The PIOGA Press
(by Robert Stonestreet)
On December 16, the United States Fish and Wildlife Service adopted a final regulation to define the term “habitat” for use when designating “critical habitat” areas under the Endangered Species Act (ESA). 85 Fed Reg 81411. The ESA already defines the term “critical habitat,” which in general means areas designated as essential to preserve or promote recovery of threatened or endangered species regardless of whether those species are actually present in the area. The term “habitat,” however, is not itself defined in the ESA or pre-existing regulations.
The Service proposed two potential “habitat” definitions in August 2020 for public comment. In the final rulemaking, the Service chose to adopt a “habitat” definition markedly different than the two definitions proposed for public comment back in August. The adopted definition reads as follows:
For the purposes of designating critical habitat only, habitat is the abiotic and biotic setting that currently or periodically contains the resources and conditions necessary to support one or more life processes of a species.
According to the Service, abiotic means “derived from non-living sources such as soil, water, temperature, or physical processes” and the term biotic means “derived from living sources such as a plant community type or prey species.” The preamble portion of the Federal Register entry notes that the phrase “resources and conditions” is intended to clarify that habitat “is inclusive of all qualities of an area that can make that area important to the species.”
Compare that definition to the two definitions proposed for public comment on August 5, 2020, which appear below:
Primary Proposed Definition: The physical places that individuals of a species depend upon to carry out one or more life processes. Habitat includes areas with existing attributes that have the capacity to support individuals of the species.
Alternate Proposed Definition: The physical places that individuals of a species use to carry out one or more life processes. Habitat includes areas where individuals of the species do not presently exist but have the capacity to support such individuals, only where the necessary attributes to support the species presently exist.
The Service noted that the revised version of the adopted definition takes into account the approximately 48,000 public comments submitted to the agency.
This rulemaking was a response to litigation over what areas the Service could designate as critical habitat that is not occupied by a listed species. Weyerhaeuser Co. v. United States Fish and Wildlife Service, 139 S. Ct. 361 (2018). In Weyerhaeuser, the Service designated an area as critical habitat for a species even though that species could not survive in the area under current conditions. The Service reasoned that the area was once occupied by the species, and certain modifications could be made in the future that would allow the species to return to the area. The United States Supreme Court ruled that the Service could not designate an area as critical habitat for a listed species that was not “habitat” for that species in the first place―i.e. an area where the species could survive.
The Service seems to acknowledge that the adopted “habitat” definition would preclude the type of designation at issue in Weyerhaeuser. In response to comments that the proposed definition would improperly preclude areas that require restoration from being designated as critical habitat, the Service noted that “habitat, whether occupied or unoccupied, must still have (currently or periodically) the resources and conditions necessary to support one of the life processes for the species.” According to the Service, “the definition respects the statutory text by distinguishing between habitat and areas that are not habitat (but can become habitat in the future, whether by virtue of restoration activities or because of other changes).”
The regulation becomes effective on January 15 and will apply only to proposed critical habitat rulemakings published in the Federal Register after that date.
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The PIOGA Press
(by Keith Coyle and Brianne Kurdock)
On December 27, President Donald J. Trump signed the Protecting Our Infrastructure of Pipelines and Enhancing Safety Act of 2020 (2020 PIPES Act) into law. Adopted as part of a broader federal spending and COVID-19 relief package, the signing of the 2020 PIPES Act represents the culmination of a multiyear effort to reauthorize the nation’s federal pipeline safety program. The prior reauthorization of the federal pipeline safety program, enacted in the Protecting Our Infrastructure of Pipelines and Enhancing Safety Act of 2016 (2016 PIPES Act), expired on September 30, 2019.
The 2020 PIPES Act authorizes general funding for the Pipeline and Hazardous Materials Safety Admin – istration’s (PHMSA) gas and hazardous liquid pipeline safety programs of $156.4 million for fiscal year 2021, $158.5 million for FY 2022, and $162.7 million for FY 2023, with additional amounts authorized in each of these fiscal years from the Oil Spill Liability Trust Fund for hazardous liquid pipeline safety and the user fee program for underground gas storage facilities. The 2020 PIPES Act also prescribes specific funding amounts that PHMSA must use for certain activities, including for recruitment and retention of federal pipeline safety personnel, operational expenses, and federal grant programs.
In addition to authorizing funding levels through FY 2023, the 2020 PIPES Act contains several amendments to the federal pipeline safety laws. Some of the key changes are highlighted below.
Title I of the 2020 PIPES Act:
- Establishes a new three-year program for advancing pipeline safety technologies, testing and operational practices.
- Adds an operator’s self-disclosure to the list of factors that PHMSA must consider in assessing administrative civil penalties.
- Recognizes additional due process protections for PHMSA enforcement proceedings, including that:
- An operator be allowed to request that matters of fact and law be resolved in a consent agreement and consent order.
- An operator and PHMSA be permitted to convene meetings for purposes of reaching a settlement or simplification or other disposition of issues.
- The case file in an enforcement action include all pertinent agency records.
- An operator be allowed to reply to PHMSA’s post-hearing submissions and request that a hearing be held on an expedited basis.
- PHMSA carry the burden of proof, presentation, and persuasion in an enforcement proceeding.
- PHMSA issue a post-hearing recommendation not later than 30 days after the deadline for any post-hearing submission of a respondent.
- PHMSA issue an order within 120 days of the filing of a petition for reconsideration.
- An operator be allowed to ask PHMSA to issue a declaratory order to resolve issues of controversy or uncertainty.
- Requires PHMSA to notify the public of an enforcement hearing and provides that the agency will make formal hearings, as defined in 49 C.F.R. § 190.3, open to the public. Currently, PHMSA’s enforcement cases, with the exception of a hearing on an emergency order, are conducted informally and do not qualify as formal hearings.
- Directs PHMSA to post the charging and responsive documents related to an enforcement action along with the decision or order on its website. For the most part, PHMSA has already been posting these materials on its website.
- Requires PHMSA to issue a final rule within two years that clarifies the applicability of the pipeline safety regulations to idle pipelines, which are defined as pipelines that have ceased normal operations and will not resume service for at least 180 days, have been isolated and purged, or contain small, non-hazardous volumes of gas.
- Directs PHMSA to issue a final rule within three years updating the federal safety standards for the operation and maintenance of large-scale liquefied natural gas facilities, other than peak shaving facilities.
- Following the submission of a report to Congress and subject to the appropriation of necessary funding, authorizes PHMSA to create the National Center of Excellence for Liquefied Natural Gas Safety.
- Requires PHMSA to issue a final rule within 90 days establishing new minimum federal safety standards for onshore gas gathering lines.
- Orders PHMSA to issue new leak detection and repair program rules within one year for operators of regulated gas gathering lines, gas transmission lines and gas distribution lines.
- Requires each operator to amend its operation and maintenance plan within one year to meet the leak detection and repair program requirements of 49 U.S.C. § 60102(q).
- Directs PHMSA to review each operator’s operation and maintenance plan within two years of the act and not less than five years thereafter. This review may be included as a part of a regularly scheduled inspection.
- Requires PHMSA to make a determination on whether to advance the rulemaking proceeding for updating the class location requirements.
- Directs PHMSA to enter into an agreement with the National Academy of Sciences to complete a study within two years relating to the installation of automatic or remote-controlled shutoff valves on existing gas transmission lines in high consequence areas and existing hazardous liquids pipelines in commercially navigable waterways or unusually sensitive areas.
- Defines the terms “certain coastal waters” and “coastal beach” and requires PHMSA to complete an outstanding rulemaking mandate for these areas from the 2016 PIPES Act within 90 days.
- Requires each hazardous liquid pipeline operator to implement procedures that assess potential impacts by maritime equipment or other vessels, including anchors, anchor chains or any other attached equipment.
- Amends the reporting obligation for safety-related condition reports to require an operator to submit the report to the secretary of transportation, the appropriate state authority and the tribe where the subject of the report occurred. If there is no state authority, the operator must submit the report to the governor of the relevant state.
Title II of the 2020 PIPES Act, also known as the Leonel Rondon Pipeline Safety Act, contains several amendments to the federal pipeline safety laws in response to a September 2018 gas distribution incident in the Merrimack Valley, Massachusetts. In particular, Title II of the 2020 PIPES Act:
- Requires PHMSA to issue regulations within two years amending the integrity management program, emergency response plan, operation and maintenance manual and pressure control recordkeeping requirements for gas distribution operators.
- Directs PHMSA to submit a report to Congress within three years on the implementation of pipeline safety management systems within the gas distribution industry.
- Orders PHMSA to issue regulations within 180 days requiring that at least one qualified agent of a gas distribution operator be present at a district regulator station or other site to monitor and prevent overpressurization during certain construction projects, unless the district regulator station has a monitoring system and the capability for remote or automatic shutoff.
- Mandates that PHMSA issue regulations within one year that require gas distribution operators to assess and upgrade district regulator stations.
The product of an agreement reached in the waning days of the current session of Congress, the 2020 PIPES Act does not contain several amendments proposed during earlier phases of the legislative process. The 2020 PIPES Act does not eliminate PHMSA’s obligation to consider the costs and benefits of changes to the pipeline safety regulations or prohibit the use of direct assessments as part of a pipeline operator’s integrity management program. The act does not change the mens rea (or mental state) requirement in the criminal statute or expand the list of prohibited activities covered under the criminal provision. Nor does the act authorize the use of administrative law judges in PHMSA enforcement actions, increase the amount of civil penalties that can be imposed for violations of the pipeline safety laws or regulations, or authorize the filing of mandamus actions challenging PHMSA’s failure to perform nondiscretionary duties.
The task of implementing the provisions in the 2020 PIPES Act will fall on the incoming administration of President-elect Joseph R. Biden. Having emphasized environmental issues during the 2020 campaign, including efforts to address climate change through reductions in greenhouse gas emissions, the Biden administration will have the opportunity to advance these commitments in addressing the rulemaking mandates in the 2020 PIPES Act, particularly the new leak detection and repair program requirements. The Biden administration’s policy preferences and appointees for key positions will influence the implementation of the 2020 PIPES Act as well. President-elect Biden has already announced that Pete Buttigieg, the former mayor of South Bend, Indiana, will be his nominee to serve as the next secretary of the U.S. Department of Transport – ation, although a potential nominee for PHMSA administrator may not be announced until later this year.
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Renewables Law Blog
(By Christopher Hall)
Following the passage of West Virginia Senate Bill 583 in early 2020, West Virginia has seen an uptick in the number of new proposed renewable energy projects. SB 583 established a new incentive program supporting the development of renewable energy facilities on former industrial sites. Berkeley County, in the eastern panhandle, recently announced a proposed 100 MW solar facility to be built on a 750 acre brownfield site previously used as a manufacturing facility. Read more.
