Articles, Alerts & Perspectives

The Pennsylvania Environmental Hearing Board's Second Analysis of the Environmental Rights Amendment

Alert: Environmental

On November 13, 2017, the Pennsylvania Environmental Hearing Board issued its second opinion analyzing Article I, Section 27 of the Pennsylvania Constitution, commonly known as the Environmental Rights Amendment, in light of the Pennsylvania Supreme Court’s June 20, 2017 decision in Pennsylvania Environmental Defense Foundation v. Commonwealth (PEDF).  In Friends of Lackawanna v. DEP and Keystone Sanitary Landfill, EHB Dkt. No. 2015-063-L (November 10, 2017) the EHB applied the principles set out in PEDF and upheld a landfill permit renewal.

In its PEDF decision, the Pennsylvania Supreme Court established a new standard of review based on the text of the ERA and Pennsylvania trust law principles but did not provide a definitive test regarding how the ERA is to be applied in the permitting context.  Earlier this year, on August 15, 2017, the EHB issued its first opinion interpreting and applying the new ERA standard in a third-party appeal of longwall mining permit revisions issued to Consol Pennsylvania Coal Company in Center for Coalfield Justice and Sierra Club v. DEP, EHB Dkt. No. 2014-072-B (August 15, 2017) (CCJ). The EHB reviewed the Department of Environmental Protection’s consideration of the potential environmental effects of its permitting action and whether the activity authorized by the permit was likely to cause, or in fact did cause, unreasonable degradation or deterioration of a public natural resource.

Friends of Lackwanna Decision

In Friends of Lackawanna, a citizens group, the Friends of Lackawanna (FOL), appealed a landfill permit renewal issued to Keystone Sanitary Landfill.  Keystone has been operating a permitted landfill for more than 30 years, with the Department renewing its permit several times over that period, most recently in 2015. FOL appealed the 2015 permit renewal, arguing that the Department did not fulfill its responsibilities under the ERA because the landfill is adversely affecting groundwater and the Department’s review of Keystone’s operations and compliance history was inadequate.  The record before the EHB showed that elevated levels of contaminants that could reasonably be attributed to landfill operations had been detected in groundwater monitoring wells since at least 2002. Between 2003 and 2016, the Department asked Keystone by letter and informal requests to assess the contamination, but DEP did not take any formal action until issuing a Notice of Violation in November, 2016, within a week of the EHB hearing. The Department did not impose conditions in the renewed permit regarding groundwater conditions, past compliance issues, or odor complaints from neighbors.

Writing for the Board and citing its earlier CCJ decision, Judge Bernard A. Labuskes stated that the proper standard for the Board to review DEP’s decision is to determine, first, whether the Department considered the environmental effects of its permitting action and, second, whether the Department correctly determined that any degradation, diminution, depletion or deterioration of the environment is reasonable or unreasonable.

The EHB concluded that the ERA applies to landfill permit renewals, and therefore the Department must act in accordance with its constitutional responsibilities under the ERA when reviewing a renewal application. The EHB concluded that the Department’s decision to renew Keystone’s permit without including a condition addressing groundwater contamination was unreasonable and violated the Department’s trustee obligations under the ERA. The Department had an obligation to take “meaningful steps” to protect the groundwater under Keystone’s property because, according to the Board, groundwater is a public natural resource entitled to protection under the ERA. The EHB amended Keystone’s permit to add a condition requiring Keystone to prepare and submit a groundwater assessment plan to the Department within 60 days in accordance with the municipal waste regulations.

The EHB also found that odor associated with the landfill did not cause an unreasonable degradation of the environment.  The EHB stated that landfill odors are subject to evaluation and control under the Pennsylvania Constitution in view of the right to clean air as expressed in the ERA, but found that FOL did not prove that the Department’s alleged failure to respond to odor complaints from neighbors resulted in an unreasonable degradation of the air.  The EHB did note, however, that the ERA “requires effective oversight by the Department over a solid waste disposal facility accepting up to 7,500 tons of waste per day operating in such close proximity to densely populated areas.”

What’s Next?

The General Assembly has enacted many environmental laws to implement the ERA and the Department is required to act within the scope of those laws to achieve their purposes.  The EHB has been evaluating ERA challenges to the Department’s environmental permitting actions for many years, an evaluation that has always considered whether the permits would allow undue adverse impacts on the environment.  Both EHB cases decided since PEDF take a similar approach to such review following PEDF – examining the record to evaluate both the Department’s consideration of the effect of the permitted activity on public natural resources, as well as the actual or potential adverse effects of the permitted activity on the environment.  It seems unlikely that a case will be presented where the contours of the ERA analysis depart from these two fundamental components of EHB review.  The question is under what circumstances, if any, the outcome of such review will differ under the “new” PEDF standard.

Several other matters remain pending in front of the Environmental Hearing Board that raise issues under the ERA. Babst Calland will continue tracking legislative, litigation and regulatory developments related to the ERA. For more information regarding issues or interpretation of the ERA, please contact Kevin J. Garber at    412-394-5404 or kgarber@babstcalland.com, or Jean M. Mosites at 412-394-6468 or jmosites@babstcalland.com.

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The DEP Releases a Trio of Draft Technical Guidance Documents

Alert: Environmental 

On October 14, 2017, the DEP published notices of availability for a trio of draft Technical Guidance Documents (TGD) in the Pennsylvania Bulletin. Each of these TGDs proposes policy departures from current practices in both the form and substance of the respective TGD. Two of them, Policy for the Development and Publication of Technical Guidance and Policy for the Development and Review of Regulations, are significantly less detailed than their predecessor TGDs. For instance, the draft TGDs omit internal procedural steps and checkpoints involved in the DEP’s promulgation of new technical guidance documents and regulations. The revisions, if finalized, will affect those regulated and public entities who routinely participate in the DEP’s TGD and regulatory development process.

Overview

1. Policy for the Development and Review of Regulations (012-0820-001)

The draft policy proposes substantial formatting changes – including a name change – from the current Policy for Development, Approval, and Distribution of Regulations, which was published by the DEP in 1996 and last updated in November 1999. The proposed TGD is notably shorter in the current version because it abandons 11 extensive attachments that provide guidance on both form and substance the DEP is to follow throughout the rulemaking process. Key differences in the proposed TGD include:

• A new section entitled “Purposes of Environmental Regulations,” which refers to Constitutional rights, including the Environmental Rights Amendment of Article I, Section 27. The DEP refers to its duty, as an agency of the Commonwealth, as a trustee to conserve and maintain public natural resources.
• A statement that the General Assembly establishes the framework and scope of the environmental programs administered to the DEP but that it “defers” to the DEP to  implement the laws.
• A statement that “anyone can submit information related to a rulemaking to the DEP at any time…” for the DEP’s consideration outside the formal public comment period.
• Far less rigorous scrutiny of economic impacts and no mention of steps for the DEP to comply with Executive Order 1996-1.
• Little to no acknowledgement of the substantive amendments in 2012 to the Regulatory Review Act, which require considerations and flexible provisions for small businesses.
• Removal of a provision for sunset review, which required the DEP to publish an annual sunset schedule on the first Saturday of January in the Pennsylvania Bulletin to determine whether existing regulations effectively fulfill the goals for which they were intended.

2. Advisory Committee Guidelines (012-1920-002)

The draft guidelines address the role and function of advisory committees and modify the functions filled by the DEP, the advisory committee and the general public. Notably, this draft TGD was not provided or presented to all advisory committees for their review and comment prior to the start of the public comment period. The proposed TGD provides that:

• Agendas would be developed by the DEP, after consultation with the advisory committee chair, rather than “developed by the committee chair and the Department liaison” as described in the current policy and contradictory to the roles and responsibilities of the committee chair proposed by the DEP in the TGD.
• The DEP will continue to prepare the minutes, and if the DEP records meetings, such recordings will only be retained until the meeting minutes are approved by the committee, unless otherwise stated at the meeting being recorded.
• The current simple statement that “public comment from attendees is encouraged” is replaced with detailed provisions reminding the public that they are there to “learn about DEP,” should be respectful, and that public comment should be limited to ensure the committee can complete its agenda.
• Committee members are advised to “clearly indicate” when they speak at other advisory committee meetings if they have been allowed by vote to speak on behalf of their respective committees.
• Additionally, committee members’ participation is limited to providing the DEP with advice on how to “effectively administer Pennsylvania’s environmental laws.”

The DEP plans to discuss this draft TGD at several advisory committee meetings that are scheduled in the next several weeks, but it is not certain that this draft TGD will be discussed with all of the advisory committees listed in proposed Appendix A of the TGD before the close of the public comment period.

