Gas drillers use a water-intensive process called hydraulic

fracturing, or fracking, to extract natural gas from shale.

The process injects millions of gallons of water, mixed with
sand and chemicals, under high pressure to crack the rock
formation to release natural gas. Much of that water returns
to the surface, along with water from underground, con-
tumnuted vth ruckng uds und other, possby rudouc-
tve, substunces.
2
Private water players can make money on
both ends by seng vuter to drers und then treutng the
wastewater.
During 2011, Aqua America and American Water were at
the forefront of the private water utility industrys push to
exploit frackings water needs.
Amercun \uter, the urgest pubcy truded vuter und
sewer utility in the country,
3
had strategic positioningin
drng ureus o lennsyvunu, uccordng to CLC }e Sterbu.
He added, Were continuing to expand service in the Mar-
cellus Shale region where we have 29 points of intercon-
nection, serving 12 different drilling companies.
4

Aquu Amercu, the second urgest pubcy truded L.S.
water utility,
5
was perhaps more aggressive in that arena.
In July 2011 when SmartMoney asked what was on the
companys radar, CEO Nick DeBenedictis replied, Were
ookng ut probuby the bggest thng to huppen to lennsy-
vania in the past 30 years, which is the natural gas in the
Marcellus Shale.
6
ln u September 20ll etter, Deenedcts
told stockholders, We are currently pursuing the growth
opportuntes provded by the shue drng ndustry, espe-
cially in Pennsylvanias Marcellus Shale, and focusing on
the ceun vuter' uspects o the drng busness.
7

Through several multimillion-dollar deals that year, the
company sought to focus its operations and strengthen its
Issue Brief + December 2011
food & Watcr Watch - 1616 P St. NW, Suitc 300, Washington, DC 20036 - www.foodandwatcrwatch.org
S
hue gus deveopment creutes u potentu mutbon-dour murket or vuter suppy
and treatment services,
1
the prospect o vhch coud be encourugng some urge
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 vuter quuty. 1he compunes' nuncu nterest n the shue murket, hovever, custs
doubt on the reubty o thut ussessment. lor the prvute vuter ndustry, shue gus
deveopment presents un opportunty becuuse o not despte ts vuter probems.
Why the Water
Industry is
Promoting Shale
Gas Development
2
position in three states with active shale plays: Pennsylva-
nia, Ohio and Texas.
8
Although Pennsylvania was a pilot
or ts busness mode, the compuny punned to expore
applying it in Texas,
9
as well as Ohio. DeBenedictis told
the Marion Star that the shale market opportunity in Ohio
was the icing on the cake of the companys planned $120
million purchase of water and sewer systems in the state,
adding, When drilling starts in earnest in Ohio, I think we
vunt to be postoned to be u supper.
10

Shilling for the Shale Gas Industry
Aqua America was a vocal supporter of the development
and regulation of shale gas drilling, particularly in Pennsyl-
vunu. lt vus un ussocute member o the Murceus Shue
Couton u group thut udvocutes on behu o the dr-
ing industry
11
und cosponsored un ndustry conerence
called Shale Gas Insight 2011.
12
Aqua America executives
huve uso spoken n uvor o shue gus drng beore the
Pennsylvania House Democratic Policy Committee and the
Pennsylvania Marcellus Shale Advisory Commission.
13

In short, we want to support the efforts to grow an indus-
try thut provdes tremendous economc benets to lenn-
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 compuny vunted t to be done rght thut t vus
regulated.
14

American Waters Pennsylvania arm also tacitly endorsed
the shale gas industry and implied that regulation was suf-
cent to protect vuter suppes.
15
As an industry we know
thut Murceus Shue s u sgncunt economc opportunty
for the Commonwealth, Kathy Pape, head of Pennsylvania
Amercun \uter, tod stute egsutors n Murch 20ll, but
thut economc opportunty hus to be buunced ubout vhut
muy be negutve mpucts. She cured, \e're not suy-
ng thut ut ths pont n tme there ure negutve mpucts, but
ve vunt to be sure thut the Depurtment o Lnvronmentu
Protection] staff is there to enforce the regulations that are
in place.
16

