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January 2, 2019

Financing for founders: A primer on SAFEs and their use in early-stage financing

Smart Business

(by Jayne Gest with Christian A. Farmakis)

In 2013, San Francisco seed accelerator Y Combinator created a Simple Agreement for Future Equity (SAFE), which can be used in lieu of a convertible note. SAFEs spread throughout the California investment community. Now they’re entering regions like Pittsburgh. Investors, however, haven’t always embraced SAFEs as a reasonable vehicle for seed investment. They may be hesitant or uncomfortable with them.

Christian A. Farmakis, shareholder and chairman of the board at Babst Calland, first encountered SAFEs a few years ago when making a personal investment.

“I didn’t know much about it at the time. I initially thought, ‘How is this different than a convertible note?’” he says. “I read it and thought: ‘If the investment goes well, I’m largely in the same position. If the investment doesn’t go well, I will never be repaid, but I never expected to be.’ So, I signed it.”

Smart Business spoke with Farmakis about what entrepreneurs and investors need to understand about SAFEs.

What are the similarities and differences between SAFEs and convertible notes?

A SAFE is essentially a warrant (a contractual right to purchase equity upon the occurrence of a future triggering event, like a later priced investment round), but with the purchase price paid upfront.

SAFEs are like convertible notes in many ways. They can (a) include a discount on the per share price — a 20 percent discount would provide the investor 125 shares rather than 100; (b) include a valuation cap, capping the investor dilution when the triggering event occurs; and (c) give pricing protection for early investors. Because both are early-stage investment vehicles, the price per equity unit is not determined because the company has no company valuation.

A convertible note is a debt instrument. A SAFE is a contract. As such, a convertible note typically earns...

Babst Calland Names Calfe, Cooper, Fortna and James Shareholders

PITTSBURGH, January 2, 2019 – Babst Calland recently named Meredith L. Calfe, Kate H. Cooper, Alana E. Fortna and Rachel E. James shareholders in the Firm.

Meredith Calfe, a member of the Firm’s Energy and Natural Resources Group, concentrates her practice on counseling oil and gas clients on mineral-related transaction matters, including title examination, due diligence and curative work.

Ms. Calfe is a 2009 graduate of the University of Pittsburgh School of Law.

Kate Cooper, a member of the Firm’s Corporate and Commercial Group, counsels for-profit and non-profit entities in connection with mergers, acquisitions and divestitures, and a broad range of general corporate matters, including business planning and structuring, commercial contracts, securities law matters and governance issues.

Ms. Cooper is a 2010 graduate, cum laude, of Boston College Law School.

Alana Fortna is a member of the Firm’s Litigation, Environmental, Employment and Labor, and Emerging Technologies groups. Ms. Fortna represents clients in complex commercial litigation with a focus primarily on environmental litigation, including large-scale cost recovery actions under CERCLA and state law statutes, actions seeking injunctive relief under RCRA, and citizens’ suits brought under various federal statutes and regulatory programs. She also leverages her litigation experience to help companies and other entities with emerging technologies strike a balance between innovation and risk management.

Ms. Fortna is a 2010 graduate, magna cum laude, of Duquesne University School of Law.

Rachel James, a member of the Firm’s Energy and Natural Resources Group, represents energy clients on oil, gas and mineral-related transaction matters, including title examination, due diligence activities, curative work and the acquisition and disposition of oil and gas fee and leasehold assets.

Ms. James is a 2009 graduate of the University of Pittsburgh School of Law.

January 1, 2019

Oil and Gas Development in West Virginia Involving Unknown or Unleased Parties

Institute for Energy Law Oil & Gas E-Report

(by Joshua F. Hall, Nikolas Tysiak and Jason Zoeller)

West Virginia law presents unique challenges regarding jointly owned property in situations where a minority owner cannot be identified, is not available or refuses to join in the leasing of oil and gas. It is not uncommon for oil and gas rights in West Virginia to be owned by members of the same family for several generations, and the result is that an operator may need to approach multiple parties to lease a single parcel. Historically, West Virginia law has placed strict requirements on a lessee in leasing cotenants and required the consent of all parties before oil and gas operations could commence. However, when leasing all cotenants in an oil and gas property is not feasible, there are several statutory options available in West Virginia that may provide relief to an operator, including a new Cotenancy Modernization and Majority Protection Act that was passed this year.

For the full article, click here.

For the full report, click here.

December 20, 2018

Municipal Regulation of Agricultural Operations in Pennsylvania

The Legal Intelligencer

(by Blaine A. Lucas and Alyssa E. Golfieri)

Pennsylvania municipalities are “creatures of the state” and thus may only exercise those powers expressly and implicitly delegated to them by the General Assembly. One area in which municipalities have been delegated authority is the regulation of land uses. The Pennsylvania Municipalities Planning Code, 53 P.S. Section 10101 et seq., establishes the framework for zoning and subdivision and land development regulation in Pennsylvania. However, a municipality’s powers are not without limitation. The General Assembly, by statute, has constrained the manner and degree to which municipalities can regulate certain types of land use. The Pennsylvania Right-to-Farm Act, 3 P.S. Section 951 et seq., (RTFA) and the Pennsylvania Agricultural, Communities and Rural Environment Act, 3 Pa.C.S. Section 311 et seq., (ACRE) are two such examples.

