Administrative Watch
On May 27, 2015, the United States Environmental Protection Agency (EPA) and the United States Army Corps of Engineers (Corps) released the long-awaited final rule redefining the extent of the agencies’ jurisdiction over “waters of the United States” (WOTUS) under the Clean Water Act. The Final Rule, known as the “Clean Water Rule,” abruptly changes (i.e., within 60 days of publication in the Federal Register) the types of waters that will be regulated under numerous federal programs, including NPDES permitting, wetland and watercourse (i.e., dredge and fill) permitting, spill response planning, and spill reporting. The Final Rule will affect all types of industries, real estate development, construction activities, and other entities by increasing the types and extent of waters that will be regulated under the Clean Water Act and introducing a new analysis for evaluating whether a water is jurisdictional.
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Administrative Watch
On April 17, 2015, the U.S. Environmental Protection Agency published the Hazardous and Solid Waste Management System; Disposal of Coal Combustion Residuals from Electric Utilities; Final Rule (Final Rule) in the Federal Register (see 80 Fed. Reg. 21302, April 17, 2015). The electric utility industry has been awaiting this rule to be published since the pre-publication copy was made publicly available on December 19, 2014. The Final Rule establishes minimum criteria for the placement of coal combustion residuals (CCR) in landfills and surface impoundments. The Final Rule applies to CCR generated by coal-fired power plants.
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Administrative Watch
On August 3, 2015, the United States Environmental Protection Agency (EPA) released its highly anticipated final Clean Power Plan regulating carbon dioxide emissions from existing power plants. The Clean Power Plan makes several changes to EPA’s initial proposal that was published in June 2014. Implementation of the Clean Power Plan will significantly alter the landscape of power generation in the United States, and could seriously affect power plants and the energy industry.
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Administrative Watch
In a highly-anticipated decision, the U.S. District Court for the Middle District of Pennsylvania has granted a motion for summary judgment in favor of a Pennsylvania natural gas operator in an air aggregation case filed by a citizen group. The decision was issued on February 23, 2015 in Citizens for Pennsylvania’s Future v. Ultra Resources, Inc., and is the latest development in the debate over single source determinations. The Court found in favor of the operator, agreeing with the permitting decision made by the Pennsylvania Department of Environmental Protection (DEP) that the compressor stations at issue were not located on adjacent properties. The Court disagreed with the Citizens for Pennsylvania’s Future’s (PennFuture) arguments that the compressor stations were interrelated and, therefore, should be aggregated as a single source. While the Court left some room for the consideration of functional relationships in making single source determinations, such a determination would need to have unique facts that are outside the normal oil and gas configurations contemplated by DEP.
In 2011, PennFuture filed suit in federal district court against Ultra Resources, Inc. (Ultra), alleging that Ultra violated the nonattainment new source review (NSR) air permitting requirements by constructing a major source of nitrogen oxides (NOx) without the appropriate NSR permit. PennFuture contended that Ultra’s construction of eight compressor stations in Tioga and Potter counties without obtaining the appropriate NSR permit violated the Clean Air Act, despite the fact that Ultra obtained separate authorizations to use the General Plan Approval/General Operating Permit known as “GP-5” from DEP for each of its compressor stations. PennFuture viewed the compressor stations as functionally interrelated, operating in concert with a metering station as a single facility with potential NOx emissions exceeding the major source threshold of 100 tons per year, thus subjecting Ultra to heightened permitting requirements.
Ultra filed a motion for summary judgment in February 2014, arguing that the compressor stations did not meet the regulatory definition of a single facility. In relevant part, the definition requires that the sources be “located on one or more contiguous or adjacent properties” in order to aggregate them into a single facility. The central issue in the case was whether Ultra’s sources are located on “adjacent” properties, a term not defined in applicable regulations. Ultra argued that the plain meaning of the term (i.e., physical and geographical proximity) is the controlling definition. PennFuture insisted that the definition of “adjacent” includes consideration of operational and functional interrelatedness or interdependence.
In granting Ultra’s motion for summary judgment, the Court concluded that there was no triable issue of fact under either theory of “adjacent” put forth by the parties. PennFuture and Ultra had stipulated to the locations of the compressor stations and the distances separating them. The Court noted that in order for NOx emissions to exceed 100 tons per year, emissions from two compressor stations located 4.43 miles apart and two others located 3.09 miles apart would need to be added together. According to the Court, these stations were not “sufficiently close to, or near enough, each other to be considered adjacent.” With respect to interdependence, the Court found no record facts suggesting that Ultra’s facilities were different from normal oil and gas configurations. The Court concluded that functional interrelatedness is not established “solely because independently functioning compressors ultimately deposit gas from the individual wells each separately services into a common pipeline for transmission in the market.” Thus, on the specific facts of this case, the Court found that the compressor stations were not functionally interrelated.
