Articles, Alerts & Perspectives

The 2020 Babst Calland Report Highlights Legal and Regulatory Challenges for the U.S. Oil and Gas Industry

Oversupply and pandemic bring on need to adapt to a changing market

Babst Calland today published its 10^th annual energy industry report: The 2020 Babst Calland Report – The U.S. Oil & Gas Industry: Federal, State, Local Challenges & Opportunities; Legal and Regulatory Perspective for Producers and Midstream Operators. 

In this Report more than 50 energy attorneys provide perspective on the current state of the U.S. natural gas and oil production industry and its growth to historic highs due to more than a decade of advances in on-shore horizontal drilling and high-volume hydraulic fracturing. It asserts that despite current challenges, a maturing shale industry is poised for future growth as natural gas and oil producers have driven down the costs of production. Transportation options for moving these natural resources from growing areas of production to customers continue to be built, even with new hurdles from regulators and other stakeholders.

Joseph K. Reinhart, shareholder and co-chair of Babst Calland’s Energy and Natural Resources Group, said, “The U.S. natural gas and oil industry has experienced tremendous growth and change since we first published this Report in 2011. Fast forward to an unprecedented 2020 with a pandemic, a corresponding economic slow-down and oversupply of natural gas and crude oil. With increased public and government pressure, sustained low prices, and less-reliable financing options, resiliency will continue to be the driving force of a dynamic energy market that continues to evolve.”

Report highlights

The Babst Calland Report is an annual review of the issues and trends at the federal, state and local level in the oil and gas industry over the past year. The 102-page Report covers a range of topics from the industry’s business outlook, regulatory enforcement and rulemaking to developments in pipeline safety and litigation trends. The Firm’s collective legal experience and perspectives on these and related business developments are highlighted in this Report, including those summarized below:

• Long-term, U.S. energy production appears poised to continue to outstrip domestic consumption due in some measure to increased consumption efficiency, along with the obvious ramifications from the natural gas revolution.
• The regulatory environment is focused on climate change, reducing emissions, water quality developments, and enforcement. Increased volumes of written agency guidance, enforcement, and penalties continue to challenge the industry.
• Citizens groups continue to actively challenge federal and state initiatives designed to expand natural gas and oil development, creating delays and uncertainties.
• Land use and zoning challenges continue at the local level. Increasing industry headwinds have resulted in a slowdown of new permitting activity amid ongoing challenges and ordinance restrictions.
• Public interest in pipeline safety has grown amid opposition and new rules from the Pipeline and Hazardous Materials Safety Administration in response to increased public and congressional pressure to initiate and finalize new or revised pipeline safety regulations. Operators seek to install new or replace existing pipelines throughout the U.S. while advocacy groups aggressively oppose many pipeline projects.
• Title legislation and court decisions vary by state and basin. In Pennsylvania, for example, Act 85 took effect in January 2020 and defines the conditions in which oil and gas producers may drill a lateral wellbore that crosses between two or more pooled units.

• Although 2019 saw renewed claims of adverse health effects allegedly related to oil and gas development, support for such claims continues to be limited, as now noted by numerous publications.
• Unmanned aircraft systems take hold in the energy sector. Despite the pandemic and its impacts, unmanned aircraft systems (UAS) have emerged as essential tools for the energy industry for conducting complex inspection and monitoring of difficult to access infrastructure and locations.

• From a workforce standpoint, COVID-19 conditions and other wage and hour regulations, amendments to the Family Medical Leave Act, and expanded unemployment benefits under the CARES Act have had an impact on companies across the country.

The natural gas and oil industry continues to expand its reach and impact on U.S. energy supply and independence. Each company has its own set of opportunities and challenges to navigate based on its financing, debt, shareholder goals, and operations and infrastructure footprint. Nonetheless, the United States’ plentiful supply of natural gas and oil is expected to continue to fuel the country’s economic future and support national security.

Request a copy of the Report

Babst Calland’s Energy and Natural Resources attorneys support clients operating in multiple locations throughout the nation’s shale plays. To request a copy of the Report, contact info@babstcalland.com.

Commonwealth Court Sees Spot Zoning, Overturns Industrial Rezoning

The Legal Intelligencer

(by Anna Skipper and Krista Staley)

For over 100 years, local governments have used zoning regulations, enabled by the police powers delegated from the states, to implement plans for the development of their communities. For just as long, objectors have challenged zoning regulations as exceeding this authority. The Commonwealth Court recently upheld such a challenge in Allen Distribution v. West Pennsboro Township Zoning Hearing Board, No 524 C.D. 2019 (Pa. Commw. Ct. May 11, 2020), finding that West Pennsboro’s decision to change the zoning of two parcels constituted illegal spot zoning.

Zoning ordinances generally enjoy a presumption of constitutional validity. However, an ordinance will be held to be unconstitutional if it is unreasonable, arbitrary or not substantially related to the police power interest it purports to serve. Thus, zoning enabling acts, such as the Pennsylvania Municipalities Planning Code, 53 P.S. Section 10101 et seq. (the MPC), require all zoning measures to be substantially related to the protection and preservation of the public health, safety, morality and welfare interests of its community.

Zoning regulations consist of a zoning map and zoning text. Those documents work in tandem; the map divides the municipality, or municipalities in cases of joint zoning, into “districts” while the text provides regulations for each district, imposes requirements for specific uses and outlines various procedures. Under the MPC, either the municipality or a landowner (including a leaseholder or potential buyer) can propose text and map amendments. The amendment process allows municipalities to improve their ordinances by, for example, adapting them to accommodate new and evolving uses. However, when used in a piecemeal fashion to achieve inconsistent goals, amendments may no longer have a reasonable relationship to the police power they must promote.

Objectors who believe a map or text amendment does not relate sufficiently to the police power can file a substantive validity challenge asserting the illegality of the ordinance. The local zoning hearing board, a quasi-judicial board appointed by the local governing body and required in any municipality with zoning, has jurisdiction to hear and decide substantive validity challenges to zoning ordinances. A zoning hearing board decision is appealable to the Common Pleas Court, and then the Commonwealth Court. Further appeal requires the Pennsylvania Supreme Court to grant an allowance of appeal. When engaged in appellate review of a zoning hearing  board determination, the appellate court’s scope of review is typically limited to determining whether the board committed an error of law or a manifest abuse of discretion. Reversible error occurs where the zoning hearing board’s findings are not supported by substantial evidence. If the trial court has reason to take additional evidence, it will decide the appeal de novo.

In Allen Distribution v. West Pennsboro Township Zoning Hearing Board, the Commonwealth Court grappled with a substantive validity challenge alleging that a zoning map amendment constituted “spot zoning.” Spot zoning occurs where a parcel is singled out for different treatment than that accorded to similar surrounding land, creating an “island” on the zoning map. Spot zoning may occur organically and innocently through the zoning amendment process, or it may be the result of intentional rezoning of an area for the economic benefit or detriment of a landowner. In either instance, if there was no reasonable basis for the different treatment of the “island,” a challenged zoning ordinance will be stricken as unconstitutional and invalid.

The Allen Distribution v. West Pennsboro Township Zoning Hearing Board case considered the substantive validity of two ordinances amending the West Pennsboro Township (the township) zoning map. The amendments rezoned two large adjacent parcels, totaling 133 acres of land (the property), in anticipation of its sale and development. Allen Distribution, the proposed purchaser and equitable owner of both parcels, applied to the Township Board of Supervisors (the supervisors) to rezone the parcels from “high density residential” to “industrial.” Allen intended to construct industrial buildings on the property. Following public hearings, the Supervisors enacted two identical ordinances (the ordinances) rezoning the land as requested. Neighboring property owners (the objectors) subsequently challenged the substantive validity of both ordinances before the Township Zoning Hearing Board (the board). The board concluded that the objectors sustained their burden of establishing that the ordinances “unjustifiably, arbitrarily, and unreasonably single out land for different treatment than from that accorded to similar surrounding land of the same character for the economic benefit of Allen,” and therefore constituted invalid spot zoning.