The RTFA was enacted in 1982 for the purpose of limiting the circumstances under which “normal agricultural operations” may be the subject matter of nuisance suits and zoning regulations. Specifically, the RTFA mandates that every municipality regulating a public nuisance exempt from its scope “normal agricultural operations” as long as the operations do not have a “direct adverse effect on the public health and safety.” It also requires municipalities to permit the direct sale of agricultural commodities on property owned and operated by a landowner who produces 50 percent or more of the commodities sold, regardless of applicable zoning regulations.

In 2005, the General Assembly recognized that owners and operators of normal agricultural operations needed a cost and time efficient way to challenge local regulatory actions running afoul of the RTFA and, in response, enacted ACRE. ACRE provides a means for those engaged in these activities to challenge and seek the invalidation of unauthorized ordinances or enforcement actions related to those ordinances. If an owner or operator believes a...

December 18, 2018

U.S. EPA and Army Corps Propose Redefining “Waters of the United States” Under the Clean Water Act

Environmental Alert

(by Lisa M. Bruderly and Gary E. Steinbauer)

Last week, the U.S. Environmental Protection Agency and Army Corps of Engineers (collectively, the Agencies) released a long-awaited proposed rule that would redefine “waters of the United States” (WOTUS) under the Clean Water Act (CWA) and dramatically alter the federal government’s jurisdiction over surface water, including wetlands, throughout the U.S. The proposed rule is part of the Trump administration’s efforts to rescind a 2015 rule defining WOTUS, known as the “Clean Water Rule” (CWR), that was promulgated by the Agencies during the Obama administration and to provide clarity, predictability and consistency in identifying federally regulated waters. The public will have 60 days to comment once the new proposed definition of WOTUS is published in the Federal Register. This Alert provides an overview of the 253-page proposal, identifies some of the key proposed changes, and discusses opportunities to comment on the proposed new definition of WOTUS and other questions posed by the Agencies.

Relevant Background

Since taking office, President Donald Trump has prioritized rolling back the CWR’s definition of WOTUS, which is widely regarded as expanding the scope of the federal government’s jurisdiction under the CWA. In February 2017, the president signed Executive Order 13778 directing the Agencies to review the CWR’s definition of WOTUS and to publish a proposed rule rescinding or revising the CWR. The Order also directs the Agencies to consider defining WOTUS in a manner consistent with the narrower interpretation of WOTUS adopted in Justice Antonin Scalia’s plurality opinion in Rapanos v. United States, 547 U.S. 715 (2006). Justice Scalia’s opinion limits WOTUS to include only relatively permanent, standing or flowing bodies of water. In contrast, the CWR relied heavily on Justice Anthony Kennedy’s concurring opinion in Rapanos, which adopted a “significant nexus” test for jurisdiction under the...

December 12, 2018

Comment period ending for EPA’s proposal to reconsider key parts of methane rule

The PIOGA Press

(by Meredith Odato Graham and Gary E. Steinbauer)

In 2016, the U.S. Environmental Protection Agency finalized a rule that established first-time federal standards for methane emissions from new, modified, and reconstructed sources in the oil and gas industry. The so-called new source performance standards (NSPS) at 40 C.F.R. 60, Subpart OOOOa (Subpart OOOOa), have since become the subject of considerable debate and litigation. Consistent with the Trump administration’s other deregulatory efforts, EPA published a proposal in the Federal Register in October that aims to reduce the Subpart OOOOa regulatory burden for industry.

EPA estimates that the proposed improvements to the rule could save industry tens of millions of dollars in compliance costs each year. EPA held a public hearing in November and is accepting stakeholder comments through December 17.

Significant changes to applicable requirements

The 52-page rulemaking notice describes several proposed amendments to Subpart OOOOa. EPA is addressing certain issues that were presented to the agency in formal petitions for reconsideration, as well as “other implementation issues and technical corrections” brought to the agency’s attention after Subpart OOOOa was promulgated. For example, it is proposing significant changes to the requirements for fugitive emissions components, including revised leak monitoring frequencies. Whereas the current regulation subjects well sites to semiannual leak monitoring, the revised Subpart OOOOa would require monitoring every other year for low production well sites and annually for all other well sites. The required frequency of compressor station monitoring would be reduced from quarterly to either semiannual or annual. (The proposal includes distinct monitoring requirements for well sites and compressor stations on the Alaska North Slope.) EPA also is proposing to reduce the schedule for repairing leaks from 30 to 60 days. Finally, EPA proposes to no longer require monitoring surveys at well sites once all major production...

November 30, 2018

Sincerely Held Secular Beliefs Do Not Qualify for Religious Exemption From Flu Shot Policy

The Legal Intelligencer

(by Stephen A. Antonelli)

It’s that time of year again. The days are getting shorter, the weather is getting colder, and families are starting to think about the menu for their Thanksgiving dinners.

And I still haven’t gotten my flu shot.