Tags: energy, renewable, SB 583, solar, tax credits, West Virginia Senate Bill 583
Renewables Law Blog
(By Christopher Hall)
The recently approved federal spending bill for 2021 appropriations (December 27, 2020) included extensions to the federal solar investment tax credit (ITC) and wind production tax credit (PTC). The ITC and PTC provide significant financial incentives to the growing renewable energy industry. The ITC is a tax credit that can be claimed on federal corporate income taxes for a percent of the cost of a solar photovoltaic (PV) system that is placed in service. The ITC, which was scheduled to step down from 26% to 22% in 2021, has been extended at its current 26% rate for an additional two years through 2023. The PTC is a per-kilowatt-hour (kWh) tax credit for electricity generated using qualified energy resources including wind, and was scheduled to phase down from 60% of the original credit to 40% in 2021. The new spending bill included an extension of the 60% rate for an additional year through 2021. Projects must be commenced prior to the expiration of the new extension deadlines in order to qualify for the current tax credit rate. Please click here for more information.
Tags: energy, federal solar investment tax credit, federal spending bill, ITC, PTC, renewable, solar, tax credits, wind, wind production tax credit
Smart Business
(by Sue Ostrowski featuring Donald Bluedorn)
A business continuity plan helps protect your business both today and into the future in a way consistent with your goals and culture. But it’s not just about planning for contingencies this time. The pandemic has changed the way businesses need to approach their plans, says Attorney Donald C. Bluedorn II, managing shareholder at Babst Calland.
“Things are much different than a year ago, and along with business and operational contingencies, companies should review their legal and regulatory risks and opportunities as well,” he says.
Smart Business spoke with Bluedorn about how to ensure your business continuity plan moves your business seamlessly forward.
What changes during the pandemic are now either beneficial or detrimental to Business operations?
Businesses need to reimagine how they operate and create a proactive mindset around challenges the business or industry is facing. Are there any advantages or savings in how you operated last year that are sustainable or should be adopted?
Concerns with significant legal and contractual commitments are likely to emerge. And as people re-enter the physical workplace, or not, there may be employment issues. In addition, new leadership at the federal level could pose legal challenges and create evolving tax issues. In the Western Pennsylvania region, this could result in changes to energy regulations, a risk for some but an opportunity for others. Environmental compliance and regulatory obligations are also likely changing, and trusted advisers can help you navigate these challenges and incorporate them in your plan.
It’s an opportune time to review your plan from a business risk or legal and regulatory perspective. Are vendors fulfilling their commitments and are you fulfilling your own contractual obligations? Look at your real estate needs going forward. Will you need as much space? Will it be configured the same way? If you need to change your footprint, begin reviewing your leases now.
Audit your environmental and regulatory obligations to see if you can reduce spending while maintaining the same level of compliance. It goes without saying that your inside or outside legal counsel is integral to this entire process. In addition, litigation has changed dramatically. With court closures, re-evaluate litigation to determine whether there is an opportunity to change your strategy with a more cost-effective, faster way to achieve your goals.
What should you be thinking about with your business continuity plan?
Think about the impacts on the business, as well as your employees, that were prompted by the challenges of the pandemic. Revisit and reanalyze your plans in light of the pandemic and its impact on achieving your business goals. Consider your challenges and opportunities, keeping one eye on protecting people and the other on positioning and maintaining and growing the business.
How should a business continuity plan address technology issues?
It should address whether you have enough licenses and sufficient infrastructure to have everyone work at the same time and whether you have protocols to address issues, making sure you have the capability to seamlessly transfer work and recover data.
The second concern is data and cybersecurity. The pandemic has created new risks for companies — and new opportunities for cyberhackers. Rethink and aggressively address security. Keep an eye on potential risks and continue assessing the need to make changes relevant to legal, regulatory and insurance matters that may have greater costs and risk to the business if they aren’t promptly addressed.
How should a plan incorporate the importance of people?
Be aware of your employees’ concerns and be sensitive to ways to protect them. Then think creatively about how to safely re-enter the workplace while achieving your business goals, incorporate what you will do if people get sick and be flexible on schedules.
Remember that, as uncertain, fearful and anxious as you may be about the future of your business, your people are just as fearful. If you can help them through it, you will emerge with a much better culture.
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RMMLF Water Law Newsletter
(By Lisa M. Bruderly)
On September 15, 2020, the U.S. Army Corps of Engineers (Corps) published proposed revisions to certain nationwide permits (NWPs) under section 404 of the Clean Water Act (CWA), 33 U.S.C. § 1344, for discharges of dredged and fill material into waters of the United States. See Proposal to Reissue and Modify NWPs, 85 Fed. Reg. 57,298 (proposed Sept. 15, 2020). At that time, the Corps proposed to reissue all NWPs, rather than only reissuing those with proposed changes. However, on January 13, 2021, the Corps published the final NWP rule, reissuing only 12 existing NWPs, issuing four new NWPs, and reissuing the NWP general conditions and definitions with limited modifications. See Reissuance and Modification of NWPs, 86 Fed. Reg. 2744 (Jan. 13, 2021). The 16 reissued/issued NWPs are effective on March 15, 2021, and will expire on March 14, 2026.
Of particular interest to the oil and natural gas industry is the Corps’ decision to divide the existing NWP 12 (utility line activities) into three NWPs, depending on the type of utility line: oil and natural gas pipeline activities (NWP 12), electric utilities and telecommunications (NWP 57), and utility lines for water and other substances (NWP 58).
State/Regional NWP Conditions
On September 30, 2020, the Corps’ Baltimore, Philadelphia, and Pittsburgh Districts proposed, in SPN-20-62, draft state/regional conditions for the proposed NWPs, as well as a list of “Final 2020 Nationwide Permit Suspensions” for Pennsylvania, among other states/geographic locations. The proposed regional conditions for Pennsylvania pertained to 22 NWPs and six general conditions, including the requirements for completing a pre-construction notification (PCN). The Corps’ Districts asked for comments on the proposed regional conditions and on the need for additional regional conditions to help ensure that the adverse environmental effects of authorized activities would be no more than minimal. The public comment period closed on November 16, 2020. When finalized, the final regional conditions will likely not include the proposed regional conditions pertaining to NWPs that were not reissued in January 2021.
Changes to Regional Conditions for NWP 12. The proposed regional conditions for the reissued NWP 12 differ in notable ways from the regional conditions for the 2017 NWP 12. Many of the 2017 regional conditions have been removed. For example, the proposed regional conditions would eliminate the prohibition from using NWP 12 in Pennsylvania for projects involving the permanent loss of more than 300 linear feet of stream bed for a single and complete project. Among other changes, the proposed regional conditions would also introduce the requirement for pipeline projects completed by horizontal directional drilling or other boring methods to include in their PCN a plan to address the prevention, containment, and cleanup of sediment or other materials caused by inadvertent returns of drilling fluids to waters of the United States.
Change in Scope of NWP Suspensions. Typically, the Pennsylvania State Programmatic General Permit (currently, PASPGP-5) is the mechanism that the Pennsylvania Department of Environmental Protection (PADEP) and the Corps rely upon to permit projects in Pennsylvania with impacts to regulated waters, which do not trigger the need for individual section 404 permitting. With the availability of the state programmatic permit, 34 NWPs (including NWP 12) have typically been suspended in Pennsylvania, except in certain section 10 waters and, for certain NWPs, when the regulated activity or indirect impacts extend across state boundaries. (“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.)
The “Final 2020 Nationwide Permit Suspensions” for Pennsylvania, issued with SPN-20-62, however, could significantly expand the use of these 34 NWPs by adding a provision that the suspensions do not apply for “Areas within Pittsburgh District’s area of responsibility in the Commonwealth of Pennsylvania.” This exception to the NWP suspensions could significantly increase the use of NWPs in the western part of Pennsylvania. However, reliance on the NWPs is not certain because the Pittsburgh District will still have discretion to utilize the most efficient and effective permitting tool in its evaluation of a specific action.
Conditional State Water Quality Certification for NWPs
On October 15, 2020, the Corps’ Baltimore District, on behalf of the Corps’ Baltimore, Philadelphia, and Pittsburgh Districts, requested that PADEP provide State Water Quality Certification (SWQC) under section 401 of the CWA, 33 U.S.C. § 1341, for discharges of dredged and fill material into waters of the commonwealth that are authorized by the proposed NWPs. PADEP published its proposed conditional SWQC on October 31, 2020. See 50 Pa. Bull. 6062 (Oct. 31, 2020). The public comment period for the proposed SWQC closed on November 30, 2020. One comment letter was received.
Pennsylvania’s conditional SWQC became effective on December 15, 2020. See 51 Pa. Bull. 238 (Jan. 9, 2021). The three conditions of the SWQC are summarized below:
- All necessary environmental permits or approvals must be obtained and all necessary environmental assessments must be submitted to PADEP before beginning any activity authorized by the Corps under a NWP.
- Fill material may not contain any waste as defined in the Solid Waste Management Act, 35 Pa. Stat. §§ 6018.101–.1003.
- Applicants and projects eligible for these NWPs must obtain all necessary state permits and/or approvals to ensure that the project meets the state’s applicable water quality standards, including any project-specific SWQC.
PADEP’s SWQC is conditional because it is based on the Corps’ September 15, 2020, proposed NWPs. PADEP has reserved the right to amend or withdraw this conditional SWQC if the language set forth in the final NWPs, Pennsylvania suspensions, or regional conditions published by the Corps “differs so substantially from the language in the proposed NWPs, Pennsylvania suspensions or regional conditions that the conditions contained herein can no longer insure compliance with Pennsylvania’s State Water Quality Standards Program.” 51 Pa. Bull. at 239. PADEP has not indicated whether it will revise the conditional SWQC based on the changes in the scope of the final NWPs.
Proposed Rulemaking—Revisions to Dam Safety and Water Management Regulations
On December 5, 2020, the Pennsylvania Department of Environmental Protection’s (PADEP) proposed amendments to 25 Pa. Code ch. 105 were published in the Pennsylvania Bulletin. See 50 Pa. Bull. 6863 (Dec. 5, 2021). Among other purposes, chapter 105 regulates obstructions and encroachments along or within waters of the commonwealth, similar to the U.S. Army Corps of Engineers’ section 404 permitting program under the Clean Water Act. The public comment period for the proposed rulemaking closed on February 3, 2021. The amendments will become effective upon final publication in the Pennsylvania Bulletin.