The Court relied extensively on DEP’s “Guidance for Performing Single Stationary Source Determinations for Oil and Gas Industries” and precedent established by the U.S. Court of Appeals for the Sixth Circuit in Summit Petroleum Corp. v. USEPA (6th Cir. Aug 7, 2012), a case which condemned the U.S. Environmental Protection Agency’s use of a functional interrelationship test in making single source determinations. Indeed, the Court agreed with the Sixth Circuit in so far as “the plain meaning of ‘contiguous’ and ‘adjacent’ should control a determination of whether two or more facilities should be aggregated,” but explicitly “decline[d] to hold that functional interrelatedness can never lead to, or contribute to, a finding of contiguousness or adjacency.” Accordingly, the Court emphasized the permissibility of considering interrelatedness or interdependence on a case-by-case basis under DEP’s existing guidance. At the same time, however, the Court cautioned that “to look beyond the plain meaning of the terms ‘contiguous’ and ‘adjacent’ when conducting a case-by-case determination, the case should present a unique factual scenario . . . [which is] unusual or outside of the normal oil and gas configurations and arrangements contemplated by [DEP].”
The aggregation of oil and natural gas sources continues to be a controversial issue that is critical to the proper air permitting of oil and gas production and midstream operations. The debate over this issue is likely to continue to impact air permitting for the oil and gas industry. If you have questions regarding this case and/or would like to discuss single source determinations in general, 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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Administrative Watch
On February 17, 2015, the Pennsylvania Supreme Court issued Harrison v. Cabot Oil & Gas Corp., a significant opinion in which the Court refused to apply equitable tolling principles that other oil and gas jurisdictions have adopted. Such principles prevent oil and gas leases from expiring during the pendency of lease litigation.
The lessors in this case filed a declaratory judgment action and a fraudulent inducement claim in federal court challenging the validity of their lease, which was two years into its primary term. Out of an abundance of caution, the operator refrained from all operations during the pendency of the litigation. It then asserted a counterclaim seeking to equitably toll the lease in the event it prevailed. Though the operator successfully defeated the lessors’ claims, the District Court denied its equitable tolling claim. As a result, the lease expired while the case was being litigated.
The operator appealed to the Third Circuit, which certified the case to the Pennsylvania Supreme Court on the grounds that it was an issue “of first impression and of significant public importance, given that its resolution may affect a large number of oil-and-gas leases in Pennsylvania.”
In a unanimous decision, the Pennsylvania Supreme Court upheld the District Court’s decision not to toll the lease. In so ruling, the Court noted that its decision went against other jurisdictions that have decided this issue. The Court also noted that the operator should have addressed the issue in its lease by adding a tolling provision. The Court also held that the result may have been different if the lessors had prevented the operator from entering the property to conduct operations.
The case is significant in several respects. First, it opens the door for lessors to try to “run out the clock” on leases by filing frivolous lease litigation. Second, it imposes on operators the obligation and risk to continue operations even in the face of suits challenging the validity of their leases. Third, if a lessor files suit to challenge a lease’s validity, and simultaneously denies the operator the right to conduct operations, the operator must now consider filing for equitable relief through an injunction before seeking to toll the lease term. Lastly, it essentially requires operators to add tolling provisions to their new leases.
If you would like additional information about this important development, please contact Steven B. Silverman at (412) 253-8818 or ssilverman@babstcalland.com, or Stephen A. Antonelli at (412) 394-5668 or santonelli@babstcalland.com.
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Administrative Watch
The Ohio Supreme Court rendered a decision on February 17, 2015, in a closelywatched case on the extent to which local governments may regulate oil and gas drilling and production operations, State, ex rel. Morrison v. City of Munroe Falls, 2015-Ohio-485. At issue was whether Beck Energy Corporation, having obtained a drilling permit from the Ohio Division of Oil and Gas Resources Management, must also comply with ordinances of the City of Munroe Falls in Summit County, Ohio, that required a well driller to obtain a drilling permit from the City, post a performance bond, and go through the process of obtaining a conditional zoning certificate for the well. The certificate may issue only upon demonstration of compliance with the permitting and bonding requirements and only upon approval of City council and several City agencies. The Court, voting four to three, held that the state oil and gas regulatory program preempted the City’s permitting, bonding, and conditional use ordinances imposed upon oil and gas operations, and Beck Energy is therefore not subject to those ordinances. The City’s ordinances addressing the use of City streets, however, were not preempted, and Beck Energy is subject to those ordinances insofar as those ordinances are indiscriminately and fairly applied to oil and gas activities.