Downplaying Risks
Despte cumng to shure the pubc's deep und ustube
envronmentu concerns ubout shue gus deveopment,
17

Aqua Americas DeBenedictis criticized newspaper cover-
uge ubout groundvuter contumnuton neur drng stes
and downplayed health risks of potential contaminants.
18

He cumed, \e beeve thut there s ov potentu or
adverse impacts on our water supplies from Marcellus
Shue drng uctvty n urge purt due to the lennsyvunu
Department of Environmental Protections] effective regula-
tions coupled with enforcement.
19

Pennsylvania American Water has tacitly expressed a
smur bee ubout the suety o drng vustevuter. lt
pubczed the resuts o u u buttery o tests thut con-
rmed thut Murceus Shue drng vustevuter hud not
affected the companys drinking water.
20
The company did
not actually assess water quality risks of drilling wastewater
but provded u snupshot o certun suruce vuter cond-
tons. lt tested vuter uong severu rvers but dd not specy
vhether sumpes vere tuken neur or even dovnstreum
o treutment punts thut vere recevng drng vustevu-
ter at the time.
21
(Cver the prevous yeur, u number o urge
gas drillers had sought to avoid sending their wastewater to
sewage plants,
22
und the number o punts ucceptng drng
wastewater fell from 27 to 15.
23
)
Nonetheless, some shale gas proponents seized on the
companys results, inappropriately overstating and general-
zng them n un uttempt to dscredt vud concerns ubout
ruckng's potentu to contumnute vuter suppes. lor
example, the Marcellus Shale Coalition used the results to
attack a widely cited New York Times investigation,
24
which
among other things, found that some sewage plants were
not udequutey treutng drng vustevuter beore dschurg-
ing it to surface waters.
25
During his opening remarks at a
congressonu heurng ubout nuturu gus deveopment und
the envronment, Rep. 1m Murphy (R-lA) vhose 20l2
eecton cumpugn hus receved more contrbutons to dute
from the oil and gas industry than from any other indus-
try
26
reerred to the resuts us he rued ugunst the L.S.
Environmental Protection Agency for inspecting sewage
plants that treated drilling wastewater.
27
Americas Natural
Gas Alliance used the results in a statement denouncing an
American Rivers report,
28
which found that the Susquehan-
nu Rver vus the country's most endungered rver becuuse
of natural gas extraction;
29
Pennsylvania American Water
did not test water from the Susquehanna River.
30

The Margins on Contamination
Regulation is often not enough to prevent fracking from
contumnutng vuter suppes. lor nvestor-ovned vuter
utilities, this is not necessarily unfortunate; in fact, it can
uctuuy be nuncuy revurdng. \uter contumnuton cun
necessitate and justify costly treatment plant upgrades that
boost corporute returns. ecuuse o hov they ure reguuted,
nvestor-ovned vuter uttes ncreuse ther prots by n-
vestng n nrustructure und by rusng rutes.
31

Water contamination can also create new customers for
vuter compunes. As Deenedcts noted, the reusonube
treatment methods for removing methane from drinking
vuter coud be dcut or smu prvute ves.
32
When
fracking pollutes water sources, households and small
water systems that cannot afford to treat their water have to
nd unother vuter suppy. 1her ony uternutve muy be to
connect to u vuter system ovned by u prvute utty. lor ex-
ample, after natural gas drilling contaminated groundwater
wells in Dimock, Pa., the state agreed to fund a $12 million
3
project to connect 18 homes in the community to Pennsyl-
vania American Waters water system.
33
(As o December
20ll, the proect uppeured to be stued.)
Hydraulic fracturing requires a tremendous amount of
water, in the words of Aqua Americas DeBenedictis.
34
In
20ll, L.S. nuturu gus ruckng operutons used un estmut-
ed 80 bon guons o vuter (see tube).
Aqua America
In 2011, DeBenedictis predicted that water usage in the
Marcellus Shale would grow geometrically in a year or
two.
35
To capitalize on this market, Aqua America devel-
oped buk vuter stutons next to hghvuys vhere trucks
can collect water for gas drillers.
36
As of 2011, it had eight
site locations: six in Pennsylvania, one in New York and
one in Ohio.
37
DeBenedictis emphasized frequently that the stations
heped reduce truck truc on smu-tovn rouds,
38
which he
cued u greut pubc servce,
39
but ths eect, unythng,
is incidental or at least secondary to the companys pri-
mury obectve. Aquu Amercu puced the stutons o muor
hghvuys to uppeu to drers by cuttng ther trunsportu-
tion costs.
40
\e've desgned the buk stutons competey
around the needs of the Marcellus Shale industry including
technology to track who is taking water and how much they
ure tukng, Deenedcts sud n u corporute brochure.
41
lng stutons ure not the ony vuy thut the compuny
planned to tap the shale water market.
42
ln September
2011, Aqua America partnered with an energy services
compuny und nvested Sl2 mon to bud und operute un
18-mile pipeline to supply fresh water to Marcellus Shale
gas producers, including Range Resources Corporation.
43