It’s on my to-do list, I promise. It’s not that I don’t like going to the doctor, or that I am particularly afraid of needles, but when it comes to the flu shot, for some reason, I tend to procrastinate. Some employees who work in the health care industry do not have the option of procrastinating when it comes to getting a flu vaccine because their employer requires them to be vaccinated.

The Center for Disease Control (CDC), the Advisory Committee on Immunization Practices (ACIP), and the Healthcare Infection Control Practices Advisory Committee (HICPAC) recommend that all U.S. health care workers get vaccinated annually against influenza. This recommendation applies to physicians, nurses, nursing assistants, therapists, technicians, emergency medical service personnel and anyone potentially exposed to infectious agents that can be transmitted to and from health care workers and patients. As a result, many health care employers require their employees to get vaccinated annually.

Employers that mandate flu vaccinations should be sure to allow employees to request exemptions to their flu shot policies for medical reasons, including but not limited to, allergies to the vaccine or its components or a history of Guillain-Barré syndrome. Employers should also allow an exemption to employees with sincerely held religious beliefs that conflict with receiving the vaccination. Employers may then require employees who have been granted an exemption to wear a mask when interacting with patients or coworkers. Not surprisingly, mandatory flu vaccinations policies have been the subject of litigation, including several cases filed by the Equal Employment Opportunity Commission  (EEOC).

Near the end of 2017, in Fallon...

Paving the Way for Autonomous Vehicles

TriState Infrastructure Summit 

On Tuesday, November 27, 2018, 160 industry and public sector representatives attended the 2018 TriState Infrastructure Summit, presented by the TriState Infrastructure Council and its partners, at the Regional Learning Alliance in Cranberry Township, Pa.  The Summit addressed transportation and infrastructure needs in the Ohio River Valley integral to the petrochemical industry and related economic growth in the region.

Stan Caldwell, CMU Executive Director of Traffic21 and Mobility21 participated with Justine Kasznica of law firm Babst Calland’s Mobility, Transport and Safety practice on the panel Paving the Way for Autonomous Vehicles hosted by Babst Calland.  The presentation included a discussion about autonomous vehicles in the broader context of infrastructure design and development, and issues related to urban infrastructure and research and advancements in mobility technologies.

O. Chris Jackson, Production Unit Manager for Logistics, Shell Polymers, Pennsylvania, was the keynote speaker for the event on Regional Transportation and Infrastructure Considerations for a World Class Petrochemical Complex.

For more information, including a complete agenda for the TriState Infrastructure Summit, click here.

Issues Redefine Regulatory Landscape

The American Oil & Gas Reporter

(by Jean M. Mosites, Keith J. Coyle and Krista-Ann M. Staley)

PITTSBURGH–The Marcellus and Utica shale plays account for some 30 percent of total U.S. natural gas output, compared with only 3 percent a decade ago. The Appalachian Basin’s rapid growth in natural gas and natural gas liquids production has occurred despite relatively low natural gas prices, driven by greater well productivity from improved drilling and completion techniques, including longer laterals and optimized well spacing.

Additionally, infrastructure build-out in the region, including the development of significant interstate pipeline projects featuring large-scale transmission of natural gas and NGLs (such as the Rover, Nexus and Mariner East 1 projects), has allowed access to Northeast population centers to increase demand for Appalachian-derived natural gas resources. Continued innovations in the industry, such as improvements to water logistics, likely will be important to reduce operational costs and further improve efficiency to maintain growth.

While the industry continues forging ahead in the Marcellus, Utica and conventional Appalachian plays, the legal landscape continues to evolve with everchanging federal and state environmental and safety regulations, along with a variety of local government requirements across the basin. The federal and state courts, legislatures and regulatory agencies continue to address a variety of issues that affect all facets of oil and gas development in the multistate region.

These decisions and developments not only affect drilling and production, but also the midstream and transportation infrastructure that is so critical to Appalachian producers’ ability to market their production. This article summarizes developments in the legal and regulatory landscape facing oil and gas producers and midstream operators in the Appalachian Basin.

In October 2016, the Marcellus Shale Coalition filed a petition in the Pennsylvania Commonwealth Court challenging seven new provisions in 25 Pa. Code Chapter 78a, a set of...

November 21, 2018

Commonwealth Court upholds ordinance allowing drilling in all zoning districts

The PIOGA Press

(by Blaine A. Lucas and Robert Max Junker)

On October 26, the Pennsylvania Commonwealth Court published an en banc opinion in Frederick v. Allegheny Township Zoning Hearing Board, et al., No. 2295 C.D. 2015, 2018 WL 5303462 (Pa. Cmwlth. Oct. 26, 2018) rejecting a challenge to the validity of the Allegheny Township, Westmoreland County, zoning ordinance. The court addressed the contention of oil and gas industry opponents that an unconventional natural gas well pad can be permitted only in an industrial zoning district. After reviewing the detailed record developed in the substantive validity challenge decided by the township Zoning Hearing Board and addressing recent Pennsylvania Supreme Court decisions on shale gas drilling, the court in a 5-2 decision rejected this “one size fits all” proposition. It found that state law empowers municipalities to determine where well sites are appropriate and compatible with other land uses within their boundaries.