Allen appealed to the Common Pleas Court, which affirmed the board’s decision, and Allen again appealed. While Allen did not challenge the board’s determination that the property was being treated differently, or that the property is similar in character to the adjoining properties, it attempted to show that there was reasonable basis for the different treatment, rendering the ordinances a valid exercise of the police power. Allen primarily argued that the large size of the lot, the nature of certain nearby uses, and the fact that the joint comprehensive plan of the township identified the property as a future industrial growth area created a reasonable basis for the different treatment of the property by the supervisors.

The Commonwealth Court engaged in an in-depth discussion of each argument and concluded that there was no error or abuse of discretion in the board’s determination, i.e., that there was no reasonable basis for the different treatment of the property, and the ordinances constituted invalid spot zoning as they unjustifiably, arbitrarily, and unreasonably singled out the property for treatment different than similar surrounding land of the same character for the economic benefit of Allen.

The court first addressed the large size of the property, which it considered a single integrated unit despite the fact that it was, at that time, two separate lots with legal title held by two separate owners. As the court noted, while spot zoning often is found in regards to relatively small parcels, the size of the property is only one factor in determining whether spot zoning has occurred. The main inquiries are whether the land at issue is a single, integrated unit and whether any difference in its zoning from that of adjoining properties can be justified with reference to the characteristics of the tract and its environs. The court concluded that there was no error or abuse of discretion in the board’s determination that the property was a single integrated unit. Therefore, the court dismissed Allen’s argument that the property’s size, in relation to the small size of the adjacent lots and the large size of other industrial-zoned properties in the vicinity, rendered it sufficiently different to warrant differential treatment.

Turning next to its comparison to the surrounding uses, the court noted that properties bordering the property in the township were generally zoned R-2, with the Pennsylvania Turnpike and the neighboring township abutting the remaining borders. Allen argued that the property’s proximity to an area of infrastructure and development, namely parcels located in the adjacent North Middleton Township that did not directly abut the property, justified the rezoning. Relying on Schubach v. Zoning Board of Adjustment (Philadelphia), 270 A.2d 397 (Pa. 1970), the court held that even if the Property rested on the border of industrial-zoned land, it would not automatically justify rezoning it to match. In addition, it noted that it could not “attribute more significance to the use of more distant properties than those properties adjacent to the subject property,” and that “spot zoning would have nothing to do with a spot or an island if the use of nonadjacent properties was more relevant than the adjacent properties.”

Moving on, the court addressed Allen’s argument that the rezoning’s consistency with the township Comprehensive Plan justified the change. Allen pointed to the identification of 31 parcels in the vicinity, including the Property, as “future industrial growth areas” on the comprehensive plan map. However, the township did not rezone any of the other referenced parcels in accordance with the map. Thus, while the rezoning of the property was consistent with the comprehensive plan map as it applied to the property, the court found it was not consistent as it applied to the area as a whole. Turning to the comprehensive plan text, the court noted the document’s acknowledgement of the need for “proper transition between uses as conflicts may arise in some circumstances between neighboring properties.” The court reviewed Schubach v. Silver, 336 A.2d 328, 338 (Pa. 1975) (Schubach II), where the Pennsylvania Supreme Court upheld a rezoning after finding the change creating a “transition zone” and represented the “best buffer” consistent with the comprehensive plan. The court distinguished Schubach II from the case before it on the facts, upholding the board’s determination that rezoning the property did not establish a land use that “best blends in with surrounding different uses.” According to the court, there were “significant differences” between the property and the adjoining parcels zoned R-2.

The court similarly dispensed with Allen’s additional arguments, holding that although “various government entities voted to recommend rezoning in conjunction with their review of the comprehensive plans” and “rezoning will create some benefit to persons other than the owner,” there was still no justifiable reason for treating the property differently than those that surrounded it.

Ultimately, the court found that substantial evidence supported the board’s determination that the rezoning did not promote the health, safety and welfare of the township residents, and therefore there was no error or abuse of discretion in the determination that the ordinances unjustifiably, arbitrarily, and unreasonably singled-out land for treatment different than similar surrounding land of the same character for the economic benefit of Allen, rendering the ordinances invalid as spot zoning.

For the full article, click here.

Reprinted with permission from the June 17, 2020 edition of The Legal Intelligencer© 2020 ALM Media Properties, LLC. All rights reserved.

Appalachian Trail Not a Barrier to Atlantic Coast Pipeline

Energy Alert

(by Robert Stonestreet and Jim Curry)

The United States Forest Service may grant permission for a natural gas pipeline to go underneath the Appalachian Trail, so says the United States Supreme Court in an opinion released on June 15, 2020.  Seven of the nine justices voted to reverse a decision by the Fourth Circuit Court of Appeals that had concluded the Forest Service lacked authority to do so for the Atlantic Coast Pipeline (ACP).  Only Justice Sonia Sotomayor and Justice Elena Kagan dissented from the decision.

The ACP is a proposed 604-mile pipeline stretching from West Virginia to North Carolina.  Approximately 16 miles of the pipeline route goes through the George Washington National Forest, which requires approval from the Forest Service.  The Appalachian Trail, a 2,200-mile federally designated footpath from Mount Katahdin in Maine to Springer Mountain in Georgia, also passes through the George Washington National Forest with permission from the Forest Service.  The National Park Service administers the Appalachian Trail through various arrangements with the Forest Service.  At issue in this case is a 0.1-mile segment of the pipeline that would pass under the Appalachian Trail at a depth of approximately 600 feet.  Both the entry and exit locations for this segment of the pipeline would be on private land, would not be visible from the Appalachian Trail, and would not disturb the surface of the trail.

In 2018, the ACP developers obtained the necessary authorizations from the Forest Service to place the pipeline through the National Forest and under the Appalachian Trail.  Several organizations challenged these authorizations by arguing that the Forest Service lacked authority to authorize a pipeline to cross under the trail.  The Fourth Circuit agreed and vacated the authorizations issued by the Forest Service.

In an opinion by Justice Clarence Thomas, the Court concluded that the various statutes and regulations governing the Appalachian Trail and other national trail systems effectively created a means to establish a right-of-way for the trails to cross National Forest land and other lands.  Those statutes and regulations did not, however, effectively convey the land traversed by the trail to the National Park Service or otherwise restrict the Forest Service’s statutory authority to grant rights-of-way to cross the trail.  The Court rejected the notion that arrangements between the Forest Service and the National Park Service for maintenance and administration of the Appalachian Trail had effectively converted the trail into lands within the National Park system, which would place them beyond the Forest Service’s authority.  Instead, the Court found that the trail enjoyed the benefit of a right-of-way easement through the National Forest while the underlying land is still controlled by the Forest Service.  With most easements, the recipient receives rights to use land for a particular purpose, such as to install utility lines or cross into adjacent property.  The recipient of an easement typically does not receive ownership or control over how the land is otherwise used.  While the National Park Service received easement rights from the Forest Service for the Appalachian Trail, the land traversed by the trail remains under the jurisdiction of the Forest Service.  The Forest Service may thus authorize others to cross under the trail.  Although not noted in the Court’s opinion, more than 50 other pipelines have obtained easements to cross under the Appalachian Trail and do not interfere with the public’s use of the trail.  As Justice Thomas aptly noted: “Sometimes a complicated regulatory scheme may cause us to miss the forest for the trees, but at bottom, these cases boil down to a simple proposition: A trail is a trail, and land is land.”

The Court also observed that portions of the Appalachian Trail crosses lands owned by states, local governments, and private landowners under the authority of easements obtained from those landowners.  Under the reasoning adopted by the Fourth Circuit, those portions of the Appalachian Trail, as well as 20 other national trails administered by the National Park Service, could be considered lands controlled by the National Park Service.  Such a determination would subject these non-federal lands to all the restrictions and limitations that accompany property governed by the National Park Service, which is something likely not contemplated by the property owners when granting an easement for the trails.  As this case illustrates, such a designation could severely restrict the landowners’ ability to grant other easements or otherwise use their property.

If you have any questions about the Court’s decision or its implications, please contact Robert M. Stonestreet at  681.265.1364 or rstonestreet@babstcalland.com or James Curry at 202.853.3461 or jcurry@babstcalland.com.