According to DeBenedictis, water sales to drillers are un-
reguuted, so t s more protube to se vuter to gus drers
than to regular customers like households.
44
He expected
the compuny's Murceus uctvty to boost sues by 0.3
percent to 0.4 percent,
45
vhch voud be S2 mon to S3
mon u yeur, bused on ts 20l0 operutng revenues.
46

American Water
Durng the rst hu o 20ll, Amercun \uter sod ll5
million gallons of water to a dozen gas-drilling companies,
making $702,000 in revenue.
47
lt sod vuter ut 29 dstrbu-
tion points,
48
mostly through pipeline extensions from its
water systems.
49
The company gave gas drillers a major
discount on the price of water. On average, drillers paid 45
percent less than residential customers per 1,000 gallons of
vuter (see tube on puge 4).
Pennsylvania American Waters natural gas drilling com-
pany customers included ALTA Operating Company, LLC;
Cubot C & Cus Corporuton, Currzo C & Cus, lnc., LCC
Resources, Inc. and Rex Energy Corporation.
50
lruckng produces bons o guons o contumnuted
wastewater each year.
51
lor euch ruck, ubout l mon
gallons of contaminated water returns to the surface and
must be treuted.
52
Although projections vary,
53
one industry
Estimated Annual Water Use of Natural Gas Hydraulic Fracturing in the United States
Water Use Per Wells Per Total Water Use
Well (gallons)
A
Year
B
(gallons per year)
C
Barnett Fayetteville Haynesville Marcellus Average
Shale Shale Shale Shale
New Fractured Gas Wells
(Drilling and Fracturing) 2,700,000 3,060,000 3,700,000 3,880,000 3,335,000 11,400 38,019,000,000
Re-Fractured Existing
Gas Wells (Fracturing) 2,300,000 2,900,000 2,700,000 3,800,000 2,925,000 14,000 40,950,000,000
Total New and
Existing Gas Wells 78,969,000,000
Sources:
A
U.S. Department of Energy. Modern Shale Gas Development in the United States: A Primer. April 2009 at 64.
B
U.S. Environmental Protection Agency. Addressing Air Emissions from the Oil and Natural Gas Industry: Overview of EPAs Proposed
New Source Performance Standards and National Emission Standards for Hazardous Air Pollutants. July 28, 2011 at 4.
C
Total water use = average water use/well * wells /year
4
analyst predicted that the total market for treating the shale
gus vustevuter voud key exceed Sl00 bon over the
next 40 to 50 years.
54
This has caught the attention of many
water companies. According to an article in the Wall Street
Journal, The growing volume of dirty water produced in
shale-gas drilling has triggered a gold rush among water-
treatment companies.
55
GE is involved, Veolia is involved, Siemens is involved, an
undisclosed water treatment company executive told Global
Water Intelligence, u vuter ndustry pubcuton, ubout the
produced water market in the Marcellus Shale. Most of
the people who are major players in the water industry are
focused on that market.
56
Regulations Driving the Treatment Market
Some water companies support strong regulations for the
disposal and treatment of drilling wastewater,
57
perhaps
purty becuuse strct reguutons voud creute u murket
opportunty or ther treutment busnesses.
58
Both Aqua
America and American Water stated support of drilling
regulations that they claimed would protect water quality.
59