In addition to adding and/or amending at least 20 definitions, the proposed rulemaking would make several other changes to chapter 105. Among other revisions, the proposed rulemaking would (1) clarify existing waivers and add permit waivers for certain low impact structures and activities; (2) add antidegradation and cumulative impacts subsections to the applicant information requirements; (3) amend the environmental assessment provisions to add application information requirements specific to environmentally beneficial projects; (4) update provisions relating to compensatory mitigation obligations for proposed aquatic resource impacts that cannot be avoided, including the addition of siting criteria for mitigation projects, compensation factors, and monitoring and performance standards; (5) add new structures and activities that may be exempt from submerged lands licensing charges; and (6) provide further specificity regarding application requirements, such as the cumulative impact analysis, a water dependency demonstration, a stormwater management demonstration, alternatives analysis, antidegradation analysis, impacts analysis, and mitigation plan for projects seeking to discharge dredged or fill material into aquatic resources.
More detailed analysis of the proposed changes was reported in Vol. LIII, No. 2 (2020) of this Newsletter.
Copyright © 2021, The Foundation for Natural Resources and Energy Law, Westminster, Colorado
The Legal Intelligencer
(by Krista-Ann Staley and Anna Jewart)
This year marks the 20th anniversary of the Religious Land Use and Institutionalized persons Act of 2000 (RLUIPA), 42 U.S.C. Sections 2000cc et seq, a federal statute that protects the rights of individuals and institutions to use land for religious purposes, in addition to protecting the rights of persons confined to institutions to exercise their faiths. Coincidentally, the anniversary comes at a time when the COVID-19 pandemic and related restrictions have severely limited our ability to gather safely, causing many churches, synagogues, temples, mosques and other places of worship to close or limit attendance. This context provides a unique opportunity to review two decades of RLUIPA’s application.
One key component of RLUIPA is the protection of the ability to gather and congregate without government intrusion. While earlier legislation, such as the Church Arson Prevention Act, 18 U.S.C.A. Section 247, protected places of worship against arson, vandalism, or other violent interference, RLUIPA protects the ability to establish or build those places of worship. To do so, it specifically addresses local land use regulations, including the application of zoning regulations and permitting practices.
Congress enacted RLUIPA in the late 1990s, following nine hearings over three years. Those hearings examined religious discrimination in land use decisions. They revealed what Congress described as “massive evidence” of widespread discrimination by state and local officials in cases involving individuals and institutions seeking to use land for religious purposes. This discrimination most often impacted minority faiths and newer, smaller or unfamiliar denominations, and could be coupled with racial and ethnic discrimination. RLUIPA, drafted with bipartisan support, unanimously passed both houses of Congress and was signed into law by President Bill Clinton in 2000. The Civil Rights Division of the Department of Justice, tasked with enforcing RLUIPA, reports the statute has had a “dramatic impact on protecting individuals and institutions seeking to exercise their religions through construction, expansion, and use of property” since its enactment. See “Twentieth Anniversary of the Religious Land Use and Institutionalized Persons Act” (Sept. 22, 2020).
In general, RLUIPA provides that a land use regulation cannot substantially burden religious exercise, unless the government can show the regulation furthers a compelling government interest and is the least restrictive means of furthering that interest, 42 U.S.C.A. Section 2000cc(a). Subsection (b) then provides for four specific protections as follows:
No government shall impose or implement a land use regulation in a manner that treats a religious assembly or institution on less than equal terms with a nonreligious assembly or institution.
No government shall impose or implement a land use regulation that discriminates against an assembly or institution on the basis of religion or religious denomination
No government shall impose or implement a land use regulation that:
- Totally excludes religious assemblies from a jurisdiction; or
- Unreasonably limits religious assemblies, institutions, or structures within a jurisdiction.
RLUIPA’s land use provisions specifically address discrimination in state and municipal land use decisions. It enables aggrieved persons to bring suit under both the land use and institutionalized person provisions. In addition, the attorney general is authorized to bring suit to enforce RLUIPA, and the Department of Justice may bring suit for declaratory or injunctive relief, but not monetary damages. See 42 U.S.C.A. Section 2000cc-2. This leads to the typically rare occurrence of cases in which the U.S. government sues local municipalities over what is traditionally a local prerogative, zoning.
As is well-detailed in the 20th anniversary report, extensive litigation under the land use provisions of RLUIPA has not resulted in any U.S. Supreme Court decisions. However, the federal courts of appeal and district courts have ruled on numerous RLUIPA issues. The majority of RLUIPA litigation has focused on the substantial burden and equal terms provisions found in subsections (a) and (b)(1), above. The courts are of general agreement that the question of what constitutes a “substantial burden” should be determined by a totality-of-the-circumstances test, examining whether the government’s actions substantially inhibit religious exercise, rather than merely inconveniencing it. This assessment considers factors such as the actual need of the congregation for the proposed site, whether the government action imposed delay, uncertainty or expense and whether the government acted arbitrarily. See 20th Anniversary Report at 8, citing Brief of the United States as Amicus Curiae, Thai Meditation Association of Alabama v. City of Mobile, No. 19-12418 (11th Cir. Filed Oct. 23, 2019) at 17.
Although there is no national consensus regarding the interpretation of the “equal terms” provision contained in subsection (b)(1), a plaintiff asserting a claim under this provision in the U.S. Court of Appeals for the Third Circuit must show “it is a religious assembly or institution, subject to a land use regulation, which regulation treats the religious assembly on less than equal terms with a nonreligious assembly or institution that causes no lesser harm to the interests the regulation seeks to advance.” See United States v. Bensalem Township, 220 F.Supp. 3d 615, 621 (E.D. Pa. 2016).
The nondiscrimination and exclusion provisions have not been the targets of frequent litigation, however federal courts in Pennsylvania have addressed them. In Bensalem Township, cited above, the court noted that the nondiscrimination provision is rooted in First Amendment establishment clause jurisprudence, and intended to prevent governmental bodies from treating groups differently on the basis of their religious denomination. This includes disparate treatment in the implementation of zoning regulations. For example, a RLUIPA nondiscrimination claim can be based on allegations that a plaintiff religious group faced a more rigorous approval process to obtain a conditional use than a secular group.
Pennsylvania jurisprudence suggests that the “total exclusion” provision is difficult to prove. In Adhi Parasakthi Charitable, Medical, Educational, and Cultural Society of North America v. Township of West Pikeland, 721 F.Supp.2d 361 (E.D. Pa. 2010), the court held a zoning ordinance requiring conditional use approval for a Hindu temple did not rise to the level of a total exclusion as “religious use was not entirely zoned out” of the township.
Furthermore, in Lighthouse Institute for Evangelism v. City of Long Branch, 510 F.3d 253 (3d Cir. 2007), the Third Circuit held that, unlike the substantial burden section contained in 42 U.S.C.A. 2000cc(a), the equal terms, nondiscrimination, and exclusion provisions contained in 2000cc(b) do not provide for strict scrutiny analysis of offending land use regulations. Rather, they operate under a strict liability standard, making any discriminatory regulations automatically invalid. As analyzed in Adhi, under this section, if the discrimination occurred, the government does not have the opportunity to justify the conduct by showing a compelling interest.
It is critical to note that RLUIPA’s land use provisions do not prohibit local governments from regulating religious uses. RLUIPA requires local governments to draft and apply local regulations so that they do not place substantial burdens on religious uses, absent a compelling government interest, and do not exclude, unreasonably limit, discriminate against, or treat on less than equal terms any religious use, regardless of government interest. Municipalities would be well-advised to enact and apply local regulations based on neutral terms, such as the number of seats available at a place of assembly or anticipated parking demands. In addition, municipal governments must be cognizant of what constitutes a religious use. It should also be noted that Pennsylvania’s Religious Freedom Protection Act, (RFPA) requires that a law or regulation in the commonwealth, that has an effect on the exercise of religion has to establish that the agency did not substantially burden a persons’ free exercise of religion. See 71 P.S. Sections 2401-2407; Ridley Park United Methodist Church v. Zoning Hearing Board of Ridley Park Borough, 920 A.2d 953 (Pa. Cmwlth. 2007).
Krista-Ann M. Staley is a shareholder in the public sector services and energy and natural resources groups of the Pittsburgh law firm of Babst Calland Clements & Zomnir. In these capacities, Staley focuses her practice on representation of diverse private and public sector clients on land use and other local regulatory matters. Contact her at kstaley@babstcalland.com.
Anna S. Jewart is an associate in the firm’s public sector services group and focuses her practice on zoning, subdivision, land development, and general municipal matters. Contact her at ajewart@babstcalland.com.
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Reprinted with permission from the December 17, 2020 edition of The Legal Intelligencer© 2020 ALM Media Properties, LLC. All rights reserved.
The PIOGA Press
(by Kevin Garber and Jean Mosites)
As of the date of this article, Joe Biden is likely to become the 46th president of the United States. Assuming that stands, the Biden-Harris administration will try to implement dramatically different environmental and energy policies than the Trump administration. Whether Congress enacts many or all those policies depends heavily on the outcome of the two January U.S Senate special elections in Georgia. The Biden administration can impart significant changes through executive orders and agency actions despite the outcome of those elections, while states and regional governmental bodies will continue to play a significant role in shaping policy. This article reviews some of the implications of the 2020 election for the energy industry.
2020 election summary
National elections. Republicans cut into the Democrat’s majority in the House but Democrats still hold a 222-205 margin as of the date of this article. Republicans hold 50 Senate seats to 46 for the Democrats and two for independents pending the outcome of the Georgia special elections for Senate in January. If Democrats pick up both seats, Vice President-Elect Kamala Harris would cast the deciding vote on matters which divide the Senate 50-50. Shelley Moore Capito (R-WV) is likely to succeed John Barrasso (R-WY) as the top Republican on (and possibly become the chair of) the Senate Environmental and Public Works Committee when Senator Barrasso moves on to head the Energy and Natural Resources Committee. Both are positive developments for the energy industry.
Mr. Biden has chosen individuals from non-governmental environmental organizations and academia to lead his transition teams to staff the Environmental Protection Agency, Council on Environmental Quality, the Department of Interior and the Department of Energy. The teams themselves are largely comprised of those of similar background. Notably absent are representatives from the energy industry, which portends the nominations of more environmental-activist agency heads than served in the Trump administration. For example, the Wall Street Journal has criticized Mr. Biden’s choice of John Kerry as a cabinet-level special envoy for climate (i.e., a “climate czar”) as reflecting that climate will be a special negotiating priority rather than one issue among many in foreign policy. Mr. Biden has already committed to rejoining the Paris Climate Agreement on his first day in office or within his first 100 days, depending on which report you read.
