RMMLF Mineral Law Newsletter
(By Joseph K. Reinhart, Sean M. McGovern and Casey J. Snyder)
In a June 25, 2020, press release and live press conference, Pennsylvania Attorney General Josh Shapiro announced the findings and recommendations of Pennsylvania’s 43rd Statewide Investigating Grand Jury report on the inquiry into the unconventional oil and gas industry. See Office of Att’y Gen., Commw. of Pa., “Report 1 of the Forty-Third Statewide Investigating Grand Jury.” As a result of the two-year investigation, the grand jury’s report outlined its opinion that the Pennsylvania Department of Environmental Protection (PADEP) and the Pennsylvania Department of Health (PADOH) failed to oversee the hydraulic fracturing industry and fulfill their responsibilities to protect Pennsylvanians from the impact of the industry’s operations.
The opinions in the report relied on testimony from Pennsylvania residents about environmental and health impacts from unconventional operations, in addition to testimony of witnesses who worked for PADEP and PADOH. The grand jury’s supervising judge permitted the report to be shared with the Secretaries of PADEP and PADOH, allowing them, or their designees, to respond to the allegation in the report.
The report concluded that PADEP was unprepared for the introduction and expansion of the unconventional oil and gas industry and failed to adequately regulate the industry, train its staff, communicate information within the agency, adequately test water samples, adequately inspect operators, notify landowners near fracking operations of environmental issues, take adequate enforcement action (including failing to refer cases to the state attorney general), or listen to the public. Despite acknowledging PADOH’s efforts under the current gubernatorial administration, the grand jury found that PADOH failed to sufficiently recognize or respond to the public health consequences of fracking, create a collective public outreach or education response to health complaints, or work with PADEP to gather data about health impacts.
In addition to its conclusions, the report detailed eight recommendations for legislative, executive, and administrative action to protect Pennsylvanians from effects of industry operations:
- expanding no-drill zones from 500 feet to 2,500 feet from a building or water well and 5,000 feet from schools and hospitals;
- requiring hydraulic fracturing companies to publicly disclose all chemicals used in drilling and hydraulic fracturing before they are used on-site;
- regulating gathering lines used to transport unconventional gas;
- aggregating all sources of air pollution in a given area to accurately assess air quality;
- requiring safer transport of the contaminated waste created from hydraulic fracturing sites;
- conducting a comprehensive health response to the effects of living near unconventional drilling sites;
- limiting the ability of PADEP employees to be employed in the private sector immediately after leaving the agency; and
- allowing the attorney general original criminal jurisdiction over unconventional oil and gas operations.
PADEP and PADOH, as well as Michael Krancer (former Secretary of PADEP) and Scott Perry (PADEP Deputy Secretary of the Office of Oil and Gas Management), filed responses to the grand jury’s findings. These responses were accepted by the supervising judge and attached to the report as part of the public record.
No criminal presentments were issued against PADEP, PADOH, or any agency employees as part of this report. Prior to the release of the report, the grand jury issued criminal presentments against two oil and gas companies for alleged violations of Pennsylvania environmental laws. Governor Tom Wolf issued a statement that he shares Attorney General Shapiro’s commitment to upholding Pennsylvania’s constitutional promise of clean air, pure water, and protecting public health. The Governor opined that many of the recommendations in the report either mirror activities that the administration already has in place or it supports as additional actions that would need to be taken by the legislature. See David E. Hess, “Wolf Administration Comments on Grand Jury Report on Regulatory Failures During Natural Gas Fracking Boom,” PA Env’t Digest Blog (June 27, 2020). Many industry groups, such as the Marcellus Shale Coalition (MSC), have also released responses to this report. See Press Release, MSC, “MSC Response to Attorney General Report” (June 25, 2020).
INCREASE TO UNCONVENTIONAL WELL PERMIT APPLICATION FEES GOES INTO EFFECT
On August 1, 2020, the Pennsylvania Environmental Quality Board (EQB) published the final rule, effective immediately, to increase well permit application fees for both vertical and nonvertical unconventional wells to $12,500. See Unconventional Well Permit Application Fee Amendments, 50 Pa. Bull. 3845 (Aug. 1, 2020). Under Pennsylvania’s regulations for unconventional wells, found at 25 Pa. Code ch. 78a, the previous well permit fees were $5,000 and $4,200 for nonvertical unconventional wells and vertical unconventional wells, respectively. See id. § 78a.19. The rule also removes the definitions of “nonvertical unconventional well” and “vertical unconventional well,” leaving only the definition of “unconventional well,” meaning “[a] bore hole drilled or being drilled for the purpose of or to be used for the production of natural gas from an unconventional formation.” Id. § 78a.1.
The Independent Regulatory Review Commission (IRRC), a state agency responsible for reviewing proposed regulations from most state agencies, held public meetings throughout May and June before it approved the regulation on June 18, 2020. See Approval Order, EQB Regulation No. 7-542 (IRRC June 18, 2020). The Marcellus Shale Coalition (MSC), a trade group composed of most of the unconventional operators in Pennsylvania, submitted a comment during the IRRC’s comment period that raised several issues with the fee increase, including how the fee increase will result in Pennsylvania having the highest unconventional well permit fee in the nation. See Comments of the MSC, IRRC No. 3206: EQB No. 7-542 Unconventional Well Permit Application Fee Amendments (June 15, 2020). The Pennsylvania Department of Environmental Protection (PADEP) characterized the fee increase as necessary to sustain its Office of Oil and Gas Management program. PADEP is required to evaluate its well permit fees every three years, but it had not raised unconventional well permit fees since 2014. See 25 Pa. Code §§ 78.19(e), 78a.19(b).
EQB PUBLISHES PROPOSED RULE REGULATING VOC EMISSIONS FROM EXISTING OIL AND GAS SOURCES
On May 23, 2020, the Pennsylvania Environmental Quality Board (EQB) published a proposed rulemaking titled Control of VOC Emissions from Oil and Natural Gas Sources, 50 Pa. Bull. 2633 (May 23, 2020). This proposed rulemaking would apply reasonably available control technology (RACT) requirements and emission limitations for existing oil and natural gas sources of volatile organic compound (VOC) emissions. The current Pennsylvania Department of Environmental Protection (PADEP) air regulations under 25 Pa. Code ch. 129 do not regulate emissions from these existing oil and gas sources.
The proposed rule, adopted by the EQB at its December 17, 2019, meeting, is based on the U.S. Environmental Protection Agency’s (EPA) October 2016 “Control Techniques Guidelines for the Oil and Natural Gas Industry.” See 81 Fed. Reg. 74,798 (Oct. 27, 2016). These guidelines include RACT requirements for VOC emissions from existing oil and gas sources. In 2018, EPA proposed rolling back the guidelines, but has not yet taken final action. Despite this potential rollback, PADEP moved forward with the rulemaking, citing in the preamble to the proposed rule, among other reasons, the need for consistency among all oil and gas sources in the state for monitoring fugitive emissions components and the potential to reduce VOC emissions by more than 4,000 tons per year. The preamble and other meeting materials are available on the EQB’s website at https://www.dep.pa.gov/PublicParticipation/EnvironmentalQuality/Pages/2019-Meetings.aspx.
The proposed rule would apply to owners and operators of the following oil and gas sources of VOC emissions in existence on or before the effective date of the final rule:
- storage vessels (in all segments except natural gas distribution);
- natural gas-driven pneumatic controllers;
- natural gas-driven diaphragm pumps;
- centrifugal compressors and reciprocating compressors; and
- fugitive emission components.
As part of the rulemaking process, PADEP held three virtual hearings on June 23, June 24, and June 25, 2020, and comments were accepted until July 27, 2020. According to PADEP’s comment database, the comment period for the proposed rule generated approximately 4,500 individual comments. The rule will be submitted to EPA for approval as a revision to the commonwealth’s state implementation plan, following promulgation of the final-form rulemaking.
BILL INTRODUCED BANNING NATURAL GAS HYDRAULIC FRACTURING
A recent bill introduced by Pennsylvania Senator Daylin Leach (D-Delaware, Montgomery) would ban the use of hydraulic fracturing for extracting natural gas. See Senate Bill 1217 (SB 1217), 204th Leg., Reg. Sess. (Pa. 2020).
Introduced in late June 2020, SB 1217 would amend title 58 (Oil and Gas) of the Pennsylvania Consolidated Statutes to ban “natural gas hydraulic fracturing,” defined as “[t]he breaking of rock by fluid for the purposes of stimulating or extracting natural gas as part of a commercial effort to produce and sell energy.” The proposed legislation includes both criminal penalties and administrative sanctions, including civil penalties of up to$500,000. The bill lists six factors to consider when calculating a penalty, including:
- Willfulness of the violation.
- Damage to the air, water, land or other natural resources, or their uses, in this Commonwealth.
- Cost of restoration and abatement.
- Harm caused to the health and safety of affected individuals.
- Aggravation of global climate change.
- Any other relevant factors.
Other key components of the bill pertaining to liability include provisions for individual liability if a corporation violates the prohibition, and provisions providing for a private right of action against a person who violates the prohibition. The bill instructs the Pennsylvania Department of Environmental Protection to issue regulations for implementing the prohibition.
Finally, more expansive requirements in the bill include an explicit repeal of parts of acts that are inconsistent with the bill’s provisions, and a limitation on the bill that would see its prohibition go into effect only upon a constitutional amendment to Pennsylvania’s constitution that would ban hydraulic fracturing. Senator Leach introduced a joint resolution proposing to amend Pennsylvania’s constitution to include such a ban on the same day he introduced SB 1217. See Senate Bill 1218, 204th Leg., Reg. Sess. (Pa. 2020).
The bill is currently in the Senate Environmental Resources and Energy Committee.