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Regulatory Challenges to Fully Utilizing Existing Technology

Emerging Technologies in a Time of Pandemic

(by Ben Clapp, Julie Domike, Gina Falaschi, Justine Kasznica and Boyd Stephenson)

On May 1st, Amazon Prime premiered Upload, the story of a software engineer whose consciousness is transferred to the cloud after his fully autonomous vehicle (AV) rear-ends another car. The accident takes place in 2033. By then, the show imagines, vehicles that drive themselves will be the default. We won’t spoil the ending. But, in the fictional 2033—only 13 years from now—the public is astounded when the vehicle is involved in a wreck. It is an entertaining take on the future. In reality, however, we’ve got a lot of regulations to update if autonomous vehicles (AVs) are going to play the role imagined in Upload.

That’s too bad, given the current state of affairs. As industry commentators have noted, in this time of pandemic AVs could have provided much needed assistance with long-haul shipments, non-contact deliveries of food and other goods, and contact-free transportation of the sick or elderly to and from medical appointments. Some have predicted that the benefits AVs provide during public health crises will help propel them to wider acceptance and regulatory approval. And while there is still much work to be done on that front, there is a solid foundation to build on.

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PHMSA Proposes Regulatory Reforms for Natural Gas Pipelines

Pipeline Safety Alert

(by Keith Coyle and Ashleigh Krick)

On June 9, 2020, the Pipeline and Hazardous Materials Safety Administration (PHMSA or the Agency) published a Notice of Proposed Rulemaking (NPRM) proposing amendments to the gas pipeline safety regulations at 49 C.F.R. Parts 191 and 192.  PHMSA explained that the purpose of the NPRM is to ease regulatory burdens identified through internal agency review, petitions for rulemaking, and public comments.  The Agency estimates that the proposed amendments will result in approximately $129 to $132 million in annualized cost savings, with the largest cost savings due to amendments related to farm taps and atmospheric corrosion inspections.  Comments are due August 10, 2020.

The NPRM covers the following topics:

Proposed Exemptions from the Distribution Integrity Management Program Requirements

• PHMSA is proposing to codify the policy announced in its March 2019 Exercise of Enforcement Discretion by allowing operators of farm taps to maintain pressure regulating devices on farm taps under either the distribution integrity management program (DIMP) requirements or 49 C.F.R. § 192.740.  While not defined in the proposed Part 192 amendments in the NPRM, the preamble describes a farm tap as “individual gas service line directly connected to a gas transmission, production, or gathering pipeline.”  PHMSA estimates that, based on information submitted by distribution operators, the proposal to allow operators to manage farm taps under DIMP or § 192.740 will result in nearly $42 million in annualized cost savings.
• PHMSA is also proposing to exempt farm taps originating from unregulated production and gathering pipelines from the DIMP requirements, the overpressure protection inspection requirements in § 192.740, and the annual reporting requirements in Part 191.  PHMSA’s current position, recently reiterated in the Agency’s proposed farm tap Frequently Asked Questions posted on April 20, 2020, is that farm taps are regulated as distribution service lines and subject to all applicable Part 191 and 192 requirements.  PHMSA estimates that the proposed exemptions for farm taps that originate on unregulated production and gathering lines will result in $25 million in annualized cost savings to operators.  However, these costs savings are predicated on the assumption that the Agency’s position that any piping downstream from the first aboveground point where downstream piping can be isolated from source piping is subject to regulation as a distribution service line until the outlet of the customer’s meter or the connection to a customer’s piping is legally supported.  The NPRM does not result in any meaningful cost savings without these assumptions.
• Lastly, the Agency is proposing to exempt master meter operators from DIMP requirements acknowledging that the DIMP requirements provide little safety benefits as applied to these operators.

Corrosion Control

• PHMSA is proposing to allow operators to remotely monitor cathodic protection rectifier stations.  This proposal would codify the position the Agency had already taken in a 2019 interpretation.  If operators remotely monitor rectifiers, the proposed amendments would require a physical inspection of the rectifier whenever a cathodic protection test is conducted under § 192.465(a).
• PHMSA is also proposing to extend the atmospheric corrosion control inspection interval for distribution service lines from three years to five years, not to exceed 63 months.  If atmospheric corrosion is identified, the inspection interval would revert to the three-year period.  Going forward, if no atmospheric corrosion is identified in a subsequent inspection, then the operator could then return to the five-year inspection interval.  PHMSA estimates this proposal will result in $61 million in annualized cost savings to distribution operators.

Reporting and Information Collection

• PHMSA is proposing to adjust the monetary property damage threshold in the definition of an “incident” from $50,000 to $122,000 to account for inflation.  This threshold has not been updated since 1984 and includes losses to the operator and third parties, but not the cost of lost gas.  Regarding gas transmission, gathering, and underground storage, PHMSA found that increasing the monetary property damage threshold to $122,000 would reduce the percentage of events qualifying as reportable due solely to the monetary damage threshold by approximately 27 percent; for distribution pipelines that figure is 48 percent.  Although PHMSA proposes $122,000 as the threshold in the NPRM, the Agency committed to base the final figure used in the final rule on the inflation-adjusted amount at the time of publication of the final rule.  Equally as important, PHMSA stated that it intends to periodically update the monetary damage threshold in the future.  PHMSA is seeking comment on the frequency and method used to update the threshold.
• PHMSA is also proposing to remove the requirement to submit mechanical fitting failure (MFF) reports from §§ 192.12 and 192.1009.  Operators would still be required to file incident reports for MFFs.  Operators would also need to include a count of MFF incidents in gas distribution annual reports.

Standards Incorporated by Reference for Plastic Pipe

• PHMSA is proposing to incorporate by reference the 2018a edition of ASTM D2513-18a, “Standard Specification for Polyethylene (PE) Gas Pressure Pipe, Tubing, and Fittings” and to adopt corresponding amendments to the plastic pipe design standards to allow a design factor of 0.40 for pipe with a diameter of 24 inches or less.

• PHMSA is also proposing to incorporate by reference the 2019 edition of ASTM F2620, “Standard Practice for Heat Fusion Joining of Polyethylene Pipe and Fittings” and make corresponding amendments to the requirements for joining procedures in §§ 192.281 and 192.283 to clarify that procedures that provide an equivalent or superior level of safety to ASTM F2620 are acceptable.  The procedures must be proved to produce strong, gastight joints, operators must document the difference between ASTM F2620 and the alternative procedures, and demonstrate how the alternate procedure provides an equivalent or superior level of safety.  PHMSA also proposes other clarifying amendments to § 192.285 and corrects errors from the Agency’s Plastic Pipe Rule published on November 20, 2018.

Test Factor for Pressure Vessels

• PHMSA is proposing to change the test factor for pressure vessels installed since July 14, 2004, from 1.5 times maximum allowable operating pressure (MAOP) to 1.3 times MAOP for consistency with the ASME Boiler and Pressure Vessel Code, and exempt these pressure vessels from the testing requirements in §§ 192.505(b) and 192.619(a)(2) and the test duration requirements in Subpart J.  This proposed change is associated with a petition for reconsideration filed by the Interstate Natural Gas Association of America challenging PHMSA’s 2015 final rule that required pressure vessels be tested to 1.5 times MAOP.
• PHMSA is also proposing that pressure vessels that are new, replaced, or relocated after the effective date of the final rule would not be exempt from the test duration requirements in Subpart J. PHMSA proposes to accept pre-installation and manufacturer tests, with certain conditions, for newly manufactured pressure vessels installed after the effective date of the rule.

Other Proposed Amendments

• Welder Requalification: PHMSA is proposing to amend the requirement that welders may not weld with a welding process if they have not engaged in welding with that process within the last six months by extending the time period to 7 ½ months.
• Fabricated Assemblies Pre-test Applicability: PHMSA is proposing to extend the allowance for testing fabricated units and short segments of pipe prior to installation if a post-installation test is not practicable, which is currently permitted for steel pipelines that operate at a stress level greater than 30 percent SMYS, to steel pipelines that operate at a stress level less than 30 percent SMYS and at or above 100 psi.  PHMSA is not proposing to extend the pre-testing provisions to pipelines operating below 100 psi, service lines, or plastic pipelines.