State elections. At the state level, Republicans retained their majority in the state houses in seven of the 10 states critical to energy extraction and production, including Pennsylvania. There are Republican governors in six of those states. The following table summarizes the makeup of the state houses and executive offices
The Biden Energy Plan
The president-elect’s environmental and energy teams say climate change is an “existential threat” to the environment. The Biden Energy Plan commits the U.S. to an irreversible path to net-zero carbon emissions economy-wide by 2050. Although the plan does not propose to tax carbon emissions, impose a carbon cap and trade program or ban hydraulic fracturing on private land, and therefore is not as far-reaching as the Green New Deal, it is an unsettling departure from the Trump administration’s policy of reducing regulatory overreach in favor of less burdensome regulations on the fossil fuel industry. The Biden Energy Plan essentially is a $2 trillion infrastructure plan. It emphasizes an interconnectivity between clean energy and the economy. Highlights include the goal of zero net emissions from power plants by 2035 and economy-wide by 2050. The federal government would use its procurement power to build 500,000 e-vehicle charging stations, convert all 500,000 school buses to electric and provide all Americans in municipalities of more than 100,000 population with “quality public transportation” (in the plan’s words) by 2030. The Biden plan promises to upgrade four million commercial buildings to become more energy efficient and weatherize two million (mostly low income) homes within four years. It intends to induce the construction of 1.5 million homes and public housing units to address a stated affordable energy crisis and increase energy efficiency. Environmental justice principles feature prominently in the plan.
The road to the Biden Energy Plan
How green we go and how fast we get there depends on congressional and executive branch action.
The January special elections in Georgia will dictate the extent to which Congress passes legislation to implement the Biden Energy Plan. Republicans in Congress see themselves largely in a defensive posture for the upcoming 117th Congress, acting to temper or block far-reaching energy bills the more environmentally active House might contrive.
In the short term and apart from legislation, if both Senate seats go to Democrats, Congress could use the Congressional Review Act (CRA) to invalidate late-term Trump administration regulations. Adopted in 1996, the CRA allows Congress to invalidate, by a simple majority vote, final agency regulations adopted by the previous administration in the 60 legislative days before the previous Congress adjourned. It is a simple, expedite procedure―a joint resolution to invalidate a regulation is presented to committee, then, if approved, is presented to the legislative bodies for majority vote. Trump administration pro-energy regulations at risk to CRA invalidation, depending on the date of adjournment, include the September 14 and 15 EPA final oil and gas Review Rule and the ReconsiderationRule (i.e., the Quad O and Quad Oa rules that exclude transmission and storage from the O&G Production Source category and do not regulate methane emissions); the final October 15 Coal Combustion Residuals rule (extending the deadline to close landfills and surface impoundments and allowing owners of surface impoundments (of which approximately 520 currently are in operation) to demonstrate that an unlined impoundment is as safe as a lined one); and the final July 13 Clean Water Act Section 401 water certification rule (limiting the review of section 401 certifications to water quality impacts rather than far-reaching potential climate change effects).
If the Senate remains in Republican hands, the Biden administration and its agencies can take several steps to undo Trump administration regulations they believe would impede the Biden Energy Plan. Litigation abeyance is one such tactic. For pending litigation involving Trump-era regulations, a new EPA and Department of Justice can ask courts to place cases in abeyance to postpone briefing and arguments until the new administration reviews and potentially revises or withdraws the regulations.
For example, litigation concerning the oil and gas Review Rule and the Reconsideration Rule is pending in the D.C. Circuit Court. The new administration could ask the court to suspend further proceedings until it reevaluates those two rules. Litigation involving a major regulatory revision to the National Environmental Protection Act (which is intended to streamline the Environmental Impact Statement process) is pending in federal courts in Virginia, California and New York for which the Biden administration could employ the same tactic. The same is true of the CCR and 401 Certification rules mentioned above as well as many others.
For Trump-era rules that have not been finalized yet, such as the proposed definition of “habitat” under the Endangered Species Act and the proposed reevaluation and reissuance of the Army Corps’ Nationwide Permit 12, the Biden administration could simply direct EPA to stop work on these rules and withdraw others that are sitting with the Office of Management and Budget for review. And of course, the Biden administration could revoke the presidential permit granted to the Keystone XL Pipeline and take similar actions. Thus, despite how the Georgia special election plays out, many avenues are available to the Biden administration to remove perceived obstacles to the implementation of the Biden Energy Plan.
In the states
State environmental law can significantly affect the energy industry. Discussing the many state programs and how the 2020 elections will influence them is beyond the scope of this article. However, to highlight a few key points, 23 states have specific executive or legislative (or both) programs with specific greenhouse gas reduction targets. Twenty-nine states have renewable portfolio standards including Pennsylvania’s Alternative Energy Portfolio Standard. California, New York, Nevada, Washington, Maine and Virginia each has enacted state laws to eliminate carbon emission from electric power plants.
Several regional initiatives relate to carbon pricing and carbon cap and trade. These include the Transportation Climate Initiative, for which 12 northeastern states signed a memorandum of understanding in 2019 to reduce carbon emissions from transportation; the Western Climate Initiative, a California economy-wide cap and trade program; and the Regional Greenhouse Gas Initiative (RGGI), for which the Pennsylvania Environmental Quality Board’s proposed regulations are open for comment until January 14.
Political makeup in the states will play an important role in the Biden administration’s implementation of the Biden Energy Plan. For example, the Wolf administration is committed to adopting final RGGI regulations to reduce CO2 emissions which the General Assembly is trying to thwart, the most recent example being bipartisan House Resolution 1088, which urges the Independent Regulatory Review Commission to disapprove the proposed RGGI regulations. In Louisiana, Governor John Bel Edwards established a new Climate Initiatives Task Force through executive action to develop a blueprint to meet aggressive CO2 emission reductions despite Republicans controlling the legislature.
Conclusion
It remains to be seen how the 2020 elections will play out for the energy industry. Courts undoubtedly will be asked to resolve the tension between the executive (President-Elect Joe Biden and some governors) and the legislature (possibly a Republican-controlled U.S. Senate and Republican state general assemblies) regarding legal authority for critical policies affecting the energy industry. Overarching these legal issues are the economic fallout from the COVID pandemic and a growing social sentiment to reduce the use of fossil fuels to respond to climate change. They may be as much or more important to the long-term composition of the energy industry.
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Smart Business
(by Sue Ostrowski featuring Moore Capito)
West Virginia scored a huge win when it landed the contract for the high-tech Virgin Hyperloop Certification Center in October. Now the state — and the region, including Pittsburgh — are looking to build on that success.
“We’re hoping this is going to be a jumping off point,” says Moore Capito, a shareholder at Babst Calland who also serves in the West Virginia House of Delegates. “Any time you can lend a huge name like Virgin, it certainly gives the region an increased amount of credibility.”
Smart Business spoke with Capito about what the project means for the region and how its success could attract other big projects — and jobs — to West Virginia and Pennsylvania.
What is the Virgin Hyperloop Project?
In general, a hyperloop is an experimental, next-generation mode of transportation that will transport passengers through a network of under- and above-ground tubes, capable of reaching speeds of 670 mph. The goal is to transform transportation, and the broader economy, so that travel that previously took hours will instead take minutes.
More specifically, the Virgin Hyperloop Project, with substantial investments from Sir Richard Branson and DP World Ports, is headquartered in Los Angeles and has been primarily testing the technology in Las Vegas. As part of its growth, Virgin sought a location for a certification center to serve not only as a venue for moving the technology forward but as a place where they could create a regulatory framework.
Regulations cover other modes of transportation — air, rail, sea, cars, trucks — but hyperloop is a grey area. This center will build out that regulatory framework around this new mode of transportation to certify that it is viable for commercial use.
What does the project entail?
The project is located on 800 acres where, in addition to the center, Virgin plans to build a six-mile hyperloop track. The undulation of the West Virginia landscape made it an attractive location to test how robust the pods must be to traverse such terrain.
At this point, the timeline is very broad, with 2021 focused on design, planning and feasibility of facilities. The goal in 2022 is to begin construction on the facilities. That construction will be rolled out in phases, with an end goal of certification by 2025.
How will this project benefit not only West Virginia, but the entire region?
Directly, the project is expected to create somewhere between 150 to 200 engineering and technician jobs, with thousands of additional indirect jobs in areas that could include maintenance, construction and manufacturing. It allows firms that have expertise in emerging technology — including businesses in the Pittsburgh area — to showcase that expertise and focus on mobility.
It’s been such an uplifting dialogue. There have been conversations, for instance, on how to increase regional entrepreneurship to modernize the economy to attract and retain new talent. We want people who want to jump in, but they need a pool to jump into.
This project gives people another reason to talk about the region’s capabilities. This is a fertile region for developing emerging technologies, and it’s exciting to see it move in this direction and to see more eyes on our region.
West Virginia is showing its commitment to modernizing and growing and engaging. Its technology movement is on the march.
This is a sign of more things to come as West Virginia continues to grow in this emerging technology, benefiting not just the state, but the greater region, as well.
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The PIOGA Press
(by Keith Coyle and Varun Shekhar)
On October 14, the Pipeline and Hazardous Materials Safety Administration (PHMSA) published a notice of proposed rulemaking (NPRM) containing potential changes to the federal gas pipeline safety regulations and reporting requirements. Citing PHMSA’s experience administering special permits, as well as the information provided in earlier studies and from various stakeholders, the NPRM proposed to amend the regulations to allow operators to apply integrity management (IM) principles to certain gas transmission line segments that experience class location changes. Comments on the NPRM are due December 14.
PHMSA relied heavily on the conditions included in class location special permits in developing the proposed rules. The IM alternative only would be available to pipeline segments that experience an increase in population density from a Class 1 location to a Class 3 location, subject to certain eligibility criteria. Operators using the IM alternative would be required to conduct an initial integrity assessment within 24 months of the class location change and apply the IM requirements in 49 C.F.R. Part 192, Subpart O to the affected segment. Operators also would be required to implement additional preventative and mitigative measures for cathodic protection, line markers, depth-of-cover, right-of-way patrolling, leak surveys and valves.
PHMSA’s decision to propose an IM alternative for managing class location changes is a significant step forward for pipeline safety. The class location regulations are based largely on concepts established decades ago, and the pipeline industry long has advocated for an approach that reflects modern assessment tools and technologies. While the NPRM does not necessarily satisfy all of the industry’s objectives, PHMSA’s proposal sets the stage for the next phase of the rulemaking process and potential development of a final rule.
Background
In July 2018, the agency published an advance notice of proposed rulemaking (ANPRM) asking for public comment on potential amendments to the class location regulations in 49 C.F.R. Part 192. As PHMSA explained in the ANPRM, Part 192 generally requires operators to respond to class location changes by (1) reducing the maximum allowable operating pressure (MAOP), (2) conducting a new pressure test or (3) replacing the pipe in the affected segment. The agency asked whether those requirements should be updated to allow operators to address certain class location changes through the use of IM measures. PHMSA also asked for public comment on several related questions, including whether the availability of the IM alternative should be limited to segments that meet certain eligibility criteria and whether the agency should incorporate the conditions included in prior class location special permits in the regulations.
What’s in the NPRM?