Copyright © 2020, The Foundation for Natural Resources and Energy Law, Westminster, Colorado
RMMLF Mineral Law Newsletter
(By Joseph K. Reinhart, Sean M. McGovern, Daniel P. Hido and Gina N. Falaschi)
As previously reported, the Pennsylvania Department of Environmental Protection (PADEP) continues its rulemaking to limit carbon dioxide (CO2) emissions from fossil fuel-fired electric power generators consistent with the Regional Greenhouse Gas Initiative (RGGI) Model Rule and Governor Tom Wolf’s October 3, 2019, Executive Order No. 2019-07, 49 Pa. Bull. 6376 (Oct. 26, 2019). See Vol. XXXVII, No. 2 (2020); Vol. XXXVII, No. 1 (2020); Vol. XXXVI, No. 4 (2019) of this Newsletter. PADEP’s efforts, however, have met significant resistance in recent months.
On June 22, 2020, Governor Wolf amended his original executive order to extend PADEP’s deadline to present the rulemaking to the Environmental Quality Board (EQB), the independent body responsible for adopting proposed PADEP regulations, from July 31, 2020, until September 15, 2020. See Exec. Order No. 2019-07, as amended, 50 Pa. Bull. 3406 (July 11, 2020). This extension provides PADEP with additional time to conduct further outreach needed due to disruption caused by the COVID-19 global pandemic and to respond to advisory committee and community feedback.
Advisory Committee Activities
Several advisory committees have recently voted against presenting PADEP’s draft rulemaking to the EQB. First, PADEP presented its preliminary draft proposed rulemaking to establish a CO2 budget trading program to the Air Quality Technical Advisory Committee (AQTAC) on February 13, 2020, and held a virtual special joint informational meeting with AQTAC and the Citizens Advisory Council (CAC) on April 23, 2020, to present further information on the program.
Further information regarding the CO2 budget trading program was presented at the May 7, 2020, AQTAC meeting. See Presentation by PADEP to the AQTAC, “Draft Proposed Rulemaking: Chapter 145. Interstate Pollution Transport Reduction—Subchapter E. CO2 Budget Trading Program” (May 7, 2020). PADEP reviewed the proposed program and presented changes made to the proposal since the preliminary draft. These changes include (1) amending the definition of legacy emissions, which amends calculation and value of the waste coal set-aside;(2) establishing the allowance base budget at 78 million tons of CO2, which will decline annually; (3) adding two additional allowance allocations, the strategic use set-aside account and cogeneration set-aside account; and (4) removing abandoned well plugging as an offset project option. Id. AQTAC members asked questions and also heard public comment on the proposed program before voting on whether to concur with PADEP’s recommendation to move the proposed rulemaking forward to the EQB for consideration. The AQTAC vote was tied with one abstention, so under the rules, the motion did not carry.
PADEP also presented the draft proposed CO2 budget trading program regulation to the CAC on May 19, 2020. See Minutes of Webex Meeting of Citizens Advisory Council (May 19, 2020). Public comment was heard on the proposal and the CAC voted 9 to 4 (with one abstention) against a motion to recommend that PADEP present the proposed rulemaking to the EQB.
On July 22, 2020, the Pennsylvania Small Business Compliance Advisory Committee also heard a presentation from PADEP on the proposed draft regulation. This committee also voted against a motion to move PADEP’s proposed draft regulation forward.
Legislative Activities
In addition to meeting resistance from advisory committees, Governor Wolf’s executive order is also meeting resistance from the Pennsylvania General Assembly. In response to the Governor’s executive order, in November 2019 members of the Pennsylvania House and Senate referred bipartisan companion bills, House Bill 2025 (HB 2025) and Senate Bill 950 (SB 950), both known as the Pennsylvania Carbon Dioxide Cap and Trade Authorization Act, to their respective Environmental Resources and Energy committees for consideration. See HB 2025, 203d Leg., Reg. Sess. (Pa. 2019); SB 950, 203d Leg., Reg. Sess. (Pa. 2019). The legislation prohibits PADEP from adopting any measure to establish a greenhouse gas cap-and-trade program unless the general assembly specifically authorizes it by statute.
While the legislation was pending, members of the Pennsylvania Senate Republican Caucus wrote a letter to Governor Wolf asking him to rescind his executive order, arguing that the COVID-19 pandemic has significantly reshaped the policymaking process in Pennsylvania and that the constraints caused by the pandemic have limited meaningful participation in the rulemaking process. See Letter to Governor Wolf (Apr. 21, 2020), https://environmental.pasenategop.com/wp – c o n t e n t / u p l oa d s/ si t es/ 34 / 2 0 2 0 / 0 4 / 4 . 2 1 . 2 0 2 0 -PASenateRGGI.pdf. The letter suggests that the current rulemaking activity is premature given recent events, and if continued will likely cause commonwealth power plants and the businesses that supply them to shut down.
The House committee voted on June 9, 2020, to move HB 2025 to the full House for consideration, and the House passed the bill with a vote of 130-71 on July 8, 2020. The bill will now be considered by the Senate and was referred to the Committee on Environmental Resources and Energy on July 13, 2020. Governor Wolf has vowed to veto the bill.
On July 8, 2020, the same day that HB 2025 passed the House, PADEP issued a press release asserting that, according to its analysis, the reduced CO2 pollution from power plants through the commonwealth’s participation in RGGI would save hundreds of lives and billions of dollars in Pennsylvania. See Press Release, PADEP, “Capping Carbon Pollution Would Save Hundreds of Lives and Billions of Dollars” (July 8, 2020). PADEP estimates that participation in RGGI would lead to a net increase of more than 27,000 jobs, add $1.9 billion to the gross state production, and save more than $6 billion in health benefits through 2030 from reduced sulfur dioxide and nitrogen oxide pollution. Id.
Debate on this proposal is likely to continue over the next few months. We continue to follow this issue closely and will provide further information in the next issue.
JOINT LEGISLATIVE CONSERVATION COMMITTEE ISSUES REPORT ON SUPPORTING COAL REFUSE-FIRED POWER PLANTS
In June 2020, the Pennsylvania Joint Legislative Air and Water Pollution Control and Conservation Committee (JLCC) released a report on the benefits of utilizing coal refuse-fired power plants. See JLCC, “The Coal Refuse Reclamation to Energy Industry and Carbon Trading Markets” (June 2020). The JLCC, which is a bipartisan group of 18 members of the Pennsylvania House and Senate, conducts continuing studies of air and water pollution laws and their enforcement and recommends needed changes to the general assembly.
In 2020, the JLCC held hearings and information sessions to explore how the commonwealth balances the services that the coal refuse reclamation to energy industry provides with current initiatives to reduce pollutants, including greenhouse gas emissions. The committee heard from stakeholders and experts to better understand the workings of the industry and the impact of state and federal regulations on it.
The resulting report addresses the environmental and economic benefits of the coal refuse reclamation to energy industry, highlighting that coal refuse-fired power plants generate power using hundreds of legacy waste coal piles across the commonwealth, which contribute to particulate pollution, acid mine drainage, and other environmental and health hazards. The report acknowledges that the plants emit pollutants and carbon dioxide associated with fossil fuels. The alternative, however, would be for commonwealth agencies to use federal and state funds to reclaim these sites directly, which would come at a higher cost to taxpayers. As a result, the JLCC offered five recommendations to support the industry:
- Increase the Coal Refuse to Energy and Remediation annual cap to $40 million from the current $20 million, while also removing caps to allow the full amount to be accessed by the industry.
- Advocate for a long-term, industry-sustaining federal credit of at least $12 per ton of refuse burned to eventually replace Pennsylvania’s current credit.
- Create a Power Purchase Agreement with local utilities or state and federal agencies to ensure the plants continue to operate regardless of fluctuations in the energy market.
- . . . [C]onsider increasing the [coal refuse to energy industry] set-aside amount [in the Pennsylvania Department of Environmental Protection’s draft Regional Greenhouse Gas Initiative rulemaking] to 12.5 million tons of coal equivalent [from the current 9.3 million tons] to account for decreased production in recent years.
- Limit participation in Tier II of the Alternative Energy Portfolio Standards program to in-state resources to increase credit value.
Id. at 5.
EQB PROPOSES REVISED WATER QUALITY CRITERIA FOR MANGANESE
On July 25, 2020, the Pennsylvania Department of Environmental Protection’s (PADEP) Environmental Quality Board (EQB) published proposed revisions to the water quality standard for manganese. See Water Quality Standard for Manganese and Implementation, 50 Pa. Bull. 3724 (proposed July 25, 2020).
As previously reported, revisions to the water quality standard for manganese have been in progress for several years, pursuant to the October 30, 2017, amendment to section 1920-A of the Administrative Code of 1929, 71 Pa. Stat. § 510-20, known as Act 40, which directed the EQB to promulgate revised water quality criteria for manganese within 90 days. See Vol. XXXVII, No. 1 (2020); Vol. XXXVI, No. 3 (2019) of this Newsletter. In response to Act 40, PADEP published an advance notice of proposed rulemaking on January 27, 2018, soliciting technical information for the development of the revised water quality standards. See Water Quality Standard for Manganese, 48 Pa. Bull. 605 (Jan. 27, 2018) (advance notice of proposed rulemaking).
There are two major aspects of the July 25, 2020, proposed rule: (1) revised numeric water quality criterion for manganese, and (2) two proposed alternative points of compliance.
Revised Numeric Water Quality Criterion
The current water quality criterion for manganese of 1.0 mg/L is contained in 25 Pa. Code § 93.7, Table 3. The proposed rule would delete the 1.0 mg/L criterion for manganese from Table 3 and add manganese to the list of toxic substances under 25 Pa. Code § 93.8c, Table 5, with a new criterion of 0.3 mg/L. Table 3 generally identifies the “critical use” of waters to be protected by the criteria set forth in the table. In contrast, Table 5 water quality criteria are set at a level to protect human health and aquatic life and apply to all surface waters in the commonwealth.