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Administrative Watch
The U.S. Environmental Protection Agency (EPA) recently revised its rules governing the recycling of spent materials, listed hazardous sludge and listed by-products associated with the Resource Conservation and Recovery Act (RCRA) definition of solid waste (DSW). See 80 Fed. Reg. 1693-1814 (Jan. 13, 2015). The revised rules now require generators of recyclable hazardous secondary materials (HSM) to send these materials to RCRA permitted treatment, storage and disposal facilities or to approved “verified recyclers.” In addition, generators of any hazardous materials that are destined for recycling will now be required to: (1) comply with new rigorous recordkeeping requirements designed to prevent the speculative accumulation of recyclable materials; and (2) demonstrate that the recycling of the material is legitimate. EPA also formalized its long-standing policy prohibiting sham recycling and introduced a requirement that HSM must be “contained” in order to prevent releases of the material during storage. Further, generators of and facilities that store or recycle HSM will be required to comply with new notification and emergency preparedness and response requirements.
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Administrative Watch
On November 25, 2014, the U.S. Environmental Protection Agency (EPA) signed a proposed rule to promulgate more stringent primary and secondary National Ambient Air Quality Standards (NAAQS) for ozone. The proposed rule would limit air ozone concentrations to between 65 and 70 parts per billion (ppb), down from the current 75 ppb human health-based primary NAAQS standard that was enacted in 2008. The proposal would also tighten the environmental effects-based secondary NAAQS standard to between 13 and 17 parts per million-hours (ppm-hrs) under the W126 index, which determines a three-year average daily ozone concentration during a three-month summer time period.
These revisions to the ozone NAAQS were released by EPA following an order by a federal district court to propose revised standards by December 1, 2014. The order was issued pursuant to a lawsuit brought by several environmental groups after EPA withdrew a proposal to lower the ozone NAAQS to between 60 and 70 ppb in 2011, which was estimated to impose compliance costs of up to $90 billion.
To attain the ozone standards under the current proposal, many states and local jurisdictions will ultimately be required to implement significantly stricter limits on nitrogen oxides (NOx) and volatile organic compound (VOC) emissions from industrial sources, which are precursors of ground-level ozone formation. As a result, many industrial facilities will likely be required to implement alternative work practices or install control equipment to comply with emissions limitations. EPA projects that enactment of these lowered ozone standards would cumulatively cost between $4.7 billion for the 70 ppb standard and $16.6 billion for the 65 ppb standard by 2025.
EPA will hold three public hearings on the proposal in January 2015 and will accept public comments until 90 days after the proposal is published in the Federal Register.
If you own or operate a major stationary source of NOx or VOC emissions, or both, your facility is likely to be affected by this rulemaking. For additional information regarding the proposed revisions to the ozone NAAQS or possible compliance measures, please contact Michael H. Winek at (412) 394-6538 or mwinek@babstcalland.com or Varun Shekhar at (412) 394-5679 or vshekhar@babstcalland.com.
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Administrative Watch
On December 19, 2014, the U.S. Environmental Protection Agency (EPA) issued an advance notice of a final rulemaking that will regulate coal combustion residuals (CCR) as solid waste under Subtitle D of the Resource Conservation and Recovery Act (RCRA). The rulemaking will apply to CCR generated by coal-fired power plants.
Although CCR will not be regulated as hazardous waste under Subtitle C of RCRA, the rulemaking does provide a number of requirements related to CCR disposal. The rulemaking will establish minimum criteria for the placement of CCR in landfills and surface impoundments; however, the rulemaking will not impact CCR disposed in coal mines. According to the EPA, the U.S. Department of the Interior will address the placement of CCR in minefills as a separate regulatory action.
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Administrative Watch
On October 1, 2014, the West Virginia Department of Environmental Protection (WVDEP) conducted an unusual day-long “Stakeholders” meeting at the Charleston Civic Center to discuss the agency’s pending regulations implementing the Aboveground Storage Tank (AST) Act, W.Va. Code § 22-30-1, et seq., enacted earlier this year in the wake of the Freedom Industries’ release into the Elk River on January 9, 2014. Approximately 70 people were in attendance, including industry representatives, trade group leaders, media, public interest group representatives, consultants, attorneys and others. Nearly 20 WVDEP staff participated. The Stakeholders were divided into three groups, with WVDEP staff presenting a series of three rotating workshop/listening sessions on different sections of the draft Emergency Rule.
Generally, there are substantial concerns with the WVDEP’s approach of adopting much of the Underground Storage Tank regulations and making them applicable to ASTs, without adequately considering the relative risks and number of affected facilities that will have to comply with the new rules. Although it is believed that most covered ASTs associated with oil and gas production will fall within the “Level 2” tank classification that is intended to be less stringent than Level 1, the draft rule imposes numerous performance standards, recordkeeping, and reporting obligations on owners of Level 2 ASTs that would still require considerable management attention and effort. Oil and gas tanks classified as Level 1 will be subject to the most detailed and demanding requirements. As of September 30, 2014, WVDEP representatives indicated that more than 45,000 tanks have been registered using the agency’s on-line registration system, and estimated that less than six percent of those fall within the Level 1 category.