PHMSA is proposing to establish an IM alternative for pipeline segments that experience a class location change from Class 1 to Class 3. The key features of the proposed IM alternative include:
- Designating the area affected by the class location change as a high consequence area (HCA) and applying the IM program requirements in 49 C.F.R. Part 192, Subpart O to the segment. Performing an initial integrity assessment within 24 months of the class location change.
In performing the initial and subsequent integrity assessments of the affected segment with inline inspection (ILI) tools, inspecting all pipe between the nearest upstream ILI tool launcher and downstream ILI receiver.
Replacing pipeline segments with discovered cracks exceeding 20 percent of wall thickness or a predicted failure pressure of less than 100 percent specified minimum yield strength (SMYS) or less than 1.5 times MAOP.
- Installing remote-control or automatic shutoff valves or upgrading existing mainline block valves downstream and upstream of the affected segment to provide that capability. The valves would need to be able to close within 30 minutes of rupture identification.
- Implementing additional preventive and mitigative measures, including conducting close interval surveys (CIS) every seven years, performing leak surveys on a quarterly basis, conducting monthly right-of-way patrols and performing cathodic protection test station surveys.
- Complying with more stringent repair criteria, including treating additional anomalies as “immediate” repair conditions and requiring remediation of conditions reaching a 1.39 safety ratio and 40 percent wall loss (as opposed to a 1.1 safety ratio and 80 percent wall loss under the current IM regulations).
The agency is proposing to limit the IM alternative to segments that experience a class location change after the effective date of the final rule, subject to a 60-day notification requirement. PHMSA is also proposing to prohibit the use of the IM alternative for pipeline segments with the following conditions or attributes:
- Bare pipe, wrinkle bends, missing material properties records, certain historically problematic seam types (including DC, LF-ERW, EFW, and lapwelded pipe or pipe with a longitudinal joint factor below 1.0) and body, seam or girth-weld cracking;
- Pipe with poor external coating, tape wraps or shrink sleeves;
- Leak or failure history within five miles of the segment;
- Pipe transporting gas that is not of suitable composition and quality for sale to gas distribution customers;
- Pipe operated at MAOP determined under the grandfather clause (49 C.F.R. § 192.619(c)) or under an alternative MAOP (49 C.F.R. § 192.619(d)); and
- Segments that do not have a documented successful eight-hour Subpart J pressure test to at least 1.25 times MAOP.
What’s not included in the NPRM?
The agency did not propose an IM alternative for Class 2 to Class 4 location changes. PHMSA reasoned that given the high population density associated with Class 4 locations, there would not be adequate, feasible measures that could be used to provide Class 4 locations with an equivalent level of public safety instead of replacing pipe.
Although raised in industry comments on the ANPRM, PHMSA did not propose any amendments to the so-called “cluster rule.” That rule allows operators to adjust endpoints of a Class 2, 3 or 4 location based on the presence of a “cluster” of buildings intended for human occupancy. Industry commenters had asked the agency to either clarify or revise the existing clustering methodology. PHMSA declined that request and simply noted that the NPRM contained provisions that would apply to segments covered under the cluster rule.
PHMSA did not propose to limit the availability of the IM alternative based on pipeline diameter, operating pressure or potential impact radius (PIR) size. Some of the commenters who responded to the ANPRM asked the agency to include a more conservative PIR-based limitation, but industry commenters had opposed that provision as unnecessary.
What’s next?
After the public comment period closes, the agency will consider the information provided and decide whether to present the NPRM to the Gas Pipeline Advisory Committee (GPAC) for consideration. GPAC is a 15-member federal advisory committee that reviews and provides non-binding recommendations to PHMSA on proposed changes to the gas pipeline safety regulations. Once the GPAC process is complete, the agency can develop a final rule for consideration by the Office of the Secretary and Office of Management and Budget and eventual publication in the Federal Register. Completion of these steps is not likely to occur until 2021 or later.
The NRPM can be found at www.federalregister.gov/documents/2020/10/14/2020-19872/pipeline-safetyclass-location-change-requirements.
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RMMLF Mineral Law Newsletter
(By Joseph K. Reinhart, Sean M. McGovern, Danial P. Hido and Gina N. Falaschi)
The Pennsylvania Department of Environmental Protection (PADEP) continues to move forward with its rulemaking to limit carbon dioxide (CO2) emissions from fossil fuel-fired electric generating units (EGUs) consistent with the Regional Greenhouse Gas Initiative (RGGI) Model Rule and Governor Tom Wolf’s Executive Order No. 2019-07, 49 Pa. Bull. 6376 (Oct. 26, 2019), as amended, 50 Pa. Bull. 3406 (July 11, 2020) (which extended the deadline for PADEP to present the regulations to the Pennsylvania Environmental Quality Board (EQB) from July 31, 2020, until September 15, 2020). See Vol. XXXVII, No. 3 (2020) of this Newsletter.
As part of PADEP’s public outreach efforts, PADEP hosted an informational webinar on August 6, 2020, regarding the benefits of Pennsylvania’s participation in RGGI. See PADEP, “RGGI 101: How It Works and How It Benefits Pennsylvanians” (Aug. 6, 2020), https://www.dep.pa.gov/Citizens/climate/Pages/RGGI.aspx. The webinar focused on the structure of the RGGI program and how participation will lower greenhouse gas and other air pollution emissions from electric power plants, as well as a discussion of the health and economic benefits from participation in the program.
Consistent with Governor Wolf’s amended Executive Order 2019-07, PADEP presented its proposed cap-and-trade rule to the EQB, the independent body responsible for adopting proposed PADEP regulations, on September 15, 2020. Following significant debate and opposition to the rule, the EQB voted 13-6 to adopt the proposed regulation. As proposed, the regulation would amend 25 Pa. Code ch. 145 (relating to interstate pollution transport reduction) and add subchapter E (relating to a budget trading program) to establish a program limiting CO2 emissions from a fossil fuel-fired EGU with a nameplate capacity of 25 megawatts or greater that sends more than 10% of its annual gross generation to the electric grid. The rule would officially link Pennsylvania to the RGGI program, in which 10 Northeastern and Mid-Atlantic states already participate. RGGI establishes an emissions cap for each participating state that declines annually to reduce power sector CO2 emissions from the region. The proposed initial emissions cap for Pennsylvania is 78 million tons of CO2 in 2022, which gradually declines to 58 million in 2030. The emissions cap translates into “allowances,” each representing one ton of CO2, which are auctioned quarterly. Facilities subject to the regulation would be required to purchase and submit to the state an allowance for each ton of CO2 they emit. Currently, the proposed rulemaking intends for compliance obligations to begin in 2022.
The proposed rulemaking was published in the Pennsylvania Bulletin on November 7, 2020, initiating a 60-day public comment period during which time PADEP will hold at least five public hearings. See 50 Pa. Bull. 6212 (proposed Nov. 7, 2020). PADEP is expected to continue to meet significant opposition, as it did during the September 15 EQB meeting and numerous advisory committee meetings during the spring and summer.
Pennsylvania’s participation in RGGI has also met legislative opposition. 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 (ERE) committees for consideration. See HB 2025, 203d Leg., Reg. Sess. (Pa. 2019); SB 950, 203d Leg., Reg. Sess. (Pa. 2019). The legislation would have prohibited PADEP from adopting any measure to establish a greenhouse gas cap-and-trade program unless the general assembly specifically authorizes it by statute.
The House ERE 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 Senate approved the bill on September 9, 2020, by a vote of 33-17. Governor Wolf vetoed HB 2025 on September 24, 2020, and released a veto message stating that the legislation is “extremely harmful to public health and welfare as it prevents [PADEP] from taking any measure or action to abate, control or limit [CO2] emissions, a greenhouse gas and major contributor to climate change impacts, without prior approval of the General Assembly.” Governor Wolf’s Veto Message for HB 2025 (Sept. 24, 2020).
GOVERNOR WOLF COMMITS TO ESTABLISH A REGIONAL CO2 TRANSPORT INFRASTRUCTURE PLAN
On October 1, 2020, Governor Tom Wolf announced that he had signed a memorandum of understanding (MOU) along with six other states—Kansas, Louisiana, Maryland, Montana, Oklahoma, and Wyoming—committing to establish and implement a regional carbon dioxide (CO2) transport infrastructure plan. Under the MOU, the signatory states will establish a coordination group, facilitated by the Great Plains Institute and informed by additional and ongoing work by the State Carbon Capture Work Group and the Regional Carbon Capture Deployment Initiative, that will develop an action plan that will include policy recommendation for and barriers to CO2 transport infra-structure deployment. This action plan is set for release in October 2021.
PADEP’S PROPOSED MANGANESE RULEMAKING UNDERGOING CONTENTIOUS PROCEDURAL REVIEW
As reported in Vol. XXXVII, No. 3 (2020) of this Newsletter, on July 25, 2020, the Pennsylvania Department of Environmental Protection’s (PADEP) Environmental Quality Board (EQB) published proposed revisions to the state’s water quality standards for manganese in 25 Pa. Code ch. 93. See 50 Pa. Bull. 3724 (proposed July 25, 2020). The proposed rule would change the numeric water quality criterion for manganese from 1.0 to 0.3 mg/L. The EQB also solicited comments on whether to set the point of compliance for the revised criterion at the point of discharge or the point of surface potable water supply withdrawals.
The 60-day public comment period closed on September 25, 2020. Approximately 950 comments were submitted, which can be viewed on PADEP’s eComment website. The EQB held virtual public meetings on the proposed rulemaking on September 8, 9, and 10, 2020. The state Senate Environmental Resources and Energy (ERE) Committee also held a hearing on the proposed rulemaking on September 9. The hearing included testimony of witnesses from PADEP, operators of surface water treatment systems, and the coal and non-coal mining industries. Testimony reportedly largely focused on the two proposed alternative points of compliance, but witnesses also presented arguments regarding the proposed revision of the numeric criterion from 1.0 to 0.3 mg/L. Expert witnesses testified both in support of and in opposition to the revised numeric criterion. See David E. Hess, “Senate Environmental Committee Hearing Pits Mining Industry Against Water Suppliers on Manganese Standard,” PA Env’t Digest Blog (Sept. 9, 2020). A recording of the hearing is available at https://environmental.pasenategop.com/090920/.
On September 30, 2020, Representative Daryl Metcalfe, Chairman of the House ERE Committee, sent a letter to the Independent Regulatory Review Commission (IRRC) on behalf of Republican members of the Committee expressing disapproval of the proposed rulemaking and asking the IRRC to disapprove the regulation. See Letter from Rep. Daryl Metcalfe, to IRRC (Sept. 30, 2020). On October 15, 2020, Senator Gene Yaw, Chairman of the Senate ERE Committee, sent a letter to the EQB on behalf of the Republican members of the Committee encouraging EQB to withdraw the proposed regulation. Letter from Senator Gene Yaw, to Hon. Patrick McDonnell, Chairman, EQB (Oct. 15, 2020).