The preamble to the proposed rule notes that while the U.S. Environmental Protection Agency (EPA) has not developed a human health criterion for manganese, toxicological data relating to human health effects from manganese is available. PADEP therefore developed a new human health criterion for manganese of 0.3 mg/L pursuant to 25 Pa. Code § 16.32(c)(2), following the EPA’s “Methodology for Deriving Ambient Water Quality Criteria for the Protection of Human Health” (2000), and the “2015 EPA Updated Ambient Water Quality Criteria for the Protection of Human Health.”
Point of Compliance Alternatives
The chapter 93 water quality criteria set “instream” water quality criteria that PADEP implements through treatment technologies and effluent limitations requirements in individual National Pollutant Discharge Elimination System (NPDES) permits. Thus, the “point of compliance”—i.e., where in the stream compliance with applicable water quality standards is measured—is an important point.
25 Pa. Code § 96.3(c) requires chapter 93 water quality criteria to be achieved 99% of the time in all surface waters (i.e., compliance is measured at the point of discharge). However, under section 96.3(d), water quality criteria for certain constituents must instead be met 99% of the time at the point of all existing or planned surface potable water supply withdrawals. Act 40 directed PADEP to propose regulations that move the point of compliance for manganese from the point of discharge to the point of all existing or planned surface potable water supply withdrawals under section 96.3(d).
The July 2020 proposed rule proposes setting the point of compliance for the revised manganese water quality criterion at either the point of discharge or the point of all existing or planned surface potable water supply withdrawals and solicits comments on the two proposed alternatives. However, the preamble discussion clearly indicates PADEP’s preference to establish the point of compliance at the point of discharge.
Next Steps
The proposed revision to the water quality standard for manganese would likely have a significant impact on the mining industry in Pennsylvania, as well as many other industries, particularly if the final rule sets the point of compliance at the point of discharge. As stated in the preamble:
Adoption of a new human health toxics criterion for manganese may require new and existing NPDES discharges to be evaluated when permit applications undergo [PADEP] review. This evaluation could potentially result in increased treatment and operational costs for permitted dischargers with manganese effluent limits, depending on the point of compliance for the criterion.
50 Pa. Bull. at 3728. Comments on the proposed rule may be submitted until September 25, 2020.
PADEP POSTS REVISED DRAFT ENGINEERING MANUAL FOR SURFACE MINING OPERATIONS
The Pennsylvania Department of Environmental Protection (PADEP) recently presented a revised draft of the “Engineering Manual for Surface Mining Operations” (Engineering Manual) at the July 16, 2020, meeting of the PADEP Mining and Reclamation Advisory Board (MRAB). The current version of the Engineering Manual was issued in 1999.
The 147-page draft Engineering Manual would apply to all surface coal and non-coal operators in Pennsylvania and contains technical guidance and standards in the areas of erosion and sedimentation control, impoundments, haul roads, water discharges, active and passive mine drainage treatment, streams and wetlands encroachment, mining near public roads, slope stability, and air pollution control. The Engineering Manual is intended to assist operators in preparing permit application materials that require engineering information in these areas, as well as PADEP staff in reviewing permit applications. The Engineering Manual states that it explains acceptable designs and where variations are possible for information required as part of permit applications.
The initial draft of the Engineering Manual was presented to MRAB for discussion as the first step toward finalizing the revised manual. The manual may be further revised in response to feedback from MRAB. Prior to finalization the revised manual will be published in the Pennsylvania Bulletin for public comment. According to PADEP’s non-regulatory agenda, an updated copy of which was also issued in July 2020, PADEP anticipates publishing the proposed revised manual in the third quarter of 2020.
PADEP RELEASES DRAFT 2020 INTERACTIVE STATE WATER QUALITY REPORT
On June 27, 2020, the Pennsylvania Department of Environmental Protection (PADEP) released the “Draft 2020 Pennsylvania Integrated Water Quality Monitoring and Assessment Report.” See Press Release, PADEP, “DEP Releases Draft Report on Statewide Water Quality” (July 2, 2020). PADEP is required to submit the report to the U.S. Environmental Protection Agency every two years under sections 303(d) and 305(b) of the Clean Water Act, 33 U.S.C. §§ 1313(d), 1315(b). In particular, section 303(d) requires states to identify impaired waters that require the development of total maximum daily loads (TMDLs).
The report classifies nearly all of the state’s streams and lakes into eight categories based on the status of attainment with protected uses and implementation of TMDLs. Agriculture, abandoned mine drainage, and stormwater runoff are identified as the most common causes of water impairment. All of the information on impairment listings is downloadable in Excel spreadsheet format. The report also identifies waters that have been restored since the last biannual report, and highlights PADEP’s success in treating abandoned mine drainage, which the report states constitutes the majority of restored waters.
The report also identifies 27 restoration priority watersheds, almost all of which are identified as impaired due to agriculture. The Casselman River watershed in Somerset County, which is identified as impaired due to metals and pH levels caused by abandoned mine drainage, is the only mining-related restoration priority watershed in the report.
The interactive online report includes maps with zoom functions that allow users to identify the status of and obtain information on specific streams of interest. The comment period on the draft report closed on August 11, 2020.
Copyright © 2020, The Foundation for Natural Resources and Energy Law, Westminster, Colorado
EmTech Law Blog
(by Gina Falaschi)
The State of California has taken another leap to support electric vehicle owners and manufacturers. On August 27th, the California Public Utilities Commission formally approved a plan from investor-owned utility Southern California Edison (SCE) to fund approximately 37,800 electric vehicle charging ports within its service territory. Under the program, known as Charge Ready 2, SCE will install and maintain the charging infrastructure, while program participants will own, operate and maintain qualified charging stations. SCE will also provide rebates to lower the cost of program participation, including an expanded rebate program to support EV charging ports in new multifamily dwellings under construction.
Of the $436-million-dollar budget, $417.5 million will fund the charging infrastructure for Level 1, Level 2, and direct current fast chargers, while the remaining funds will be used for marketing, education, outreach, and evaluation programs. The utility, which provides power to 15 million people across 50,000-square miles of Southern California, has committed to install 50% of these chargers in disadvantaged communities that are often disproportionately impacted by air pollution.
This program expands the Charge Ready Pilot program, which began three years ago, and joins SCE’s Charge Ready Transport, which aims to provide charging to support 8,490 medium- and heavy-duty electric vehicles over the next five years.
The Charge Ready 2 program will benefit current owners of electric vehicles by increasing charging options and possibly enhancing the market for used electric vehicles, making electric vehicles a more affordable option for more consumers. The program will also encourage the purchase of new electric vehicles, which will benefit not only consumers wanting to own an EV, but also manufacturers who must meet their required percentage of zero emission vehicle sales. Under California law, which has also been adopted by several other states under the federal Clean Air Act, manufacturers must produce enough zero emission vehicles to meet the minimum credit requirement, which increases by 2.5% annually. For example, for model year 2020 vehicles, a manufacturer must produce enough zero emission vehicles to have credits equal to 9.5% of the manufacturer’s average fleet sales in model years 2016-2018.
Tags: Industry News, Mobility, Regulations, Vehicles, Zero-Emission
Pittsburgh, PA – Cabot Oil & Gas Corporation, in cooperation with Marcellus Drilling News and Natural Gas Now hosted a Think About Energy Briefing webinar on Wednesday August 26, 2020.
Today’s webinar featured Patrick Henderson of the Marcellus Shale Coalition, Kathryn Klaber of the Klaber Group and Joseph Reinhart of Babst Calland.
The webinar provided attendees with a look back at the environmental and regulatory progress that has occurred since the shale industry started in earnest over a decade ago. Panelists discussed the numerous legislative, regulatory and best management practices that have evolved through cooperation and respect for the communities and environment in which the industry operates.
George Stark, Director, External Affairs, Cabot Oil & Gas Corporation, moderated today’s discussion. “We are fortunate to have panelists who have been involved in the shale industry for more than a decade in the Commonwealth. In each of their respective roles, they all had one common goal – how can we get this done the right way. The industry has made tremendous strides over the past decade and this would not have happened without the expertise of panelists like we have today,” said Stark.
Patrick Henderson, Director of Regulatory Affairs for the Marcellus Shale Coalition, focused on the environmental improvements in Pennsylvania and their impact on the quality of life.
“We’ve made terrific progress over the past decade in Pennsylvania, and because of safe and responsible natural gas development, our environment is better protected and our air quality is dramatically improved,” said Henderson. “Pennsylvania has among the highest of environmental standards for ensuring that natural gas is developed safely and responsibly, and our state Department of environmental Protections own data demonstrates that natural gas operators have among the highest environmental compliance rates of any industry in the Commonwealth.”
Henderson highlighted the shale industry’s commitment to getting it right from an environmental perspective.
“Industry has been at the forefront in demanding excellence in its operations and among its peers. Their employees are members of our local community, and they are rightfully proud of the many significant contributions they have made within their communities,” said Henderson. “Let there be no question: the safe and responsible development of Pennsylvania’s domestic natural gas resources has enhanced our environment; created job opportunities for those in need; strengthened our national security; and helped to elevate our Commonwealth as a leader on the world stage,” concluded Henderson.
Kathryn Klaber, managing partner of the Klaber Group, discussed the industry’s role during the early days of shale development and the involvement of the Marcellus Shale Coalition in the process.
“The early days in the Marcellus were all about earning the license to operate – achieved through authentic outreach to the many stakeholders who were quickly learning about our industry,” said Klaber.
Ms. Klaber helped to organize and served as the inaugural president of the Marcellus Shale Coalition. She discussed the member led approach to public outreach to a variety of stakeholders.
“Of the many proactive actions taken by the industry in the early years, none were to have as far reaching an impact as the many Recommended Practices, developed by the industry and shared with the public,” said Klaber. “The ability for the incredibly diverse companies across the industry to come together, identify priorities & work together to drive consensus on various topics was a monumental task. We then took those topics and created a unified outreach to partners & regulators.”
Joseph Reinhart, Co-Chair of the Environmental, Energy and Natural Resource Groups at Babst Calland, highlighted the regulatory changes as a result of shale development.