The WVDEP plans to take comments on the draft Emergency Rule until October 24, 2014, after which the agency will revise and formally file it as a proposed Emergency Rule, with a final version likely to take effect in early 2015. At the same time, the proposed regulations will be filed as a proposed Legislative Rule to be considered by the West Virginia Legislature when it convenes on January 15, 2015. That will open a new comment period on the proposed rule, and the legislative committees that consider it may also hold hearings on it. (In West Virginia, all regulations other than interpretive or procedural rules must be approved by the Legislature.)
Comments will be accepted on a separate, draft Interpretive Rule (47 CSR 62), addressing Initial Inspection, Certification and Spill Response Plan requirements until October 9, 2014. It addresses some of the immediate concerns with the large majority of tanks that are believed to fall within the Level 2 category, minimizing the first inspection and response plan requirements that must be satisfied in 2014, before other rules can become effective.
If you have any questions or concerns about the WVDEP’s proposed regulation, or the AST Act, please contact Christopher (Kip) Power at (681) 265-1362 or cpower@babstcalland.com, Anne C. Blankenship at (681) 205-8955 or ablankenship@babstcalland.com, or Robert M. Stonestreet at (681) 265-1364 or rstonestreet@babstcalland.com.
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Administrative Watch
On October 22, 2014, Pennsylvania Governor Tom Corbett signed House Bill 402 into law, also known as the Recording of Surrender Documents from Oil and Natural Gas Lease Act (the “Act”). The Act imposes a duty on a lessee to deliver a surrender document to a lessor within 30 days of the termination, expiration or cancellation of an oil and gas lease.
Under the Act, if a lessee fails to timely provide the surrender document to a lessor, the Act sets forth a procedural process by which a lessor may serve notice on a lessee. The lessor’s notice should contain the following statements: (i) the lease has terminated, expired or been canceled, (ii) the lessor has failed to receive a timely surrender document from the lessee, and (iii) the lessor has the right to record an affidavit of termination, expiration or cancellation of an oil or natural gas lease. Additionally, the notice shall include leasehold information, such as the name or description of a corresponding unit, if any, and the name or number of a well drilled under the lease, if any. The lessee has 30 days from the date of receiving notice to deliver a written challenge to the lessor. A lessor who has served notice and has failed to receive a timely challenge from the lessee may then record an affidavit of termination, expiration or cancellation. The Act does not apply when the parties have expressed their intent to renew the lease or to negotiate a new lease in writing. The Act shall take effect on December 22, 2014.
According to a memorandum on the Pennsylvania General Assembly’s website, the purpose of the Act was to create a process for the lessor to obtain a release for an expired oil and gas lease that may not be renewed under the terms of the lease, so that the lessor may then enter into a new lease with another operator in an effort to advance the development of the oil and gas under the lessor’s property. However, the Act does not define the terms “terminated, expired or cancelled.” The application of the Act may result in an ambiguity as to whether a lessee would be required under the Act to surrender a lease where the primary term has expired, but where the lessee has maintained the force and effect of the lease under the terms of the habendum clause, often through the production of oil or gas. Accordingly, although the goal of the Act is to clarify the record as to which lease remains in force and to help the lessor obtain a release of the lease that has indeed expired, the provisions of the Act are ambiguous and subject to interpretation.
Typically, oil and gas leases contain both a primary term and a secondary term. The primary term is of a fixed duration, typically anywhere between three and five years. The habendum clause of an oil and gas lease sets forth the conditions that must be met to extend the lease from its primary term into its secondary term. Under most modern leases, the drilling of a well or the production of oil and gas on the leasehold, or lands pooled or unitized therewith, will trigger the commencement of the secondary term, and the lease will remain in force and effect so long as production continues. Accordingly, although the fixed duration of the primary term of a lease may have expired, the lease would remain in force and effect due to continued production.
As the terms “termination, expiration or cancellation” were not defined in the Act, it is unclear whether a lessee would have a duty to issue a surrender document when the primary term expired, regardless of whether the secondary term of the lease remains in full force and effect. Accordingly, the application of this Act will likely lead to an increased volume of disputes over the validity of leases.