The House and Senate letters both argue that the proposed rulemaking is contrary to Act 40 of 2017, which, as discussed in previous updates, directed PADEP to propose regulations setting the point of compliance at the point of surface potable water withdrawals. See Vol. XXXVII, No. 3 (2020); Vol. XXXVII, No. 1 (2020); Vol. XXXVI, No. 3 (2019) of this Newsletter. The letters, therefore, argue that the proposed rulemaking runs afoul of this statutory requirement by merely proposing such point of compliance as one of two potential alternatives for the final rulemaking. In addition, the letters state that proposing two alternatives in a single rulemaking is contrary to the Regulatory Review Act (RRA). The letters also challenge the legal and scientific basis for the proposed lower numeric water quality criterion.
On October 26, 2020, the IRRC issued comments on the proposed rulemaking that raise many of the same concerns identified by the House and Senate ERE committees. See Comments of the IRRC, EQB Regulation #7-553 (IRRC #3260): Water Quality Standard for Manganese and Implementation (Oct. 26, 2020). Regarding the proposed rule’s compliance with Act 40, the IRRC noted that “the mandate of Act 40 is clear and does not provide discretion to the EQB,” and requested that the EQB explain why the proposed rulemaking is consistent with Act 40. Id. at 2. Regarding the EQB’s decision to propose two alternative points of compliance in a single rulemaking, the IRRC asked the EQB to explain why it took this approach and why it is consistent with the RRA. Id. at 3.
The IRRC also requested that the EQB review the data provided by commenters and explain why the proposed lower criterion is necessary and justified, and explain why it is reasonable to regulate manganese at a lower level than other states and in a different manner from the U.S. Environmental Protection Agency. Id. The IRRC also noted that the EQB did not provide information regarding the cost of the proposed rulemaking sufficient to allow the IRRC to determine if the regulation is in the public interest, and directed the EQB to further evaluate the costs associated with the proposed rulemaking. Id. at 4.
The EQB is now required to review and respond to comments received from the IRRC, the ERE committees, and the public before issuing a final-form regulation. 71 Pa. Stat. § 745.5a(a).
PADEP PUBLISHES DRAFT REVISED POLICY ON CIVIL PENALTY ASSESSMENTS FOR COAL MINING OPERATIONS
On October 3, 2020, the Pennsylvania Department of Environmental Protection (PADEP) published a draft revision to Technical Guidance Document (TGD) No. 562-4180-306, titled “Civil Penalty Assessments for Coal Mining Operations.” See 50 Pa. Bull. 5545 (Oct. 3, 2020) (draft TGD). The current version of the TGD was last updated in 2005 (2005 TGD). PADEP first published draft revisions to the TGD on May 4, 2019. See 49 Pa. Bull. 2312 (May 4, 2019). However, PADEP republished an updated draft because substantial changes were made to the 2019 version in response to public comments.
One of the most notable changes in the draft TGD is the addition of new procedures for assessing civil penalties for water quality violations under section 605 of the Clean Streams Law (CSL), 35 Pa. Stat. § 691.605. These procedures would generally follow the 2005 TGD’s existing formula applicable to all violations, which is based on seriousness of the violation, culpability of the operator, costs to the commonwealth, savings to the violator, violation history, and speed of compliance. However, the application of these factors will evaluate components specifically relating to water quality, such as impacts to water resources or degree of exceedance of effluent limitations.
For instance, the “seriousness” component is based on several subcomponents. First, the “magnitude” of the violation will be calculated in one of two ways. If physical evidence is available, such as impacts to fish or invertebrate communities, sediment deposition, impacts to water use, or damage to land or water resources, the magnitude of the violation will be calculated using Method 1. If physical evidence is not available, the magnitude of the violation will be determined using Method 2, which is based on the degree of exceedance of applicable effluent limitations. There are five categories of seriousness under both Method 1 and Method 2: severe, significant, moderate, low, or de minimis.
The second subcomponent of the seriousness component, the “resource” component, evaluates the impact to aquatic life and recreation. In applying this factor PADEP will first examine the use of the impacted waterbody. There are five categories of use under the draft TGD: special protection, high use, moderate use, low use, and all other uses. PADEP will then examine the level of impact on aquatic life, water supply, recreation, and the extent of impacts. The draft TGD includes a matrix that provides a base penalty based on the results of the magnitude and resource components factors. This base penalty amount for the seriousness component may then be further adjusted based on the duration of the violation and the operator’s failure to report the violation.
The “savings to the violator” component may include costs associated with treating water to meet effluent limitations and the cost to construct and maintain treatment systems. The remaining factors (culpability, speed of compliance, costs to the commonwealth, and history of violations), will be calculated using the same procedures in the draft TGD applicable to all violations, as discussed below.
For violations other than those related to water quality, the draft TGD provides guidance to PADEP in assessing civil penalties based on the factors in 25 Pa. Code § 86.194. The draft TGD would make several changes to the application of these factors from the 2005 TGD, the biggest being with respect to assessment of penalties for high seriousness violations under the seriousness component. The draft TGD would instead allow PADEP to assess penalties of up to the statutory maximum for high seriousness violations. In contrast, under the 2005 TGD, penalties for high seriousness violations are to be assessed up to$2,000, and only violations meeting “extraordinary circumstances” criteria warrant a penalty up to the statutory maximum.
The draft TGD breaks the “culpability” component down into willful, reckless, negligent, or no culpability categories. The 2005 TGD only includes negligent and reckless categories. Under the 2005 TGD, penalties for negligent violations could be assessed up to $1,200, and penalties for reckless violations could be assessed up to the statutory maximum. Under the draft TGD, the maximum penalty of $1,200 for negligent violations remains unchanged; however, penalties for reckless violations would only be assessed up to $1,500, rather than the statutory maximum. The criteria for what constitutes a reckless violation would also be revised. For example, violations pertaining to situations previously identified in inspection reports or notices of violations, which are currently considered negligent violations under the 2005 TGD, would become reckless violations under the draft TGD.
Under the new willfulness criteria, a penalty up to the statutory maximum may be assessed if “[t]he operator made a conscious choice to engage in certain conduct with knowledge that a violation will result.” Finally, the draft TGD would create a new no culpability category, which would warrant no penalty assessment under the culpability component where the operator’s conduct was consistent with the standard of conduct to foresee and prevent the violation that a reasonable person would observe under the circumstances.
The other penalty components, speed of compliance, costs to the commonwealth, savings to the violator, and history of violations, remain generally the same as compared to the current 2005 version of the TGD.
The TGD may be further revised in response to public comments. The public comment period closed on November 2, 2020.
THIRD CIRCUIT VACATES EPA APPROVAL OF PENNSYLVANIA SIP PROVISIONS SPECIFIC TO COAL-FIRED EGUS
On August 27, 2020, the U.S. Court of Appeals for the Third Circuit vacated the U.S. Environmental Protection Agency’s (EPA) approval of an addition to Pennsylvania’s state implementation plan (SIP) specific to coal-fired electric generating units (EGUs), holding that EPA’s approval was arbitrary and capricious. Sierra Club v. EPA, 972 F.3d 290 (3d Cir. 2020). In April 2016, Pennsylvania promulgated a reasonably available control technology (RACT) requirement for coal-fired combustion units controlled by selective catalytic reduction (SCR) systems, requiring such units to meet a limit of 0.12 lb nitrogen oxide (NOx) per million Btu (MMBtu) heat input when the SCR inlet temperature is equal to or greater than 600 degrees Fahrenheit. 25 Pa. Code § 129.97(g)(1)(viii). Pursuant to the Clean Air Act, EPA approved the requirement as part of Pennsylvania’s SIP in May 2019. See 84 Fed. Reg. 20,274 (May 9, 2019) (to be codified at 40 C.F.R. pt. 52). On July 8, 2019, the Sierra Club filed a petition for review with the Third Circuit, challenging EPA’s approval of 25 Pa. Code § 129.97(g)(1)(viii) as part of Pennsylvania’s SIP.
The Third Circuit vacated EPA’s approval of 25 Pa. Code § 129.97(g)(1)(viii) as part of Pennsylvania’s SIP, finding EPA’s approval arbitrary and capricious on three grounds. First, the court ruled that there was inadequate justification for the selection of a 0.12 lb NOx/MMBtu pollution limit. Sierra Club, 972 F.3d at 302–03. The court noted that the limit is the “average pollution output of the three plants that are already compliant over the last five years.” Id. at 300. Second, the court ruled that the addition of a 600-degree temperature threshold for SCR was not adequately explained. Id. at 305–06. EPA justified the threshold by arguing that SCR systems become less effective at lower temperatures. Id. at 303. However, the court found that reduced effectiveness did not adequately justify not requiring the use of the control technology at lower temperatures. Id. at 304. Third, the court ruled that the SIP also lacked a reporting requirement on power plant inlet temperatures. Id. at 309. The SIP did not contain specific requirements to report plant inlet temperatures. EPA and the Pennsylvania Department of Environmental Protection (PADEP) relied on existing language that requires plants to keep records that adequately demonstrate compliance and states that such records only have to be available to PADEP, not EPA or the public. Id. at 308–09. The Third Circuit held that this requirement was insufficient to meet the CAA’s requirement that EPA be able to bring an enforcement action. Id. at 307 (citing 42 U.S.C.
- 7502(c)(6)). The court found that, when coupled with the temperature threshold, this lack of reporting requirement creates a loophole that allows EGUs to avoid using an SCR system by claiming to have operated under 600 degrees without requiring data reporting that would verify that operation status. See id. at 306, 308–09.
On remand, EPA must either approve a revised SIP from PADEP within two years or formulate a new federal implementation plan (FIP) under 42 U.S.C § 7410(c)(1) (which provides two years for EPA to promulgate a FIP if a state does not make a sufficient submission or if EPA disapproves of a SIP and the state does not correct the deficiency). Sierra Club, 972 F.3d at 309. Either approach must be technology-forcing, in accordance with the RACT standard, and lack the loophole noted in this decision. Id.
Copyright © 2020, The Foundation for Natural Resources and Energy Law, Westminster, Colorado
Smart Business
(by Sue Ostrowski featuring Sara Antol)
Corporate venture capital (CVC) funds are gaining in popularity as established companies seek a competitive advantage in the marketplace.
“More large public and private companies are investing in startups, frequently with an end goal of making an acquisition,” says Sara Antol, a shareholder at Babst Calland PC.
Smart Business spoke with Antol about the rewards — and challenges — of these investments.
What is the difference between a venture capital fund and a CVC fund?
With a venture capital fund, the fund is formed with the sole purpose of investment and is looking for a positive financial return within a relatively short period of time.
With a CVC fund, an operating company puts funding into a startup, generally in its market space or a space the company wants to enter. It still seeks a financial return, but the investment is more likely strategically driven. The end goal is frequently to eventually acquire the startup, but the CVC fund can hedge its bets by first making an investment.