1hey both uso vunted to se vustevuter treutment servces
to gas drillers.
ln August 20ll, Amercun \uter CLC }e Sterbu sud thut
the compuny s very dentey ookng und vorkng n the
vustevuter treutment ureu, but decned to dscose vhut
the compuny's specc ntutves vere.
60
lt seemed to be
vutng on reguutons, so thut rues voud be set n stone,
in the words of one corporate executive.
61
Similarly, Aqua
America investigated treatment options for drilling wastewa-
ter, ncudng u mobe treutment unt.
62
Lubty concerns
stalled its progress,
63
and in May 2011 DeBenedictis said
thut there st vusn't sucent demund or the treutment
process, uddng, ut ve v be reudy vhen the demund s
there.
64
That demand will come from the expansion of the
shale gas drilling and strict regulation of its wastewater.
ecuuse o the nuncu tes betveen the prvute vuter
utty und gus drng ndustres, pubc ocus shoud
be vury o reyng on prvute vuter compunes to ussess
hydruuc ructurng's eects on vuter suppes. Lnreguuted
sales of water from investor-owned utilities to gas drillers
uso mert pubc scrutny.
1he nuton's urgest vuter utty corporutons huve nuncu
nterests thut bus them n uvor o shue gus deveopment.
Their endorsement of a regulated shale gas industry should
not be tuken us evdence thut ruckng s sue or thut reguu-
tons ure sucent to protect vuter suppes. 1hrough the
sale of water or treatment services to gas drillers, water
compunes benet rom the grovth und reguuton o shue
gas drilling.
Despite the claims of some water corporations, regulation
is not enough to protect water supplies from the dangers of
hydruuc ructurng. lruckng s exempt rom key ederu
water protections,
65
and often-overwhelmed state regula-
tors primarily oversee the practice.
66
Both state and federal
reguutors huve u poor truck record o protectng the pubc
from the impacts of fracking.
67
Lven the uvs on the books
vere strengthened, ruckng poses too severe u rsk to pub-
lic and environmental health.
Congress, stute egsutors und ocu governmentu bodes
shoud bun shue gus ruckng.
The Gas Driller Discount: Comparison of Pennsylvania American Waters Water
Sales to Gas Drillers and Residential Customers
Customer Class Period Volume Sold Revenues Average Charge
(in gallons) (Revenues/Volume)
($ per 1,000 gallons)
Gas Drillers
A
First half 2011 115,300,000 $702,000 $6.09
Residential Customers
B
Full year 2010 29,237,005,000 $325,273,489 $11.13
Difference $5.04
Driller discount
(% less for drillers) 45%
Sources:
A
American Water. Institution Investor Meetings. August 2011 at 41.
B
Pennsylvania American Water Company. Operating Revenues. Data requirements for the Pennsylvania Public Utility Commission.
(Docket Number R-2011-2232243). April 29, 2011 at Vol. 6 FR.II.1.
1 Pickrell, Emily. Water follows the shale trail. Global Water Intelligence. Vol. 11,
Iss. 1. January 2010 at 25.
2 L.S. Depurtment o Lnergy. Modern Shue Cus Deveopment n the Lnted Stutes:
A Primer. April 2009 at ES- 4, 64, 66 and 70.
3 Amercun \uter \orks Compuny, lnc. L.S. Securtes und Lxchunge Commsson.
lorm l0-l. lebruury 25, 20ll ut 3.
4 Sterbu, }e. 2 20ll Amercun \uter \orks Co lnc Lurnngs Conerence Cu
lnu. FD (Fair Disclosure) Wire. August 4, 2011 at 3.