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Federal Court in West Virginia Rejects NPDES Permit Modifications through WVDEP Administrative Orders

Environmental Alert

(by Kip Power)

Companies holding National Pollutant Discharge Elimination System (NPDES) permits issued by the West Virginia Department of Environmental Protection (WVDEP) (known as WV/NPDES Permits) should take note that any adjustments to the effluent limits in those permits that are made through WVDEP administrative orders (as part of enforcement settlements or otherwise) may provide less than complete protection against future enforcement actions. On March 24, 2020, the federal District Court for the Northern District of West Virginia issued yet another decision in a line of cases establishing that WV/NPDES Permits may only be modified through a regulatory process that involves public notice, an opportunity for comments, and compliance with all of the other procedures mandated by WVDEP regulations for such permit changes. Ohio Valley Environmental Coalition and The Sierra Club v. Eagle Natrium, LLC, Civil Action No. 5:19-cv-00236 (March 24, 2020 Memorandum Opinion and Order) (Bailey, J.) (updated and revised, April 13, 2020).

In Eagle Natrium, Plaintiffs filed a citizen suit under the federal Clean Water Act (CWA) based on numerous self-reported discharges from the Defendant’s chlor-alkali plant located in Natrium, West Virginia that allegedly exceeded the effluent limits for (among other parameters) mercury and benzene hexachloride (BHC) found in the Defendant’s WV/NPDES Permit. The Defendant sought summary judgment on the basis that the WVDEP had previously commenced and was diligently prosecuting an enforcement action against it for the same violations, which serves as a statutory bar to CWA citizen suits.

In ruling against the Defendant with respect to the alleged violations of its mercury limits, the Court found that the WVDEP’s pending civil action sought to enforce interim mercury limits that had been established by that agency through an administrative order (and two subsequent extensions of that order) that had not been the subject of public notice and comment.  Accordingly, even though those limits were referenced during the initial NPDES permitting process as ones that might become effective at a later date, for purposes of the CWA citizen suit provision they were not considered to be true WV/NPDES permit limits. Given this (and because the interim limits were several orders of magnitude higher than the mercury limits set forth in the Defendant’s WV/NPDES Permit), there had been 117 exceedances of the permit’s mercury effluent limits over the last four years which were not being “diligently prosecuted” because they were not a part of the WVDEP’s civil enforcement action. The Court based its decision on several opinions issued by federal courts in West Virginia and other states, as well as the recent decision of the U.S. Court of Appeals for the Fourth Circuit in Sierra Club v. U.S. Army Corps of Engineers, 909 F.3d 635 (4^th Cir. 2018) (citing some of that precedent).

By contrast, the Court granted summary judgment to the Defendant as to Plaintiffs’ allegations concerning violations of the BHC effluent limits in its WV/NPDES Permit (about which there was no dispute regarding the applicable limits). The Court observed that the substances that were causing violations of those limits had been left in the groundwater and soil as a result of manufacturing activities that had ceased more than 50 years prior to the Defendant’s acquisition of the property. The Defendant had already spent more than $1 million in seeking to reduce the concentrations of BHCs emanating from the site and Consent Orders issued by the WVDEP assessed significant penalties for past BHC effluent limit violations. In addition, those Consent Orders will require that the Defendant spend significant additional funds in its continuing efforts to prevent future exceedances of the BHC limits. In light of these findings, the Court held that Plaintiffs had not satisfied their “heavy burden” of proving that the WVDEP’s Consent Orders did not represent diligent enforcement as to that aspect of the Defendant’s WV/NPDES Permit.

The decision in Eagle Natrium highlights the importance of considering the specific bases for a facility’s identified effluent limits during pre-acquisition due diligence efforts, and as a part of ongoing environmental compliance management. Where it appears that more favorable limits have been allowed though a mechanism that did not include the normal NPDES permitting process, it may be worth considering steps to solidify their legal validity. This is especially true as to water quality-based effluent limits that are scheduled to apply in the future, since the CWA’s anti-backsliding provision generally precludes the relaxation of such limits after they have become effective.

Should you have questions about the Court’s decision in Eagle Natrium or the WVDEP’s regulatory program that implements the Clean Water Act in West Virginia, please contact Christopher B. (Kip) Power at (681) 265-1362 or cpower@babstcalland.com.

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Ninth Circuit Denies Emergency Motion for Partial Stay of Montana District Court’s NWP 12 Vacatur

Environmental Alert

(by Lisa Bruderly and Ben Clapp)

EQB Publishes Proposed Rulemaking for Control of VOC Emissions from Existing Oil and Natural Gas Sources

Environmental Alert

(by Michael Winek, Gary Steinbauer, Gina Falaschi)

Pennsylvania’s Environmental Quality Board (EQB) published a proposed rulemaking in the May 23, 2020, Pennsylvania Bulletin entitled “Control of VOC Emissions from Oil and Natural Gas Sources.”  50 Pa.B. 2633.  This proposed rulemaking would have Pennsylvania adopt reasonably available control technology (RACT) requirements and RACT emission limitations for existing oil and natural gas sources of volatile organic compound (VOC) emissions.  As proposed, the rule would apply to owners and operators of any of the following oil and natural gas sources of VOC emissions that were in existence on or before the effective date of this rulemaking: storage vessels (in all segments except natural gas distribution), natural gas-driven pneumatic controllers, natural gas-driven diaphragm pumps, centrifugal compressors and reciprocating compressors, and fugitive emission components.

This proposal is based on EPA’s October 2016 Control Techniques Guidelines (CTG) for the Oil and Gas Industry, which provide RACT requirements for VOC emissions from existing oil and gas sources.  Pursuant to the federal Clean Air Act, EPA established National Ambient Air Quality Standards (NAAQS) for six “criteria pollutants,” which includes ground-level ozone. Ground level ozone is created in a photochemical reaction of oxides of nitrogen (another criteria pollutant) and VOCs in the presence of sunlight.  The federal statute requires any (i) existing major source of VOC emissions (generally more than 50 tons per year of VOC depending on location) in an ozone nonattainment area and (ii) any other source (i.e., minor sources) for which EPA has issued a CTG to implement RACT to control emissions, consistent with the issued CTG.  Pennsylvania is in the northeast ozone transport region, which makes the Commonwealth nonattainment for ozone, and thus triggers RACT under federal law.

The Clean Air Act requires states to revise their State Implementation Plans to include RACT for sources of VOC emissions covered by a CTG issued by the EPA.  The US EPA proposed withdrawing the CTG in March 2018 but has not yet taken final action; Pennsylvania has continued to develop this rulemaking to meet the CTG implementation deadline of January 2021.

Despite the potential rollback of the CTG and other federal regulations by EPA, the Pennsylvania Department of Environmental Protection (PADEP) explained that it moved forward with this proposed rulemaking because: (1) PADEP reviewed EPA’s reconsideration of the 2016 NSPS and, based on that proposed rule, modified this proposed rulemaking; (2) adoption of the proposed rule would help the Commonwealth achieve and maintain the eight-hour ozone NAAQS; (3) PADEP estimates that proposed control measures would reduce VOC emissions by more than 4,000 tons per year; and (4) the rulemaking would provide consistency among all oil and gas sources for monitoring fugitive emissions.  These requirements are consistent with the leak detection and repair (LDAR) inspection requirements specified in PADEP’s General Plan Approval and General Operating Permit for Natural Gas Compression Stations, Processing Plants and Transmission Stations (GP-5), the General Plan Approval and General Operating Permit for Unconventional Natural Gas Well Site Operations and Remote Pigging Stations (GP-5A), and the Air Quality Permit Exemptions, Exemption 38.  EQB’s May 23rd proposal also notes that the rulemaking is consistent with Governor Tom Wolf’s strategy to reduce methane from the oil and natural gas industry because, while this rulemaking focuses on the reduction of VOC emissions, methane emissions would also be reduced as a co-benefit since both VOCs and methane are emitted from oil and gas operations.

EQB is accepting written comments regarding this proposed rulemaking until July 27, 2020, through the online comment system, by email, or by mail.  Additionally, EQB will hold three virtual public hearings regarding the proposed rulemaking on June 23, 2020, at 6 p.m., June 24, 2020, at 2 p.m., and June 25, 2020, at 6 p.m.

For additional information and assistance with draft comments, please contact Michael H. Winek at mwinek@babstcalland.com or (412) 394-6538, Gary E. Steinbauer at gsteinbauer@babstcalland.com or (412) 394-6590, or Gina N. Falaschi at gfalaschi@babstcalland.com or (202) 853-3483.