CVC investors want to know the startup’s strategy and be involved, and they may want a bigger voice than a typical venture fund would expect. The CVC fund generally avoids legal control — it wants the ability to make a difference but not to affect the company’s overall growth curve.
Recent reports have shown that CVC funds have accounted for almost 25 percent of all venture investments in 2020. It could be because technology companies have rebounded during the pandemic, giving them more access to capital. It may be that private equity has pulled back, creating more capacity for CVC investment.
Whatever the reason, it’s becoming more common for forward-thinking companies to make these types of investments as part of their strategy.
What are the challenges of this type of investment?
There can be a struggle between operating a larger business and being a startup. The investing companies have to understand how startups operate and the risks that go with that, without the controls in place that a large corporation will have.
Because of that gap, the investing companies should work with seasoned professionals who understand the ecosystem of startup financing, who can help them navigate the playbook of what their equity investment entitles them to. Larger companies tend to be risk-averse, and they have to understand there is a greater risk of losing their investment in this context. The investment must be small enough that it’s not a game-changer and that they are willing to risk losing it.
In addition, larger companies may face strict regulations on the kinds of investments they can make, and there may be issues with board representation. If the investment is large enough that the investor wants a board seat, it runs the risk of learning something that could benefit its business. You need to be aware of your fiduciary responsibility, and it needs to be very clear what information can be used by the investing company, if any.
How important is due diligence?
It is critical. Even with a very small investment, the larger company can face risks that can seem like a minor issue to the startup but that can have big impacts on the overall compliance of the larger company. It is imperative to do adequate due diligence, and an outside professional can help before you move ahead.
What advice would you give to companies considering a CVC fund-type investment?
Really think through working with another company and what it’s going to mean for the longer term. It can get ugly when a startup fails, so understand what that would mean for the investing company.
The key is to get experienced advisers. If you decide to engage in these types of investments — and more companies are doing so as part of their day-to-day strategy — understand the process and consider what issues it could create for the overall business.
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The Legal Intelligencer
(by Ben Clapp)
In September, the Market Risk Advisory Committee of the U.S. Commodity Futures Trading Commission (CFTC) issued a significant, yet perhaps under-publicized, report titled “Managing Climate Risk in the U.S. Financial System.” The report identified several key findings, including that: climate change “poses a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy;” “financial markets will only be able to channel resources efficiently to activities that reduce greenhouse gas emissions if an economywide price on carbon is in place at a level that reflects the true social cost of those emissions; and “disclosure of information on material, climate-relevant financial risks … has not resulted in disclosures of a scope, breadth, and quality to be sufficiently useful to market participants and regulators.” CFTC, Managing Climate Risk in the U.S. Financial System at i-iv (Sept. 2020). The report recommends that the U.S. establish a price on carbon that is consistent with the Paris Agreement’s goal of limiting global temperature rise this century to less than two degrees Celsius above pre-industrial levels.
The report is particularly notable for its blunt assessment of the risks posed by climate change to the underpinnings of the U.S. economy, and its conclusion that comprehensive federal climate change legislation is required to mitigate these risks. (For those wondering at the unlikelihood of a report such as this being published by a federal agency in a presidential administration that has demonstrated a marked tendency toward deregulation, the report was not voted on by the commissioners of the CFTC and has been characterized as representing the perspective of private sector committee members.) Other federal agencies have been reluctant to take additional steps to address climate change investment risks. The Securities and Exchange Commission, for example, resisted calls to incorporate prescriptive climate change disclosure requirements when adopting final rules modernizing Regulations S-K, choosing instead to retain the principles-based materiality standard currently governing climate change disclosures. See Commissioner Allison Herren Lee, SEC, Regulation and ESG Disclosures: An Unsustainable Silence (Aug. 26, 2020)
The future of federal climate change regulation in the U.S. remains murky. Obviously, much depends on the results of the upcoming election, but even in the event of a shift in the balance of power to the Democratic party, it may be several years before climate change legislation is enacted, and the scope of such legislation is far from certain. Notably, however, even in the absence of federal action on climate change, private sector initiatives—in particular those of global investment firms, institutional investors, and insurers—to compel greenhouse gas intensive industries to reduce emissions and to disclose the climate change-related impacts of their operations, continue to gather momentum.
In the United States, a watershed moment occurred in January 2020, when BlackRock, Inc., the world’s largest asset manager, announced that it was asking the companies that it invests in to meet certain standards for disclosing the risks posed by climate change. Letter from Larry Fink, chairman and CEO, BlackRock, Inc. to CEOs (Jan. 2020) (BlackRock letter). BlackRock’s goal is “to ensure that companies are effectively managing the risks and opportunities presented by climate change and that their strategies and operations are aligned with the transition to a low-carbon economy—and specifically, the Paris Agreement’s scenario of limiting warming to two degrees Celsius or less.” See BlackRock, Our Approach to Sustainability (July 2020) (Sustainability Report). BlackRock believes that climate change presents a “defining factor in companies’ long-term prospects,” requiring a “fundamental reshaping of finance.” To that end, the asset manager has called for a global price on carbon and requested that the companies it invests in disclose their climate-related risks, including their greenhouse gas emissions and the expected impact of those emissions, the impact of climate change on their own facilities, and the “transition,” or business risk associated with operating under a scenario where the Paris Agreement’s goals are fully realized. The latter requirement is especially challenging for companies with greenhouse gas-intensive operations, as it requires an evaluation of how future operations and financial results will be impacted by legislation designed to fundamentally alter, and even restrain, the industries in which these companies operate. In July, BlackRock announced that it had placed 244 companies on watch and taken “voting action” against 53 companies, including 37 energy companies, for, in BlackRock’s opinion, failing to take sufficient action to incorporate climate risk into their business models or disclosures. Sustainability Report at 11.
BlackRock is not alone in its efforts to leverage its influence in financial markets to combat climate change. Numerous financial institutions, including Goldman Sachs, have echoed BlackRock’s call for a global price on carbon. Investment banks, such as Morgan Stanley, Citigroup, and Bank of America, have committed to publicly disclosing the greenhouse gas emissions from projects and investments that they finance. In early October, JP Morgan Chase announced that it would adopt “a financing commitment that is aligned to the goals of the Paris Agreement,” see press release, “JP Morgan Chase Adopts Paris-Aligned Financing Commitment” (Oct. 6, 2020). In so doing, the investment bank intends to evaluate the carbon intensity of its investments and establish intermediate emission targets for 2030.
The movement extends beyond Wall Street. More than 500 institutional investors, with more than $47 trillion in assets under management, belong to the Climate Action 100+ initiative, which has the goal of ensuring that the world’s largest corporate greenhouse gas emitters take necessary action on climate change. The organization has a focus list of 100-plus companies (oil and gas, mining and minerals, transportation, industrials), that face investor pressure to create long‑term energy transition plans and quantitative targets for reducing emissions. Insurers, recognizing that climate risk equals insurance risk, have taken similar steps. For example, Swiss Re has announced it will stop providing insurance to, and investing in, the top 10% most carbon-intensive oil and gas companies by 2023, see press release, “Swiss Re takes further steps towards net-zero emissions” (Feb. 20, 2020). In addition, some major U.S. insurers, such as The Hartford, Chubb and AXIS Capital, are starting to restrict, or eliminate, insurance coverage for coal and tar sands companies, see Axis Capital, Thermal Coal and Oil Sands Policy (effective Jan. 1, 2020); press release, The Hartford Announces Its Policy on Insuring, Investing in Coal, Tar Sands (Dec. 20, 2019); Chubb, Chubb Coal Policy.
Some of these efforts, BlackRock’s in particular, have been met by a fair degree of cynicism from climate activists. In early October, five Senate democrats sent a letter to BlackRock chairman and CEO Larry Fink, asserting that the asset manager’s proxy voting record was inconsistent with its professed goal of incorporating climate change risk into its investment stewardship, including BlackRock’s failure to vote in favor of initiatives identified as key objectives by Climate Action 100+. The letter requests that BlackRock respond to several pointed questions that appear aimed at forcing BlackRock to provide more transparency on what, precisely, the firm aims to do in support of its climate change strategy.
The impact of these private sector initiatives can only be assessed over time. It is clear, however, that there is a growing certainty in the financial sector that climate change poses a serious risk to the U.S. financial system and the global economy as a whole. The current focus on requiring more robust climate change disclosures reflects investors’ desire to assess such risks sooner rather than later so that they can take appropriate actions. If investment firms, institutional investors, and insurers conclude that limiting global temperature rise to two degrees Celsius above pre-industrial levels will significantly limit their long-term exposure to risk, it is reasonable to conclude that these entities will determine that limiting the flow of capital into carbon-intensive industries, or declining to insure projects occurring within those industries, is the prudent course of action, thereby accelerating a transition to a low-carbon economy.
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Reprinted with permission from the October 29, 2020 edition of The Legal Intelligencer© 2020 ALM Media Properties, LLC. All rights reserved.
The Legal Intelligencer
(by Molly E. Meacham)
It is a familiar scene to many employers. After searching for the right individual to fill an important position, a promising candidate emerges. The new employee will have top-level access to confidential information and customers, and their offer letter anticipates that the employee will sign restrictive covenants including noncompetition and nonsolicitation agreements as a condition of employment. Current operations are a bit chaotic—including some remote work—so the agreement isn’t provided prior to the first day of employment. The employee knows they will have to sign eventually, but the employer doesn’t press the issue and allows time for the new employee to review the terms. Is this a valid and enforceable restrictive covenant agreement? According to the Pennsylvania Supreme Court’s June 16, decision in Rullex v. Tel-Stream, the answer is no.
A restrictive covenant such as a noncompetition or nonsolicitation agreement is a contract that must be supported by adequate consideration to be enforceable in Pennsylvania. Pennsylvania views starting a new job as sufficient consideration, provided that the agreement is executed at the start of the employment relationship. In Rullex, the subcontractor in question was aware that a non-competition agreement would be required as part of the relationship, in which the subcontractor would be performing cellphone tower work for a telecommunications company. Although the subcontractor was given a copy of the agreement on his first day of work, he was allowed to take time to review it and did not return a signed copy until at least two months later. The subcontractor later performed cellphone tower work for a competitor of the telecommunications company, resulting in a lawsuit seeking to prevent him from working with that competitor or any other competitors of the telecommunications company.