Additionally, the Act does not express the intended effect that the lessor’s filing of the affidavit of termination, expiration or cancellation will have on the leasehold title. Neighboring states, including Ohio and West Virginia, have statutory lease forfeiture procedures regarding leases that have expired and are not held by production, which expressly provide that upon following procedural steps to notify the lessee that the lease has terminated pursuant to provisions therein, that the lease is deemed cancelled of record. The Pennsylvania Act does not address the effect of filing the affidavit and whether it was intended to operate as a cancellation of the lease. Although the Act does not express the effect of filing the affidavit, under 21 P.S. § 451, an affidavit may serve as admissible evidence of the facts stated therein. However, an affidavit is subject to challenge on the basis of the knowledge or reliability of the affiant.
If challenged, it is unknown how a court would apply the Act and how an affidavit of termination, expiration or cancellation, if recorded, would affect the leasehold title.
If you have any questions regarding the applicability of the Act to your leases or require assistance in challenging a notice or affidavit adverse to your lease, please contact Matthew L. Lambach at 412-253-8825 or mlambach@babstcalland.com or Christopher J. Hall at 412-253-8820 or chall@babstcalland.com.
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Administrative Watch
The West Virginia Department of Environmental Protection (WVDEP) has released a draft “Interpretative Rule” to implement certain inspection, certification, and spill prevention – response plan provisions of the Aboveground Storage Tank Act (AST Act) enacted earlier this year. The AST Act requires that all qualifying aboveground tanks (generally those with a capacity of 1,320 gallons or more) be inspected and certified as suitable for use by January 1, 2015. Owners of such tanks must also submit a “Spill Prevention Response Plan” to WVDEP by December 3, 2014.
The proposed rule creates three categories of tanks. Level 1 tanks are those that WVDEP believes “have the potential for high risk of harm to public health or the environment[.]” Level 1 includes tanks that are: (1) in a “zone of critical concern” (close to a public water supply intake on a stream) or near a water well or spring that supplies public water; (2) contain “hazardous substances” as defined by the federal Comprehensive Environmental Response, Compensation and Liability Act (also known as the “Superfund” law); or (3) have a capacity of 50,000 gallons or more. Level 3 tanks are those that WVDEP determines to have a low risk of harm to the public’s health or environment because of their contents or location, or their coverage under another “strict” regulatory program. All tanks subject to the AST Act, not designated as either Level 1 or Level 3, will be considered Level 2 tanks (as well as other tanks specifically designated as Level 2 by the WVDEP).
Under the proposed Interpretive Rule, each tank category has different requirements for the initial inspection and certification that must be completed by January 1, 2015. Level 1 tanks must be inspected and certified by at least one of the following persons: (1) a professional engineer; (2) someone working under the direct supervision of a professional engineer; or (3) a person certified to perform tank inspections by the American Petroleum Institute or Steel Tank Institute. Level 2 and Level 3 tanks may be inspected and certified by the owner or operator of the tank, or a person designated by the tank owner or operator. Regardless of tank level category, the inspections must be conducted “in accordance with the industry standard appropriate to the tank or tank facility” and meet other minimum inspection requirements established by the rule. The proposed rule incorporates by reference inspection standards adopted by 11 different industry groups, including the American National Standards Institute (ANSI) and the National Fire Protection Association.
The contents of the Spill Prevention Response Plan that must be submitted to WVDEP by December 4, 2014 also vary by tank category. Level 1 tanks require a site specific plan that conforms to the requirements set forth in Appendix C of the proposed rule and the AST Act.
If a Level 2 tank is already governed by certain other permits issued by WVDEP that require a Groundwater Protection Plan (e.g. mining permits, water discharge permits, oil and gas permits, and others), the tank owner or operator may submit the Groundwater Protection Plan to WVDEP in lieu of a separate Spill Prevention Response Plan. WVDEP may, however, require submission of additional information to ensure such plans comply with the AST Act. Similarly, the owner or operator of a Level 2 tank already is required to maintain a spill prevention plan under certain West Virginia or federal laws (also known as SPCC plans). The owner or operator may submit a SPCC plan in lieu of a site specific Spill Prevention Response Plan if the plan meets certain requirements of the proposed rule.
For any Level 3 tank required to have an Emergency Response Plan pursuant to the federal Bioterrorism Act of 2002, that plan may be submitted in lieu of a site-specific Spill Prevention Response Plan.
The proposed Interpretive Rule addresses only the initial inspection and certification requirements; it does not address subsequent tank inspections or certifications. However, based on recent public statements by WVDEP Secretary Randy Huffman, the emergency and proposed legislative rules that the WVDEP will issue later this year will likely contain very similar if not identical provisions. Likewise, the WVDEP’s draft Interpretive Rule does not address whether tanks statutorily exempted from the permit requirement must nevertheless comply with all the performance standards established by the AST Act.