Background

In 2010, the township Board of Supervisors enacted a zoning ordinance amendment that allowed oil and gas well operations in all zoning districts as a use permitted “as of right,” provided the applicant satisfied numerous specified standards to protect the public health, safety, and welfare. A use permitted “as of right” requires administrative approval; it does not require public notice or a hearing.

In 2014, CNX Gas Company, LLC applied to the township for a zoning permit to develop an unconventional well pad (Porter Pad) in the R-2 Agricultural/Residential Zoning District and submitted all the information required by the 2010 ordinance. Once CNX received the zoning permit, three nearby individuals (the objectors) appealed to the board. They challenged the granting of the permit and raised a substantive validity challenge to the 2010 ordinance. The objectors claimed that based on the Pennsylvania Supreme Court’s decision in Robinson Township v. Commonwealth,...

Water law update: Recent developments expected to affect the natural gas industry

The PIOGA Press

(by Lisa M. Bruderly and Gary E. Steinbauer)

Recent developments regarding two facets of Clean Water Act (CWA) regulation could affect natural gas pipeline siting/permitting and exploration and production activities in Pennsylvania and elsewhere. The first issue is the ongoing challenge to define “waters of the United States,” with the definition recently changing in Pennsylvania. The second issue is the concept of Clean Water Act liability extending to releases to ground water that eventually make their way to surface water (known as the “conduit” theory of liability).

Definition of “water of the United States”

It is widely known that in 2015 the Obama administration promulgated a new definition of the term “water of the United States” (WOTUS) in a rule commonly referred to as the Clean Water Rule (CWR). Industry and states promptly filed lawsuits challenging the CWR as an unlawful expansion of the types of waters subject to regulation under the CWA. Among other issues, the expanded definition increased the types of waters that were subject to U.S. Army Corps of Engineers and Environmental Protection Agency (EPA) jurisdiction. With the increased scope of federal jurisdiction, a pipeline project or exploration and production activities could impact a larger quantity of waters that were now considered to be regulated and require more complicated, costly and time-consuming permitting under Section 404 of the CWA. In some instances, a project could not be permitted due to the extent of impacts.

Almost immediately after the CWR was issued, lawsuits challenged it. Until 2018, the CWR was stayed (i.e., suspended) throughout the United States based on a nationwide injunction issued by the Sixth Circuit Court of Appeals. The nationwide judicial stay was lifted following a decision by the U.S. Supreme Court on January 22, 2018, which invalidated the Sixth Circuit’s nationwide injunction, holding...

November 19, 2018

Babst Calland Partners with CMU and Industry Leaders to Discuss Mobility Technology

On Friday, November 9, 2018, Babst Calland participated in the Deployment Partner Consortium Symposium at Carnegie Mellon University organized and hosted by Traffic21 Institute and Mobility21 Transportation Center.  The Symposium brought together thought leaders in the mobility and transportation space to identify real-world transportation needs, as well as the policy and research challenges that come with advancing technology.

Johanna Jochum, attorney in Babst Calland’s Mobility, Transport and Safety and Emerging Technologies practice groups, spoke on the government panel regarding regulatory challenges at the federal level for autonomous vehicle technology. Ms. Jochum is based in Babst Calland’s Washington, D.C. office, which has direct ties to the federal regulators in transportation.

Babst Calland is a new member of Mobility21’s Deployment Partner Consortium, along with other industry and public partners.  Mobility21, the National University Transportation Center for Improving Mobility, aims to research, develop and deploy cutting edge technologies and policies, and develop educational programs to lay the groundwork for next-generation vehicles and mobility services.  Read more about Mobility21 and the Symposium at Mobility21 News.

Carnegie Mellon University’s Traffic21 Institute, which is housed in the Heinz College of Information Systems and Public Policy, was founded on the motto of Research, Development and Deployment encouraging researchers to address real-world transportation needs through partnerships. Since 2012, Carnegie Mellon University has maintained the Deployment Partner Consortium, and it continues that tradition with its US DOT funded National University Transportation Center, Mobility21, with the goal of improving the mobility of people and goods.

“Carnegie Mellon University has been at the forefront of autonomous vehicle technology for many years and continues its thought leadership through Traffic21, Mobility21 and its smart cities institute, Metro21,” said Alana Fortna, Pittsburgh-based litigation attorney and member of Babst Calland’s Emerging Technologies practice group.  “Carnegie Mellon University has had such a positive...

November 1, 2018

U.S. EPA Seeks Comment on Rollback of New Source Methane Standards

Energy Alert

(by Michael H. Winek, Meredith Odato Graham and Gary E. Steinbauer)

In 2016, U.S. EPA finalized a rule that established first-time federal standards for methane emissions from new, modified and reconstructed sources in the oil and gas industry.  The     so-called new source performance standards (NSPS) at 40 C.F.R. 60, Subpart OOOOa (Subpart OOOOa) have since become the subject of considerable debate and litigation.  Consistent with the Trump administration’s other deregulatory efforts, EPA published a proposal in the Federal Register on October 15, 2018 that aims to reduce the Subpart OOOOa regulatory burden for industry.  The agency has already received several comments from concerned citizens who oppose the proposal.  EPA will continue to accept stakeholder feedback through mid-December.