5 Aquu Amercu, lnc. 20ll Sustunubty Report. Muy 20ll ut 2.
6 Prior, Anna. CEO Interview: Aqua America. The Wall Street Journals SmartMoney.
July 12, 2011.
7 Deenedcts, Nchous. Aquu Amercu, lnc. Letter to shurehoders. September
2011 at 1.
8 Aquu Amercu, lnc. (lress reeuse). Lurgest prvute L.S. vuter uttes to exchunge
subsdures, euch nov urgest nvestor-ovned vuter utty n respectve stutes. }uy
ll, 20ll, ley, leter. Aquu Amercu, Amercun \uter trudes expuned by Aquu
CEO. Philadelphia Business Journal. July 28, 2011; Aqua America, Inc. (Press re-
lease). Aqua America reports record earnings for second quarter. August 2, 2011.
9 Deenedcts, Nchous. l 20ll Aquu Amercu lnc Lurnngs Conerence Cu
lnu. FD (Fair Disclosure) Wire. May 6, 2011 at 6.
10 Jarvis, John. Aqua America, American Water to swap. The Marion Star. July 12,
2011.
ll Murceus Shue Couton. (rochure). Your Membershp. August 20ll ut l und 2.
l2 Shue Cus lnsght 20ll Conerence. Sponsors. Avuube ut http://shalegasinsight.
com/sponsorship/sponsors. Accessed September 2l, 20ll. Cn e vth lood &
Water Watch; Marcellus Shale Coalition. Inaugural shale gas insight conference
hghghts nutonu securty, economc, envronmentu benets o nuturu gus.
September l2, 20ll.
13 DeBenedictis, Nicholas. Aqua America, Inc. Presentation to the Pennsylvania Mar-
cellus Shale Advisory Commission. May 20, 2011 at 3 and 9; Luitweiler, Preston.
Aqua America, Inc. Testimony on Marcellus Shale. House Democratic Policy Com-
mittee Hearing. House of Representatives. Commonwealth of Pennsylvania. June 9,
2011.
14 DeBenedictis, May 20, 2011 at 3.
15 Pape, Kathy. Pennsylvania American Water. Testimony on Water and Wastewater
Industries. Consumer Affairs Committee. House of Representatives. Commonwealth
of Pennsylvania. March 2, 2011 at 16 to 17; Pennsylvania American Water. Penn-
sylvania American Water position on Marcellus Shale drilling. 2011.
16 Pape at 16.
17 DeBenedictis, May 20, 2011 at 2.
18 Ibid. at 3 to 5.
19 Ibid. at 5.
20 lennsyvunu Amercun \uter. (lress reeuse). No detectube eves o rudoogcu
contaminants or volatile organic compounds found at Pennsylvania American Wa-
ter intakes along Allegheny, Clarion and Monongahela Rivers and Two Lick Creek.
May 16, 2011.
21 Ibid.
22 Levy, Murc. lu. vuter utty doesn't nd drng pouton. Associated Press. May
16, 2011.
23 Hopey, Don and Sean D. Hamill. PA: Marcellus wastewater shouldnt go to treat-
ment plants. Pittsburgh Post-Gazette. April 19, 2011.
24 Murceus Shue Couton. Nev tests conrm Murceus deveopment not mpuct-
ing Pa. waterways. May 18, 2011.
25 Lrbnu, lun. Reguuton ux us gus ves' tunted vuter hts rvers. The New York
Times. lebruury 26, 20ll.
26 Open Secrets. Congressional Elections: Pennsylvania District 18 Race: 2012 Cycle.
Accessed September 20ll.
27 Murphy, Tim. The Congressional Natural Gas Caucus convenes a hearing on natu-
ru gus deveopment und the envronment: u stute reguutor's perspectve.' lnu.
FD (Fair Disclosure) Wire. June 2, 2011.
28 Americas Natural Gas Alliance. (Press release). ANGA statement on the recent
American Rivers report. May 18, 2011; Petersen, Laura. Rivers: Energy sector
threuts hghghted n utest endungered' st. Lnvronment und Lnergy lubshng's
