site.

C. The roadway maintenance and repair agreement shall require the operator to conduct an inventory, analysis, and evaluation of existing conditions on Borough roads along the proposed transportation route, including photography/video and core boring as determined to be necessary by the Borough Engineer. The Borough roadway maintenance and repair agreement will identify the responsibilities of the operator to prepare, maintain, and repair Borough roads before, during, and immediately after drilling operations associated with the oil and gas development or related operations. The operator shall take all necessary corrective action and measures as directed by the Borough pursuant to the agreement.

Example of npn-road-related requirements for additional insurance (Forest Hills):

A. An operator shall maintain insurance coverage in the following minimum types and amounts:

(1) Commercial liability coverage for bodily injury and property damage coverage in a minimum combined single limit of $10,000,000 per occurrence with an annual general aggregate coverage of $20,000,000. This coverage must include premises, operations, blowout or explosion, products, completed operations, blanket contractual liability, underground property damage, underground reservoir (or resources) damage, broad-form property damage, independent contractor's protective liability and personal injury.

(2) Environmental impairment (or seepage and pollution) coverage, in a minimum combined single limit coverage of $10,000,000 per occurrence, shall be included in the comprehensive general liability coverage or maintained as separate coverage.

Other places with additional bonding or insurance language:

Penn Township Injection Well Ordinance*

Bell Acres

*Although this version says it’s a draft it is actually the finalized language

Additional Thoughts:

Another Case for Requiring Additional Bonding or Insurance Via Ordinance:

It is interesting to note that the PADEP requires a fracking company to have insurance coverage before the company may receive a permit to drill a well pad. Drilling has proven to be so likely to cause extensive and costly damage that insurance companies will almost never provide coverage. Most gas companies do what is known as “self-insuring” which essentially means they will pay the amount that would be covered by insurance out of their own pocket. This means that there’s even less incentive on the driller's part to pay for things like replacement water supplies or additions to municipal water infrastructure after they have contaminated a water source. This can be a helpful point to bring up to your local officials when encouraging them to introduce additional insurance or bonding requirements.