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West Virginia DEP Receives Notice of Intent to Sue Under SMCRA Based on Deficiencies in Mine Reclamation Fund

Environmental Alert

(by Kip Power and Robert Stonestreet)

For many years, national and regional environmental interest groups have objected to the alternative bonding system (ABS) administered by the West Virginia Department of Environmental Protection (WVDEP) as a part of WVDEP’s approved coal mine regulatory program under the federal Surface Mining Control and Reclamation Act of 1977, 30 U.S.C. 1201, et seq., (SMCRA). Unlike other bonding programs that require full-cost bonds to secure performance of reclamation requirements under mining permits, the West Virginia ABS involves two components: (1) site-specific bonds posted by mine permittees based on the anticipated costs of reclamation, limited to a maximum of $5,000 per acre; and (2) a Special Reclamation Fund (SRF), funded by a tax on coal production (currently set at 27.9 cents per clean ton). The SRF is intended to fund reclamation expenses in the event WVDEP revokes a permit and the proceeds of site-specific bonds are insufficient to cover the costs to reclaim a disturbed area governed by the revoked permit.

In February 2016, the Ohio Valley Environmental Coalition and other groups filed a petition with the U.S. Department of the Interior’s Office of Surface Mining Reclamation and Enforcement (OSM – the oversight agency under SMCRA), asking that OSM take over the bonding program for mining permits in West Virginia. That petition (which also raised concerns about allowing large companies to self-bond) was never acted upon prior to the change in presidential administrations in January 2017. Long before that, a SMCRA citizens suit was brought in early 2000 in the federal District Court for the Southern District of West Virginia, challenging OSM’s failure to invalidate the West Virginia ABS and impose a federal mine permit bonding system. In response to that suit, the court declined to order OSM to take the requested actions in light of commitments by agency officials to address the groups’ concerns. The court held the case open for further proceedings in the event OSM did not fulfill its promises. See West Virginia Highlands Conservancy v. Norton, 190 F.Supp.2d 859 (S.D. W.Va. 2002).

Those same groups have now seized upon a new basis for challenging the ABS. They served their first volley in that renewed effort on WVDEP Secretary Austin Caperton on May 8, 2020, in the form of a Notice of Intent to Sue under SMCRA (the NOI). Technically, the NOI only requests that WVDEP perform its nondiscretionary duty under SMCRA to notify OSM as to “significant changes in funding or budgeting” related to WVDEP’s mine regulatory program approved under SMCRA. However, as explained in more detail in the NOI, the point of requiring that notification is to alert OSM to the need to fully explore the apparent insolvency of the West Virginia ABS. If the ABS is determined to be insolvent, that could lead to OSM taking over the administration of at least that part of WVDEP’s SMCRA program.

Though the NOI alludes to various coal company bankruptcies, the precipitating event is identified as WVDEP’s recent filing of civil action and emergency motion for appointment of a special receiver against mine permittee ERP Environmental Fund (ERP). ERP accepted the transfer of nearly 100 mining permits (along with related WV/NPDES water discharge permits) from Patriot Coal Corporation during Patriot’s bankruptcy in 2015. WVDEP strongly opposed those proposed transfers in bankruptcy court before agreeing to a multi-party settlement. As described in a WVDEP affidavit filed in the special receivership case, as of March 25, 2020, ERP had ceased all operations, with more than 200 WVDEP enforcement actions pending against it.

WVDEP has sixty (60) days to address the concerns raised in the NOI. If WVDEP does not address those concerns to the satisfaction of the environmental groups within that time frame, a new lawsuit could be filed against the agency.

Should you have questions about the WVDEP coal mine regulatory program or other environmental permitting matters, please contact Christopher B. “Kip” Power at (681) 265-1362 or cpower@babstcalland.com or Robert M. Stonestreet at (681) 265-1364 or rstonestreet@babstcalland.com.

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Opportunities: Leveraging Technology to Meet New Demands

Emerging Technologies in a Time of Pandemic

(by Ben Clapp, Julie Domike, Gina Falaschi, Justine Kasznica and Boyd Stephenson)

Most of the world is staying home, but businesses must still pay their bills. In late April the federal government estimated the U.S. economy contracted by 4.8 percent in the first quarter of 2020, mostly due to the Coronavirus pandemic. Because the real economic consequences of social distancing occurred in April, future numbers will likely be as bleak, if not worse.

Yet, some businesses are taking bold steps, innovating in communications with their customers, and leveraging pre-existing tools to retool how their customers interact with the company and its product. Companies that never before offered delivery are experimenting with last mile logistics. Farms whose regular restaurant or hotel customers are closed due to public health orders are retooling their supply chains to supply local households. And companies that previously relied on face-to-face interactions are turning to virtual solutions to bring their product to market, even in a field like wine production—where taste is an essential part of the purchasing decision. These companies described here provide just a few examples of how creatively leveraging existing technologies can allow a company to maintain operations.

Last Mile Logistics

The Coronavirus pandemic has shined a spotlight on last-mile delivery, with demand for food, medicine, and other deliveries skyrocketing due to social distancing requirements. While pandemic-driven demand has unquestionably strained existing last-mile delivery resources, retail suppliers that never before relied on delivery have developed their own solutions, provided by a number of companies with technology-based delivery systems and logistics platforms to demonstrate how emerging technologies can be employed to safely and efficiently bridge gaps between suppliers and their customers.

A sharp increase in food delivery orders from homebound individuals combined with the need to limit person-to-person contact creates an opportunity that delivery robots are uniquely positioned to fill. Previously confined almost exclusively to college campuses, robots like those developed and operated by the startup Starship have been successfully deployed in cities in England, Estonia, Virginia, Arizona, and California, as well as in the District of Columbia. Starship and similar companies are taking steps to expand their services even as they ramp up robot production for a growing number of interested customers.

Delivery drones are another last-mile delivery technology that may be poised to “take off.” While drones face more regulatory hurdles than their sidewalk-bound counterparts, deep-pocketed players, such as Alphabet’s Wing, UPS’s Flight Forward, and Amazon’s Prime Air, are actively pursuing FAA approvals that could change the way customers receive goods—today and after the Coronavirus recedes. UPS recently announced a partnership with CVS to deliver prescription medicines via drone to residents of a retirement village in Florida. After the Coronavirus pandemic struck, UPS and CVS expanded drone prescription medicine deliveries to assist people who are sheltering in place. Wing, currently in testing in Finland, Australia, and Virginia in the U.S., reports that it has seen a significant increase in demand for its drone delivery services. Both companies emphasize that delivery drones significantly reduce the chance of person-to-person viral transmission by reducing the opportunity for physical contacts.

Perhaps the most significant drone-delivery accomplishments have been achieved by the U.S. health-care logistics company Zipline, founded in 2014. Zipline uses drones to deliver blood products and medicines to rural clinics in Rwanda and Ghana, and recently began using the drones to deliver Coronavirus test samples from rural clinics to labs in urban areas for analysis. With this capacity under its belt, Zipline has accelerated its plan to initiate operations in the U.S. and is actively seeking FAA approval to begin flights as soon as possible. The company intends to initially focus its U.S. operations on delivery of virus test kits and personal protective equipment.

Sidewalk delivery robot and delivery drone companies are but two examples of creative solutions to solving last mile delivery challenges posed by the Coronavirus. In doing so, these technologies could disrupt the traditional last mile delivery system, changing the playing field long after the people return to work.

All indicators suggest that, irrespective of the pandemic, the FAA is moving forward with defining the regulatory landscape to enable these activities. On May 5th, the FAA announced its partnership with technology developers Airbus, AirMap, Amazon, Intel, One Sky, Skyward, T-Mobile, and Wing to collaboratively establish requirements for Remote Identification (Remote ID), which would provide real time identification and location information on drone operations conducted in the nation’s airspace. Remote ID is seen as a critical path in authorizing widescale “beyond visual line of sight” (BVLOS) and cargo delivery drone operations.

Supply Chain Agility

In a similar manner, albeit using lower-tech assistance, the flow of farm products to consumers is finding new paths. Farmers traditionally enter into contracts with restaurants, their wholesale suppliers, and other eateries, such as hotels and school cafeterias. When the pandemic disrupted these long-standing orders for farm fresh products, it left farmers with excess supply. Meanwhile, households filled with consumers working from home need groceries, yet prefer to limit the health risk of visiting a public place such as a grocery store. Farmers’ markets provide a small outlet for this extra produce, but, in the local jurisdictions where they are allowed to continue operating, they are now subject to strict distancing and contact rules. Yet again, the supply is present and demand exists, but the challenge is connecting the two.