Significant Changes to Applicable Requirements

The 52-page rulemaking notice describes several proposed amendments to Subpart OOOOa.  EPA is addressing certain issues that were presented to the agency in formal petitions for reconsideration, as well as “other implementation issues and technical corrections” brought to the agency’s attention after Subpart OOOOa was promulgated.  For example, it is proposing significant changes to the requirements for fugitive emissions components, including revised leak monitoring frequencies.  Whereas the current regulation subjects well sites to semiannual leak monitoring, the revised Subpart OOOOa would require monitoring every other year for low production well sites and annually for all other well sites.  The required frequency of compressor station monitoring would be reduced from quarterly to either semiannual or annual. (The proposal includes distinct monitoring requirements for well sites and compressor stations on the Alaska North Slope.) EPA is also proposing to no longer require monitoring surveys at well sites once all major production and processing equipment is removed.  These are just a few of the many technical issues for which the agency is seeking public input.  Operators should review...

Pennsylvania Supreme Court Rules on Injunctive Relief for the Marcellus Shale Coalition

Insitute for Energy Law Oil & Gas E-Report

(by Jean M. Mosites)

On June 1, 2018, the Pennsylvania Supreme Court largely affirmed and partially vacated a November 8, 2016 temporary injunction granted to the Marcellus Shale Coalition (MSC) in its challenge to several new regulations that had been promulgated by the Pennsylvania Environmental Quality Board on October 8, 2016.

MSC had filed a Petition for Review of limited sections of the new Chapter 78a Regulations on October 13, 2016, seeking expedited relief in the form of a temporary injunction of the challenged regulations pending review and resolution on the merits.

For the full article, click here.

Pennsylvania Supreme Court Reverses Approval of Gas Well Pad on Narrow Grounds, But Suggests that Municipalities May Permit Unconventional Natural Gas Drilling in any and all Zoning Districts

Institute for Energy Law Oil & Gas E-Report

(by Blaine A. Lucas)

Robinson Township Revisited

The parameters of Pennsylvania local government regulation of the oil and gas industry continue to be refined and left uncertain by the ongoing judicial fallout from the Pennsylvania Supreme Court’s 2013 decision in Robinson Township v. Commonwealth. In Robinson Township, the Court invalidated two sections of Pennsylvania’s updated  Oil and Gas Act (Act 13) limiting the authority of local governments to regulate oil and gas operations. The three-Justice plurality decision was based on a reinvigorated interpretation and application of the Article I, Section 27 the Pennsylvania Constitution, commonly known as the Environmental Rights Amendment (ERA), which states:

The people have a right to clean air, pure water, and to the preservation of the natural, scenic, historic and esthetic values of the environment. Pennsylvania’s public natural resources are the common property of all the people, including generations yet to come. As trustee of these resources, the Commonwealth shall conserve and maintain them for the benefit of all the people.

For the full article, click here.

October 30, 2018

Commonwealth Court Upholds Validity of Ordinance Allowing Shale Gas Drilling in All Zoning Districts

Energy Alert

(by Blaine A. Lucas and Robert Max Junker)

Court Refuses to Adopt a “One Size Fits All” Approach that Would Prohibit Municipalities from Permitting Shale Drilling in Rural Residential and Agricultural Zoning Districts

On October 26, 2018, the Pennsylvania Commonwealth Court published an en banc opinion in Frederick v. Allegheny Township Zoning Hearing Board, et al., No. 2295 C.D. 2015, 2018 WL 5303462 (Pa. Cmwlth. Oct. 26, 2018) rejecting a challenge to the validity of the Allegheny Township, Westmoreland County (Township) zoning ordinance.  The Court addressed the contention of oil and gas industry opponents that an unconventional natural gas well pad can only be permitted in an industrial zoning district.  After reviewing the detailed record developed in the substantive validity challenge decided by the Township Zoning Hearing Board (Board) and addressing recent Pennsylvania Supreme Court decisions on shale gas drilling, the Court, in a 5-2 decision, rejected this “one size fits all” proposition.  It found that state law empowers municipalities to determine where well sites are appropriate and compatible with other land uses within their boundaries.

Background

In 2010, the Township Board of Supervisors enacted a zoning ordinance amendment that allowed oil and gas well operations in all zoning districts as a use permitted “as of right,” provided the applicant satisfied numerous specified standards to protect the public health, safety, and welfare (2010 Ordinance).  A use permitted “as of right” requires administrative approval; it does not require public notice or a hearing.

In 2014, CNX Gas Company, LLC (CNX) applied to the Township for a zoning permit to develop an unconventional well pad (Porter Pad) in the R-2 Agricultural / Residential Zoning District and submitted all the information required by the 2010 Ordinance.  Once CNX received the zoning permit, three nearby individuals, Dolores Frederick, Patricia Hagaman, and Beverly Taylor (Objectors)...