“Act 13 of 2012 expanded the existing reporting standards including tracking of waste water & air emissions data that operators are required to provide on an ongoing basis,” said Reinhart. “Operators are now required to report their completion fluids through the chemical disclosure registry Frac Focus.”
Reinhart went on to discuss the external influences and their impact on the progress of the shale industry.
“This past decade has clearly demonstrated the energy industry’s resiliency in the midst of price fluctuations, increased regulation, NGO opposition and policy changes, let alone the current pandemic and economic slowdown,” said Reinhart. “The industry has increased efficiencies even as lower commodity pricing squeezed margins, while at the same time seeking new markets.” Concluding his remarks, Reinhart discussed the midstream development as there are still areas across the United States that are lacking adequate supply. “Transportation options for moving natural resources from growing areas of production to customers continue to be built, even with new hurdles from regulators and other stakeholders.”
For the full aricle, click here.
Smart Business
(by Sue Ostrowski with Justine Kasznica)
As Pittsburgh and the surrounding region continue to attract and grow companies that support the space industry, a space collaborative is gaining ground to bring stakeholders together.
“If we do things right, Pittsburgh is well-positioned to be recognized as a center for research and commercialization of space-related technologies and innovation,” says Justine Kasznica, an attorney at Babst Calland.
Smart Business spoke with Kasznica about the growing number of local companies and regional stakeholders supporting space exploration.
How did the space collaborative begin?
In 2019, Astrobotic Technology Inc., a Pittsburgh-based space robotics company building lunar delivery capabilities, made national news when it was awarded an $80 million NASA grant for a mission to develop a lunar lander to deliver payload to the lunar surface. This year, Astrobotic was awarded an additional $200 million NASA grant for an historic mission to deliver a NASA rover to drill for water ice on the South Pole of the Moon. A group of individuals representing industry, academia, local and state government, as well as regional economic development organizations — all passionate about space — saw this as a unique opportunity to coalesce a broader network of existing regional assets to establish a space industry group in Pittsburgh.
What role have other institutions played in bringing Pittsburgh to the forefront of space-related industries?
Pittsburgh has been involved in space history since the Apollo era, having manufactured much of the steel and glass hardware, as well as communications technology, for the Apollo 11 mission. Today, the region’s advanced manufacturing capabilities and world-class expertise in artificial intelligence, robotics, and space transport and logistics can propel Pittsburgh to an even more dominant seat at the table.
Local universities, in partnership with industry and the federal government, are actively engaged in planetary science research, space navigation, mobility and robotics programs. Life science companies are researching how tissue reacts, grows and interacts with other factors in a zero-gravity environment.
Other stakeholders are working on advanced technologies that are optimized for an extreme space environment and are developing experiments to send to the International Space Station and beyond. Still others are building business, legal and policy capabilities designed to support a growing global space industry.
What is the collaborative’s goal?
The goal is to become a space economic development organization committed to supporting the emerging global commercial space industry by attracting and growing the next generation of space industry businesses and workforce talent in Pittsburgh and the region.
What is the space collaborative currently doing?
The group is engaging in four distinct ways.
- Sponsorship and partnership opportunities. The collaborative is looking for and identifying sponsors and partners to support regional programs and events and to identify research and funding opportunities for the region that align with the collaborative’s mission.
- Ecosystem mapping. The collaborative is building a regional map of key participants in the space industry and identifying relevant cross-disciplinary skills in the region that can be leveraged by the space industry, as well as skills gaps that need to be further developed to enable a robust space ecosystem.
- Government relations/policy. The collaborative is committed to securing strong partnerships with local, state and federal governments, with the goal of driving the development of policies and laws to support the rapid development of a commercial space industry, on and off-Earth, within the existing Outer Space Treaty framework.
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Education. The collaborative will develop educational materials, networking opportunities, industry events and speaker series to introduce the public to the regional space ecosystem and drive broad cross-sector collaboration.
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EmTech Law Blog
(by Carl Ronald)
Not only has the global pandemic spawned a race to develop a cure for COVID-19, it has also created a race to the Patent Office to protect the massive investments companies are making in their attempts to develop novel diagnostics, therapies, and vaccines to combat the disease. In the United States, the first inventor to file a patent application that teaches a new and non-obvious way to treat the virus or its effects will be eligible for the limited monopoly that a patent provides. As has been reported, researchers are employing a variety of different mechanisms to attack the virus and it is expected that a significant number of patents will ultimately issue from these efforts.
While Big Pharma is well-poised to incur the expense of patent filing, including the additional expense of paying for accelerated examination of their applications, smaller concerns may not be in a position to do so. To help small businesses and solo inventors in this regard, the United States Patent Office has announced a program that would fast-track the examination of certain patent applications related to the pandemic. While the typical turn-around time for an Examiner to provide an initial review of a new application is about two years after filing, payment of an extra fee to accelerate examination is also an option. Small businesses and startup companies, however, typically can’t take advantage of this program due to the substantial increased initial cost. To remove this impediment, the new program enables business with less than 500 employees to request accelerated examination of certain COVID-19-related applications with no additional upfront payment. If an application qualifies for the program, the Patent Office promises to fully examine it within a year of being granted prioritized status.
The program is further limited to therapeutics, vaccines and diagnostic tests that are subject to FDA approval for COVID-19 related uses. FDA approvals include, for example, Investigational New Drug (IND) applications, Investigational Device Exemptions (IDE), New Drug Applications (NDA), Biologics License Applications (BLA), Pre-market Approvals (PMA), and Emergency Use Authorizations (EUA).
As of Thursday, August 20th, there have been 274 applicants with 146 requests having been granted. The program is limited to the first 500 approved applicants.
Tags: Coronavirus, COVID-19, Industry News, Patents, Startups
Emerging Technologies Perspectives
(by Ashleigh Krick)
On August 3, 2020, Twitter disclosed in a regulatory filing that it is under investigation by the Federal Trade Commission (FTC) for allegations that the company used user phone numbers and email addresses for targeted advertising in violation of a 2011 Consent Agreement. Twitter estimates that it could face $150 to $250 million in losses due to legal fees and enforcement penalties resulting from this matter.
The 2011 Consent Agreement resolved charges that Twitter violated the Federal Trade Commission Act (FTC Act) when hackers obtained administrative control of Twitter allowing them access to non-public user information, private tweets, and the ability to send out fake tweets from any user’s account. The FTC found that Twitter’s actions neither upheld statements in its privacy policy, nor provided reasonable and appropriate security to prevent unauthorized access to nonpublic user data and honor the privacy choices of its users.
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Emerging Technologies Profile
What motivated your desire to help start-ups and emerging technology companies with their legal matters? I was a litigator at a large firm in Philadelphia, fresh out of law school, when I started working with a good friend from undergrad to commercialize a robot designed to work with autistic kids. I was able to bring in my first client, and had the rare opportunity to work with a cross-disciplinary team of colleagues to support the legal needs of my friend’s start-up. This was a career turning point for me, as it was the moment when I discovered the rewards of working with start-ups. I saw the critical role that lawyers play in supporting the commercialization of advanced technologies and committed to doing my part in building a responsible future for robotics and artificial intelligence.
As an early adopter of the drone, what was the origin of your drone fascination and expertise? Growing up, my older brother and I spent a lot of time designing, building and flying model rockets, and other favorite aircraft (from balsa/rubber-powered Piper Cubs to radio-controlled Corsairs and B-25 Mitchells). When Jeff Bezos announced (circa 2012) that drones would be delivering all my future Amazon orders to my doorstep, I couldn’t resist learning about the regulatory hurdles facing unmanned aircraft systems (UAS, as we call them), and saw a great opportunity to connect my legal work with my interests in aviation and aerospace. Somewhere along this journey, I received my first drone “Quentin” – a DJI Phantom 4 – as a Valentine’s Day gift from my husband.
How do you effectively manage so many start-up client relationships at the same time? What’s your secret? The truth is, I’m still working on it… There aren’t enough hours in a day, and I am fortunate to work with an incredible team of partners and associates who are equally bought into the vision of an emerging technology/start-up legal practice. That certainly helps!
But at the end of the day, it’s all about working with amazing clients. An entrepreneur’s passion is contagious, and it is as rewarding and exhilarating as it is often difficult to ride alongside a client on the ups and downs of an early-stage company’s lifecycle. The key is to find clients with a business vision you believe in, and to build a partnership with them based on trust (and patience!) to be able to effectively execute that vision. It is when lawyers embrace their role as business partners and solutions providers that they become indispensable to clients and reap the rewards of their efforts.
What recurring advice do you find yourself giving to early-stage companies and their pioneers? If there was one silver bullet for success it’s that technologists have to make sure there is a willing customer who can benefit from and is willing to incorporate a particular technology to achieve their own business goals. It can be the greatest invention, but without an audience to deploy it, it does not become a sustainable (not to mention fundable) business. Successful pioneers are able to recognize if they have brought a visionary product too early to a nascent market and have the wisdom to pivot or the courage to plow forward and build the market themselves.
When you have downtime what do you do to relax? Actually, I have a ton of hobbies (but little time to do them all) and too many unfinished projects. I draw and paint nature and historic structures and landscapes, and illustrate and write children’s books. I am an avid reader. I am inspired by nature, and when I am not working or cooped up inside, I am outdoors – hiking, boating, fishing, reading, gardening, or playing (or trying to play) any outdoor sport.
Do you have ambitions for personal space travel? Is it possible for you? Of course, I would love to travel to space. We may yet have that opportunity in our lifetimes, thanks to those pioneers who are building the transportation capabilities to get us there. But the beauty about working in the space industry is that we can be a part of creating a new chapter in human off-Earth history without ever having to leave Earth.
What’s the most surprising thing that’s happened to you as an attorney? I never imagined becoming a “space lawyer”. When I came to Pittsburgh, I met and ended up marrying a guy who ended up becoming the CEO of a space robotics start-up. We spent the last 13 years building a Pittsburgh company intent on making space exploration and commerce accessible to the world.