3. Policy for the Development and Publication of Technical Guidance (012-0900-001)

The draft policy explains the DEP’s process for developing TGDs. The draft retains several sections from an Interim Final TGD from May 30, 2015, which the DEP withdrew with its October 14th notice, but eliminated most of the procedures outlined for the DEP’s staff. The current version includes far less direction or insight as to how the DEP will proceed internally when it develops a TGD. Additionally, it maintains confusing language from the Interim Final TGD whereby the DEP can rescind TGDs that are “no longer necessary” but “better suited” for an alternative, non-TGD format of a fact sheet, brochure, or manual (which are not defined in the draft).

Opportunity to Comment

TGDs are both policy statements and an important part of the DEP’s compliance framework and are intended to clarify existing requirements. TGDs do not take the place of statutory or regulatory requirements and cannot supplement or exceed the authority provided to the DEP by the General Assembly. Comments will be accepted on each of the three proposed TGDs until December 13, 2017. For more information regarding these three proposed TGDs, please contact Sean M. McGovern at (412) 394-5439 or smcgovern@babstcalland.com and Jean M. Mosites at (412) 394-6468 or jmosites@babstcalland.com.

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Babst Calland’s Expansion Results in Move to New D.C. Office

Washington, D.C., November 14, 2017 – Babst Calland has moved its Washington, D.C. office to a new location.  Following a period of growth and expansion, the firm has outgrown its previous location and has moved to its new location at 505 9th Street NW, Suite 700, Washington, DC 20004.

“Our team of attorneys in the Washington, D.C. office welcomes the move,” said James Curry, transportation safety attorney and managing shareholder of Babst Calland’s D.C. office.  “The new space will accommodate our growth while enabling us to continue to serve current and new clients,” he added.

Babst Calland opened its Washington, D.C. office in January 2016 representing clients throughout the U.S. on matters relating to pipeline safety and the transportation of hazardous materials. This year, the firm expanded its team to support clients in a broader range of transportation safety matters, including its motor vehicle safety, regulatory and compliance practice (including automated driving system issues).

The Washington, D.C.-based transportation safety practice focuses on representing clients through a multi-disciplinary team approach and is integrated with the firms’ Energy and Natural Resources, Environmental and other practices, which allows us to provide comprehensive multi-issue services to our clients. The group’s strength is its deep understanding of the federal government’s approach to safety regulation and its collective experience in the transportation and energy sectors.

Deduction of Post-Production Expenses from Royalty Payments in Ohio

Legal Perspective

A federal court recently addressed two contentious issues affecting calculation of royalty payments from production of shale gas in Ohio: (1) whether operators may deduct post-production expenses (costs for gathering, compression, treatment, processing, transportation, and dehydration) when calculating royalty payments; and (2) whether operators are required to pay royalties on all gas extracted at the wellhead – including gas that is lost between the wellhead and the point of sale (i.e. “line loss” gas).  Lutz v. Chesapeake Appalachia, L.L.C., No. 4:09-cv-2256, Dkt. 142 (N.D. Ohio, Oct. 25, 2017) (Judge Sara Lioi).

In 2009, a group of five lessors commenced a putative class action suit in the federal District Court for the Northern District of Ohio against Chesapeake Appalachia, L.L.C., Columbia Energy Group, and NiSource, Inc.  The lessors claimed that, since 1993 the producers had been “deliberately and fraudulently” underpaying the gas production royalties owed to the lessors by (1) deducting post-production expenses from the royalty payments, (2) calculating royalty payments on volumes less than the amount of gas produced at the wellhead, and (3) using a sale price that was less than the market price for gas.  In response to a motion by the producers, the court dismissed the entire complaint as time-barred by the statute of limitations.  On appeal of that order, the Sixth Circuit determined that the breach of contract claim was not entirely time-barred because each alleged monthly underpayment would constitute a separate breach of contract that triggered a new accrual period under the statute of limitations. Lutz v. Chesapeake Appalachia, L.L.C., 717 F.3d 459, 470 (6^th Cir. 2013).  As a result, the lessors may assert a breach of contract claim for alleged underpayments that occurred during the four years prior to commencement of the action.  The Sixth Circuit also noted that the lessors “may be entitled to equitable tolling” of the limitations period on the basis of “fraudulent concealment” – i.e. the claim that the monthly royalty statements misrepresented how the royalties were calculated.

On remand to the District Court, the parties filed cross-motions for summary judgment on the breach of contract claim.  The leases at issue had three different royalty clauses, which appear in pertinent part below:

(1) “The royalties to be paid by Lessee are . . . (b) on gas, including casinghead gas or other gaseous substance, produced and sold or used off the premises or for the extraction of gasoline or other product therefrom, the market value at the well of one-eighth of the gas so sold or used, provided that on gas sold at the wells the royalty shall be one-eighth of the amount realized from such sale.”

(2) “[Lessor] to receive the field market price per thousand cubic feet for one-eighth (1/8) of all gas marketed from the premises.”

(3) “Lessee covenants and agreed to deliver to the credit of the Lessor, as royalty, free of cost, in the pipeline to which the wells drilled by the Lessee may be connected the equal one-eighth part of all Oil and/or Gas produced and saved from said leased premises.”

At the time, the Ohio Supreme Court had not previously addressed whether Ohio law allowed for deduction of post-production expenses from royalty payments.  Rather than decide the issue in the first instance, the District Court submitted the following certified question of law to the Ohio Supreme Court:

Does Ohio follow the “at the well” rule (which permits the deduction of post-production costs) or does it follow some version of the “marketable product” rule (which limits the deduction of post-production costs under certain circumstances)?

The Ohio Supreme Court accepted the certified question and heard oral arguments in January 2016.  The Ohio Supreme Court issued an opinion in November 2016 with an unexpected ruling: a five-justice majority of the court declined to answer the certified question.  The opinion stated as follows:

Under Ohio law, an oil and gas lease is a contract that is subject to the traditional rules of contract construction. Because the rights and remedies of the parties are controlled by the specific language of their lease agreement, we decline to answer the certified question and dismiss this cause.

Lutz v. Chesapeake Appalachia, L.L.C., 71 N.E.3d 1010, 1013 (Ohio 2016).

Two justices filed dissenting opinions.  Justice Paul E. Pfeifer argued that Ohio law would recognize the “marketable product” rule, and thus likely disallow deduction of post-production expenses.  By contrast, Justice William N. O’Neill contended that Ohio law would recognize the “at the well” rule, which permits deduction of post-production expenses.

Which rule to apply?

In the wake of the Ohio Supreme Court’s opinion, Chesapeake renewed its summary judgment motion on the breach of contract claims based on leases containing the “market value at the well” language in the royalty clause.  Adhering to the Ohio Supreme Court’s directive that “traditional rules of contract construction” should be applied to determine the propriety of deducting post-production expenses, the District Court closely examined the provisions of the royalty clause and other terms of the lease.  The District Court concluded that the Ohio Supreme Court would apply the “at the well” rule to the leases containing the “market value at the well” language.  The Court determined that the phrase “at the well” in the royalty clause refers to the location where the gas is to be valued for calculation of a royalty.  However, if gas is not sold “at the well,” but rather has to be processed and transported to a point of sale further downstream, then there are no proceeds “at the well” for calculation of royalty.  When the point of sale is downstream of the well, the producer has incurred post-production costs to not only transport the gas, but also to process the gas into a marketable product.  The market value of the gas “at the well” can still be calculated, however, by reducing the sale price by the post-production expenses incurred.  Since the gas produced pursuant to the leases at issue was not sold “at the well,” the district court concluded that Chesapeake did not breach the contract by deducting post-production expenses from the royalty amounts.

Royalties on “line loss” gas

The District Court also granted summary judgment to Chesapeake on the lessors’ claim that they should be paid royalties based on the volume of gas produced “at the well” even if the amount of gas actually sold is less.  The lessors contended that Chesapeake should bear the financial consequences of gas “lost” between the wellhead and the sale point.  In response, Chesapeake argued that no royalty is required on “line loss” gas because Chesapeake did not receive any revenue for that gas.  According to Chesapeake, “how can it be required to pay a lessor royalties on such nonexistent revenue from these lost volumes?”  The District Court, agreeing with a number of other courts that have addressed the issue, ruled in Chesapeake’s favor.

Tolling of statute of limitations for “fraudulent concealment”

The District Court also addressed the lessors’ claim that the four-year limitations period applicable to the breach of contract claim should be tolled based on Chesapeake’s alleged fraudulent concealment of its methodology for calculating the royalty payment.  The lessors claimed that Chesapeake did not use the actual market price for gas when calculating the royalty.  Instead, Chesapeake used a lower fixed price set by “forward sale” contracts between Chesapeake and gas purchasers.