The fractured food supply chain is hitting the northern hemisphere just as abundant spring produce begins to emerge from the fields. Established farm-to-table delivery companies such as Imperfect Foods and Hungry Harvest have experienced such a rapid and large uptick in membership demand that they have temporarily suspended acceptance of new members or delayed deliveries while building staff to support demand. Similarly, existing Community Supported Agriculture farms have accepted multiple new members seeking to receive farm-fresh local foods. Despite this, large volumes of farm products remain available.

Enter the solution from the grass-roots: building makeshift supply chains between the farms and households in nearby cities by setting up delivery directly from area farms.

One such service is a D.C.-area program, established by a chef, his spouse and neighbors, to distribute produce from Earth N Eats, an Amish family farm co-op that, before the pandemic, supplied high-end D.C. restaurants with heirloom produce. The farm lost roughly 90 percent of its business when restaurants were shut down, and this program has nearly restored their sales to pre-Coronavirus levels – only now the produce is boxed and sold to individuals. Subscribers receive weekly boxes containing free-range eggs, milk, salad and other greens, apples, and potatoes. In addition, one can purchase prize-winning artisan sheep’s milk cheeses and small batch corn meal, as well as other seasonal produce.

Word of the program and the farm co-op’s diverse and delectable offerings spread via local community list-servs and lower-tech word-of-mouth. Within days, Earth N Eats sold enough subscriptions to make boxed shipments a viable business. All orders are submitted online, and boxes are distributed locally for pickup. The entire program is conducted without direct contact – not in person, not by phone – exclusively via the internet.

Remote Learning and Communications

Remote learning is not only for school-age children. Adults are also looking for opportunities to learn, and businesses are connecting with customers virtually to meet demand. Wineries, with their tasting rooms closed to the public, have started offering virtual wine tastings.

The Napa Wine Company’s vineyard is in Oakville, Calif., the heart of Napa Valley. From there, the family-owned and operated company produces and markets the Ghost Block, Oakville Winery and Elizabeth Rose wines. In normal conditions, close to four million people visit Napa Valley’s famous wineries each year. Social distancing has shut down the winery’s tasting room, but wine enthusiasts can still enjoy the Napa experience from home. “People cannot come to us right now, but I can show them the property where the wines come from,” said Morgaen Hoxsey, the Napa Wine Company’s Director of Sales and Marketing, who hosts virtual tastings from the vineyard. Hoxsey admits there has been a technology glitch or two along the way, including a poor WiFi connection when broadcasting directly from among the vines, but integrating technology has provided a welcome boost to the winery’s sales.

Hoxsey manages five employees who process orders and man the company’s tasting room. California’s stay home order meant shutting down the tasting room in March, but rather than laying off a single employee, Hoxsey refocused her team’s efforts on direct-to-consumer sales, breaking records by utilizing technology to bring the wine tasting experience directly to clients’ homes.

What started as a request for a video presentation for a local social club blossomed into new ways to connect directly with customers. The Ghost Block Estate Tasting Room now offers “virtual tastings” by appointment to wine club members. Tasters order a pre-set selection of wines. Once they arrive, wine club members tune in virtually via Zoom for an intimate—but distant—session with their favorite vintners.

Remote communication, a bonus before COVID-19, has become an essential element to keep the winery in business. Remember Hoxsey’s five employees? She still hasn’t let a single one go.

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Babst Calland Lands 2024 Space Mission Legal Work for Astrobotic

Firm to Develop Legal/Commercial Framework for Payload Service for NASA’s Artemis Human Landing System

Babst Calland today announced that under a recently announced NASA award, Astrobotic Technologies, Inc. (Astrobotic) has selected the firm to develop what could become the first-of-its-kind blueprint for commercial payload delivery to space for the Artemis human missions as well as future human-crewed space missions.

Pittsburgh-based Astrobotic will be developing the commercial payload service for Dynetics (a Leidos subsidiary), one of three prime contractors (alongside SpaceX and Blue Origin) selected by NASA to design and build a commercial Human Landing System (HLS) and compete to build a privately-developed system to take the first woman and next man to the lunar surface in 2024 as part of the NASA Artemis program.

“As the leading lunar payload delivery provider, we are thrilled to begin setting up this new business model onboard the Dynetics human lander,” said Astrobotic CEO John Thornton. “With payload expertise from our Peregrine and Griffin lunar lander programs, we are well-positioned to extend our payload services to include the new lunar lander. We’re helping to develop and set the standard for the commercial payload market, and that is very exciting,” added Thornton.

Dynetics is leading a broad coalition of industry partners, including Astrobotic, to not only send humans back to the lunar surface, but to also help companies, governments, universities, and nonprofits across the globe send non-human payloads onboard the Artemis Human Lander System. Such payloads can include critical instruments, project and infrastructure products and materials that can support human activities on the lunar surface.

“Helping to launch this new mission to the Moon and to develop the commercial, policy and regulatory framework for its payload delivery business is an exciting opportunity for Astrobotic, all of its partners, and for our team of attorneys at Babst Calland, “ said Justine M. Kasznica, Outside General Counsel for Astrobotic, and Chair of the Firm’s Emerging Technologies practice.

“It’s exciting to be a part of such a groundbreaking opportunity as a legal partner to Astrobotic,” said Donald C. Bluedorn II, Managing Shareholder at Babst Calland.  “We are thrilled to be involved in this important role for our national space program.”

PHMSA Proposes Regulatory Reforms for Hazardous Liquid Pipelines

Pipeline Safety Alert

(by Brianne Kurdock and Varun Shekhar)

On April 16, 2020, the Pipeline and Hazardous Materials Safety Administration (PHMSA or the Agency) released a Notice of Proposed Rulemaking (NPRM) to amend the facility response planning, reporting, and external corrosion control requirements for hazardous liquids pipelines in 49 C.F.R. Parts 194 and 195.  PHMSA also proposes modifications to the inspection and investigation requirements in Part 190 which would impact all regulated operators (hazardous liquid, natural gas, underground natural gas storage, and LNG).  PHMSA’s proposal is intended to reduce regulatory burdens, as identified in internal agency reviews and stakeholder comments collected in 2017.  Comments are due June 15, 2020.

Proposed Revisions to Inspection and Investigation Procedures

Under 49 C.F.R. § 190.203, operators are required to provide to PHMSA, upon request, all records and information during an inspection or that pertain to an accident or incident involving a pipeline facility.  The NPRM would amend this regulation to formally allow operators to submit such records and information electronically as long as the records (1) can be downloaded and printed by PHMSA from any U.S. internet access point without watermarks, redaction or alteration, (2) have functionality which matches the original document, and (3) are associated with a contact person of the submitter who will be responsible for addressing any issues with the system or record displayed.  In addition, if documents are made available through an access system provided by the submitter, the operator must disable activation or access codes, internet connectivity requirements, document tracking features, or any pre-access conditions such as log-in agreements.  In addition, any time-out functionality must be set at a reasonable amount of time.

These proposals would prohibit common data security measures, such as access codes, “view only” document portals that restrict printing or downloading, watermarking, and access date and time stamping.  While increased use of electronic submittals is generally welcome, and can improve efficiency, PHMSA’s proposal raises important issues around document and data security and the Freedom of Information Act (FOIA).  Many operator records are subject to FOIA and other protections because they contain confidential and other sensitive information.

In addition, PHMSA is proposing to amend 49 C.F.R. § 190.343 to remove the requirement to submit a second redacted copy of confidential information that is submitted to PHMSA for any purposes other than during a rulemaking proceeding or for a special permit.  However, PHMSA also proposes to clarify that the mere label of “confidential” on information will not suffice to establish confidential commercial information, but rather, that operators must provide a specific explanation as to why the information is indeed confidential.  PHMSA also proposes to remove the existing presumption that the Agency will treat information appropriately marked as confidential unless the operator is notified otherwise (§ 190.343(b)).

