Babst Calland released its seventh annual energy industry report entitled The 2017 Babst Calland Report – Upstream, Midstream and Downstream: Resurgence of the Appalachian Shale Industry; Legal and Regulatory Perspective for Producers and Midstream Operators. This annual review of shale gas development activity acknowledges the continuing evolution of this industry in the face of economic, regulatory, legal and local government challenges. To request a copy of the Report, contact info@babstcalland.com.
In this Report, Babst Calland attorneys provide perspective on issues, challenges, opportunities and recent developments in the Appalachian Basin and beyond relevant to producers and operators .
In general, the oil and gas industry has rebounded during the past year through efficiency measures, consolidation and a resurgence of business opportunities related to shale gas development and its impact on upstream, midstream and downstream industries. As a result, many new opportunities and approaches to regulation, asset optimization and infrastructure are underway. Increased spending during the past year has led to a significantly higher rig count in the Appalachian Basin enabling growth in the domestic production of oil and gas as other shale plays across the country experience reductions.
The shale gas industry continues to provide the tri-state region with significant economic opportunities through employment and related revenue from the development of well sites, building of pipelines necessary to transport gas to market, and new downstream opportunities being created for manufacturing industries due to the volume of natural gas and natural gas liquids produced in the Appalachian Basin. Shell’s progress from a year ago to construct an ethane cracker plant in Beaver County, Pennsylvania represents just one example of the expanding downstream market for natural gas. Many other manufacturing firms are expected to enter the region and establish businesses drawn by the energy and raw materials associated with natural gas and natural gas liquids from the Marcellus and Utica shales.
The Report also highlights changes that have occurred during the past year in the political landscape that are expected to affect the energy industry. The Trump administration is signaling a fundamental shift in the energy policies established by the Obama administration. New executive orders and policies have been issued that promise to lead to more pipeline development, reduced federal oversight of the oil and gas industry and increased access to oil and natural gas reserves.
Joseph K. Reinhart, shareholder and co-chair of Babst Calland’s Energy and Natural Resources Group, said, “This Report provides perspective on the challenges and opportunities of a resurging shale gas industry in the Appalachian Basin, including: the divergence of federal and state policy that creates more uncertainty for industry; increased special interest opposition groups on new issues and forums despite their lack of success in the courts; and the expansion from drilling to midstream development and now to downstream manufacturing that demonstrates the emergence of a more diverse energy economy.”
The 74-page Report contains six sections, highlighted below, each addressing key challenges for oil and gas producers and midstream operators.
- Business Issues: Adapting to the New Price Environment as natural gas producers continue to focus on reducing costs and improving efficiencies. Recently, the number of natural gas producers in the Appalachian Basin has contracted through select merger and acquisition activity. With efficiency of operations in mind, natural gas producers continue to focus on consolidating their activities geographically. The oil and gas industry faced significant financial stress over the past year, and 2016 will go down as one of the more dramatic years in the United States’ oil and gas history. In the 2016 calendar year, primarily due to low commodity prices, 70 North American oil and gas exploration and production companies filed for bankruptcy protection.
- State and Federal Governments Remain Active in a Changing Regulatory Landscape as developments in the state environmental standards for enforcement, air, water and waste management in Pennsylvania, West Virginia and Ohio, as well as anticipated initiatives from non-governmental organizations (NGOs), will continue to have an effect on production and midstream operations. Separately, the impact of the Trump administration on various federal regulatory initiatives from the Obama era promises to be significant. President Donald Trump’s March 28, 2017 Executive Order was directed towards the development of the country’s natural resources. The order, among other things, requires agencies to review regulations that may burden the development or use of domestic energy resources.
- Pipeline Safety Legislative and Regulatory Developments Continue to Shape the Industry through the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration’s (PHMSA) pipeline safety program. It is unlikely that there will be a dramatic shift in PHMSA’s enforcement policy in 2017. “Protecting our Infrastructure of Pipelines and Enhancing Safety Act of 2016” (PIPES Act) was signed into law last year with a provision allowing PHMSA to issue emergency orders if an unsafe condition or practice constitutes, or is causing, an imminent hazard. These emergency orders can impose industry-wide operational restrictions, prohibitions, or safety measures without a prior hearing.