To establish equitable tolling of the limitations period under Ohio law, the lessors had to demonstrate that a reasonably prudent person would have no way of knowing about the alleged fraud due to the inaccuracies in the royalty statements.  This “reasonably prudent person” standard imposes an obligation on the party seeking equitable tolling to have exercised due diligence to investigate possible wrongdoing.  There was no dispute that the statements accompanying the monthly royalty payments accurately set forth the actual gas price used to calculate the royalties, and that this price was lower than publicly available market price according to the Appalachian Basin Index (a/k/a the TCO Index).  There was also no dispute that none of the lessors ever actually read the statements that accompanied the royalty checks, much less relied on them.  Instead, the lessors admitted that all they looked at was the amount of each check.  Further, none of the lessors ever compared the sale price set forth in those statements to the TCO Index price.

The District Court determined that equitable tolling did not apply because the lessors had a means to ascertain the actual sale price used to calculate the royalty payments – the information on the monthly statements.  These statements were not fraudulent in that they accurately stated the sale price used to calculate the royalty.  The court rejected the lessors argument that they never had a reason to check the accuracy of the sale price.  “[I]f plaintiffs expect to toll the statute of limitations, due diligence requires that they had checked.  All they needed to do was access the TCO Index and compare the price displayed on their check stubs to the index price.  They admittedly never did so.”

As a result of this ruling, the scope of the lessors’ breach of contract claims is limited to royalty payments made during the four years previous to commencement of the lawsuit in 2009.

Claims remaining for further proceedings

As noted above, the summary judgment order only addressed the group of leases containing the “market value at the well” royalty clauses.  As of October 25, 2017, neither Chesapeake nor the lessors had moved for summary judgment on the breach of contract claim involving the other two groups of leases.  Yet to be determined is whether Judge Lioi will apply the “at the well” rule to the royalty provisions of the other leases.  One group of leases states that royalties will be calculated based on the “field market price per thousand cubic feet for one-eighth (1/8) of all gas marketed from the premises.”  The other royalty clause describes the payment “as royalty, free of cost, in the pipeline to which the wells drilled by the Lessee may be connected the equal one-eighth part of all Oil and/or Gas produced and saved from said leased premises.”  Also unresolved is whether the case will be certified as a class action and whether additional discovery is necessary.  Judge Lioi ordered the parties to submit proposals by November 8, 2017 on how to proceed with adjudicating the remaining claims.

What does this mean for Ohio producers?

The October 25, 2017 order is definitely a win for the industry.  Although the impact of the order is likely limited to leases with language similar to the “market value at the well” royalty provision, Judge Lioi’s order offers a well-reasoned approach to application of the “at the well” rule to royalty provisions that reference calculation of royalties at the wellhead.  The lessors could eventually appeal Judge Lioi’s decision to the Sixth Circuit, although such an appeal will likely have to await disposition of the remaining claims.  At present, this decision is not binding on any other court in Ohio – even on other judges in the Northern District.  Judges in other federal courts within the Sixth Circuit, and certainly Ohio Common Pleas courts, could reach a contrary conclusion.  Unfortunately, the Ohio Supreme Court declined to resolve the uncertainty in Ohio law when presented with the opportunity to do so.  Going forward, Ohio courts (whether state or federal) will still have to take a case-by-case approach to each royalty suit involving deduction of post-production expenses.  Nevertheless, Judge Lioi’s order is sure to serve as persuasive authority for how to resolve such cases.  Stay tuned for further updates.

For questions related toissues affecting calculation of royalty payments from production of shale gas in Ohio described in this alert, please contact Robert M. Stonestreet at (681) 265-1364 or rstonestreet@babstcalland.com.

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EPA Administrator Pruitt Issues “Sue and Settle” Directive and Institutes New Public Participation Requirements for EPA Settlements of Defensive Lawsuits

The Pennsylvania Supreme Court Reexamines the Environmental Rights Amendment

Administrative Watch 

The Pennsylvania Supreme Court has rejected the long-standing test for analyzing claims brought under Article I, Section 27 of the Pennsylvania Constitution, commonly known as the Environmental Rights Amendment (ERA). In its June 20, 2017 decision in Pennsylvania Environmental Defense Foundation (PEDF) v. Commonwealth, the Supreme Court set aside the test from Payne v. Kassab that has been used since 1973, and held that the Commonwealth’s oil and gas rights are “public natural resources” under the ERA and that any revenues derived from the sale of those resources must be held in trust and only expended to conserve and maintain public natural resources.

The Supreme Court’s opinion in PEDF is an important step in the ongoing judicial re-examination of the ERA. However, the impact of the Court’s decision on environmental and land use issues beyond the relatively narrow facts of this case remains unclear.

Factual Background

A statutory special fund in Pennsylvania, known as the Oil and Gas Lease Fund (Lease Fund), holds all rents and royalties from oil and gas leases of Commonwealth land. The Lease Fund was originally required, by statute, to be used “exclusively used for conservation, recreation, dams, or flood control.” In 1995, the Pennsylvania Department of Natural Resources (DCNR) became the entity responsible for making appropriations from the Lease Fund for projects. Between 2009 and 2015, the Pennsylvania General Assembly made a number of budgetary decisions related to the Lease Fund, including the enactment of Sections 1602-E and 1603-E of the Fiscal Code, which transferred control over the royalties from oil and gas leases from the DCNR to the General Assembly and required that there could be no expenditures of money in the Lease Fund from royalties unless that money was transferred to the General Fund by the General Assembly.

PEDF brought claims challenging Sections 1602-E, 1603-E, and the General Assembly’s transfer/appropriations from the Lease Fund, among other things, in the Commonwealth Court. The basis of these claims was the ERA, which provides:

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.

The Commonwealth Court held the Fiscal Code provisions or the appropriations by the General Assembly of Lease Fund money to the General Fund did not violate the ERA, and PEDF appealed to the Supreme Court. The Supreme Court heard oral argument on two “overarching issues”: (1) the proper standards for judicial review of government action and legislation under the ERA, and (2) the constitutionality of Section 1602-E, Section 1603-E and the General Assembly’s transfers/appropriations from the Lease Fund under the ERA. The Supreme Court reviewed these pure questions of law de novo.

Standard of Judicial Review for Challenges under the ERA

In the 1973 decision Payne v. Kassab, the Commonwealth Court set out a three-part balancing test to be applied when determining whether a Commonwealth action violates the ERA. While the Pennsylvania Supreme Court affirmed the Commonwealth Court’s decision in that case without adopting the Payne v. Kassab test, it has been used by courts since 1973 to analyze constitutional challenges brought under the ERA.

In its landmark 2013 decision in Robinson Township v. Commonwealth (Robinson II), the Supreme Court discussed the application of the ERA with respect to a number of challenges to Act 13 of 2012, the updated version of Pennsylvania’s Oil and Gas Act, and strongly criticized the three-part Payne v. Kassab balancing test. However, the Robinson II opinion was a plurality, and courts have subsequently treated the plurality opinion as persuasive only, including the Commonwealth Court in PEDF.

In PEDF, the Supreme Court, in an opinion authored by Justice Christine Donohue and joined by Justices Debra McClosky Todd, Kevin M. Dougherty and David N. Wecht, rejected the Payne v. Kassab test as the standard to be used when analyzing challenges under the ERA, finding that the test “is unrelated to the text of Section 27 and the trust principles animating it” and “strips the constitutional provision of its meaning.” The Supreme Court instead determined that the “the proper standard of judicial review lies in the text of Article I, Section 27 itself as well as the underlying principles of Pennsylvania trust law in effect at the time of its enactment.”

The Supreme Court went on to more fully develop a new standard in the context of PEDF’s challenge to legislative action, and in doing so frequently relied on the three-justice plurality decision in Robinson II. The Court found that the text of the ERA grants citizens of the Commonwealth two separate rights: (1) the right to “clean air and pure water, and to the preservation of natural, scenic, historic and esthetic values of the environment”, and (2) the right of “common ownership by the people, including future generations, of Pennsylvania’s public natural resources.”

The Trust Doctrine

In its discussion of the second right granted under the ERA, the Supreme Court also found that the ERA establishes a public trust, with Pennsylvania’s natural resources as the corpus of that trust and the Commonwealth as the trustee. The trustee obligation is vested in “all agencies and entities of Commonwealth government, both statewide and local,” and the people are the named beneficiaries of the trust.