Proposed Revisions to Oil Spill Response Plans

Under 49 C.F.R. Part 194, operators of onshore oil pipeline facilities are required to prepare a facility response plan (FRP) to establish procedures to address a worst-case discharge of oil.  The NPRM proposes the following notable amendments to these requirements:

• The NPRM would move and amend the existing exception to FRP requirements for pipelines that are 6 5/8” or less in outer diameter, less than 10 miles long, and which meet certain historic release limitations.  Under the proposal, the historic release limitations would be removed as an applicability trigger, and instead, pipelines that are 10 miles or less in length or 6 5/8” or less in outer diameter would not be subject to FRP requirements if they would not adversely affect navigable waters or adjoining shorelines, as well as public drinking water intakes or environmentally sensitive areas.  This change would refocus the rule from historical spills to the present-day potential effects of a spill.
• Adding or revising definitions for various terms, including “onshore oil pipeline facilities”.  The proposed definition would codify the current agency position that pipelines that are landward of the coast line would be considered onshore facilities.  PHMSA’s proposal is likely informed by its experience in the recent National Wildlife Federation v. DOT Part 194 litigation in the Eastern District of Michigan and the U.S. Court of Appeals for the 6th Circuit.
• Deletion of § 194.103, which required operators to submit a statement with the FRP identifying which sections would be expected to cause “significant and substantial harm” to the environment in the event of a discharge of oil.
• Revision to the criteria for determining a worst-case discharge under § 194.105.  The NPRM proposes to allow operators to use spill modeling programs in lieu of relying solely on historic discharge data to calculate the maximum release from a pipeline line section.  This proposal may allow operators to use spill criteria that more accurately capture current system hydraulics and risks.
• Revisions to the general response plan requirements in § 194.107 by requiring consideration of adverse weather events in designing response procedures, and to limit the procedures that an FRP must contain to those allowed under an applicable area contingency plan (ACP).  In addition, FRPs would need to contain procedures for providing safety data sheets (SDSs) to emergency responders and the Federal On-Scene Coordinator within 6 hours of a spill.  The NPRM would also removes some requirements for listing response resources and procedures for maintaining equipment, where the operator contracts with a qualified oil spill removal organization (OSRO).
• Increasing flexibility for operators preparing FRPs by allowing for core plans to reference response zone appendices that can be separately amended, using National Pipeline Mapping System information to delineate response zones and pipeline facilities, and for operators to simply add a DOT-specific appendix to state response plans to address any additional federal requirements, rather than having to submit a distinct FRP.
• Requiring operators’ FRPs to be consistent with the response resources and response tiers as defined in the US Coast Guard’s Guidelines for Determining and Evaluating Required Response Resources for Facility Response Plans.

Proposed Revisions to Safety and Reporting Requirements

PHMSA proposes to revise the Part 195 definition of a reportable “accident” in §§ 195.50 and 195.52 to increase the property damage threshold from $50,000 to $118,000, reflecting inflation.  The $50,000 threshold was set in 1984 for natural gas operators and later adopted in 1994 for hazardous liquid operators.  It has not been adjusted since that time.  PHMSA also proposes to revise § 195.573(c) to explicitly allow for remote monitoring of rectifier stations used for external corrosion control.  Finally, the NPRM would slightly amend the guidance for implementing integrity management programs in Appendix C to Part 195, by relaxing some provisions relating to identifying pipeline segments that could affect high consequence areas, including those relating to crossing farm tile fields, and operating conditions.  In addition, the NPRM clarifies that Appendix C is non-binding guidance.

Comments are due June 15, 2020.

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Governor Releases Guidance for Construction Industry in Pennsylvania

Construction Alert

(by Marc Felezzola, David White and James Miller)

Governor Tom Wolf announced on April 23, 2020 that the construction industry in Pennsylvania may resume in-person operations starting Friday, May 1, 2020 – one week earlier than previously announced.  Governor Wolf also issued “stringent” guidance intended to protect construction workers and the public when construction operations resume.  This guidance “provides universal protocols for all construction activity, as well as specific additionally guidance for residential, commercial and public construction projects.”

Among the requirements:

• All persons present at a work site must wear masks/face coverings unless they are unable for medical or safety reasons and businesses must establish protocols upon discovery that the business has been exposed to a person who is a probable or confirmed case of COVID-19.
• All construction projects must maintain proper social distancing and provide hand washing and sanitizing stations and protocols for high risk transmission areas.
• Businesses must identify a “pandemic safety officer” for each project or work site or, for large scale construction projects, for each contractor at the site.
• Residential construction projects may not permit more than four individuals on the job site at any time, not including individuals who require temporary access to the site and are not directly engaged in the construction activity.
• For non-residential or commercial projects, no more than four people are permitted for spaces of 2,000 square feet or less, with one additional person allowed for each additional 500 square feet of enclosed area over 2,000.
  • Note that enclosed square footage includes “all areas under roof that are under active construction at the time.”
• Commercial construction firms should also “consider strongly” establishing a written safety plan for each work location containing site specific details to be shared with all employees and implemented and enforced by the pandemic safety officer.
• Owners of public construction projects are encouraged to “use best judgment in exercising their authority to conduct critical construction projects” and to “postpone non-essential projects and only proceed with essential projects when they can implement appropriate social distancing and cleaning/disinfecting protocols….”
  • This means contractors performing work on public projects should not resume work until directed to do so by the applicable government unit.
• Local governments may elect to impose more stringent requirements than those contained in the guidance.

Local officials are tasked with ensuring all construction businesses are aware of the guidance and for notifying businesses regarding any complaint of noncompliance that is received.

Questions about whether the guidance applies may be emailed to the Department of Labor and Industry at RA-LIBOIS-BUILDINGS@pa.gov.

Babst Calland’s construction attorneys are available to assist you with addressing or responding to any COVID-19-related impacts under this guidance. For more information, please contact Marc J. Felezzola at 412-773-8705 or mfelezzola@babstcalland.com, David E. White at 412-394-5680 or dwhite@babstcalland.com, or James D. Miller at 412-394-6438 or jmiller@babstcalland.com.

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PHMSA Proposes New Guidance for Farm Taps

Pipeline Safety Alert

(by Keith Coyle and Ashleigh Krick)

On April 20, 2020, the Pipeline and Hazardous Materials Safety Administration (PHMSA or the Agency) published a Request for Comments on proposed Frequently Asked Questions (FAQs) for the regulation of farm taps under 49 C.F.R. Parts 191 and 192.  The proposed FAQs come nearly two years after the Agency posted, and then withdrew, an earlier set of farm tap FAQs on its website.  Consistent with the Department of Transportation’s policy on guidance documents, PHMSA is seeking public comment before finalizing the latest version of the farm tap FAQs.  The deadline for submitting comments is June 19, 2020.  Additional information about the regulation of farm taps and the proposed FAQs is provided below.

Why did PHMSA issue the Proposed FAQs?

The regulatory status of farm taps has generated significant controversy in the past decade.  In 2010, PHMSA issued FAQs for the new Distribution Integrity Management Program (DIMP) regulations stating that the DIMP requirements applied to farm taps, even though that issue had not been specifically discussed or addressed during the rulemaking process.  The Agency defended that position in the years that followed, but eventually allowed operators to choose to include farm taps in a DIMP plan or follow the three-year periodic inspection requirement for regulators and overpressure protection equipment.

In January 2018, PHMSA published a set of new FAQs for farm taps on its website.  The FAQs addressed a range of topics, including the new three-year periodic inspection requirements, annual reporting requirements, OPID requirements, regulatory status of existing farm taps and those installed prior to 1960, operator qualification, definitional clarifications, and excess flow valve installation.  After receiving significant adverse feedback, the Agency withdrew the farm tap FAQs for further review and development.  Then, in March 2019, the Agency issued an Announcement of Enforcement Discretion stating that owners and operators could choose whether to address farm taps under the three-year periodic inspection requirements in 49 C.F.R. § 192.740 or under DIMP requirements.

As discussed in more detail below, the Agency’s proposed farm tap FAQs address all the significant developments from the past decade.

What do the Proposed FAQs cover?

