Regulators regulate. It’s a simple concept, but one which seems to escape even the highest of government officials. Some in the Obama Administration must be disappointed by the lukewarm reception business leaders and the public have given to recent regulatory red-tape cutting efforts. But when you read stories like “SEC Bears Down on Fracking“, which appeared in this morning’s Wall Street Journal (online subscription required), you cannot be surprised that serious doubts exist over the federal government’s wherewithal to rationalize regulation.
It must have been hard for securities regulators to see their counterparts at the EPA, the Department of Energy, and the Army Corps of Engineers, not to mention state, county, and city regulatory entities, getting a piece of the action on hydraulic fracturing, aka, “fracking.” Pursuit of reportedly 110 years’ worth of natural gas trapped in rock formations like the New York-to-Kentucky Marcellus Shale is now possible with new technology. Regulators are, as always, struggling to keep up with this new technology. Job-creating companies, aware that regulation is inevitable and, if done right, can lend credibility to their natural gas extraction, are working with many officials to craft disclosure and other rules.
So where does the Securities and Exchange Commission fit in to that? SEC broadly interprets its authority to seek information which it feels is material to investors. In doing so, it follows the maxim “the squeaky wheel gets the grease,” the squeakiest wheel here being shareholder activists. Investor activist group As You Sow, for instance, has been pushing the fracking regulatory issue through the shareholder proxy process. So SEC saw an opening to inject itself into fracking and, according to the WSJ story, is doing so through selective letter-writing. There’s no clarity, at this point, what information they are seeking and what they will make public. From the WSJ story:
For the moment, the SEC isn’t requiring broad, standardized disclosure of fracking information to the public. Instead, oil and gas companies are being asked by the agency’s office that oversees corporate disclosure to supply information confidentially to the SEC, and the agency, in turn, will likely require them to publicly disclose some of that information, according to government officials. “If there’s something in [a company's] field of operation that creates uncertainty, that’s something they may want to talk about” with investors, said a government official.”
When agencies ask for information, regulated businesses know they must produce, or else. Here, they’ll have to take their chances that proprietary information about technology won’t fall into the hands of environmental or shareholder activists or, even worse, plaintiffs’ lawyers. Recent developments related to SEC staffers’ destruction of documents from financial fraud investigations certainly don’t inspire confidence in those who must share information with the Commission.
This isn’t SEC’s first foray into a controversial area of environmental regulation. Last year, it issued highly criticized guidelines on what type of information public companies must disclose regarding “business risks associated with climate change.”
Companies and their employees pursuing this promising source of domestic energy know (to paraphrase the 2007 Oscar-nominated film), There Will be Regulation. But there shouldn’t be layers and layers of it. The E in SEC doesn’t stand for “environment.” We all know there are already plenty of other agencies whose actual mission, for better or worse, is environmental protection.