Relying again on the Robinson II plurality, the Court reiterated that this trust requires the government to “conserve and maintain the corpus of the trust” and that as trustee, the Commonwealth has duty to act “with prudence, loyalty and impartiality” towards the corpus of the trust. The Court found that the trust imposes “two basic duties on the Commonwealth as the trustee”: (1) a “duty to prohibit the degradation, diminution, and depletion” of public natural resources, and (2) a duty to “act affirmatively via legislation to protect the environment.”

Appropriations from the Lease Fund

Pursuant to these duties imposed on the Commonwealth by the ERA, the Court found that trust assets may be used “only for purposes authorized by the trust or necessary for the preservation of the trust,” and further held that the assets of the trust created by the ERA “are to be used for conservation and maintenance purposes.” The Court further held that the General Assembly has discretion to determine how the revenue generated from the sale of the trust assets is directed when used for those purposes.

Regarding the use of royalties from leased oil and gas on Commonwealth property, the Supreme Court reversed the Commonwealth Court and held that Sections 1602-E and 1603-E of the Fiscal Code, both of which relate exclusively to royalties, were unconstitutional because they permit the trustee to use the trust for “non-trust purposes.” The Court further found unconstitutional any further Fiscal Code amendments which transfer the “proceeds from the sale of trust assets to the General Fund.” The Supreme Court remanded the case to the Commonwealth Court to determine whether up-front bonus payments (and other revenue streams) are also part of the corpus of the trust, because the record was insufficiently developed regarding the purpose of these payments. The Court indicated that the Commonwealth Court must first determine whether these other revenue streams belong in the corpus of the ERA trust under “Pennsylvania trust principles.”

Justice Max Baer issued a concurring and dissenting opinion, joined in the dissenting portion by Justice Thomas G. Saylor. Justice Baer would have found that the ERA does not impose private trust duties on the Commonwealth, but rather creates a public trust which would not require money from the sale of natural resources to remain in an environmental trust, but could be used “for the general benefit of the public.” He asserted that the focus of ERA is “on the natural resources themselves, not the money gained from those resources.” The dissent argued that although proceeds from the sale of natural resources may be used for public purposes other than conservation, “the Commonwealth must act in a trustee-like capacity” in regard to natural resources.

Is the ERA Self-Executing?

The Court majority opinion briefly addressed whether the ERA is self-executing or whether it requires implementing legislation to be effective. Citing Robinson II, the Court confirmed that the public trust provisions of the ERA are self-executing. That is, “the second and third sentences of Section 27 do not require legislative action in order to be enforced against the Commonwealth in regard to public property.” The Supreme Court did not address whether the ERA is self-executing for purposes of enforcement against private property.

What’s Next?

By rejecting the Payne v. Kassab test for matters involving constitutional challenges arising under the ERA, the Pennsylvania Supreme Court has discarded a test that has been used for more than 40 years and replaced it with a standard based on the “text of Article I, Section 27” and “the underlying principles of Pennsylvania trust law”. The Supreme Court’s decision in PEDF deals with governmental owned assets, and it is unclear how this new standard will be applied to state and local regulation of private natural resources, including oil and gas development, which is not addressed in the opinion. Some of these issues may be resolved in Gorsline v. Bd. of Supervisors of Fairfield Twp., which is currently pending before the Pennsylvania Supreme Court.

Babst Calland will continue tracking developments related to the ERA and the new standard set out by the Supreme Court. For more information regarding issues relating to land use and municipal implications of the Supreme Court’s ruling, please contact Blaine A. Lucas at 412-394-5657 or blucas@babstcalland.com or Krista M. Staley at 412-394-5406 or kstaley@babstcalland.com.

For more information regarding impact of the Court’s ruling on environmental regulatory matters, please contact Kevin J. Garber at 412-394-5404 or kgarber@babstcalland.com, or Jean M. Mosites at 412-394-6468 or jmosites@babstcalland.com.

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Clean Water Act Squeeze Play: EPA Asks the Fourth Circuit Not to Force Work on New Water Quality Standards Pending Appeal in “Constructive Submission” TMDL Case

Administrative Watch 

On May 2, 2017, the U.S. District Court for the Southern District of West Virginia (Chief Judge Robert C. Chambers) issued a Memorandum Opinion and Order denying a request by the Environmental Protection Agency (EPA) for a Stay of that court’s earlier decision on liability, in an important pending Clean Water Act case. Ohio Valley Environ. Coalition, et al. v. Pruitt (Civil Action No. 3:15-0271; S.D.W.Va.). At issue is a February 14, 2017 decision issued by Judge Chambers, granting summary judgment to the plaintiff groups (collectively, “OVEC”) against EPA. In that ruling, the court directed EPA to either approve or disapprove the “constructive submission” of “no TMDLs [total maximum discharge limits]” for all biologically impaired bodies of water within West Virginia, within 30 days.

OVEC filed the underlying action based upon the listing by the West Virginia Department of Environmental Protection (WVDEP) of 573 streams as “biologically impaired” under the WVDEP’s narrative water quality standards, one of which prohibits “materials in concentrations which are harmful…to man, animal, or aquatic life.” This list (known as a Clean Water Act “303(d) List”) was started in the late 1990s and includes streams that were added as recently as 2010, using a tool known as the “West Virginia Stream Condition Index.” Ordinarily, when a stream is listed on a 303(d) List as impaired, the relevant state agency develops a TMDL for that stream (which is a formula or method for limiting the concentration of pollutants flowing into the stream and thereby returning it to compliance).

In 2012, the West Virginia Legislature amended the West Virginia Water Pollution Control Act by directing the WVDEP to develop a new tool to assess the health of biological communities for purposes of determining compliance with the WVDEP’s biological water quality standard. Once that new methodology is finalized, an entirely new 303(d) List of biologically impaired streams will be developed, replacing the current one.  The WVDEP is still working on developing that tool.

Nevertheless, because these 573 streams have been listed as impaired, OVEC argued that the WVDEP is obligated to submit a proposed TMDL for each of those streams. In addition, since many of these streams have been on the 303(d) List for years and have not been the subject of a proposed TMDL, OVEC argued that the WVDEP’s inaction should be treated as a “constructive submission” of no TMDLs for any of those streams. In turn, OVEC asked that EPA be forced to evaluate whether the WVDEP’s implied decision not to develop a TMDL was lawful and proper. This is exactly the relief the district court granted.

The Clean Water Act does not require that the states submit TMDLs to EPA on any particular schedule. It only requires that they do so “from time to time,” according to a priority ranking established by each state agency.  Once a state submits a TMDL to EPA, the federal agency has 30 days to approve or disapprove of it.  If EPA disapproves of a proposed state TMDL, then EPA must develop its own TMDL for that stream within 30 days.

Faced with the prospect of potentially having to develop TMDLs for 573 streams while it appeals the district court’s adverse ruling, EPA asked Judge Chambers to stay his decision pending the outcome of EPA’s appeal to the U.S Court of Appeals for the Fourth Circuit. Finding that EPA had not shown “that it has any chance of success on appeal,” the court denied EPA’s request on May 2, 2017.  However, Judge Chambers did grant EPA limited alternative relief, by extending the deadline for EPA to act upon the 573 “no TMDLs” until 14 days after the appeals court rules on EPA’s request for a stay from that court.

On May 8, 2017, EPA filed its Stay motion with the Fourth Circuit.  In it, EPA argued that the district court’s February 14, 2017 ruling threatens to cause irreparable harm because EPA will incur millions of dollars in costs if it is forced to take over this part of the WVDEP’s TMDL program (which are funds that would be unrecoverable in the event EPA prevails on appeal). In addition, EPA noted that the district court’s ruling with respect to the purported “constructive submission” of no TMDLs seemed particularly inappropriate in these circumstances, as “West Virginia has a vigorous TMDL program.” According to EPA, the WVDEP has received approval for more than 4,000 TMDLs since 2004, and has submitted nearly 500 more proposed TMDLs for review by EPA since February 2016. Moreover, since the OVEC lawsuit was filed, the WVDEP has developed TMDLs for pollutants (other than ionic toxicity) for many of the 573 streams that are listed as biologically impaired on the WVDEP 303(d) List.

Regardless of whether a Stay is issued pending appeal, the outcome of this matter may have significant implications for the Clean Water Act programs in all of the states comprising the Fourth Circuit. A refusal of EPA’s Stay request would heighten the great concerns that already exist with respect to the potential massive disruption and uncertainty as to the administration of the Clean Water Act created by the district court’s underlying opinion.

Should you have questions regarding the OVEC TMDL case or other issues arising under the Clean Water Act and its state analogues, please contact Christopher B. (Kip) Power at 681-265-1362 or cpower@babstcalland.com, or any of our other environmental attorneys.