The following important topics are covered in the proposed farm tap FAQs:

• What is a farm tap? Citing the Part 192 definition of service line, PHMSA states that a farm tap is a distribution service line if any portion “transports gas from a common source of supply to an individual customer, to two adjacent or adjoining residential or small commercial customers, or to multiple residential or small commercial customers served through a meter header or manifold,” regardless of whether a sale of gas occurs.  However, the Agency also recognizes that a farm tap may be used to refer to other piping applications that do not satisfy the service line definition, including where customer-owned piping connects directly to the first isolation point or the farm tap meets the definition of a transmission line.
• Where does a farm tap begin and end? In an important clarification, PHMSA explains that a farm tap service line “begins at the first point where the downstream service line can be isolated from source piping (e.g. the inlet to a valve or regulator . . .)” and “terminates at the outlet of the customer’s meter or the connection to a customer’s piping, whichever is further downstream.”  Some of the Agency’s other guidance in recent years had suggested that the service line classification begins at the tap on the mainline or source piping in a farm tap configuration.  Note that PHMSA’s clarification indicates that the valve or regulator at the first isolation point is part of the distribution service line, not the source piping.
• What reporting and notification obligations apply to farm tap operators? If a farm tap is a regulated service line, PHMSA states that the operator must obtain an OPID and submit a distribution annual report form, including operators of production and unregulated gathering lines.  PHMSA also explains that only the operator of the service line downstream from the first isolation point is responsible for reporting the service line in its annual reports, and that the most-downstream entity operating the service line is responsible for notifying farm tap customers of their responsibility to maintain customer-owned buried piping under § 192.16(a).
• What are PHMSA’s expectations with respect to testing farm taps under 49 C.F.R. § 192.740? PHMSA states that the three-year inspection requirement in § 192.740 for pressure regulating, limiting, and overpressure protection devices applies to all service lines that directly connect to production, gathering, or transmission lines, and which are not part of a distribution system, regardless of installation date.  The Agency clarifies that the regulation does not require testing regulators for lockup, and that other methods may be used to comply with the regulation.  PHMSA also explains that operators can use any practicable method to test regulators with an internal relief, so long as the method is documented in the operator’s O&M Manual.  The Agency provides examples of practicable methods, such as installing a test port and then a valve downstream from the regulator with an internal relief.
• What design and installation requirements apply to service-line farm taps? Consistent with the non-retroactivity requirement in the Pipeline Safety Act, PHMSA acknowledges that a farm tap installed prior to March 12, 1971, does not need to be redesigned to meet the requirements in § 192.197.  However, the Agency notes that if the regulators are modified or replaced after the effective date in § 192.13(b) then the affected components must meet the requirements of § 192.197.  PHMSA also notes that operators of service-line farm taps must meet the excess flow valve requirements in § 192.381, 192.383, or 192.385, as applicable.
• What are other requirements operators should be aware of? PHMSA states that an operator of a service line must comply with all applicable requirements in Parts 191 and 192.  The Agency notes that production or unregulated gathering operators with regulated service-line farm taps are required to comply with the operator qualification requirements in Subpart N for covered tasks performed on the regulated service line and prepare an O&M Manual with respect to the regulated service line.  PHMSA also notes that states with certified pipeline safety programs may adopt additional safety regulations applicable to farm taps.

What are the implications of PHMSA’s Proposed Farm Tap FAQs?

• The long-running effort by interested stakeholders to clarify the Agency’s farm tap policy continues to produce results. After hearing the industry’s concerns with the 2010 DIMP FAQs, particularly the effect of requiring interstate transmission operators and production and unregulated gathering operators to apply DIMP to farm taps, PHMSA added an exception that allowed operators to comply with the three-year inspection requirements in § 192.740 instead of the DIMP regulations.  The Agency also issued a notice of Enforcement Discretion in response to continued industry concerns that allows operators to manage farm taps under either § 192.740 or DIMP, which remains in effect today.  Finally, the latest version of the proposed farm tap FAQs seeks to accommodate many of the concerns that industry expressed with the prior farm tap FAQs and other recent guidance documents, including with respect to the classification of source or mainline piping and the applicability of certain requirements in the Part 192 regulations.  The industry has the opportunity to further influence these FAQs in the pending comment period.
• Notably, PHMSA is no longer taking the position that the service line starts at the tap on the mainline in a farm tap configuration. Instead, the FAQs state that the service line starts at the first isolation point (the inlet of the valve or regulator) downstream from the source or mainline piping.  That clarification is very important because the Agency’s prior guidance indicated that operators had to treat all piping downstream from the tap as a distribution service line in a farm tap scenario, even if all of the other piping in the system was production, gathering, or transmission.  Treating all piping downstream from the tap as part of a distribution service line would have imposed significant compliance burdens on operators without producing any meaningful benefits.
• PHMSA has never actually analyzed the costs, benefits, or other impacts of applying the gas distribution service line regulations to farm taps. The Agency has never added a definition of a farm tap to Part 192 or instituted a specific rulemaking proceeding to acknowledge the status of farm taps as gas distribution service lines.  Rather, PHMSA adopted that position in letters of interpretation, guidance documents, and through other rulemakings.  Operators have the opportunity to provide cost data to PHMSA through this docket, which would invite the Agency to consider such data before issuing final FAQs.
• PHMSA notes in the Request for Comments that as part of the Agency’s regulatory review process, the Agency is considering changes to the requirements in § 192.740 due to industry comments that PHMSA had underestimated the costs of compliance with the three-year inspection requirements and that existing DIMP requirements, in conjunction with other current requirements such as leak surveys, could provide an equivalent level of safety. PHMSA previously indicated during public meetings that farm taps would be included in the Gas Pipeline Regulatory Reform proposed rule, which is currently under review at the Office of Management and Budget and will likely be published by the Agency in the coming months.

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New WOTUS Definition Published — Challenges Expected

Environmental Alert

(by Lisa Bruderly)

Yesterday, the U. S. Environmental Protection Agency (EPA) and the U. S. Army Corps of Engineers (Corps) fulfilled the Trump administration’s promise to repeal and replace the Obama administration’s Clean Water Rule (CWR) by publishing the final Navigable Waters Protection Rule (NWPR) in the Federal Register (85 Fed. Reg. 22250). The NWPR (yet again) redefines the scope of waters that are regulated under the Clean Water Act (CWA) by revising the definition of “waters of the United States” (WOTUS) in 12 federal regulations (see January 31, 2020 Alert for details and discussion of anticipated effect of the NWPR).

As expected, the NWPR’s WOTUS definition is much narrower and will federally regulate fewer waters than the CWR. The Rule also clarifies the scope of WOTUS in greater detail than the pre-2015 definition, which is currently in effect. The Rule consolidates jurisdictional waters into four categories: (1) territorial seas and navigable-in-fact waters; (2) tributaries; (3) lakes, ponds and impoundments of jurisdictional waters; and (4) adjacent wetlands. It includes 16 definitions and 12 exclusions, as compared to the five definitions and two exclusions in the pre-2015 definition, including, for the first time, definitions to clarify the prior converted cropland and waste treatment system exclusions. The Rule categorically excludes, among other things, ephemeral streams and ditches without perennial or intermittent flow.  In addition, missing from the NWPR is any reference to the significant nexus test.

Practical Impact of the NWPR will be State-Specific

The practical impact of the Rule for industry, developers, agriculture and others will vary from state to state. The NWPR’s effect is likely less in states with very inclusive definitions of state-regulated waters (e.g., Pennsylvania) than in states with narrower definitions of the same. For example, in Pennsylvania, state permitting will still be required for proposed impacts to state-regulated streams and wetlands, even though federal permitting may not be required. For states whose definitions of state-regulated waters are the same or less inclusive than the NWPR, the Rule is expected to be a more significant consideration for project permitting and federal spill prevention and response.

Controversy Continues and Challenges are Certain

Effective as of June 22, 2020, the NWPR will almost certainly be challenged in federal district courts by NGOs, certain states and other interested parties on procedural and substantive grounds. These challenges could result in the courts staying the Rule in some, or all, states while the lawsuits are litigated, potentially creating a patchwork where the pre-2015 definition remains in effect in select states or nationwide.

Babst Calland continues to analyze the practical effects of the new definition of WOTUS (see numerous Environmental Alerts at www.babstcalland.com) and is able to assist you in evaluating how the NWPR may affect your operations and/or plans for development. If you have questions about the NWPR or water-related matters in general, please contact
Lisa M. Bruderly at (412) 394-6495 or lbruderly@babstcalland.com.

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