Does annexation subvert local controls over frac sand mining?

As community involvement in the expansion of frac sand mining has become more organized and influential, it appears that industry has embraced annexation as a tactic to advance controversial frac sand projects.

Annexation law in Wisconsin allows cities and villages to increase their size through acquisition of contiguous land, a process often initiated at the request of landowners. Cities and villages sometimes view annexation as an economic development strategy that creates an increased tax base. Once a city or village annexes land, it is required to extend public services to its newly expanded jurisdiction.

Some frac sand operations have recently benefited from annexation, pursued to achieve a "friendlier" regulatory environment or to circumvent local opposition to controversial projects. Whether by intention or not, this tactic appears to subvert local democratic control over the decision-making process involving a contentious and rapidly-expanding industry.

Use of Annexation to Force Industry-friendly Regulations

In Trempealeau County, the frac sand industry has used annexation to secure a more lenient regulatory environment. As Tony Kennedy reports, for example, Trempealeau County issued an operating permit in 2011 for a mine in Preston Township opened by Winn Bay Sands LP of Saskatchewan. The permit limited hours of operation to weekdays, required air monitoring, and mandated periodic inspections of nearby homes. But in January 2012 the mine was sold for $200 million to Pennsylvania-based Preferred Sands. Founded by Michael O'Neill, a former Philadelphia banker and real estate executive, Preferred Sands then sought to have the property annexed to the City of Blair, a small municipality surrounded by Preston Township.

Slowing down or unstable?

At the close of 2012, some observers began to report a downturn in the Wisconsin  frac sand rush, underscoring the potential instability of resource extraction industries.

As Kate Prengaman writes for the Wisconsin Center for Investigative Journalism, demand for frac sand declined due to a surplus of natural gas in the U.S.

From 2002 to 2012, writes Prengaman, citing the U.S. Energy Information Administration, shale gas production increased 2,400 percent. This rapid increase in shale gas production fueled demand for frac sand.

Making a profit off of frac sand, however, depends not only on the costs of production and transportation, but on fluctuating market prices. The frenzied pace of shale gas drilling generated a surplus of natural gas, pushing down gas prices and slowing unconventional gas development, in turn reducing the need for frac sand.

Prengaman reports that county officials in Wisconsin received fewer applications for frac sand operations during the fall of 2012 than earlier in the year. In addition, some permitted mines have not begun construction. Some companies may be waiting for prices to go back up, while others may simply hold onto permits as part of the company's "reserves" or to prevent competition from moving in.

Lance Pliml, chair of the Wood County Board and president of the recently formed Wisconsin Counties Association Frac Sand Task Force, says that some landowners have mineral rights contracts that offer no payment up front and may "not see that windfall they anticipated."

The "slowing" of the frac sand rush could have other adverse economic impacts if mining operations cut back on production and the much-touted "job creation" fails to materialize. This raises questions about the stability of resource extraction industries and whether or not mining offers a sound foundation long-term economic development. While many factors must be taken into consideration, as UW-Extension economists note, the instability represented by "boom-and-bust" cycles and the "flickering" of mining operations can transfer to local communities.