What is your favorite meal? Ackee and Salt Fish, or curried goat, both national delicacies of Jamaica.
Favorite vacation spot? There’s a place in the Poconos in Northeastern Pennsylvania that has my heart. Our river house on the Allegheny is a close second.
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EmTech Law Blog
(by Gina Falaschi)
Significant funding will soon be available in California to support the expansion of zero-emission trucks in the heaviest weight class that has previously relied on diesel engine technologies. On August 18, 2020, California will start to parcel out $27 million in funding from the Volkswagen (VW) Environmental Mitigation Trust program to replace higher polluting trucks with zero-emission vehicles.
The VW Environmental Mitigation Trust provides about $423 million for California to mitigate the excess nitrogen oxide emissions caused by VW’s use of emissions defeat devices in certain of its diesel passenger vehicles. The trust is a component of partial settlements with VW and provides earmarked funding opportunities for actions like “scrap and replace” projects for the heavy-duty sector, including on-road freight trucks, transit and shuttle buses, school buses, forklifts and port cargo handling equipment, commercial marine vessels, and freight switcher locomotives. As required by the settlement, California developed a Beneficiary Mitigation Plan that was approved by the trustee in June 2018.
As part of the Beneficiary Mitigation Plan, $90 million was made available for the Zero-Emission Class 8 Freight and Port Drayage Trucks category to replace freight trucks (including drayage), waste haulers, dump trucks, and concrete mixers. The first $27 million installment of the total $90 million has been approved and applications for funding will be available on August 18. Eligible applicants will be awarded funding on a first-come, first-served basis.
To qualify, existing vehicles must be powered by engine built in model years 1992 to 2012, in compliance with all applicable regulations, and scrapped in exchange for a zero-emission replacement vehicle certified or approved by the California Air Resources Board or eligible under the Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project. Applicants must be able prove ownership for at least one year, and the old and new vehicles must operate within California at least 75% of the time. Applicants granted an award must submit annual usage reports for the term of the contract.
Maximum funding will not exceed $200,000 per eligible replacement vehicle and funding is available for both public and private entities. Non-government entities, however, may only receive an incentive up to 75% of the cost of the vehicle, while government-owned vehicles are eligible for 100% of the cost up to the $200,000 cap.
VW Environmental Mitigation Trust funding for this and other projects, in California and in many other states, promotes the development of and investment in cleaner transportation technologies and the infrastructure that supports them. While the total $90 million is simply a drop in the bucket when it comes to meeting California’s goal of phasing out diesel trucks completely by 2045 under its newly passed Advanced Clean Trucks regulation, it is a start.
Tags: Funding, Vehicles, Zero-Emission
Environmental Alert
(by Lisa Bruderly and Ben Clapp)
The U.S. Army Corps of Engineers (Corps) has recently pre-published a proposed rule to issue and modify its Nationwide Permits (NWPs) in a move aimed at clarifying the NWPs and reducing the regulatory burden associated with certain authorized activities. NWPs are issued pursuant to Section 404 of the Clean Water Act and Section 10 of the Rivers and Harbors Act of 1899. They authorize an array of activities that result in a discharge of dredged and fill material into waters of the United States, provided that the activities meet the threshold criteria and fulfill the general and specific conditions of the particular NWP.
Scope of Proposed Rule
The Corps typically reissues the NWPs approximately every five years, with the last publication in 2017, when 52 NWPs were issued. The Corps is proposing to reissue the permits after only three years to incorporate modifications identified in response to Executive Order 13783, which directed federal agencies to review existing regulations that “potentially burden the development or use of domestically produced energy resources.” Nine NWPs were identified as result of this review and are modified in the proposed rule. Modifications generally pertain to changes in thresholds for requiring pre-construction notifications or Corps approvals, elimination of linear foot thresholds for certain NWPs, and expansion of criteria for using certain NWPs.
In addition, five new NWPs are being proposed. The remainder of the existing NWPs are being reissued, without change, to keep all permits on the same five-year cycle.
Proposed Modifications to NWP 12
Of particular interest to the oil and gas industry and utilities is the Corps’ proposal to split NWP 12 (Utility Line Activities) into three NWPs, depending on the type of utility line: oil and gas (NWP 12), electric utilities and telecommunications (Proposed NWP C) and water, sewage and other substances (Proposed NWP D). NWP 12 currently permits eligible discharges of dredged or fill material in connection with the construction, maintenance, repair and removal of utility lines, including oil and gas pipelines, water and sewer pipes, and electric, internet, and cable lines.
If adopted as proposed, NWP 12 would only apply to activities required for the construction, maintenance, repair, and removal of oil and natural gas pipelines and associated facilities in waters of the United States, provided the activity does not result in the loss of greater than 1/2-acre of waters of the United States for each single and complete project.
While the proposed rule does not modify the maximum allowable amount of disturbance to waters of the United States, the proposal would narrow the criteria for requiring a NWP 12 pre-construction notification (PCN) to the Corps to the following three circumstances: (1) a Section 10 permit is required (existing criteria), (2) the discharge will result in the loss of greater than 1/10 of an acre of waters of the United States (existing criteria) or (3) the pipeline activity is associated with an overall project that is greater than 250 miles in length and has the purpose to install new pipeline along the majority of the overall length (new criteria).
The Current Status of Nationwide Permit 12
Oil and gas pipeline permitting under NWP 12 has come under significant scrutiny since mid-April, when, as described in a prior Alert, a Montana district court judge, hearing a challenge to the Keystone XL Pipeline, appeared to vacate NWP 12 in its entirety across the United States and later clarified that the intent to vacate NWP 12 was intended to apply to the construction of only new oil and gas pipelines. Both of these decisions were based on the judge’s determination that the Corps failed to comply with the Endangered Species Act (ESA) when NWP 12 was last issued in 2017. On July 6th, the Supreme Court limited the scope of the district court’s vacatur solely to the construction of the Keystone XL Pipeline pending an appeal of the district court’s decision to the Ninth Circuit. This decision allowed pipeline developers to return to utilizing NWP 12 for new oil and gas pipeline projects throughout the United States while the litigation is ongoing, or until the Corps addresses the ESA issues identified by the district court. The Corp’s proposed modifications to NWP 12 do not address the ESA concerns that are at issue in the Keystone XL Pipeline challenge, and are therefore not expected to have an impact on the ongoing litigation.
Next Steps
The proposed NWPs are expected to be published in the Federal Register in a few weeks. The Corps has invited comment on these proposed modifications and specifically has asked for suggestions for national standards or best management practices for oil and natural gas pipeline activities that would be appropriate to add to NWP 12. Comments are due 60 days from publication of the proposed rule in the Federal Register.
We note that, in addition to proposed revisions to the NWPs that would be imposed for regulated activities across the United States, the Corps’ Districts may still impose specific region/state conditions and states may impose 401 Water Quality Certification special conditions that could require a PCN or other more stringent requirements.
Babst Calland’s environmental attorneys have substantial experience with Clean Water Act Section 404/River and Harbors Act Section 10 permitting. If you have questions about this proposed rule or Section 404 permitting in general, please contact Lisa Bruderly at (724) 910-1117 or lbruderly@babstcalland.com, or Ben Clapp at (202) 853-3455 or bclapp@babstcalland.com.
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The Legal Intelligencer
(by Julie Domike and Gina Falaschi)
The transportation sector is the nation’s largest source of greenhouse gas emissions. To reduce these emissions, cleaner transportation initiatives are on the rise nationwide, with new state programs being announced almost daily. While California has always been in the forefront of these enterprises, other states, including Pennsylvania, are not far behind. This is especially true of the new clean transportation initiatives for the medium- and heavy-duty vehicle market, which produces 25% of the transportation sector emission but only represents 4% of the vehicles on the road.
At a public hearing on June 25, the California Air Resources Board adopted a long-awaited Advanced Clean Trucks Regulation. California Air Resources Board, Notice of Decision (June 25, 2020). This program builds on California’s 2012 Advanced Clean Cars Regulation to further reduce emissions from the transportation sector by requiring truck manufacturers to sell a certain percentage of zero-emission vehicles beginning in model year 2024. The percentage will increase annually, meeting the ultimate goal of phasing out new diesel trucks by 2045.
The federal Clean Air Act affords California the ability to pass historic initiatives and to be at the forefront of setting new, more stringent, environmental standards. While Section 209 of the federal Clean Air Act generally preempts state and local emission standards for new motor vehicles, there are a few exceptions. See 42 U.S.C. Section 7543(a). The EPA can waive preemption for any state that had adopted standards for control of emissions from new motor vehicles or new motor vehicle engines prior to March 30, 1966. The only state that qualifies to receive such waivers is California, the only state to have adopted motor vehicle emission standards prior to March 1966.
Additionally, under Section 177 of the Clean Air Act, states that have EPA-approved plans to attain the national ambient air quality standards may adopt and enforce California’s emissions control standards for new motor vehicle and motor vehicle engines if the standards are identical to California’s standards and the state adopting the standards gives industry at least two years advance notice of their applicability. To date, 13 states—Colorado, Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington—and the District of Columbia have adopted some or all of California’s motor vehicle and engines standards under Section 177 (Section 177 states). Several more states have announced their intention to adopt them.
So, while California is the first to adopt an electrification requirement for medium and heavy-duty trucks, because other states can adopt California’s standards under Section 177, many states are not far behind in considering adopting Advanced Clean Trucks in their own states.