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PHMSA Issues Notice of Underground Natural Gas Storage Facility User Fees

Pipeline Safety Alert

On April 6, 2017, the Pipeline and Hazardous Materials Safety Administration (PHMSA) released a notice of agency action (Notice) announcing the rate structure for the underground natural gas storage facility user fee. In section 12 of the Protecting our Infrastructure of Pipelines and Enhancing Safety Act of 2016 (PIPES Act of 2016), Congress directed PHMSA to prescribe procedures to collect user fees for underground natural gas storage facilities. The fees will fund an $8 million Underground Natural Gas Storage Facility Safety Account.

In November 2016, PHMSA proposed a rate structure for these user fees and agreed to accept comments on the proposal until January 6, 2017. As discussed below, PHMSA responded to the comments filed in response to the Notice and made certain revisions to its user fee calculations.

Working Gas Capacity

PHMSA confirmed that working gas capacity, as defined by the Energy Information Administration (EIA) and used in the EIA Monthly Underground Natural Gas Storage Report, will be used as the basis for the user fee rate structure. PHMSA acknowledged that the number of wells is an appropriate basis for the rate structure, but stated that the agency currently lacks the data needed to support such a calculation. After the agency collects information on the number of wells, the user fee structure will likely be changed in the future. PHMSA also stated that it will combine the working gas capacity for all fields operated by each holder of a PHMSA-issued operator identification number (OPID). The agency stated that it is in the process of contacting storage operators to determine the correct OPID for each storage facility. If PHMSA is unable to determine the OPID, it will sum the working gas capacities by company name.

Inclusion of Inactive Wells

PHMSA noted that since EIA’s Monthly Storage Report includes inactive wells, which can possibly be returned to service, the agency will include inactive storage fields in its user fee calculations.

Revised Calculation

PHMSA revised the previously published user fee calculations. The agency had used the 2015 EIA data to support its proposed assessments. PHMSA used more current data in the Notice, resulting in an updated assessment table:

Tier      Assessment Per Operator           Working-Gas Capacity (Mcf) Range
1           $11,799                                          Less than 930,000.
2          $23,599                                        More than 930,000 and less than 3,000,000.
3          $29,499                                        More than 3,000,000 and less than 5,800,000.
4          $35,398                                        More than 5,800,000 and less than 11,000,000.
5          $47,198                                          11,000,000 or more and less than 13,700,000.
6          $58,997                                        More than 13,700,000 and less than 21,000,000.
7          $70,796                                        More than 21,000,000 and less than 32,100,000.
8          $76,696                                        More than 32,100,000 and less than 48,000,000.
9          $88,496                                        More than 47,000,000 and less than 91,500,000.
10         $147,493                                       More than 91,500,000.

In conjunction with the Notice, PHMSA also published a spreadsheet to provide a more detailed breakdown of the data supporting its user fee calculations.

If Congress appropriates funds to the Pipeline Safety Fund’s Underground Natural Gas Storage Facility Safety Account (Storage Fund), PHMSA will begin collecting these user fees this year. If Congress appropriates less than $8 million to the Storage Fund, PHMSA will have to reduce the assessment for each tier proportionally to collect only the appropriated amount.

In March, the State of Texas, the American Gas Association, and the Interstate Natural Gas Association of America filed separate lawsuits seeking review of PHMSA’s Underground Natural Gas Storage Interim Final Rule. This rule introduced federal regulations of underground natural gas storage facilities. It is not clear how these lawsuits will affect PHMSA’s ability to collect the user fees.

Please contact one of the members of our Pipeline and Hazmat Safety Team to obtain more information regarding underground natural gas storage facility user fees.

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Trump Executive Order Withdraws Obama Administration Actions on Climate Change and Requires Review of Regulations Affecting Energy Sector

Administrative Watch 

This is the second in a series of Administrative Watch alerts to assist in understanding the significant regulatory actions arising out of the Trump administration, and the effect of legal challenges to those actions by environmental groups.

On March 28, 2017, President Donald Trump signed an Executive Order entitled “Promoting Energy Independence and Economic Growth,” with the stated policy of “promot[ing] clean and safe development” of domestic energy resources and ensuring an affordable and reliable supply of electricity, while “avoiding regulatory burdens that unnecessarily encumber energy production, constrain economic growth, and prevent job creation.” Although the Executive Order does not itself withdraw any rules issued by the U.S. Environmental Protection Agency (EPA) or other agencies, it clearly reflects President Trump’s intent to drastically change course from the Obama administration’s stance on climate change and to seek reducing environmental regulation of, among other sources of greenhouse gases, coal-fired power plants and oil and natural gas operations.

This Executive Order revokes existing Executive Order 13653, signed by President Barack Obama on November 1, 2013, which expressly recognized the existence of and potential impacts from climate change and directed interagency efforts to prepare for such impacts. The Executive Order signed by President Trump also revokes and rescinds several presidential memoranda and executive reports, including but not limited to:

• The President’s Climate Action Plan (June 2013), which, among other things, identified Obama administration priorities and laid the groundwork for measures to reduce carbon dioxide emissions from power plants, reduce methane emissions from oil and gas operations and other industries, and increase investment in renewable energy sources; and
• Presidential Memorandum on Power Sector Carbon Pollution Standards (June 2013), which directed EPA to develop and publish proposed rules to establish carbon dioxide emissions standards for existing, new, modified and reconstructed power plants.

In addition to revoking these documents, the Executive Order also disbands the Interagency Working Group on the Social Cost of Greenhouse Gases (IWG) and withdraws a series of technical support documents released by the IWG. These technical support documents provided guidance to agencies on monetizing overall damage to human health, property, and agriculture specifically associated with incremental increases in carbon dioxide, nitrous oxide, and methane emissions as part of cost-benefit analyses used to justify new regulations.

Pursuant to the Executive Order, agency heads have 45 days to develop and submit to the Office of Management and Budget (OMB) a plan for reviewing all agency regulations, orders, guidance documents, policies or other actions that “potentially burden the development or use of domestically produced energy resources, with particular attention to the “siting, permitting, production, utilization, transmission, or delivery” of “oil, natural gas, coal, and nuclear energy resources.” By late July 2017, each agency must submit a draft final report to various executive officers to provide recommendations for eliminating what it may deem as burdens on domestic energy production, development, or use. Such recommendations are to be finalized within 180 days of the Executive Order, unless the deadline is extended by OMB.

Certain regulations previously promulgated by EPA, including the controversial Clean Power Plan, are subject to expedited review under the Executive Order. The Clean Power Plan rulemaking finalized in 2015 required the development and submittal of state plans to achieve state-by-state goals for reducing carbon dioxide emissions from existing power plants. A related rulemaking imposed carbon dioxide emission standards for new, modified and reconstructed power plants. In 2016, EPA finalized New Source Performance Standards (NSPS) for the oil and natural gas industry to reduce methane emissions and further implement President Obama’s Climate Action Plan. Under the Executive Order, the EPA Administrator is required to review these rules and any associated guidance or memoranda for consistency with the Order’s stated policies, and, “if appropriate, shall, as soon as practicable, suspend, revise, or rescind the guidance, or publish for notice and comment proposed rules suspending, revising or rescinding those [existing] rules.”

Although the Executive Order appears to pave the way for withdrawal or revision of the Clean Power Plan and other rules affecting the energy sector, the practical impact of the Executive Order remains to be seen. Many power generation facilities have already begun or otherwise completed a transition to alternative fuels carrying less stringent regulatory requirements as compared to coal. This transition continued notwithstanding the stay of the Clean Power Plan by the U.S. Supreme Court in early 2016, suggesting that the Executive Order may slow, but not necessarily halt such transformation. Likewise, many oil and gas operators have already implemented measures to comply with the 2016 NSPS rule. Any future efforts by President Trump to rescind or even revise Obama era rules will likely involve a lengthy process of formal notice and comment, as well as litigation that will inevitably be filed by states and/or environmental organizations seeking to block or otherwise prevent such agency actions from taking effect. Another consideration is that state regulations and programs regarding the energy industry and climate change are likely to continue notwithstanding the Executive Order.

Babst Calland will be tracking the impact of the Executive Order and subsequent actions taken by the Trump administration and state agencies with respect to the energy sector. If you have any questions regarding the Executive Order or environmental laws pertaining to climate change and the energy sector, please contact Michael H. Winek at (412) 394-6538 or mwinek@babstcalland.com, Varun Shekhar at (412) 394-5679 or vshekhar@babstcalland.com, or Meredith Odato Graham at (412) 773-8712 or mgraham@babstcalland.com.