October 19, 2018

PHMSA finalizing new regulations for issuing emergency orders

The PIOGA Press

(by Keith J. Coyle)

The Pipeline and Hazardous Materials Safety Administration (PHMSA) is expected to finalize new regulations for issuing emergency orders in the coming weeks. The new regulations represent the culmination of a rulemaking process that PHMSA began two years ago during the final months of the Obama administration.

The Protecting our Infrastructure of Pipelines and Enhancing Safety Act of 2016 (PIPES Act) gave PHMSA the authority to issue emergency orders if “an unsafe condition or practice, or a combination of unsafe conditions and practices, constitutes or is causing an imminent hazard” 49 U.S.C. § 60117(o)(1). The PIPES Act directed PHMSA to establish temporary regulations for exercising that authority by no later than August 21, 2016, and final regulations by no later than March 19, 2017.

On October 14, 2016, PHMSA adopted temporary regulations for issuing emergency orders in an interim final rule. Federal agencies can adopt regulations in an interim final rule without providing the public with prior notice or the opportunity to comment, provided that good cause is shown under the Administrative Procedure Act. Stating the statutory deadline in the PIPES Act met the good cause standard, PHMSA established the temporary emergency order regulations as an interim final rule and provided a 60-day, post-publication comment period.

The temporary regulations set out the procedural requirements for issuing emergency orders and obtaining administrative review. Like the good cause exception in the Administrative Procedure Act, the PIPES Act authorizes PHMSA to issue an emergency order without providing prior notice or the opportunity for a hearing if an imminent hazard exists. PHMSA must consider certain factors before issuing an emergency order, and the order itself must contain specific information about the nature of the imminent hazard, the entities affected, the restrictions, prohibitions, or safety measures imposed, and the procedures for obtaining...

October 2, 2018

Sixth Circuit Decisions Create Circuit Split on Clean Water Act’s Regulation of Discharges to Groundwater

Environmental Alert

(by Lisa M. Bruderly and Gary E. Steinbauer)

In two highly anticipated companion decisions, the U.S. Court of Appeals for the Sixth Circuit ruled that the Clean Water Act (CWA) does not extend liability to pollution that reaches surface waters through groundwater. The Sixth Circuit declined to join the Fourth and Ninth Circuits, which earlier this year held that the CWA regulates discharges of pollutants that reach “navigable waters” after traveling through hydrologically connected groundwater. The conflicting decisions arguably broaden the scope of the CWA’s National Pollutant Discharge Elimination System (NPDES) permitting program in the 14 states and 2 territories within the Fourth and Ninth Circuits and narrow the scope of the NPDES program in the four states within the Sixth Circuit. The Circuits’ disagreement on the scope of the CWA makes it even more likely that the Supreme Court will weigh in on this important issue.

Factual and Legal Background

On September 24, 2018, the Sixth Circuit issued a pair of decisions in two cases involving CWA citizen suits brought by environmental groups seeking to hold coal-fired utility companies liable for alleged unauthorized discharges from coal ash ponds or impoundments. Kentucky Waterways Alliance & Sierra Club v. Kentucky Utilities Co., No. 18-5115 (6th Cir. Sept. 24, 2018); Tennessee Clean Water Network v. Tennessee Valley Auth., No. 17-6155 (6th Cir. Sept. 24, 2018). The facts of each case are similar, even though they were appealed to the Sixth Circuit at different procedural stages. Unless specifically referred to in this Alert, we address these decisions collectively.

In Kentucky Waterways Alliance & Sierra Club v. Kentucky Utilities Company (KWA), the plaintiff environmental groups filed a CWA citizen suit against the owner of a coal-fired power plant for alleged violations of the CWA and the Resource Conservation and Recovery Act (RCRA). The plaintiffs’...

Podcast: Finding Value in Value Assurance Programs (VAPs)

DRI Toxic Torts and Environmental Law Committee

Attorney Alana E. Fortna interviews Christy McLean, a Managing Director of Alvarez & Marsal Dispute and Investigations, on the use of Value Assurance Programs (VAPs) in toxic tort and environmental matters in a Podcast for DRI’s Toxic Torts and Environmental Law Committee entitled “Finding Value in Value Assurance Programs.”  VAPs are a tool used to address neighborhood concerns over a potential drop in property market value due to environmental issues or alleged nuisances, such as an environmental accident, environmental contamination, increased noise from industrial operations, or concerns related to a landfill expansion.  VAPs are relevant to toxic tort matters, site remediation, environmental litigation, and disputes related to the installation of new industrial operations or the expansion of existing industrial operations.

For more information on how Babst Calland can assist in these areas, please see our Energy and Natural Resources, Environmental, Litigation, Public Sector, and Real Estate practices.

To listen to the podcast, click here.

   

 

September 27, 2018

New PHMSA Rulemaking Proceeding Targets Changes to Class Location Requirements

Pratt's Energy Law Report

(by James Curry, Keith J. Coyle, and Brianne K. Kurdock)

The Pipeline and Hazardous Materials Safety Administration recently published an advance notice of proposed rulemaking asking for public comment on whether the Agency should change its class location requirements for gas pipeline facilities. The authors of this article discuss the class location requirements, the notice of proposed rulemaking, and what’s next.

