STATE OF NEW YORK

OF F I CE OF T HE ST AT E COMPTROL L ER
OSC #20

MEMORANDUM

RE
AN ACT
to amend the environmental conservation law, in relation to establishing the natural gas
production contamination response and compensation program; and to amend the state
finance law, in relation to creating the New York natural gas production contamination
damage recovery and remediation fund
PURPOSE: This bill will ensure a clean environment and healthy economy for the State
by providing for the remediation of any contamination associated with natural gas
production which may result in damage to lands, waters or natural resources of the state
by authorizing the Department of Environmental Conservation to respond quickly to such
contamination and effect prompt cleanup and decontamination of such contamination,
giving first priority to protecting against public health risks and minimizing
environmental damage and by providing for strict liability for damage sustained within
the State as a result of such contamination.

SUMMARY OF PROVISIONS: Section 1 establishes a new 'Title 29 within Article
23 of the Environmental Conservation Law, adding new Sections 23-2901 through 23-
2936. collectively known as the 'Natural Gas Production Contamination Response and
Compensation Program:

Section 23-2901 contains legislative intent;

Section 23-2902 contains the purpose of this Title;

Section 23-2903 defines those terms applicable to Title 29. The terms
defined are administrator, claim, cleanup and decontamination,
contamination, environment, fund, natural gas production, gas production,
owner, operator and person;

Section 23-2904 establishes that contamination of the environment by
natural gas production is prohibited;

Section 23-2905 requires the Commissioner of Environmental
Conservation to promulgate regulations governing the cleanup and
decontamination of any contamination resulting from natural gas
production;

THOMAS P. DiNAPOLI
STATE COMPTROLLER

110 STATE STREET
ALBANY, NEW YORK 12236

Additionally, Section 23-2905 authorizes the Department of
Environmental Conservation to draw on money in the New York Natural
Gas Production Contamination Damage Recovery and Remediation Fund
to pay for cleanup and decontamination costs incurred in any response to
contamination due to natural gas production after funds from surety bonds
established for this purpose are fully expended;

Section 23-2906 requires any person responsible for causing
contamination to immediately notify the Department of Environmental
Conservation;

Section 23-2907 requires any person causing prohibited contamination to
immediately undertake to contain such contamination;

Section 23-2908 requires the Commissioner of Environmental
Conservation to establish an emergency natural gas production
contamination control network and an emergency natural gas production
contamination relocation network;

Section 23-2909 authorizes the Department of Environmental
Conservation to enter and inspect any property for the purposes of
inspecting sites, facilities for the purpose of inspection and to assist in the
cleanup or decontamination of the contamination;

Section 23-2910 requires the Department of Environmental Conservation
to maintain a registry of all reports of contamination;

Section 23-2914 requires the State Comptroller to appoint and supervise
an administrator of the fund and establishes the powers and duties of such
administrator;

Section 23-2915 establishes that any person who has caused
contamination and the fund shall be strictly liable for all cleanup and
decontamination costs and all direct and indirect damages;

Additionally, Paragraph (c) of Subdivision 3 of Section 23-2915
establishes that owners and operators of natural gas production facilities
engaging or seeking to engage in natural gas production shall provide a
bond or other financial security in an amount sufficient to fully discharge
such owner`s and operator`s cleanup and decontamination responsibilities.
Cleanup and decontamination costs will be paid from this bond until it is
exhausted;

Section 23-2916 states the fund shall have a lien for the costs incurred by
the fund for the cleanup and decontamination of contamination and for the
payment of claims for direct and indirect damages as a result of
contamination upon certain real property located within the State;

Section 23-2917 establishes what a notice of environmental lien must
state;

Section 23-2918 requires a notice of environmental lien to be filed within
6 years from the time a disbursement is made by the fund for cleanup and
decontamination costs and damage costs incurred;

Section 23-2919 establishes that nothing in this Article or in Article 3 of
the Lien Law shall affect the right of the fund to bring certain actions to
recover cleanup and decontamination costs and damage costs;

Section 23-2920 requires amounts received by the administrator to satisfy
all or part of an environmental lien shall be deposited in the state treasury
and credited to the fund;

Section 23-2921 relates to the timing and manner of claims against the
fund;

Section 23-2922 requires the administrator to attempt to promote and
arrange a settlement between the claimant and the person responsible for
the contamination;

Section 23-2923 requires the administrator and the claimant to attempt to
arrange a settlement of any claim against the fund when the source of the
contamination is unknown or cannot be determined;

Section 23-2924 requires the administrator to grant a hearing when
persons alleged to be responsible for the contamination contest the validity
or amount of certain claims or settlement proposals;

Section 23-2925 establishes that payment of any cleanup costs or damages
by the fund arising from a single incident shall be conditioned upon the
administrator acquiring by subrogation all rights of the claimant to
recovery of such costs or damages from the person responsible for the
contamination or other responsible party. The administrator shall then
seek satisfaction from the person responsible for the contamination or
other responsible party;

Section 23-2926 establishes that in the event that the total awards for a
specific occurrence exceed the current balance of the fund, the immediate
award shall be paid on a prorated basis;