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Early Moves in Trump Administration Reduce Regulation, Rouse Environmental Groups

Administrative Watch 

This is the first in a series of Administrative Watch alerts to assist in understanding the significant regulatory actions arising out of the Trump administration, and the effect of legal challenges to those actions by environmental groups.

The first 60 days of the Trump administration have seen a host of executive and congressional actions impacting environmental regulations and the energy sector. Industry has largely applauded these moves, but environmental groups have signaled that they intend to aggressively challenge these actions in court:

Executive Actions

• Regulatory Freeze Memo. On January 20, 2017, White House Chief of Staff, Reince Priebus, issued a memo to the heads of all departments and federal agencies imposing a temporary moratorium on most regulatory actions. The memo indicated that no new regulations should be sent to the Office of Federal Register (OFR) without the review and approval of the new administration; that any regulations awaiting publication by the OFR should be withdrawn; and that consideration should be given to postponing the effective date of any recently-published regulations for at least 60 days.

On January 24, 2017, the Acting Director of the Office of Management and Budget (OMB) issued guidance to agencies implementing the Regulatory Freeze memo. OMB directed executive agencies to promptly identify effective dates that need to be extended. OMB also discussed the types of rules that would likely meet the exceptions laid out in the Regulatory Freeze memo. Examples include those rules that would frustrate statutory or judicial deadlines such as the civil penalty adjustments required to be filed as a result of the Federal Civil Penalties Inflation Adjustment Act of 1990.

• Presidential Pipeline Memoranda. On January 24, 2017, President Donald J. Trump issued memoranda calling for the expedited review and approval of two pipeline projects that had been blocked or stalled during the previous administration, the Keystone XL Pipeline and Dakota Access Pipeline projects. The president also directed the Secretary of Commerce to develop a plan within 180 days for using materials and equipment produced in the United States in all new, repaired, or replaced pipelines, although the White House recently announced that the Keystone XL Pipeline would not be subject to the terms of that plan.

• 2-for-1 Executive Order. On January 30, 2017, President Trump issued an executive order for reducing regulation and controlling regulatory costs. The executive order generally requires federal agencies to identify two existing regulations that will be repealed for every new regulation proposed or otherwise promulgated and to comply with certain net cost limitations in establishing new rules. On February 2, 2017, OMB issued interim guidance clarifying that the provisions in the executive order only apply to significant regulatory actions.

• Executive Order Enforcing Regulatory Reform. On February 24, 2017, President Trump issued another executive order on enforcing regulatory reform. The executive order requires federal agencies to designate a Regulatory Reform Officer (RRO) to oversee the implementation of the president’s new regulatory reform initiatives and policies. The RRO will chair a Regulatory Reform Task Force charged with reviewing existing regulations and making recommendations for their repeal, replacement, or modification. An initial report of the Regulatory Reform Task Force must be issued by May 25, 2017.

Congressional Actions

The Congressional Review Act allows Congress to take expedited action to overrule regulations issued by federal agencies within 60 legislative days. Congress has begun to use that authority to pass joint resolutions of disapproval nullifying regulations finalized in the waning days of the Obama administration. On February 16, 2017, President Trump signed a resolution withdrawing the Department of Interior’s Stream Protection Rule, which would have imposed new limitations on coal mining operations. On February 3, the U.S. House of Representatives passed a joint resolution withdrawing a rule issued by the Bureau of Land Management that would have imposed restrictions on oil and gas development relating to venting and flaring methane emissions. The U.S. Senate has not yet voted on the joint resolution, which must still be passed before it can be signed into law by President Trump.

Environmental Non-Governmental Organization Response

Environmental groups have already instituted law suits to challenge the presidential orders and congressional actions. On February 8, Public Citizen, Inc., the Natural Resources Defense Council (NRDC), and other environmental groups filed a complaint for declaratory and injunctive relief in federal district court challenging the president’s executive order for reducing regulation. The NRDC has stated in recent media reports that they have seen a “huge spike” in donations since the election. Other environmental groups have acknowledged large increases in donations which are expected to fund litigation opposing easing of regulatory requirements. The Sierra Club has reported a 700 percent increase in funding in the first month of 2017, and Earthjustice recorded a 160 percent increase for the same period. The director of the Sierra Club predicted that its 50-member legal team is likely to grow as environmentalists increasingly regard the courts as their best option to block regulatory rollbacks.

Babst Calland plans to issue a series of Administrative Watch alerts to assist our clients and friends in understanding the significant regulatory actions arising out of the Trump administration, and the effect of legal challenges to those actions including citizen suits by environmental groups. State agencies, such as the Pennsylvania DEP, and local municipalities, may react to the change in the federal administration by modifying their rules and policies governing environmental matters. As such, in addition to reporting on decisions issued by federal courts and agencies, we will identify significant enforcement actions and regulations issued by state agencies, as well as ordinances issued by municipalities to restrict energy projects and commercial development.

If you have any questions regarding the regulatory developments or challenges described in this Administrative Watch, please contact Joseph K. Reinhart at (412) 394-5452 or jreinhart@babstcalland.com or Keith J. Coyle at (202) 853-3460 or kcoyle@babstcalland.com.

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Executive Order Aims to Roll Back Clean Water Rule

Administrative Watch

On February 28, 2017, President Donald Trump signed an executive order, Restoring the Rule of Law, Federalism, and Economic Growth by Reviewing the “Waters of the United States Rule” (the Order), directing his administration to withdraw and reconsider the Clean Water Rule (the Rule), 80 Fed. Reg. 37054 (June 29, 2015). The Order is the first step in following through with President Trump’s campaign pledge to eliminate the Rule, which he characterized as a “massive power grab,” and begins the lengthy process of rescinding or revising the Rule.

The Clean Water Rule sought to clarify the definition of “waters of the United States” (WOTUS) and the extent of federal authority to regulate these waters under the Clean Water Act (CWA) after years of differing interpretations. The Rule was widely regarded by industry as having expanded the extent of waters to be regulated under the CWA. As a result, the Rule was generally considered to broaden the jurisdictional reach of the United States Army Corps of Engineers (the Corps) and United States Environmental Protection Agency (the USEPA) with regard to issues such as permitting for wastewater discharges and dredge and fill activities in navigable waters. The Rule was challenged by numerous industry groups, as well as 31 state attorney generals, including Scott Pruitt, the newly-appointed Secretary of the USEPA. Amid questions as to whether the court of appeals or the federal district court is the appropriate forum to hear challenges to the Rule, the United States Supreme Court granted review of this jurisdictional issue in January 2017. The Rule has been stayed in light of these ongoing challenges.

The recent Order lays out the following policy: “It is in the national interest to ensure that the Nation’s navigable waters are kept free from pollution, while at the same time promoting economic growth, minimizing regulatory uncertainty, and showing due regard for the roles of Congress and the States under the Constitution.” The Order directs the USEPA and the Corps to review the “Clean Water Rule: Definition of ‘Waters of the United States,’” for consistency with this national policy and to publish a proposed rule rescinding or revising the Rule. USEPA Administrator Pruitt announced that the USEPA intends to immediately implement the Order and publish a notice of intent to review the Clean Water Rule in the Federal Register. An advance version of this notice has been posted to the USEPA’s webpage.

The Order also directs the USEPA and the Corps to consider interpreting the term “navigable waters” under the CWA in its rulemaking in a manner consistent with the opinion of Justice Scalia in Rapanos v. United States, 547 U.S. 715 (2006). Justice Scalia’s opinion in Rapanos endorsed a narrower interpretation of the term, limiting it to include only relatively permanent, standing or flowing bodies of water. Any revision or replacement of the Rule with a narrower definition of WOTUS will require the USEPA to undertake a lengthy rulemaking process, including public notice and comment, which almost certainly will be subject to numerous challenges.

Babst Calland attorneys will be monitoring the USEPA implementation of this Order and any further developments regarding the regulatory definition of “waters of the United States.” If you have any questions, please contact Lisa M. Bruderly at (412) 394-6495 or lbruderly@babstcalland.com, or Angela M. Kilbert at (412) 394-6498 or akilbert@babstcalland.com.

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Pennsylvania DEP Invites Public Comment on Controversial Air General Permits for Oil and Gas Industry

Administrative Watch
The Pennsylvania Department of Environmental Protection (DEP) has announced the beginning of a public comment period regarding two draft general permits that, if finalized, would result in significant changes to the air permitting regime for oil and gas industry sources. According to a notice published in the Pennsylvania Bulletin on February 4, 2017, DEP also proposes to revise the Air Quality Permit Exemptions document (DEP Doc. No. 275-2101-003) as it relates to oil and gas exploration, development, and production activities. The draft permits and proposed revisions to the exemption document present a number of timing, cost, and other implementation considerations for oil and gas operators.