During a recent presentation at a West Virginia Chamber of Commerce event, WVDEP Director of the Division of Water and Waste Management, Scott Mandirola, indicated that the agency was considering a proposed rule that would require tank inspections and certifications every three to five years after the initial inspection depending on the tank level classification. Director Mandirola also remarked that WVDEP may propose a rule to exempt from the performance standards tanks not required to obtain a permit under the AST Act.
WVDEP will accept public comments on the proposed Interpretative Rule for the next 30 days culminating with a public hearing on October 9, 2014 at 6:30 p.m. at WVDEP’s headquarters in Kanawha City.
If you have any questions or concerns about the WVDEP’s proposed regulation, or the AST Act, please contact Robert M. Stonestreet at (681) 205-8888 or rstonestreet@babstcalland.com, or Christopher B. Power at (681) 205-8888 or cpower@babstcalland.com.
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Administrative Watch
In a highly anticipated decision issued June 23, 2014, the U.S. Supreme Court held that USEPA cannot require a stationary source to obtain a Prevention of Significant Deterioration (PSD) or Title V permit on the sole basis of its potential to emit greenhouse gas emissions. At the same time, however, the Court also held that USEPA may require a stationary source to implement best available control technology (BACT) for greenhouse gases if it already triggers PSD permitting anyway, based on its potential to emit conventional pollutants (known as “Anyway Sources”). Utility Air Regulatory Group (UARG) v. USEPA, U.S., No. 12-1146. The overall decision means that some stationary sources will no longer be subject to greenhouse gas permitting requirements. However, questions remain regarding the implementation of this decision by USEPA and state permitting authorities.
This ruling stems from the Supreme Court’s 2007 decision in Massachusetts v. USEPA, which held that USEPA was authorized to regulate greenhouse gas emissions from mobile sources if it made a necessary finding regarding such emissions and their contribution to endangerment of public health or welfare. Subsequently, USEPA indeed made the necessary endangerment finding and thereafter promulgated greenhouse gas emission standards for mobile sources. Importantly for stationary sources, USEPA also took the position that once greenhouse gases became regulated under any part of the Clean Air Act (the Act), namely the part regarding mobile sources, then stationary sources of greenhouse gas emissions could trigger the PSD and Title V permitting requirements of the Act. According to USEPA, PSD and Title V permitting would apply to stationary sources with the potential to emit greenhouse gases in excess of the following statutory thresholds: 100 tons per year (TPY) under Title V, and 100 or 250 TPY under the PSD program (depending on the type of source). Because greenhouse gas emissions tend to be much greater than conventional pollutant emissions on which the statutory thresholds are based, USEPA issued regulations to “tailor” the PSD program and Title V triggering thresholds with respect to greenhouse gases. Under the so-called Tailoring Rule, for example, a new stationary source would trigger PSD if it had the potential to emit at least 100,000 TPY of greenhouse gases. Additionally, USEPA required Anyway Sources to comply with BACT for greenhouse gases if they emitted at least 75,000 TPY of greenhouse gases. Numerous parties, including several states, challenged USEPA’s actions as exceeding the scope of the agency’s authority under the Act.
In UARG, the Supreme Court reviewed USEPA’s determinations that: (1) a stationary source may trigger PSD and Title V permitting based solely on its greenhouse gas emissions; and (2) an Anyway Source is required to employ BACT for greenhouse gases. As to the first determination, the Supreme Court held that the Act neither compels nor permits USEPA to require a PSD or Title V permit based solely on greenhouse gas emissions. According to the Court, it was unreasonable for USEPA to presume that an “air pollutant” for one section of the Act, regarding mobile sources, is automatically a regulated “air pollutant” for another section of the Act, i.e., Title V and PSD. The Court observed that applying the PSD and Title V permitting requirements to greenhouse gases would be inconsistent with the structure and design of the Act and would result in an exponential increase in permit applications and administrative costs, as well as decade-long delays for permit approval. The Court also held that USEPA lacked authority to “tailor” by regulation the unambiguous statutory thresholds of 100 or 250 TPY.
Although the Court found that USEPA had exceeded its authority with regard to PSD and Title V applicability, the Court upheld USEPA’s second determination that Anyway Sources must comply with BACT for greenhouse gases. The Court reasoned that the specific phrasing of the BACT provisions, which requires BACT “for each pollutant subject to regulation under” the Act, does not suggest that the provision can bear a narrowing construction, and therefore supported USEPA’s statutory interpretation.
While this ruling certainly suggests that stationary sources need not worry about triggering PSD for greenhouses gases absent triggering PSD for another pollutant, things may be different in practice. States tend to be the implementing authority for PSD permits. States may have adopted their own rules and had the rules approved by USEPA as part of the State Implementation Plan (SIP). It remains to be seen whether states will be willing to immediately implement the Supreme Court’s ruling or if they will first require regulatory changes including possibly a revision to the SIP. It is also unclear how states will address PSD permits that have already been issued for greenhouse gases. Finally, the Court’s decision left unclear the appropriate de minimis level for greenhouse gases to be applied in assessing BACT applicability for Anyway Sources. Subsequent action by USEPA on this issue is likely.