In July, Pennsylvania Gov. Tom Wolf joined the governors of 14 other states (California, Connecticut, Colorado, Hawaii, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Oregon, Rhode Island, Vermont, and Washington) and the mayor of the District of Columbia in signing the multi-state medium- and heavy-duty zero emission vehicle memorandum of understanding (MOU). Available at https://www.nescaum.org/. This MOU commits the signatories to collaboratively foster a market for zero emission trucks, vans, and buses through the Multi-State ZEV Task Force, an existing program created by some Section 177 states to coordinate action to ensure the successful implementation of their state zero-emission vehicle (ZEV) programs. Within six months of the signing of the MOU, the task force will develop an action plan to consider funding, infrastructure, regulatory, data collection and other needs. As part of that action plan, the task force will consider the benefits associated with the adoption of California’s Advanced Clean Trucks rule under Section 177 of the Clean Air Act. The plan does not, however, commit the signatory states to adopt the Advanced Clean Trucks Rule.
In fact, under the MOU, the signatory states will strive to have all new medium- and heavy-duty vehicles purchased to be zero emission vehicles by 2050, five years later than the Advanced Clean Truck target. The signatory states will also focus on deploying zero emission trucks and buses to disadvantaged communities historically burdened with higher air pollution levels, and on working towards electrification of government and quasi-governmental agency fleets.
These initiatives will have substantial and beneficial environmental impacts in Pennsylvania and the other signatory states over the next three decades. There will be, necessarily, potentially significant growing pains associated with a dramatic shift in the industry long dependent on engines powered by diesel fuel. Instead, industry must scramble to adapt to electric or hydrogen fuel cell powered engines with their accompanying demand for new infrastructure and increased initial costs.
New charging infrastructure will be needed to support these medium- and heavy-duty vans, trucks and buses not only in Pennsylvania but throughout the signatory states, many of which are clustered in the Mid-Atlantic and Northeast. This will require coordination similar to that in The West Coast Clean Transit Corridor Initiative, a recent study commissioned by nine electric utilities and two agencies representing municipal utilities in California, Oregon and Washington. West Coast Clean Transit Corridor Initiative (June 2020), https://westcoastcleantransit.com/. The study provides a roadmap for states and public utilities to add electric vehicle charging for freight haulers and delivery trucks along Interstate 5 and adjoining highways to support the growth of the electric truck market. It contains recommendations regarding funding, locating charging stations, and capacity development. The phased approach suggested in the study would first involve installing 27 charging sites along the interstate at 50-mile intervals for medium duty-vehicles by 2025, and then expanding 14 of the 27 stations to accommodate electric big rig charging by 2030. Utilities will need to commission a similar study to support the development of infrastructure for an electric truck market in the Mid-Atlantic and Northeastern states.
In addition to the need for an expanded infrastructure, there will also be growing pains for the purchasers of medium- and heavy-duty vehicle fleets, especially small businesses and fleet owners. The initial cost of electric medium- and heavy-duty vehicles is anticipated to exceed that of today’s diesel-powered trucks and buses, though the cost differential likely will diminish over time as battery production ramps up and battery costs decrease. This increased cost could, however, prove to be too much for competitive industries struggling with tiny profit margins. The higher costs of vehicles will likely be passed on by fleet owners to those using their hauling services; ultimately, consumers may see increased costs of goods.
While the actual increase in cost can be disputed, what is not in dispute is that the cost of new trucks and the new infrastructure necessary to support them will be considerable. It remains to be seen whether and how the signatory states will jointly fund initiatives for widespread charging capabilities to be made available where buses and trucks need them. State funding will be critical to support the adoption of electric medium- and heavy-duty vehicles at the rapid rate at which these initiatives expect to fully replace diesel. Whether this adoption rate is possible without significant funding and incentives remains to be seen.
Julie R. Domike and Gina N. Falaschi are attorneys at Babst Calland Clements & Zomnir. Their practice focuses on regulatory issues arising under the Clean Air Act. They represent a variety of companies that have been the focus of the EPA’s regulations, including refineries, engine manufacturers, independent power producers, chemical plants, fuel producers, and construction and farm equipment makers. Contact Domike at 202-853-3453 or jdomike@babstcalland.com or Falaschi at 202-853-3483 or gfalaschi@babstcalland.com.
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Reprinted with permission from the July 30, 2020 edition of The Legal Intelligencer© 2020 ALM Media Properties, LLC. All rights reserved.
Smart Business
(by Sue Ostrowski with Boyd Stephenson)
The rules of international investment in U.S. real estate have changed, and failure to understand these new rules — issued by the Committee on Foreign Investments in the United States (CFIUS) in February — could cause huge headaches.
“If you’re not aware of or don’t understand the rules, that could cause a real estate deal to be undone by CFIUS, potentially resulting in financial harm or making a business liable to a foreign entity,” says Boyd A. Stephenson, an attorney at Babst Calland.
The president has the authority to reverse certain business transactions involving a foreign entity if it is determined they pose a national security risk. CFIUS advises the president on when to do that. In February 2020, that authority was extended to real estate ownership.
Smart Business spoke with Stephenson about the impact of the new rules.
What is CFIUS, and how does it work?
CFIUS is an interagency committee of the federal government that advises the president about mergers and acquisitions, financings, and real estate transactions that involve foreign actors. If a foreign entity wants to invest in or buy a cardboard box manufacturer, it’s generally not a concern. But if it wants to invest in a U.S. startup that’s developing technology with better AI, such an investment would result in a review from CFIUS to determine whether the deal should be cancelled based on national security concerns. This authority is retroactive, so if your deal consummates on April 15 and the transaction is reversed on May 1, you lose that equity stake.
How does the new rule extend into real estate transactions?
The new rule applies to real estate acquisitions that are a certain distance from an airport or seaport, or, for a military installation, up to being within the same county. You need to be aware of the rules, because if you are selling property to a foreign entity, you want to make sure that transaction can be completed. The last thing you want is to go through the negotiating process and have a transaction called back because of a ruling by CFIUS.
For most transactions, companies can submit a five-page declaration with the government, identifying who they are and who the foreign investor is and describing terms of the deal. CFIUS will either say it’s good to go, or it’s not happening, or initiate a notice process, which is a significantly longer filing for transactions that attract scrutiny. Transactions that involve an entity from Canada, Australia or the United Kingdom are exempted from this rule.
What are the dangers of being unaware of the new rule?
The worst-case scenario would be to close a sale of real estate to a foreign entity, only to find out later that the transaction fell within the scope of the rules and should have been reviewed, then have the government force you, as the seller, to undo the transaction. The risks and potential liability to the seller, both from having to walk back the sale and potential claims by the foreign investor buyer, are substantial.
From the perspective of the seller, it can be dangerous to sell to a foreign entity without a thorough review of the CFIUS rules to determine if they apply, and if there is any question, a review and recommendation by the committee. It is a good idea to address the potential outcomes of a CFIUS ruling in your real estate sales agreement to protect both parties.
How do you know if your transaction with a foreign entity requires review?
At a minimum, any transaction involving a foreign investor should include an analysis by legal counsel of the risks and applicability of the rules. For CFIUS review, even an American buyer with a minor stake held by a foreign entity could be treated as a foreign entity. The good news is that the transactions likely to attract scrutiny are pretty common sense. If you are a box company, it’s probably not an issue, unless you are located next to a military installation. But if you are a cutting-edge data processing firm, doing AI, lasers or technology, you should be aware of the rules. If not, this is an area where ignorance could really come back and bite you.
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Breaking Ground
(by Marc Felezzola)
The COVID-19 pandemic has resulted in a “new normal” that was likely not accounted for in pricing and scheduling for projects awarded prior to the pandemic (“existing projects”). As owners and contractors move forward with new projects in a post-pandemic world, there is incredible uncertainty to what extent COVID-19-related requirements will impact future projects (“Future Projects”). This article addresses some of the major risks that owners and contractors face on both existing projects and future projects.
Existing Projects
A. Impacts
The forced COVID-19 shutdown and subsequent resumption of existing projects will likely result in costs to contractors for demobilization and remobilization, downtime/standby, possible material and labor escalation costs, and extended general conditions (“primary impacts”). These primary impacts typically arise with every suspension or delay to a project and are not unique to COVID-19 forced stoppages. Whether and to what extent these costs are recoverable by contractors depends on the terms of the applicable contract, and in particular its force majeure language. However, because a force majeure event is by definition an event not caused by the owner or contractor, the parties typically bear their own costs associated with the delay caused by the force majeure event. The contractor cannot recover its delay/suspension costs but does get a schedule extension; and the owner cannot recover any costs it incurs as a result of the delay. If nothing else, the contractor will almost certainly be entitled to a change order extending the project schedule for at least the length of the forced shutdown.
Beyond the primary impacts are the costs and schedule impacts associated with resuming work under drastically different circumstances. These impacts range from new social distancing requirements and correlating prohibitions (e.g., limiting use of an elevator at the job site to one worker at a time; prohibitions on sharing equipment) and potential manpower caps (e.g., limits on workers allowed in enclosed portions of a job site in counties that remain in the red or yellow phase; government imposed limits on gathering sizes) to added direct job costs for handwashing stations, thermal scanners, and additional sanitization and personal protection equipment (“secondary impacts”). The aggregate result of these secondary impacts will be a reduction in efficiency, a forced change to contractors’ as-planned means and methods, and an increase in contractors’ direct job costs, all of which will result in a contractor seeking a change order for additional costs, additional time, or both.
On top of the primary and secondary impacts are indirect jobsite impacts in the form of material and equipment supply chain disruptions due to factory and manufacturing facility shutdowns or slowdowns, potential workforce shortages due to pandemic-related illness or concerns, and corresponding increases in materials, equipment, and labor prices (collectively, “tertiary impacts”). Some of these tertiary impacts will not be fully realized immediately, and each will further magnify the schedule impacts and additional costs discussed above.
At the same time, the post-pandemic world will look very different for owners. Certain projects previously fast-tracked as guaranteed revenue generators may lose their luster (e.g., movie theaters, certain restaurant projects, and some energy-related projects) prompting owners to voluntarily suspend the project even though construction may resume, or even terminating the project for convenience. For other projects, owners will want to consider whether to pay for acceleration measures to recover the time lost to the forced shutdown, or at least maintain the as-planned durations for construction work and limit any delay in completion to the time of the forced shutdown (i.e., pay for acceleration efforts necessary to offset schedule impacts of secondary and tertiary impacts). Social distancing requirements, potential manpower caps, and uncertainties surrounding available workforce members may hinder acceleration efforts; at the very least, it will likely make them more difficult and expensive than they would have been pre-pandemic.