The first draft permit is a revised version of the existing general plan approval/operating permit known as “GP-5” for compressor stations and processing facilities. The draft revised GP-5 would be available for natural gas compressor stations, processing plants, and, for the first time, transmission stations. It includes a number of conditions that would expand on existing obligations for midstream operators who are accustomed to dealing with GP-5. For example, the revised GP-5 includes specific requirements for the control of methane emissions from storage vessels and other sources.

The second draft permit, known as “GP-5A,” represents an even greater departure from the status quo, as it would require operators to obtain an air permit for “unconventional natural gas well site operations” and “remote pigging stations” for the first time. Production facilities are currently authorized pursuant to the air permitting exemption known as “Exemption 38” in DEP Doc. No. 275-2101-003. DEP treats oil and gas exploration, development, and production activities which fall under Exemption 38 as exempt from the obligation to obtain an air permit.

The Pennsylvania Bulletin notice indicates that DEP intends to divide Exemption 38 into two separate categories, Exemption 38a and Exemption 38b. Exemption 38a would be available only for conventional and unconventional natural gas well sites that were constructed or modified between August 10, 2013, and the effective date of the proposed amendment. Exemption 38b would be available only for conventional natural gas well sites constructed after the effective date of the proposed amendment.

The proposed changes present a critical timing issue for production facilities, in particular. Operators would be required to apply for and obtain approval from DEP to use GP5-A prior to beginning actual construction of a new or modified unconventional natural gas well site operation or remote pigging station. At a time when DEP is already challenged to approve GP-5 applications in a timely manner, the likely permitting delay associated with GP5-A may have a significant negative impact on day-to-day industry operations.

Public comments are due by March 22, 2017, unless DEP approves a request for an extension of the public comment period. Additional information regarding the comment process is available in the Pennsylvania Bulletin.

If you have questions regarding the proposed changes to the Pennsylvania air permitting program and the potential impact on your business, please contact Michael H. Winek at  (412) 394-6538 or mwinek@babstcalland.com, or Meredith Odato Graham at (412) 773-8712 or mgraham@babstcalland.com.

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As Obama Administration Draws to a Close, PHMSA Releases Final Rule for Hazardous Liquid Pipelines

Pipeline Safety Alert

On January 13, 2017, one week before the end of the Obama administration, the Pipeline and Hazardous Materials Safety Administration (PHMSA) released a final rule amending the federal safety standards for hazardous liquid pipelines in 49 C.F.R. Part 195 (Final Rule). The Final Rule is the latest step in a lengthy rulemaking process that began with the issuance of a wide-ranging request for public comment in October 2010, followed by the publication of a rulemaking proposal in October 2015 that contained a number of changes and additions to the Part 195 regulations. While still a significant regulatory action, PHMSA narrowed the Final Rule to address public comments, the recommendations of the Liquid Pipeline Advisory Committee (LPAC), and concerns raised by the Office of Management and Budget (OMB). PHMSA established a general effective date of six months from publication in the Federal Register, and various effective dates for specific changes to Part 195.

If previous transfers of presidential power serve as a guide, PHMSA’s decision to release the Final Rule in the last days of the Obama administration may not mark the end of the rulemaking process. To avoid the possibility of being returned to PHMSA for further review by the Trump administration, the Final Rule must be published in the Federal Register by January 20, 2017. Even if that deadline is met, the Trump administration could extend the effective date of the Final Rule, reopen the public comment period, or take other actions.

What’s Changing (For Now)?

In the Final Rule, PHMSA adopts the following changes to Part 195:

• Reporting Requirements for Gravity and Unregulated Gathering Lines. Operators of certain gravity lines and unregulated gathering lines must submit annual, accident, and safety-related condition reports to PHMSA. The accident and safety-related condition reporting requirements go into effect six months after the effective date of the Final Rule. The new annual reporting requirement goes into effect 12 months after the effective date of the Final Rule.

Exceptions are provided for low-stress gravity lines that do not extend more than one mile from a facility boundary and which do not cross a waterway used for commercial navigation; for certain gathering lines operated at low stress; and for certain offshore pipelines located in state waters or on the Outer Continental Shelf. The new requirements also impose less reporting for gravity or unregulated gathering line operators, exempting them from the requirements to provide immediate notice of certain accidents, submit information to the National Pipeline Mapping System, or provide safety data sheets after a pipeline release.

• 72-Hour Inspections After Certain Events. Operators must conduct inspections of pipelines in areas affected by extreme weather, natural disasters, and other similar events. These inspections must commence within 72 hours of the cessation of the event, unless the operator notifies PHMSA that the personnel or equipment necessary to perform the inspection are not available. Operators are required to select an appropriate method for performing the initial inspection in order to determine the extent of any damage and necessity for conducting additional follow-up inspections. Appropriate remedial actions must be taken based on the results of the inspection to ensure the safe continued operation of the pipeline.

• Non-IM Pipeline Assessments. Operators of onshore transmission lines that can accommodate inline inspection (ILI) tools and which are not already subject to the pipeline integrity management (IM) requirements must perform integrity assessments at least once every 10 calendar years. These non-IM integrity assessments must be conducted with ILI tools, unless operational limitations require the use of alternative methods or technologies. A qualified person must analyze the data obtained from an assessment to determine if a condition could adversely affect the safe operation of the pipeline, and that determination must be made within 180 days of discovery, unless an appropriate notification extending that deadline is provided to PHMSA. Any actionable conditions discovered as a result of non-IM integrity assessment must be remediated in accordance with the existing, general repair criteria, on a schedule that prioritizes risk to people, property, and the environment (PHMSA did not proceed with the more specific repair criteria proposed in 2015. See Repair Criteria discussion below).

• Leak Detection Systems. Except for offshore gathering lines and regulated onshore gathering lines, all pipelines must have an effective system for detecting leaks. Operators must conduct an evaluation that considers certain factors in determining whether a leak detection system is effective, including length and size of the pipeline, type of product carried, the swiftness of leak detection, location of nearest response personnel, and leak history. Operators of new pipelines must have an effective leak detection system in place within one year of the effective date of the final rule. Operators of existing pipelines must have an effective leak detection system in place within five years. PHMSA withdrew its proposal to require leak detection systems for offshore gathering and onshore regulated rural gathering lines.

• Repair Criteria. For pipelines subject to IM, PHMSA has established more stringent repair criteria for anomalous conditions and adopted a two-tiered remediation schedule consisting of immediate and 270-day repairs. Although not part of PHMSA’s 2015 proposal, the Final Rule includes provision that allows operators to perform engineering critical assessments to defer the remediation of crack or crack-like pipe defects, but not dents. For non-IM pipelines, PHMSA withdrew its proposals to establish more stringent repair criteria and remediation deadlines. Instead, PHMSA deferred to the existing, general repair criteria and added a new provision that requires remediation based on risk to people, property, and the environment.

• ILI Tool Accommodation for IM Pipe. All pipelines covered under the IM program must be made capable of accommodating ILI tools within 20 years, unless the basic construction of the pipeline will not accommodate the passage of an ILI tool, or the cost of complying with the requirement will lead to the abandonment of the line. Exceptions to the ILI tool accommodation requirement are provided for emergency situations and certain types of pipeline facilities, such as manifolds, station, tank farm, or storage piping, cross-overs, certain offshore piping, and other piping for which an ILI tool is not commercially available. Operators must petition the PHMSA Administrator for relief from the ILI accommodation mandate for situations involving emergencies, incompatible basic construction, or where the costs would necessitate abandonment.

• PIPES Act Mandates. As part of this Final Rule, PHMSA has codified two self-executing mandates from the Protecting our Infrastructure of Pipelines and Enhancing Safety Act of 2016. Pipelines must provide the designated Federal On-Scene Coordinator and appropriate state and local emergency responders with a safety data sheet for any spilled hazardous liquid within six hours of providing telephonic or electronic notice of an accident to the National Response Center. Operators of underwater hazardous liquid pipeline facilities that are not offshore and which are located in an high consequence area (HCA) at a depth greater than 150 feet under the surface of the water must conduct integrity assessments at least once every 12 months.

• Other Changes. PHMSA adopted other clarifying and substantive changes to the IM regulations, including new requirements for performing data integration and analysis, conducting annual verifications of HCA identifications of covered pipeline segments, and considering seismicity as a risk factor under the IM program.

What’s Next?

