Risk Management: What If Cuomo Greenlights Fracking? on Ecocentric Blog | Food, Water and Energy Issues

Risk Management: What If Cuomo Greenlights Fracking? on Ecocentric Blog | Food, Water and Energy Issues.

“A home represents a family’s most valuable asset,” comments Radow. “New Yorkers expect the value of their home to increase over time, or at least not diminish. The state does too; our real property tax base depends upon it. For these reasons New York needs to implement a comprehensive risk management plan that protects New York homeowners and taxpayers from adverse impacts brought on by hydraulic fracturing.”

In her law practice, Radow handles real estate development, including real estate finance and construction. Risk management is central to what she does. “Drill sites are construction sites, albeit with added hazards,” explains Radow. “If the Cuomo administration does proceed to permit drilling, it will require, at the very least, a viable risk management plan to restore balance to risk allocation as it currently exists at the drill site.” To her knowledge, no such plan exists.

“If the Cuomo administration does proceed to permit drilling, it will require, at the very least, a viable risk management plan to restore balance to risk allocation as it currently exists at the drill site.”

Currently, property owners with standard gas leases could be responsible for damage and human loss resulting from the gas industry’s operations even though they don’t control who comes onto their private property to drill or the quality of the work they perform. Property owners forced by existing statute to accept drilling under their property are also not adequately protected. In addition, the gas industry is not fully insured for its drilling operations, leaving these New York property owners – and potentially all taxpayers – vulnerable for footing the bill.

New York State Comptroller Thomas DiNapoli attempted to address the liability issue with the creation of a Natural Gas Damage Recovery Fund, which was introduced as legislation in the State Assembly and Senate. The bill, which was criticized as onerous by the Business Council of New York State, would establish a remediation program that addresses contamination resulting from natural gas production. The bill made limited progress before the conclusion of the legislative session last month. Radow supports a remediation fund which would benefit all New Yorkers, but observes, “As of now, no financial safety net exists for foreseeable risks associated with this heavy industrial activity. That is, except litigation. New Yorkers should not be put in that position, especially those living in the high risk zone.”

Radow proposes an action plan to manage drilling risks on a localized basis, which she has dubbed the “Spacing Unit Risk Management Plan.” “Drill sites are known as ‘spacing units,’ hence the name,” explains Radow. This plan, which would be established as a condition to issuance of any drilling permit, follows a model customarily used in construction by naming the property owner as an additional named insured, but is tailored to reflect the unique risks introduced by unconventional drilling and the fact that multiple property owners can populate a given spacing unit. In addition to insurance coverage, it has a cash component to cover what insurance doesn’t. It also includes contingency coverage to remediate damage which might occur in the future, after the gas company leaves.

If a homeowner’s insurance coverage is involuntarily terminated because of the drilling hazards, the plan would provide for comparable coverage. This is particularly important for homes with mortgage loans since mortgages require homeowner’s insurance. According to Radow, a site-specific risk management plan along these lines would restore balance to the relationship between the property owners in the spacing unit and gas drilling companies and should also help preserve property value by extension, protecting New York’s tax base. “It doesn’t cover all the risks and expenses,” Radow concedes, “but does represent an equitable start.”

***

AUTHOR’S NOTE:

The Committee on Energy, Agriculture and the Environment (formerly the Hydraulic Fracturing Committee) of the League of Women Voters of New York State, representing all statewide League chapters, has cautioned against moving forward with gas drilling until more research is done. In a June 16, 2011 letter to New York Governor Cuomo’s top staff, the State League wrote, “As the state moves forward, we believe it is essential to consider the long-term impact of drilling on our social, health, environmental, and economic environments. Without such consideration, there is a danger that moving forward with drilling will result in a massive transfer of risk from those who mine the oil to the state’s citizens.”