WATER
S
hale gas development creates a potential multibillion-dollar market for water supply andtreatment services,
1
the prospect of which could be encouraging some large investor-ownedwater utilities to support shale gas and downplay its water risks. Certain water companies suggestthat with regulation, shale gas drilling poses no real threat to water quality. The companies’
For the private water industry, shale gas development presents an opportunity because of — notdespite — its water problems.
Gas drillers use a water-intensive process called hydraulicfracturing, or fracking, to extract natural gas from shale.The process injects millions of gallons of water, mixed withsand and chemicals, under high pressure to crack the rockformation to release natural gas. Much of that water returnsto the surface, along with water from underground, con-
-tive, substances.
2
Private water players can make money onboth ends by selling water to drillers and then treating thewastewater.
During 2011, Aqua America and American Water were atthe forefront of the private water utility industry’s push toexploit fracking’s water needs.American Water, the largest publicly traded water andsewer utility in the country,
3
had “strategic positioning”indrilling areas of Pennsylvania, according to CEO JeffSterba. He added, “We’re continuing to expand servicein the Marcellus Shale region where we have 29 points ofinterconnection, serving 12 different drilling companies.”
4
Aqua America, the second largest publicly traded U.S.water utility,
5
was perhaps more aggressive in that arena.In July 2011 when
SmartMoney
asked what was on thecompany’s radar, CEO Nick DeBenedictis replied, “We’relooking at probably the biggest thing to happen toPennsylvania in the past 30 years, which is the naturalgas in the Marcellus Shale.”
6
In a September 2011 letter,DeBenedictis told stockholders, “We are currentlypursuing the growth opportunities provided by the shaledrilling industry, especially in Pennsylvania’s MarcellusShale, and focusing on the ‘clean water’ aspects of thedrilling business.”
7
Through several multimillion-dollar deals that year, thecompany sought to focus its operations and strengthenits position in three states with active shale plays: Pennsyl-vania, Ohio and Texas.
8
Although Pennsylvania was apilot for its business model, the company planned toexplore applying it in Texas,
9
as well as Ohio. DeBenedic-tis told the
Marion Star
that the shale market opportunityin Ohio was the “icing on the cake” of the company’splanned $120 million purchase of water and sewersystems in the state, adding, “When drilling starts in ear-nest in Ohio, I think we want to be positioned to bea supplier.”
10
Shilling for the Shale Gas Industry
Aqua America was a vocal supporter of the developmentand regulation of shale gas drilling, particularly inPennsylvania. It was an associate member of the MarcellusShale Coalition — a group that advocates on behalf ofthe drilling industry
11
— and cosponsored an industryconference called Shale Gas Insight 2011.
12
Aqua Americaexecutives have also spoken in favor of shale gas drillingbefore the Pennsylvania House Democratic PolicyCommittee and the Pennsylvania Marcellus Shale AdvisoryCommission.
13
“In short, we want to support the efforts to grow an indus-
-sylvania and critical energy resources for our country,”DeBenedictis said in his prepared statement to the Pennsyl-vania Marcellus Shale Advisory Commission, adding that
the company wanted it to be “done right” — that it wasregulated.
14
American Water’s Pennsylvania arm also tacitly endorsedthe shale gas industry and implied that regulation was suf-
15
“As an industry we know
for the Commonwealth,” Kathy Pape, head of PennsylvaniaAmerican Water, told state legislators in March 2011, “butthat economic opportunity has to be balanced about what
that at this point in time there are negative impacts, butwe want to be sure that the [Department of EnvironmentalProtection] staff is there to enforce the regulations that arein place.”
16
Downplaying Risks
Despite claiming to share the public’s “deep and
development,
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Aqua America’s DeBenedictis criticizednewspaper coverage about groundwater contaminationnear drilling sites and downplayed health risks of potentialcontaminants.
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He claimed, “We believe that there is lowpotential for adverse impacts on our water supplies fromMarcellus Shale drilling activity in large part due to [thePennsylvania Department of Environmental Protection’s]effective regulations coupled with enforcement.”
19
Pennsylvania American Water has tacitly expressed a simi-lar belief about the safety of drilling wastewater. It publi-
that Marcellus Shale drilling wastewater had not affectedthe company’s drinking water.
20
The company did notactually assess water quality risks of drilling wastewaterbut provided a snapshot of certain surface water condi-tions. It tested water along several rivers but did not specifywhether samples were taken near — or even downstreamof — treatment plants that were receiving drilling wastewa-ter at the time.