The Pipeline and Hazardous Materials Safety Administration (“PHMSA” or the “Agency”) has published an advance notice of proposed rulemaking (“ANPRM”) in the Federal Register asking for public comment on whether the Agency should change its class location requirements for gas pipeline facilities. Specifically, PHMSA sought comment on alternatives to pipe replacements driven by class location changes. Adopted nearly five decades ago, PHMSA’s class location requirements use population density and surrounding land uses to categorize the potential risk that gas pipeline facilities pose to public safety.

OVERVIEW

The Agency asked the public to comment on whether the class location requirements should be updated to account for recent developments in the pipeline industry, particularly the widespread use of integrity management (“IM”) principles and new technologies. The current regulations require operators to reduce pressure, replace pipe, or conduct hydrostatic pressure testing in response to class location changes, and PHMSA is considering whether other alternatives should be available. Comments were due to the Agency on or before October 1, 2018.

The ANPRM is PHMSA’s first new pipeline safety rulemaking proceeding in the Trump era. The Agency began examining the need to modernize the class location regulations several years ago in response to a mandate that Congress included in the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011, and PHMSA is framing the ANPRM as an extension of that earlier effort. The Agency’s decision to issue the ANPRM sends...

September 25, 2018

Mobility In The Age Of Artificial Intelligence

PGHTECH FUSE

(by Justine Kasznica)

Mobility can be broadly defined as the movement of people, goods and information, and is consciously used here as a catchall term to describe a rapidly evolving ecosystem. Advancements in machine learning, artificial intelligence (AI), big data and connected systems (Internet of Things-IoT), applied against a backdrop of increased social and cultural acceptance of new technologies (such as autonomous systems, as well as enhanced capabilities of electric batteries and power/communications systems), as well as new economic models (such as the shared economy and Robot as a Services (RaaS) business models), have led to an unprecedented disruption of industries within the mobility ecosystem.

These industries range from automotive, rail, shipping, aviation industries to last-mile logistics and commercial space – essentially, any industry that builds or supports vehicles or systems that move on or through land, air, sea and space.

It is difficult to ignore the changing mobility landscape. For perspective, market forecasts predict that the IoT market alone will grow to $267 billion by 2020 and $640 Billion by 2022, and that as much as half of the IoT market will be attributable to spending on discrete manufacturing, transportation and logistics.

Despite these optimistic projections, full realization of the beneficial potential of this new era of mobility will be impossible unless industry participants give adequate priority and attention to critical policy issues related to system functionality/safety, data rights, security/rogue users, and product liability that, if left unaddressed, will become a barrier to widespread and sustainable adoption of these technologies. Specifically, industry participants should consider the following.

• System Functionality; Safety. “Is it safe?” This is the threshold question asked by those interacting with any autonomous or AI-enabled mobility technology. The question of safety is challenging, because the definition of safety is relative and tied to...

September 24, 2018

Pennsylvania court opens door to claims of trespass by fracking

TRENDS

(by Steven B. Silverman)

In the first decision of its kind, Pennsylvania’s intermediate appellate court has rejected the rule of capture in favor of recognizing trespass claims where hydraulic fracturing (fracking) extends to adjoining unleased lands. If the court’s decision stands, it could pave the way for a wave of trespass claims based on fracking, as well as changes to fracking operations themselves.

The dispute

In Briggs v. Southwestern Energy Production Co., 2018 Pa. Super. 79 (2018), the Briggs family owned an unleased, 11-acre parcel in Susquehanna County, in Pennsylvania’s far northeast corner. The parcel was adjacent to a parcel on which Southwestern Energy Production Company was undertaking fracking operations. The family claimed that Southwestern trespassed on their land through its fracking operations, resulting in the conversion of Briggs’ natural gas.

Southwestern countered that, as a matter of law, it could not be liable for trespass or conversion under the well settled rule of capture, which insulates operators who capture hydrocarbons draining from adjacent lands, even when those lands are not leased.

The trial court agreed with Southwestern, and the family appealed.

Rejecting the rule of capture

In rejecting Southwestern’s defense and overturning the trial court, the Superior Court of Pennsylvania held that the rule of capture did not apply to fracking of unconventional wells. The court opined that the rule was the product of geological practicality because, with historical conventional drilling, a pool of gas or oil will naturally flow to adjacent land. In contrast, with unconventional wells and shale gas, it is necessary for fracking to first reach the shale to release its hydrocarbons. Thus, the court held that the extension of that fracking to release the gas from the Briggs’s shale could be deemed a trespass. Accordingly, the Superior Court remanded the case to the trial court to allow the...

September 18, 2018

Fourth Circuit Rules that Coal Ash Ponds and Landfill are not “Point Sources” under the Clean Water Act

Environmental Alert

(by Lisa M. Bruderly and Gary E. Steinbauer)

Another three-judge panel of federal appellate judges has ruled on whether a National Pollutant Discharge Elimination System (NPDES) permit is required for pollutants in groundwater seepage that ultimately reach a water of the United States. Unlike the two other federal appellate court decisions issued earlier this year, this time the federal appellate court held that the Clean Water Act (CWA) did not regulate such discharges, finding that there was no “point source.”