The Final Rule must be published in the Federal Register by January 20, 2017, to avoid the possibility of being returned to PHMSA by the Trump administration. Like prior administrations, it is expected that President-elect Donald Trump will issue a memorandum on Inauguration Day requiring that all final rules not yet published in the Federal Register be returned to the agency for further review. Even if the final rule is published in the Federal Register before January 20, the effective date could be extended. In their Inauguration Day memos, the George W. Bush and Obama administrations directed federal agencies to consider 60-day extensions for any published final rules that had not yet become effective. The Obama administration memo directed federal agencies to reopen the public comment period after extending the effective date of a final rule. It is unclear whether the Trump administration will take additional steps beyond those considered in past transfers of power.

An interested party may petition PHMSA for reconsideration of the Final Rule within 30 days of the Federal Register publication date. Any person adversely affected by the Final Rule may also file a petition for review in a U.S. Court of Appeals within 89 days of the Federal Register publication date.

Please contact one of the members of our Pipeline and HazMat Safety team to obtain more information about the
implications of PHMSA’s Part 195 final rule.

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Coming to a Stream Near You? Fourth Circuit Imposes Water Quality Standard Based on Conductivity

Administrative Watch

On January 4, 2017, the U.S. Court of Appeals for the Fourth Circuit issued a significant decision addressing the scope of obligations owed by a permittee under the Clean Water Act’s National Pollutant Discharge Elimination System (NPDES) program.  Ohio Valley Environ. Coalition v. Fola Coal Company, LLC  (Appeal No. 16-1024).  The case involves discharges from a surface coal mine in West Virginia, governed by a NPDES permit issued by the West Virginia Department of Environmental Protection (WVDEP) pursuant to its authority under an EPA-approved state permitting program.  Although some aspects of the ruling are based upon a regulatory provision that was formerly a part of coal-specific NPDES regulations, the principles approved by the court could be applied to virtually any NPDES permit held by any industrial discharger.

In upholding the district court’s January 27, 2015 decision, the Fourth Circuit panel agreed that a NPDES permittee may be required to meet limits on the conductivity of its effluent (i.e., the ability of water to transmit electricity, based on the number and types of ions) even when no specific conductivity limits are set forth in its permit.  It based this conclusion on general language in Fola’s permit, incorporating by reference a WVDEP regulation specifying that the discharges covered by a NPDES permit “are to be of such quality as not to cause a violation of applicable water quality standards.”  Included among West Virginia water quality standards is a narrative standard that prohibits any discharge of pollutants that “materially contributes” to “a significant adverse impact to the chemical, physical, hydrologic, or biologic components of aquatic ecosystems….” Though conductivity is a property rather than a pollutant, the court held that Fola’s high-conductivity discharges led to conditions that violate this narrative water quality standard and therefore violate its permit.

The district court based its ruling on an EPA-published study finding a strong connection between high conductivity in coal mine discharges in Central Appalachia and impaired aquatic life in receiving streams, referred to as the “Benchmark” report. (The EPA Benchmark indicates that at conductivity levels of 300 microSiemens per centimeter or greater, a Central Appalachia stream will be biologically impaired.)  The court also relied on numerous experts presented by the plaintiff groups who testified about site-specific studies that showed a loss of sensitive species in streams near the Fola mine.  Citing the “testimony, reports, charts, studies and exhibits from experienced scientists” presented by the plaintiffs, the appeals court commended the district court’s “long, remarkably thorough opinion” conveying its factual findings.

After taking the unusual step of asking both EPA and the WVDEP to weigh in on the issue through amicus briefs, the Fourth Circuit also summarily dismissed the argument that Fola was entitled to immunity from suit under the Clean Water Act’s so-called “permit shield” provision and a state law version of it.  Assuming a NPDES permittee accurately discloses the characteristics of its effluent in its permit application, the permit generally protects a permittee from an enforcement action if it has acted in compliance with the express terms of its permit.  Here, Fola was in compliance with the stated effluent limits set forth in its permit, which did not include a limit on conductivity. Nevertheless, interpreting the NPDES permit terms “as it would a contract,” the appeals court determined that the plain language of the regulatory prohibition against violating water quality standards applies to NPDES permittees independent of any express effluent limitation.  Since a permittee may only avail itself of the permit shield when it is in compliance with all terms of its permit, and Fola had contributed to a violation of the narrative water quality standards, the court agreed that Fola could not invoke the permit shield provisions.

Notably, EPA has never developed recommended water quality standards for conductivity, and the WVDEP has specifically declined to use conductivity as the primary or sole determinant of compliance with its narrative water quality standards.  Indeed, the WVDEP has published guidance showing that conductivity levels do not correlate to violations of its narrative water quality standards, using the same biological stream index relied upon by the district court. Despite that, the Fourth Circuit had no reluctance in affirming the district court’s opinion, concluding that the lower court made detailed factual findings “based on the evidence presented in this particular case” and had not impermissibly delved into the role of administrative rule-making.

Unless it is modified following en banc reconsideration or on appeal, the Fola opinion highlights the need for all NPDES permittees – even those merely seeking renewal or reissuance of existing permits – to review the terms and conditions of draft permits carefully so that inappropriate ‘incorporation by reference’ and other boilerplate provisions can be removed.  For existing permits, environmental managers must fully comprehend the implications of all cited regulations, including any water quality standard compliance requirements or other general duty provisions.  At least in the Fourth Circuit, avoiding a Clean Water Act citizen suit may now be a more difficult feat unless NPDES permittees more closely scrutinize the terms of their permits.

Should you have questions regarding the Fola decision or other issues under the Clean Water Act and its state analogues, please contact Christopher “Kip” Power at 681-265-1362 or cpower@babstcalland.com or any of our other environmental attorneys.

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Ohio Jury Awards $17.5M in Damages to Ohio Resident Who Alleged DuPont’s Disposal of C-8 Caused His Cancer

Administrative Watch
A jury in federal court in the Southern District of Ohio recently issued a verdict in the class action litigation related to DuPont’s release of perfluorooctanoic acid and/or ammonium perfluorooctanoate (C-8). The jury awarded Kenneth Vignernon a total of $17.5 million in compensatory and punitive damages after finding that DuPont acted with actual malice in discharging C-8, and that such action caused Plaintiff’s testicular cancer.

The recent verdict is the third to be reached in the lawsuits that have been filed against DuPont due to water allegedly contaminated with C-8, chemicals used by DuPont at its Washington Works plant located in West Virginia. Following the initiation of a class action lawsuit in 2001, DuPont and potential plaintiffs entered into an agreement in which independent epidemiologists (the “Science Panel”) would analyze blood samples of individuals residing near the plant to determine whether C-8 was harmful to humans (the “Agreement”). Under the terms of the Agreement, if the studies established a causal link between exposure to C-8 and any particular disease, DuPont agreed not to contest causation in any subsequent litigation involving that disease.

Between 2004 and 2011, the Science Panel studied approximately 40,000 samples obtained pursuant to the Agreement. In December of 2011, the Science Panel released its results, which concluded there was a probable link between exposure to C-8 and various diseases, including kidney and testicular cancer.

Following the release of the Science Panel’s study results, approximately 3,500 individual lawsuits were brought against DuPont by plaintiffs diagnosed with a linked disorder. In an effort to streamline the litigation, the District Court moved forward with six test cases, two of which ultimately went to trial. In March of 2016, a jury awarded Carla Bartlett $1.6 million in damages. Approximately four months later, a jury awarded David Freeman $5.6 million in compensatory and punitive damages. DuPont appealed Carla Bartlett’s verdict to the Sixth Circuit, arguing that under the terms of the Agreement, it agreed only to refrain from contesting general causation, not causation for a specific individual. Oral arguments were held on December 9, 2016; an opinion has not yet been issued. The Southern District for Ohio is currently scheduled to try 10 more cases between May and July of 2017.

Along with facing litigation from private citizens, DuPont has entered into several consent agreements and amendments with the Environmental Protection Agency (EPA). These agreements have set out settlement terms, assessed penalties against DuPont and set limitations for the amount of C-8 that could be present in water supplies affected by the releases. On January 9, 2017, the EPA announced an amendment to a consent order which set out those limitations, lowering the action level from 0.40 parts per billion (ppb) to 0.07 ppb. This reduction is based on site-specific data and a health advisory previously issued by the EPA establishing C-8 limits that were protective of human health. Additionally, the amendment expands the geographic area around the Washington Works Plant where water supplies must be investigated for possible impacts from the releases.

Babst Calland attorneys will continue to monitor the DuPont litigation and EPA actions. If you have any questions please contact Don Bluedorn at 412-394-5450 or dbluedorn@babstcalland.com or Kathy Condo at 412-394-5453 or kcondo@babstcalland.com or any of our other environmental attorneys.

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