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(Over the previous year, a number of largegas drillers had sought to avoid sending their wastewater tosewage plants,
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and the number of plants accepting drill-ing wastewater fell from 27 to 15.
23
)Nonetheless, some shale gas proponents seized on thecompany’s results, inappropriately overstating and gen-eralizing them in an attempt to discredit valid concernsabout fracking’s potential to contaminate water supplies.For example, the Marcellus Shale Coalition used theresults to attack a widely cited
New York Times
investiga-tion,
24
which among other things, found that some sewageplants were not adequately treating drilling wastewaterbefore discharging it to surface waters.
25
During his open-ing remarks at a congressional hearing about natural gasdevelopment and the environment, Rep. Tim Murphy (R-PA) — whose 2012 election campaign has received morecontributions to date from the oil and gas industry thanfrom any other industry
26
— referred to the results as herailed against the U.S. Environmental Protection Agencyfor inspecting sewage plants that treated drilling waste-water.
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America’s Natural Gas Alliance used the resultsin a statement denouncing an American Rivers report,
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which found that the Susquehanna River was the country’smost endangered river because of natural gas extraction;
29
Pennsylvania American Water did not test water from theSusquehanna River.
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The Margins on Contamination
Regulation is often not enough to prevent fracking fromcontaminating water supplies. For investor-owned waterutilities, this is not necessarily unfortunate; in fact, it can
can necessitate and justify costly treatment plant upgradesthat boost corporate returns. Because of how they areregulated, investor-owned water utilities increase their
31
Water contamination can also create new customers forwater companies. As DeBenedictis noted, the “reasonable”
treatment methods for removing methane from drinking
32
Whenfracking pollutes water sources, households and smallwater systems that cannot afford to treat their water have
to connect to a water system owned by a private utility. Forexample, after natural gas drilling contaminated ground-water wells in Dimock, Pa., the state funded a $12 millionproject to connect 18 homes in the community to Pennsyl-vania American Water’s water system.
33
Hydraulic fracturing requires a “tremendous amount ofwater,” in the words of Aqua America’s DeBenedictis.
34
In2011, U.S. natural gas fracking operations used an esti-mated 80 billion gallons of water (see table).
Aqua America
In 2011, DeBenedictis predicted that water usage in theMarcellus Shale would grow “geometrically” in a yearor two.
35
To capitalize on this market, Aqua Americadeveloped bulk water stations next to highways wheretrucks can collect water for gas drillers.
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As of 2011, it hadeight site locations: six in Pennsylvania, one in New Yorkand one in Ohio.
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DeBenedictis emphasized frequently that the stations
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whichhe called a “great public service,”
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but this effect, if any-thing, is incidental or at least secondary to the company’sprimary objective. Aqua America placed the stationsoff major highways to appeal to drillers by cutting theirtransportation costs.
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“We’ve designed the bulk stationscompletely around the needs of the Marcellus Shaleindustry including technology to track who is taking waterand how much they are taking,” DeBenedictis said in acorporate brochure.
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Filling stations are not the only way that the companyplanned to tap the shale water market.
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In September2011, Aqua America partnered with an energy servicescompany and invested $12 million to build and operate an18-mile pipeline to supply fresh water to Marcellus Shalegas producers, including Range Resources Corporation.
43
According to DeBenedictis, water sales to drillers are
drillers than to regular customers like households.
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He ex-pected the company’s Marcellus activity to boost sales by0.3 percent to 0.4 percent,
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which would be $2 million to$3 million a year, based on its 2010 operating revenues.
46
American Water
million gallons of water to a dozen gas-drilling companies,making $702,000 in revenue.
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It sold water at 29distribution points,
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mostly through pipeline extensionsfrom its water systems.
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The company gave gas drillers amajor discount on the price of water. On average, drillerspaid 45 percent less than residential customers per 1,000gallons of water (see table next page).Pennsylvania American Water’s natural gas drilling com-pany customers included ALTA Operating Company, LLC;Cabot Oil & Gas Corporation; Carrizo Oil & Gas, Inc.,EOG Resources, Inc. and Rex Energy Corporation.
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Fracking produces billions of gallons of contaminatedwastewater each year.
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For each frack, about 1 million
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The Private Water Industry's Stake in Shale Gas Development
Shale gas development creates a potential multibillion-dollar market for water supply and treatment services, the prospect of which could be encouraging some large investor-owned water utilities to support shale gas and downplay its water risks. Certain water companies suggest that with regulation, shale gas drilling poses no real threat to water quality.
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