In its decision, the Pennsylvania Supreme Court considered whether these factual circumstances constituted an enforceable non-competition agreement. The court rejected a bright-line approach in favor of examining the timeline and circumstances of the inception of the relationship, finding that the test for whether or not an enforceable agreement has been reached is not whether it is physically signed on the first day. Instead, the facts must show that as part of beginning the employment relationship the parties contemplated and intended that the employee would be bound by the substantive terms. This means that the restrictive covenant agreement is not presented as an afterthought as the employee begins employment. Instead, there must be objective manifestations of consent. For example, under the reasoning in Rullex, a meeting of the minds is likely present if an employee receives the substantive terms of a non-competition or nonsolicitation agreement in advance of their first day and manifests assent by beginning the employment relationship under those known and accepted terms. Then, even if there is a brief delay in obtaining a physical signature, the agreement is still likely enforceable. If there was no meeting of the minds on the essential terms, then a restrictive covenant agreement signed after the first day of employment is not enforceable absent additional consideration.
The day before the Pennsylvania Supreme Court addressed the issue of how the onboarding process impacted the enforceability of a restrictive covenant, a federal court considered how the circumstances surrounding termination of employment can impact enforceability.
On June 16, in Schuylkill Valley Sports v. Corporate Images, the U.S. District Court for the Eastern District of Pennsylvania examined the enforcement of restrictive covenant agreements when the employees in question were let go as part of a COVID-19 temporary business closure.
A sporting goods retailer in the Philadelphia area temporarily closed in March 2020 as it was not considered to be a life-sustaining business. In doing so, it did not guarantee any employee continued employment upon its anticipated reopening. A group of the retailer’s employees therefore joined a screen-printing and embroidery company that competed against the sporting goods store in that it also produced and sold custom athletic apparel. The language in the restrictive covenant agreements at issue contained noncompetition and nonsolicitation clauses that, and by their plain terms, applied only after resignations or terminations for “just cause,” without mention of terminations without cause or layoffs. Under those circumstances the court denied the former employer’s request for a temporary restraining order and preliminary injunction, finding that the sporting goods retailer did not establish that the agreements were enforceable because the employees were laid off without cause.
Although the court’s analysis could have ended at enforceability, it went several steps further in the analysis and considered how the circumstances of the pandemic impacted the request for an injunction. To obtain injunctive relief, the party seeking the injunction must demonstrate that it will experience greater harm if denied an injunction, than will be caused to the other party if an injunction is granted. The court considered the stay-at-home orders issued by the governor of Pennsylvania and the resulting business closures, as well as the 70-year high in the national unemployment rate. The court found that the harm that would result by granting an injunction to prevent the employees from working at their new employer would be great, leaving them without jobs and income. In contrast, the harm to the former employer was much more limited, as it had laid off the employees and it was therefore no longer expecting to profit from their sales efforts. In balancing the equities, the court did not ignore the larger issues caused by the pandemic, but instead was careful to take them into account when examining the facts of the case.
Businesses and individuals alike continue to adapt to the unprecedented challenges and distractions that arise from the COVID-19 pandemic. However, the Rullex and Schuylkill Valley Sports decisions are reminders that, when dealing with restrictive covenant agreements, attention to detail is key to ensuring that the parties have achieved a meeting of the minds no later than the first day of employment when a new job is serving as the agreement’s consideration, and that the specific terms of the agreement are important to later enforceability. If a noncompetition or non-solicitation agreement will be part of the employment relationship, employers should provide a copy well in advance, making sure that a new employee understands that execution of the agreement as written is a condition of starting employment. Employees with questions regarding the terms of a restrictive covenant agreement or a desire to negotiate its terms should handle that circumstance before their first day, to avoid any delay in beginning employment. In the event that a party seeks enforcement of a restrictive covenant agreement and litigation results, all parties are well-served to remember that judges may consider global circumstances—not just those unique to the individual parties involved—when balancing the harms that may result from a requested injunction.
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Reprinted with permission from the October 25, 2020 edition of The Legal Intelligencer© 2020 ALM Media Properties, LLC. All rights reserved.
The Legal Intelligencer
(by Gary Steinbauer)
Lawsuits pending before the U.S. Court of Appeals for the D.C. Circuit are likely to shape the U.S. Environmental Protection Agency’s (EPA’s) authority to regulate greenhouse gas (GHG) emissions from stationary sources under the Clean Air Act (CAA). These legal challenges involve two high-profile CAA deregulatory actions: The EPA’s Affordable Clean Energy rule (“Repeal of the Clean Power Plan; Emission Guidelines for Greenhouse Gas Emissions from Existing Electric Utility Generating Units; Revisions to Emission Guidelines Implementing Regulations,” 84 Fed. Reg. 32520 (July 8, 2019)) (ACE Rule) and the EPA’s rule eliminating the transportation and storage segments from and rescinding methane requirements in the new source performance standards for the oil and gas industry (“Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources Review Rule,” 85 Fed. Reg. 57,018 (Sept. 14, 2020)) (policy Amendments rule) (collectively referred to as the rules). The rules repeal and replace Obama-era GHG emission regulations promulgated pursuant to Section 111 of the CAA, 42 U.S.C. Section 7411.
Section 111 of the CAA grants the EPA authority to establish national performance standards for categories of sources that cause or significantly contribute to “air pollution which may reasonably be anticipated to endanger public health or welfare.” Section 111 of the CAA establishes separate regulatory tracks for new, reconstructed and modified sources and existing sources that would otherwise qualify as regulated new sources. For new, reconstructed, or modified sources, the CAA requires the EPA to establish new source performance standards (NSPS), representing the “best system of emission reduction” (BSER), that apply directly to the particular source category. See 42 U.S.C. Section 7411(b). For existing sources, the EPA is to establish BSER-based emission guidelines that are to be applied through state-issued performance standards. See 42 U.S.C. Section 7411(d).
- The Policy Amendments Rule—Regulating GHG Emissions From New Sources Under Section 111(b) of the CAA Background
The Policy Amendments Rule revised an Obama-era NSPS for the oil and gas industry located at 40 C.F.R. Part 60, Subparts OOOO and OOOOa. There are three inter-related components of the policy amendments rule: the removal of the transmission and storage segments of the oil and natural gas sector from the category of sources regulated in NSPS OOOO and OOOOa; the rescission of NSPS OOOOa’s methane requirements for the production and processing segments of the oil and natural gas sector (i.e., the sources remaining within the category after removing the transmission and storage segments); and a legal determination that Section 111 of the CAA must or should be interpreted to require a finding that a pollutant causes or significantly contributes to dangerous air pollution before it can be added to an existing NSPS.
The EPA’s rationale for rescinding the NSPS OOOOa methane requirements is that methane-specific controls are redundant. Notably, methane emission controls from the production and processing segments are no different than the VOC-specific controls, and the same was true for the VOC and methane emission controls that previously applied to the transmission and storage segment. The consequence of this determination is that the EPA will no longer be required to regulate methane emissions from existing sources in the industry’s production and processing segment. The EPA also justifies the rescission of methane requirements by finding that, contrary to Section 111 of the CAA, the Obama administration failed to find that methane contributes significantly to dangerous air pollution when it added the methane requirements to NSPS OOOOa in 2016.
What’s at Stake?
Opponents wasted no time filing lawsuits challenging the policy amendments rule. Environmental groups, 20 democratic states attorney general (including Pennsylvania), the District of Columbia, and two municipalities have challenged the policy amendments rule. These consolidated actions are moving forward on an expedited schedule. The D.C. Circuit has issued an order temporarily staying the policy amendments rule, while the court considers the merits of the challenges. The court was careful to note that its temporary stay order “should not be construed in any way as ruling on the merits.” The court has issued an expedited schedule for briefing on the challengers’ motions to stay and summarily vacate the Policy Amendments Rule, with final briefs due Oct. 5.
At issue in the policy amendments rule litigation is what the EPA must do to expand an NSPS source category to include sectors beyond those included in the original category of sources. In addition, the D.C. Circuit will be deciding what the EPA must do to add pollutants to those already regulated in its approximately 90 existing NSPSs. More specifically, the D.C. Circuit must determine whether Section 111 of the CAA requires the EPA to find that a proposed new pollutant, such as a GHG, significantly contributed to dangerous air pollution or merely that there is a rational basis for regulating such a pollutant. If the D.C. Circuit adopts the interpretation of Section 111 advanced by the EPA by in the policy amendments rule, it decreases the likelihood that both new and existing sources within the oil and natural gas industry sector and many other industry sectors will be subject to GHG emission standards under an NSPS.
- The ACE Rule—Regulating GHG Emissions From Existing Sources Under 111(d) of the CAA
Background
The ACE rule is comprised of three separate regulatory actions: the repeal of the Obama-era Clean Power Plan; the replacement of the CPP with the new ACE rule emission guidelines; and a set of revisions to the rules implementing Section 111(d) of the CAA. As compared to the Obama-era CPP, the ACE Rule’s definition of BSER from existing coal-fired power plants or electricity generating units (EGUs) is far more limited. The ACE rule adopts a carbon dioxide (CO2) emission rate comprised of heat rate improvement measures for existing coal-fired EGUs. States are responsible for adopting plans to establishing performance standards on a unit-by-unit basis, based on candidate technologies identified by the EPA, source-specific factors, and the remaining useful life of the source. States will have three years, or until 2022, to submit these plans to the EPA.
The BSER in the ACE rule is the product of the Trump administration’s more limited view of Section 111(d) of the CAA. More specifically, the CO2 emission rates adopted in the ACE rule apply solely within the plant sites at issue. In sharp contrast, the Obama administration interpreted its Section 111(d) more broadly, establishing emissions guidelines that would have required states to direct coal-fired EGUs offset their CO2 emissions by obtaining credits from lower-or zero-emitting power generation sources.
What’s at Stake?
Public health groups challenged the ACE rule the same day it was finalized. In addition, 22 states (including Pennsylvania), the District of Columbia, and six municipalities filed a separate challenge, and environmental groups have also joined the fray with a third challenge. These now-consolidated lawsuits are pending in the D.C. Circuit, with numerous industry groups, power companies and others intervening to support and oppose the ACE rule. Oral argument on the ACE rule challenges is scheduled for Oct. 8.
The D.C. Circuit will be tasked with interpreting the scope of the EPA’s authority to regulate GHG emissions from existing sources under 111(d). Because the U.S. Supreme Court stayed the CPP before it became effective and the lawsuits challenging the CPP were subsequently dismissed as moot after the ACE rule was promulgated, the ACE rule lawsuits will be the first time a court has ruled on the merits of the Trump and Obama administration’s competing views of the scope of Section 111(d).
Conclusion
Based on the current litigation schedules, it is expected that the D.C. Circuit will decide the fate of the rules through the lens of the Trump administration’s narrower interpretation of Section 111 of the CAA. It remains to be seen whether the ACE rule and policy amendments rule survive the D.C. Circuit Court challenges and whether the challenges will ultimately reach the Supreme Court. In the meantime, the EPA’s authority to regulate GHG emissions from stationary sources under the CAA hangs in the balance.
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Reprinted with permission from the October 6, 2020 edition of The Legal Intelligencer© 2020 ALM Media Properties, LLC. All rights reserved.