On September 12, 2018, the U.S. Court of Appeals for the Fourth Circuit issued its decision in Sierra Club v. Virginia Electric Power Co. (VEPCO), holding that diffuse underground seepage from coal ash settling ponds and a landfill located at a closed coal-fired power plant are not regulated under the CWA. The VEPCO matter is one of several citizen suits filed by environmental groups across the country asserting novel theories of liability under the CWA. The Fourth Circuit in VEPCO was the first appellate court to address these theories with respect to coal ash ponds and landfills. The VEPCO decision is available at http://www.ca4.uscourts.gov/opinions/171895.P.pdf.

Factual and Legal Background

VEPCO involved inactive settling ponds and a landfill that were used to treat and store coal ash generated by an adjacent coal-fired power plant in Chesapeake, Virginia. VEPCO operated the settling ponds under a state-issued NPDES permit and the landfill under a state-issued Resource Conservation and Recovery Act (RCRA) permit. In 2002, groundwater samples collected from a series of monitoring wells installed pursuant to the RCRA permit showed elevated levels of arsenic in the groundwater and VEPCO implemented corrective action under a state-approved plan. By the time the Sierra Club filed its CWA citizen suit in 2015, the power plant had closed, and, shortly afterward, VEPCO submitted closure and post-closure care...

Keith J. Coyle: Oppose the ban on pipeline construction
A moratorium on pipeline construction will make Pennsylvania less safe

Pittsburgh Post-Gazette 

(by Keith J. Coyle)

A pipeline incident that occurred in Beaver County earlier this week is bringing increased attention to the issue of pipeline safety.  Many residents are concerned about the pipelines that pass by their homes, schools, and places of business.  Some are even going a step further and calling for a statewide moratorium on all pipeline construction.

I’ve spent the past decade working on pipeline safety issues as an attorney-advisor for the Pipeline and Hazardous Materials Safety Administration (PHMSA), a member of Governor Wolf’s Pipeline Infrastructure Task Force, and an attorney in private practice.

I understand the anxiety that people feel after a pipeline incident.  They want to know that their families are safe, and that the folks in charge are doing what is necessary to protect public safety.

Every incident serves as a reminder of the additional work that needs to be done to make pipelines safer.  But that does not mean that we should ignore the important role that pipelines play in improving our lives or disregard the efforts that are being made to build upon the industry’s strong safety record.

Pipelines are a critical part of the nation’s energy infrastructure. There are more than 2.7 million miles of pipelines in the United States, and Pennsylvania is home to approximately 91,000 miles of pipelines, according to the latest PHMSA data.

These lines carry the energy products that heat our homes, run power plants, provide fuel for transportation, and deliver the feedstock that is used to make countless consumer goods.

Pipelines are the safest and most reliable means of transporting energy products. The Frasier Institute, a Canadian-based research organization, found in a recent study that pipelines are 4.5 times safer than other comparable modes of energy transportation.

PHMSA’s data shows that the number of serious pipeline incidents involving fatalities or injuries has...

Commonwealth Court invalidates portions of Chapter 78a regulations as unlawful

The PIOGA Press

(by Jean M. Mosites)

On August 23, the Commonwealth Court issued a unanimous opinion in The Marcellus Shale Coalition v. Department of Environ mental Protection and Environmental Quality Board, 573 M.D. 2016 invalidating portions of the new prepermit process created in 25 Pa. Code §§ 78a.1 and 78a.15(f) and (g), pertaining to new “public resources.” The Marcellus Shale Coalition (MSC) challenged the provisions as unlawful and unreasonable, seeking declaratory and injunctive relief.

There is no statutory right to judicial review of new regulations in Pennsylvania. Such challenges must proceed in the form of a declaratory judgment action in the Commonwealth Court or “as applied” in an appeal before the Environmental Hearing Board on a case-bycase basis. The latter course can be duplicative, lengthy and costly, offering only piecemeal relief. MSC challenged portions of the new Chapter 78a regulatory package through a declaratory judgment action in October 2016, seeking relief for its members from regulations beyond the scope of the Environmental Quality Board’s authority, regulations with high cost and little discernible benefit.

Count I of MSC’s Petition for Review challenged Sections 78a.15(f) and (g) and the related definitions contained in Section 78a. of the Chapter 78a regulations. The provisions created a new pre-permitting process for well permit applicants, requiring new notice and comment opportunities in addition to those expressly authorized by Act 13, as adopted in 2012.

Following MSC’s Petition for Review, the Commonwealth Court preliminarily enjoined application of portions of the regulations on November 8, 2016.1 MSC filed an application for partial summary relief on Count I on August 31, 2017. Pending review of that application, the Pennsylvania Supreme Court affirmed the grant of preliminary injunctive relief as to Count I on June 1, 2018. 185 A.3d 985 (Pa. 2018).

In its decision on the merits of...