To determine what impact, if any, this ruling may have on your facility, or to obtain assistance with other greenhouse gas and air permitting issues, please contact Michael H. Winek at 412-394-6538 or mwinek@babstcalland.com, Meredith Odato Graham at 412-773-8712 or mgraham@babstcalland.com, or Matthew L. Lambach at 412-253-8825 or mlambach@babstcalland.com.
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Administrative Watch
Last week, the Pennsylvania Commonwealth Court issued an opinion invalidating additional sections of Act 13 of 2012, Pennsylvania’s comprehensive overhaul of the former Oil and Gas Act. The cumulative effect of this ruling, combined with the Pennsylvania Supreme Court’s previous landmark decision in December 2013, is that all of Chapter 33 of Act 13 has been declared invalid, with the exception of the definitions section (Section 3301) and most of the updated version of the former Oil and Gas Act preemption provision (Section 3302). Local zoning matters relating to oil and gas will “now be determined by the procedures set forth under the [Municipalities Planning Code (MPC)] and challenges to local ordinances that carry out a municipality’s constitutional environmental obligations,” and the Commonwealth Court and the Pennsylvania Public Utility Commission (PUC) no longer have the authority to review local ordinances for compliance with Act 13 and to withhold well fees where ordinance defects are found. On the other hand, the Commonwealth Court rejected challenges to Act 13’s provisions regarding disclosure of spills, the identity and amount of hydraulic fracturing additives and the exercise of eminent domain for gas storage purposes.
The Remand
In its December 2013 opinion, the Pennsylvania Supreme Court invalidated two key provisions of Act 13 addressing the uniformity of and limitations on municipal ordinances, specifically Section 3303, regarding consistency with environmental acts, and Section 3304, which identified multiple ways in which municipal ordinances had to provide for the “reasonable development of oil and gas resources.” In addition, the Supreme Court remanded a number of issues to the Commonwealth Court for further consideration. The issues addressed by the new Commonwealth Court opinion were: (1) whether Section 3302 and Sections 3305 through 3309 of Act 13 were so intertwined with Section 3303 and Section 3304 that they were not “severable” and therefore also had to be invalidated; (2) whether notice by the Pennsylvania Department of Environmental Protection (DEP) to only owners of public drinking water systems following a drilling-related spill, but not of private water supplies, was unconstitutional (Section 3218.1); (3) whether prohibiting disclosure of the identity and amount of hydraulic fracturing additives claimed to be proprietary information was unconstitutional (Section 3222.1(b)(10) and (11)); and (4) whether Act 13 unconstitutionally conferred the power of eminent domain on a private party for a private purpose, specifically for gas storage or reservoir protective areas (Section 3241(a)).
Chapter 33: Local Ordinances
Section 3302 of Act 13 provides that “[e]xcept with respect to local ordinances adopted pursuant to the MPC and the act of October 4, 1978 (P.L. 851, No. 166), known as the Flood Plain Management Act, all local ordinances purporting to regulate oil and gas operations regulated by Chapter 32 (relating to development) are hereby superseded. No local ordinance adopted pursuant to the MPC or the Flood Plain Management Act shall contain provisions which impose conditions, requirements or limitations on the same features of oil and gas operations regulated by Chapter 32 or that accomplish the same purposes as set forth in Chapter 32. The Commonwealth, by this section, preempts and supersedes the regulation of oil and gas operations as provided in this chapter.” (Emphasis added). The Commonwealth Court held that the underscored sentence of Section 3302 was invalid because the other substantive portions of Chapter 33 Section 3303 and Section 3304) were unconstitutional. However, the Court left the balance of Section 3302 intact. Sections 3305 through Section 3309(a) gave the PUC and the Commonwealth Court jurisdiction to review local zoning ordinances with regard to compliance with the MPC, or Chapter 32 or Chapter 33 of Act 13, and authorized the award of attorneys’ fees against and the withholding of well fees from municipalities violating those provisions. The Court found that these sections were not severable and therefore were invalid because they enforced the substantive portions of Chapter 33 that were previously invalidated by the Supreme Court.
Other Claims
Regarding the other issues, the Commonwealth Court dismissed claims that require DEP to notify only owners of public drinking water systems following a spill from drilling operations and prohibit health professionals from disclosing proprietary information concerning the identity and amount of hydraulic fracturing additives were unconstitutional special legislation. Thus, these provisions of Act 13 were upheld. The Court also dismissed the claim that Act 13 conferred the power of eminent domain to illegally permit the taking of private property for use by a private enterprise for gas storage or reservoir protection areas, on the basis that the power was conferred on regulated public utilities only.