Moreover, there remains significant potential for the forced shutdown of a particular project due to a potential or confirmed COVID-19 case at the jobsite. Similarly, the potential for another industry-wide shutdown looms with the threatened resurgence of the coronavirus in the fall. On the other hand, as the number of new COVID-19 cases continue to drop and restrictions are eased, contractors may begin to return to more and more pre-pandemic efficiencies and practices. Needless to say, the path forward remains uncertain.
B. Steps Owners and Contractors Can Take to Mitigate Impacts and Future Risks
What steps can owners and contractors take to address the above impacts and mitigate against future risks for existing projects?
Project owners, contractors, and all major subcontractors should meet to discuss the “new normal” of the post-pandemic landscape and reset project expectations. During this meeting, the parties should establish new safety protocols and procedures that comply with all relevant OSHA, CDC, state, and local governmental mandates. The Construction Industry Safety Coalition published a model COVID-19 Exposure Prevention, Preparedness, and Response Plan for Construction (available here: http://www.buildingsafely.org/wp-content/uploads/2020/04/CISC-COVID-19-Exposure-PreventionPreparedness-and-Response-PlanVersion-2-4838-8641-5802-3.docx) that may serve as a good starting point. The parties should also establish a new, workable construction schedule in light of the currently known circumstances and impacts. The parties could also consider what, if any, equitable price adjustment(s) they agree upon to address the secondary and tertiary impacts to contractors along with any owner-desired acceleration efforts the owner wants. As part of the equitable adjustment discussion, contractors and subcontractors should be prepared to discuss any mitigation efforts (and associated costs) available to overcome disruptions to supply chains, including alternative sourcing for key equipment to alleviate or overcome any delivery delays due to pandemic-related factory closures. Finally, the parties should consider establishing a contingency to account for potential future shutdowns and a plan for how to share savings, if any, realized by continued loosening of pandemic-related limitations.
Although collaboration and agreement on equitable adjustments will likely result in a more harmonious project, we anticipate some owners (and contractors with respect to their subcontractors) will cite no damage for delay language and force majeure language in their contracts to refuse price adjustments as a result of schedule impacts resulting from the pandemic. Contractors and subcontractors will respond by pointing to differing site conditions language, change in law clauses (to the extent their contracts have them), or other contract provisions entitling them to equitable price adjustments. In the event the parties do not agree about whether an equitable adjustment in price is warranted (or cannot agree on the amount of adjustment), contractors and subcontractors should strictly comply with any claims notice provisions in their contracts and keep track of all additional expenses, including expenses due to loss of efficiency or changes to as-planned means and methods, using a force account.
The outcome of disputes over the propriety and amount of equitable price adjustments will ultimately turn on a number of factors, including the relevant contract language. However, owners and contractors should expect judges, juries, and arbitrators to be sympathetic that contractors’ and subcontractors’ pricing did not contemplate and account for COVID-19 impacts and it may be unfair to saddle them with those costs when they are incurred for the benefit of constructing the owner’s project. Thus, owners should expect courts, juries, and arbitrators to look for ways to provide at least some price relief to contractors and subcontractors even in situations where the owners have the most stringent contract language in their favor.
Future Projects
Parties to contracts for future projects will no longer be able to claim that they could not expect or foresee pandemic-related impacts. Beyond that, the impact of COVID-19 on future projects remains uncertain. Will new cases of COVID-19 continue to drop? Is a vaccine or therapeutic treatment on the horizon that would enable an even more accelerated return to the status quo? Will loosening of restrictions and cooler temperatures result in a “second wave” of infections?
Because of these uncertainties, in addition to agreeing upon safety protocols and procedures for addressing COVID-19 risks and potential exposure at the jobsite, parties negotiating construction contracts should include a pandemic contingency specifically earmarked for addressing and covering unanticipated costs due to pandemic-related causes. The parties can negotiate language to address how and when the contingency monies are to be distributed; how to distribute any unspent contingency monies (i.e., “savings”); and whether, and to what extent, the owner is obligated for pandemic-related costs over and above the contingency amount. This can also be considered a learning experience to highlight that “force majeure” clauses should be considered carefully and drafted to reflect the true intent of the parties.
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RMMLF Water Law Newsletter
(By Lisa M. Bruderly)
On September 4, 2020, the U.S. Army Corps of Engineers (Corps) published, for 30-day public comment, draft Pennsylvania State Programmatic General Permit 6 (PASPGP-6). See Corps, Special Pub. Notice SPN 20-57 (Sept. 4, 2020). The public notice was jointly issued by the Corps’ Baltimore, Philadelphia, and Pittsburgh Districts. PASPGP-6 would replace the current PASPGP-5, which was issued on July 1, 2016, and will expire on July 5, 2021, unless suspended or revoked prior to that date.
PASPGP-6 would be issued under section 404(e) of the Clean Water Act, 33 U.S.C. § 1344(e), which allows the Corps to issue general permits on a statewide basis for categories of activities involving discharges of dredged or fill material to “waters of the United States” (WOTUS) if the Corps determines that the activities (1) are similar in nature, (2) will cause only minimal environmental impact when performed separately, and (3) will have only minimal cumulative adverse impacts on the environment. In Pennsylvania, the Corps relies primarily on the state programmatic general permit, rather than nationwide permits, to authorize impacts to regulated waters that meet the criteria of the general permit. Projects impacting WOTUS that do not qualify for coverage under the programmatic permit must obtain an individual permit under section 404.
As discussed below, PASPGP-6 would revise PASPGP-5 in several ways that would likely impact energy projects in Pennsylvania, especially natural gas pipelines. Generally, PASPGP-6 is expected to ease permitting obligations for projects with temporary impacts, and to impose more stringent threshold eligibility and reporting requirements for projects with permanent impacts to regulated waters. The proposed general permit would also require consideration of cumulative effects of the overall project when determining whether the project required additional Corps review.
Revised Project Eligibility
Eligibility Thresholds. PASPGP-6 would change the eligibility thresholds for projects with temporary and/or permanent impacts. Currently, projects that would result in greater than one acre of temporary and/or permanent impacts to WOTUS are not eligible for coverage under PASPGP-5. PASPGP-6 would reduce the eligibility threshold for permanent impacts to 0.5 acre but would eliminate the eligibility threshold for temporary impacts. Consequently, projects involving more than one acre of temporary impacts or “non-adverse permanent impacts,” which are not eligible for PASPGP-5, could be eligible for PASPGP-6. However, projects involving permanent im-pacts of between 0.5 and one acre, which are currently eligible for PASPGP-5, would no longer be eligible for PASPGP-6, thereby potentially requiring more projects to obtain individual permitting.
Eligible Waters. In addition to the eligibility thresholds based on the extent of impacts, PASPGP-6 would expand its coverage to certain section 10 waters, which are currently ineligible for coverage under PASPGP-6. “Section 10 waters” are waters that are considered as navigable under section 10 of the River and Harbor Act of 1899, 33 U.S.C. § 403.
Under PASPGP-5, projects impacting certain segments of 12 section 10 waters are ineligible for general permit coverage. However, 10 of those waterbodies (i.e., all of the Ohio, Beaver, Little Beaver, Mahoning, and Monongahela Rivers, and certain portions of the Youghiogheny, Allegheny, and Kiskiminetas Rivers, Tenmile Creek, and Lake Erie) would be eligible under PASPGP-6. Thus, projects impacting these waterbody segments could obtain coverage under PASPGP-6 if other applicable criteria are met. The remaining two waterbodies (i.e., certain segments of the Delaware River and the Schuylkill River) would remain ineligible for programmatic permitting.
Projects impacting the relevant segments of the Allegheny, Monongahela, and Ohio Rivers and Lake Erie would become “Reporting Activities” under PASPGP-6.
Revised Reporting Requirements
Reporting Thresholds. Many eligible projects are authorized by the programmatic general permit without further notification to the Corps (i.e., “Non-Reporting Activities”). Other projects, referred to as “Reporting Activities,” must undergo a project-specific review by the Corps prior to receiving authorization. PASPGP-6 identifies several changes to the “Non-Reporting Thresholds,” under which projects qualify as Non-Reporting Activities.
- Permanent Impacts. Under PASPGP-6, projects involving less than 0.25 acre of permanent impacts would qualify as Non-Reporting Activities, while projects involving from 0.25 to 0.5 acre of permanent impacts would generally be classified as Reporting Activities. This revision would make PASPGP-6 more stringent that PASPGP-5, which does not require reporting unless permanent impacts are greater than 0.5 acre. In addition, projects involving more than 250 linear feet of permanent impacts to WOTUS (excluding wetlands) would generally continue to be a Reporting Activity under PASPGP-6, with certain exceptions for state-permitted restoration activities. Projects proposing the permanent conversion of more than 0.1 acre of forested and/or scrub-shrub wetland would no longer be a Reporting Activity under PASPGP-6.
- Temporary Impacts. Under PASPGP-6, projects involving less than one acre of temporary impacts would qualify as Non-Reporting Activities, while projects involving greater than one acre of temporary impacts would be considered as Reporting Activities. This change would make PASPGP-6 less stringent than PASPGP-5, under which temporary impacts greater than 0.5 acre would require reporting. Finally, under PASPGP-5, projects involving temporary impacts lasting longer than one year are a Reporting Activity, while under PASPGP-6, such projects only require reporting if the temporary impacts are greater than 0.1 acre.