Land Letter. Vol. 10, Iss. 9. May 19, 2011.
29 American Rivers. Americas Most Endangered Rivers. May 2011 at 3.
30 Pennsylvania American Water, May 16, 2011.
3l Averch, Hurvey und Leund L. }ohnson. ehuvor o the lrm Lnder Reguutory
Constraint. The American Economic Review. Vo. 52, lss. 5. December l962 ut
1053 to 1055 and 1059; American Water. Institution Investor Meetings. August
2011 at 13, 34 to 36.
32 DeBenedictis, May 20, 2011 at 3.
33 Hughes, Mutt. Amd drng ght, Dmock gets pubc vuter. The Times Leader.
Cctober l, 20l0, Skrupts, Lzubeth. Drng compunes eye stes neur vuter
sources. Citizens Voice. May 3, 2010.
34 DeBenedictis, May 6, 2011 at 5.
35 Ibid. at 7.
36 DeBenedictis, May 20, 2011 at 8.
37 Aqua America. (Brochure). Aqua Resources makes splash in water supply for
Marcellus shale developers. 2011.
38 DeBenedictis, May 20, 2011 at 8.
39 DeBenedictis, May 6, 2011 at 3.
40 Aqua America, (Brochure), 2011; DeBenedictis, May 6, 2011 at 5.
41 Aqua America, (Brochure), 2011.
42 DeBenedictis, May 6, 2011 at 6.
43 Penn Virginia Resource Partners, L.P. (Press release). Aqua America and PVR
Partners announce joint venture private water pipeline in the Marcellus Shale.
September 20, 20ll.
44 DeBenedictis, May 6, 2011 at 7.
45 Ibid, at 7.
46 Aquu Amercu, lnc. L.S. Securtes und Lxchunge Commsson. lorm l0-l. lebru-
ary 25, 2011 at 5.
47 American Water. Institution Investor Meetings. August 2011 at 41.
48 Ibid. at 41.
49 Sterbu ut 3.
50 Susquehanna River Basin Commission. Approved Water Sources for Natural Gas
Development. March 30, 2011.
5l lootsteps to the shue. American Water Intelligence. Vo. l, lss. l. Cctober 20l0
at 10.
52 Chernova, Yuliya. In frackings wake. The Wall Street Journal. September l2, 20ll.
53 Cobu \uter lntegence. lroduced \uter Murket: Cpportuntes n the o, shue
and gas sectors in North America. March 17, 2011 at 137 to 138; Arnold, Mark.
uuntuc Corporuton. lresentuton ut Global Water Intelligences American Water
Summt 20l0, \ushngton, D.C., November 3, 20l0 ut 3.
54 Pickrell at 25.
55 Chernova.
56 Cobu \uter lntegence ut l00.
57 Deenedcts, Muy 20, 20ll ut 6, lennsyvunu Amercun \uter. (Aert notcu-
ton). romde Aert Lpdute. Apr 20, 20ll, lupe ut l6.
58 Waste not, want not in the Marcellus Shale. Global Water Intelligence. Vol. 11,
lss. 2. lebruury 20l0 ut 24, lountun uu puns ts Murceus Shue conquest.
American Water Intelligence. Vol. 2, Iss. 1. January 2011 at 11.
59 DeBenedictis, May 20, 2011 at 6; Pennsylvania American Water, April 20, 2011;
Pape at 16.
60 Sterbu ut l2.
61 Vallejo, Edward. American Water Works Co Inc at Philadelphia Securities Associa-
ton normuton uncheon meetng nu. FD (Fair Disclosure) Wire. April 6,
2011 at 7.
62 DeBenedictis, May 6, 2011 at 6.
63 Deenedcts, Nchous. Aquu Amercu ut Cube & Compuny, lnc est ldeus
Conerence lnu. FD (Fair Disclosure) Wire. December 2, 20l0 ut 7.
64 DeBenedictis, May 6, 2011 at 6.
65 Lrbnu, lun. lressure mts eorts to poce drng or gus. The New York Times.
March 3, 2011; Lax rules for the natural gas industry. The New York Times. March
3, 2011.
66 }ervs, Rck. Cus drng ues u boom und heuth concerns. USA Today. Decem-
ber l4, 20l0.
67 Lrbnu, March 3, 2011.
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