Section 23-2927 allows any claims for costs of cleanup and
decontamination, civil penalties or damages by the state and any claim for
damages by any injured person, to be brought directly against the bond,
the insurer or any other person providing evidence of financial
responsibility;

Section 23-2928 relates to the applicability of this Title;

Section 23-2931 authorizes the Commissioner of Environmental
Conservation and the State Comptroller to adopt, amend, repeal and
enforce such rules and regulations as they deem necessary to accomplish
the purposes of this Title;

Section 23-2932 establishes penalties for any person who knowingly gives
or causes to be given false information as a part of, or in response to, any
claim made pursuant to this Title or who otherwise violates any of the
provisions of this Title or any rule promulgated thereunder;

Section 23-2933 states that nothing in this Title shall be deemed to
preclude the pursuit of any other civil or injunctive remedy by any person;

Section 23-2934 states that this title shall be liberally construed for the
general health, safety and welfare of the people of this State;

Section 23-2935 requires the Commissioner of Environmental
Conservation and the administrator to make an annual report to the
Legislature and the Governor describing the quantity and degree of
contamination caused by natural gas production, the costs and damages
paid by and recovered by the fund, and the economic and environmental
impact on the state as a result of the administration of this Title;

Section 23-2936 relates to the effect of future Federal legislation on this
Title.

Section 2 of this bill amends Section 23-1903 of the Environmental Conservation Law to
add a new Subdivision 3 that authorizes the Commissioner of Environmental
Conservation to establish a surcharge on the permit fees on gas wells that will be credited
to the fund. The surcharge shall be established to provide sufficient funds to meet the
obligations of the fund.

Section 3 of the bill amends the State Finance Law to create a new 92-t establishing the
New York Natural Gas Production Contamination Damage Recovery and Remediation
Fund.

Section 4 of the bill contains a severability clause.

Section 5 of the bill sets an effective date of the 120
th
day after it shall have become a
law.

PRIOR LEGISLATIVE HISTORY: New Bill.

JUSTIFICATION: New York`s lands and waters constitute a unique and delicately
balanced resource. The protection and preservation of these lands and waters promotes
the health, safety and welfare of the people of this State. The State is the trustee, for the
benefit of its citizens, of all natural resources within its jurisdiction. Contamination from
incidents or accidents that result from natural gas production pose a threat to the economy
and environment of this State. This bill would provide strict liability for damage
sustained within this state as a result of contamination caused by natural gas production,
require prompt cleanup and decontamination of any affected real or personal property and
establish a fund for the payment of remediation costs of contamination and timely and
adequate compensation to any persons damaged by such contamination.

The Natural Gas Production Contamination Response and Compensation Program
established in this bill is modeled after the New York State Environmental Protection and
Spill Compensation Fund ('Oil Spill Fund). which draws on the expertise and
collaborative efforts of the Office of the State Comptroller ('OSC), the Department of
Environmental Conservation ('DEC). and the OIIice oI the Attorney General ('OAG).
The new program would ensure the timely clean up of dangerous contamination caused
by any element of the gas drilling process, and provide for efficient resolution to related
damage claims and recovery of costs from liable parties. It would also create for the first
time a registry of all gas drilling related incidents in New York State.

This program is modeled closely after the successful structure of the Oil Spill Fund,
which uses the expertise of three State agencies (OSC, OAG and DEC). With the Oil
Spill Fund, OSC ensures that the accounting is scrupulous and the Fund is used for
appropriate expenses, the legal expertise of the OAG ensures that responsible parties pay
and money is recouped whenever possible. and DEC`s environmental expertise ensures
timely and adequate site remediation.

The New York Natural Gas Production Contamination Damage Recovery and
Remediation Fund ('Natural Gas Damage Recovery Fund) would also be structured
similarly to the Oil Spill Fund currently administered by OSC and would establish
absolute liability for damages caused by the development and use of gas extraction wells.
In the event of a report or evidence of contamination or damages caused by the extraction
of natural gas, DEC would investigate, identify responsible parties and determine an
appropriate course of action.

OSC would manage the Natural Gas Damage Recovery Fund, which would pay for any
remediation undertaken by DEC of contamination where either a responsible party could
not be identified or parties refused or were unable to clean up the contamination.

OAG would determine who is legally responsible for the contamination and, if necessary,
commence civil damage-recovery litigation against responsible parties. Any recovered
funds would be returned to the Natural Gas Damage Recovery Fund to pay for the
cleanup of future contamination.

By using The Oil Spill Fund as a model, the Natural Gas Production Contamination
Response and Compensation Program and the Natural Gas Damage Recovery Fund
established in this bill shall make sure that dangerous contamination is remediated
quickly and that New York residents do not have to face costly and prolonged delays in
resolving damage claims for losses related to accidents.

The Comptroller urges approval of this legislation.

BUDGET IMPLICATIONS: There are mechanisms to fund this Act included in this bill.
Therefore, the budget implications should be minimal.

EFFECTIVE DATE: The 120
th
day after this act shall have become a law.