Utility Line-Specific Reporting and Non-Reporting Activities. PASPGP-6 would change the classification of certain Reporting and Non-Reporting Activities for utility lines, which would directly impact natural gas pipeline construction and operation in Pennsylvania. Specifically, utility line crossings of WOTUS (including wetlands) exceeding 500 linear feet are currently Reporting Activities under PASPGP-5. However, they would not be Reporting Activities under PASPGP-6. Instead, under PASPGP-6, a utility line stream crossing is non-reporting provided the project is authorized by Pennsylvania Department of Environmental Protection General Permit 5 (GP-5 – Utility Line Stream Crossing).
Buried utility lines in WOTUS (including wetlands), where a utility line runs parallel to or along a stream bed, would no longer be a Reporting Activity under PASPGP-6.
Single and Complete Project Versus Overall Project. PASPGP-6 reintroduces a distinction between the impacts that determine eligibility with PASPGP-6, and the impacts that determine reporting to the Corps. Such a distinction was removed from PASPGP-5, but has been added to the draft PASPGP-6. Under PASPGP-6, the eligibility threshold would be based on the impacts associated with the “Single and Complete Project.” However, the reporting threshold would be based on the cumulative effects associated with the “Overall Project.” For linear projects (e.g., pipelines), when crossing a single (or multiple) waterbody several times at separate and distant locations, each crossing is considered a Single and Complete Project for purposes of PASPGP-6 verification. The Overall Project is more broadly defined to include “all regulated activities that are reasonably related and necessary to accomplish the project purpose, including those activities that may occur in the reasonably foreseeable future.” The anticipated effect of this change in identifying Reporting Activities is that more projects would be required to be reported to the Corps for review, likely causing delays in obtaining permitting approval.
Takeaways and Next Steps
In many respects, PASPGP-6 would likely benefit developers of energy projects in Pennsylvania, particularly natural gas pipeline operators, by removing the one-acre eligibility threshold for temporary impacts, allowing use of PASPGP-6 for certain section 10 waters, and reclassifying certain projects as non-reporting. However, other projects may be adversely delayed or impacted by the reduced eligibility threshold for permanent impacts, as well as the consideration of the cumulative effects of the overall project in determining reporting activities. The final PASPGP-6 draft is expected to be released for public comment this spring.
Copyright © 2020, The Foundation for Natural Resources and Energy Law, Westminster, Colorado
The Legal Intelligencer
(by James Miller and Benjamin Wright)
The recent decision in STI Oilfield Services v. The Williams Companies, Inc. f/k/a Access Midstream Partners, No. 2018-1003 C.P. (Pa. Com. Pl., Susquehanna County, March 16, 2020 Opinion), highlights the challenges those in the construction industry face when contractors or subcontractors seek additional compensation based upon an alleged oral change order or modification, even when the underlying contract contains a clear “no oral modification” (NOM) clause.
Most construction contracts contain one or more NOM clauses, including a requirement that valid change orders be in writing. Generally, these clauses provide that a contract cannot be modified absent a writing executed by the parties. This is intended to avoid having the carefully drafted written agreement of the parties set aside based on alleged oral conversations that are often supported only by memory or by piecing together evidence of conduct of the parties. Oral modifications naturally breed disagreements, misunderstandings and protracted litigation—everything a well-written contract seeks to avoid. However, Pennsylvania courts have not strictly enforced NOM clauses, especially with respect to construction contracts and alleged oral change orders for extra work.
In Universal Builders v. Moon Motor Lodge, 244 A.2d 10, 15 (Pa. 1968) the Pennsylvania Supreme Court held that, outside of a contract subject to the statute of frauds, a written “contract can be modified orally although it provides that it can be modified only in writing.” “Construction contracts typically provide that the builder will not be paid for extra work unless it is done pursuant to a written change order, yet courts frequently hold that owners must pay for extra work done at their oral direction.” “The effectiveness of a nonwritten modification in spite of a contract condition that the modifications must be written depends upon whether enforcement of the condition is or is not barred by equitable considerations, not upon the technicality of whether the condition was or was not expressly and separately waived before the non-written modification.”
Courts have significant discretion in determining whether to allow oral modification claims to survive dispositive motions and move to trial. When exercising that discretion, courts look to multiple equitable factors including estoppel, the “waiver of the [NOM] or the existence of some sort of fraud, mistake, accident or reliance.” See Delaware River Port Authority v. Thornburgh, 585 A.2d 1123, 1128 (Pa. Commw. Ct. 1989) (citing Universal Builders, 244 A.2d at 16). The evidentiary standard generally required for proving oral modification of a written agreement is “clear and convincing evidence,” but the protection this higher standard offers to contracting parties who do not believe an oral modification occurred often arrives too late, at trial after incurring significant litigation costs.
In Somerset Community Hospital v. Allan B. Mitchell & Associates, 685 A.2d 141, 146 (Pa. Super. Ct. 1996), the Superior Court was presented with the issue of whether an architect who performed design work for a hospital was entitled to seek additional fees for its alleged increased scope of work based upon oral agreements with the hospital, even where the underlying contract contained an NOM clause. The court determined that “an agreement that prohibits nonwritten modification may be modified by subsequent oral agreement if the parties’ conduct clearly shows the intent to waive the requirement that the amendments be made in writing,” (citing Accu-Weather v. Prospect Communications, 644 A.2d 1251 (Pa. Super. Ct. 1994)). Specifically, the court looked to the parties’ conduct and determined that the parties’ representatives’ actions effectively waived the no-written modification clause of the contract.
In James v. N. Allegheny School District, 938 A.2d 474, 487 (Pa. Commw. Ct. 2007), the Pennsylvania Commonwealth Court held that a contractor could recover its costs for extra work even though it did not comply with the NOM clause and written notice provisions contained in the contract. In making its decision, the court considered similar factors to those in Somerset Community Hospital, Delaware River and Universal Builders.These included that the owner’s representative orally directed the extra work; the owner had knowledge the work was performed and the associated costs; the contractor submitted written documentation of the extra work after it was performed; and the owner was not materially prejudiced by the late notice of the extra work claim. Thus, based on those factors, the court concluded, “Owner, having directed contractor to perform the additional work asserting it was required by contract, cannot now disavow liability for costs incurred by claiming Contractor did not have written authorization,” (citing A.G. Cullen Construction v. State System of Higher Education, 898 A.2d 1145, 1171 (Pa. Commw. Ct. 2006) and Derry Township School District v. Suburban Roofing, 517 A.2d 225 (Pa. Commw. Ct. 1986)).
In STI Oilfield, the court addressed these legal issues in the context of written contracts between the project owner and contractor for four pipeline construction projects. After the projects were substantially completed, the contractor notified the owner of change order claims totaling almost double the aggregate original contract price. STI Oilfield, No. 2018-1003 C.P., p. 9 (March 16, 2020 Opinion).
None of the contractor’s claims complied with contract provisions regarding notice, written change order procedures or the general NOM clause. In many instances, the alleged extra work at issue occurred months prior to the owner receiving notice of the claim. The most significant claim was based on alleged oral agreements made prior to entering the contract and during its performance that purportedly required the owner to compensate the contractor for additional costs due to adverse weather conditions. This alleged oral agreement directly contradicted the written contract terms, which expressly provided the contractor was not entitled to additional compensation due to weather. The other claims largely involved more standard allegations of extra work, such as removal of rock from the right-of-way, preparation for a hurricane, and additional labor and materials to comply with an updated winter work specification.
Judge Jason Legg of the Susquehanna County Common Pleas Court granted partial summary judgment on the most significant change order claim regarding adverse weather costs. Citing Nicolella v. Palmer, 248 A.2d 20, 23 (Pa. 1968) and persuasive authority of Smith v. Phillips Pipe Line, 128 F.Supp. 61 (N.D. Okla. 1955), Legg found the parol evidence rule barred evidence of alleged pre-contract oral agreements concerning extra compensation due to weather. The court further held the claims related to the alleged post-contract oral agreement regarding weather costs failed because the contract language precluding additional compensation due to weather prevented any finding that the cost overruns could constitute extra work. The court further reasoned that even if the alleged subsequent oral modifications occurred, they were unenforceable due to lack of consideration since adverse weather was included in the original scope of the contract. The court held that performance of a preexisting contractual duty cannot constitute consideration for a contract modification.
However, Legg refused to dismiss the contractor’s other claims for alleged out-of-scope work. Legg followed an earlier decision in the case that relied on the reasoning of James and related precedent in allowing the claims to survive summary judgment and move to trial. The court that held noncompliance with the NOM clause and written change order provisions was not sufficient to dismiss the claims as a matter of law because questions of fact existed as to whether the contractor was directed to perform extra work and whether noncompliance with the contract caused prejudice to the owner. Thus, despite the existence of NOM provisions, the court found the contractor’s testimony of an oral agreement and performance of the work was sufficient to avoid summary judgment.
When drafting construction contracts, parties should keep these cases in mind and seek to craft provisions that go beyond the standard NOM clause or written change order provision to avoid disputes and protracted litigation regarding oral modification. The potential options are limited only by the parties’ creativity and circumstances of the transaction. The following are a few provisions to consider: requiring the contractor/subcontractor deliver advance written notice of the extra work to specific nonfield personnel as a condition precedent to authority to perform the work; making a signed written change order an express condition precedent to authority to perform extra work and receive payment; defining the personnel who have authority, and the extent of their authority, to modify the contract or order extra work; express language that the parties agree failure to comply with the change order provisions will cause material prejudice, and perhaps even listing the reasons why; defining the necessary evidentiary support that must be submitted with a change order, including tracking extra work costs; identifying a definite claim deadline upon which a party forfeits or waives a claim; and utilizing broad claim waiver forms the contractor/subcontractor must submit with each pay application, including progress payments and final payment, as a condition precedent to payment. These contractual tactics may not eliminate the risk posed by claims of oral modification, but they serve to encourage timely submission of legitimate claims, discourage the fabrication of oral change order claims, and promote the early resolution of claims if litigation ensues.
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Reprinted with permission from the July 2, 2020 edition of The Legal Intelligencer© 2020 ALM Media Properties, LLC. All rights reserved.