What’s Next?
The impact of the Commonwealth Court’s new ruling with regard to local ordinances is primarily procedural in nature. Although Section 3303 and Section 3304 were invalidated by the Supreme Court late last year, the preemption language of Section 3302 remains in effect except as it relates to its cross-reference to other portions of Chapter 33. Thus, in large part, the status of preemption jurisprudence now has reverted back to where it was under the former Oil and Gas Act, as interpreted by the Supreme Court’s decisions in Huntley & Huntley, Inc. v. Borough Council of Borough of Oakmont, 964 A.2d 855 (Pa. 2009) and Range Resources-Appalachia, LLC v. Salem Township, 964 A.2d 869 (Pa. 2009). However, challenges to local zoning ordinance provisions related to oil and gas operations now must be asserted in accordance with the MPC and other generally applicable laws.
For more information regarding issues relating to land use and municipal implications of the Commonwealth Court’s ruling, please contact Blaine A. Lucas at 412-394-5490 or blucas@babstcalland.com, Krista M. Staley at 412-394-5406 or kstaley@babstcalland.com, or Lawrence H. Baumiller at 412-394-5490 or lbaumiller@babstcalland.com.
For more information regarding the 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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Administrative Watch
The U.S. Court of Appeals for the District of Columbia Circuit has vacated a USEPA memorandum aimed at limiting the reach of Summit Petroleum Corp. v. USEPA, (6th Cir. Aug 7, 2012), a case which condemned USEPA’s use of a functional interrelationship test in making single source determinations for air permitting. In Summit, the Sixth Circuit Court found that the regulatory term “adjacent” unambiguously relates only to physical proximity, and that USEPA’s contrary interpretation, which evaluated the functional interrelatedness of emission sources to determine whether they were adjacent, was inconsistent with both the plain meaning of the federal Clean Air Act (CAA) regulations and their history.
Following the Summit ruling, in December 2012, the USEPA Office of Air Quality Planning and Standards issued a memorandum (known as the “Summit Directive” or “Directive”) to all Regional Air Division Directors and Air Program Managers advising that, in the Sixth Circuit states of Michigan, Ohio, Tennessee and Kentucky, USEPA permitting officials “may no longer consider interrelatedness in determining adjacency when making source determination decisions.” With respect to regions of the country beyond the Sixth Circuit, however, the Summit Directive specified that agency officials would continue to consider functional interrelatedness in making source determinations.
A petition for review of the Summit Directive was filed shortly thereafter with the D.C. Circuit Court by a non-profit trade association representing resource extraction and manufacturing companies. The National Environmental Development Association’s Clean Air Project (NEDA/CAP) argued that the Directive violated CAA and regulatory provisions requiring national uniformity when administering CAA programs. NEDA/CAP also argued that the Directive resulted in a competitive disadvantage for member companies located outside of the Sixth Circuit, where USEPA would continue to rely on vague notions of functional interrelatedness to aggregate emission sources and thus require major source permitting. In response, USEPA argued that NEDA/CAP’s injury was purely speculative and that the Directive was not a final agency action ripe for judicial review.
On May 30, 2014, the D.C. Circuit Court issued an opinion which granted NEDA/CAP’s petition for review, rejected USEPA’s procedural arguments, and vacated the Summit Directive. On the merits, the Court held that the Summit Directive is “plainly contrary” to USEPA’s own regulations requiring the agency to ensure national uniformity and regional consistency in measures implementing the CAA. (The Court did not resolve whether the CAA itself requires such uniformity.) Furthermore, the Court agreed with NEDA/CAP that its members’ facilities located beyond the Sixth Circuit were disadvantaged by the Directive, which the Court deemed a final agency action because it provided “firm guidance to enforcement officials about how to handle permitting decisions” and “compel[led] agency officials to apply different permitting standards in different regions of the country.”
It remains to be seen how USEPA will respond to the recent D.C. Circuit Court decision. The Court itself suggested that USEPA could “revise its regulations for aggregating emissions from multiple facilities, so as to require aggregation when facilities are functionally interrelated, rather than ‘adjacent’.” The Court also acknowledged that USEPA could “revise its uniformity regulations to account for regional variances created by a judicial decision or circuit splits.” Unless and until USEPA adopts such regulatory amendments, or successfully appeals the D.C. Circuit Court decision, it appears that USEPA must now follow the Summit decision nationwide. At this point in time, it is unclear how state permitting agencies will respond to this development.
For additional information regarding air permitting and for assistance with source aggregation issues, 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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