- Litigation Trends including a number of alleged nuisance claims continue to travel through West Virginia, Ohio and Pennsylvania courts. Materials discussing alleged health effects from unconventional natural gas development continue to be disseminated at a record pace by industry opposition groups. A casual review of the material could lead to the erroneous conclusion that air emissions have not been tested; this is not, however, the case. The air quality data collected by a variety of objective parties using established monitoring and testing protocols around shale development in northeastern U.S. over the last six years demonstrate that shale operations are safe.
- Local Government Law and Regulations Continue to Spawn Debate and Legal Challenges which continue to increase throughout the Appalachian Basin. However, the industry has successfully challenged overly-restricted ordinances. In contrast to municipalities that have adopted ordinances that permit reasonable oil and gas development, some local governments continued in 2017 to test their regulatory authority by enacting strict regulations for uses ancillary to well site development. Operators impacted by these regulations likewise continued to push back on these local regulations that severely impede, if not entirely prohibit, development or operation.
- Downstream Opportunities include exciting developments for production and midstream companies with new emerging markets for consumption of natural gas and natural gas liquids, such as power generation, export, and the petrochemical and related manufacturing industries. The U.S. petrochemical industry is undergoing tremendous growth, including the Northeast which is a prime target for more niche markets, and an opportunity to repurpose industrial assets for this regionalized growth.
As market conditions evolve for the oil and gas industry in the Appalachia Basin and throughout the United States, Babst Calland’s multidisciplinary team of energy attorneys continues to stay abreast of the many legal and regulatory challenges currently facing producers and midstream operators.
The Babst Calland Report is provided for informational purposes to our clients and friends, and is not intended to constitute legal advice.
To stay on top of these developments, periodic update articles, news and regulatory information can be found on babstcalland.com or at the Firm’s Shale Energy Law Blog shaleenergylawblog.com. Subscribe to receive regular updates.
PA Law Weekly
Job interviews are tough and they can be full of awkward questions. One of the awkward questions many applicants face is a potential employer’s request for an applicant’s compensation history. Not only is that question awkward, but some have theorized that basing starting compensation on an applicant’s historical compensation perpetuates the gender and minority wage gap. As a result, a percentage increase of the current salary of an applicant who is impacted by the wage gap could result in an even wider wage gap when compared to an applicant who is not negatively impacted by the wage gap. Accordingly, there has been a recent trend in several cities and states to propose and even pass legislation banning a new employer from seeking salary history information from an applicant or basing a starting salary on an applicant’s prior salary.
In 2016, Massachusetts became the first state to pass a law prohibiting employers from asking potential candidates about their salary histories prior to making a job offer. Massachusetts Gov. Charlie Baker signed “The Act to Establish Pay Equity” on Aug. 1, 2016, with an effective date of July 1, 2018. Under this law, among other things, it is unlawful for an employer to “seek the wage or salary history of a prospective employee from the prospective employee or a current or former employer or to require that a prospective employee’s prior wage or salary history meet certain criteria,” Section 105A(c)(2). Salary history bills have also been introduced in other states such as California, New Jersey and Washington.
Cities are also getting in on the action, passing ordinances prohibiting the salary history question. On May 4, Mayor Bill De Blasio of New York City signed a bill into law prohibiting employers from asking applicants about their salary histories or relying on the salary history of an applicant to determine the salary that it will offer to an applicant. The New York City law is effective on Oct. 31.
Finally, two bills have been introduced in the U.S. House of Representatives that would impact an employer’s ability to request an applicant’s salary history if signed into law. See Fair Salary History Alternatives of Responsible Employment Act of 2016 (H.R. 6293; sponsored by Rep. Bonnie Watson Coleman, D-New Jersey) and the Pay Equity for All Act of 2016 (H.R. 6030; sponsored by Rep. Eleanor Norton, D-District of Columbia). Both of those bills are currently in House committees.
In Philadelphia, an ordinance was passed that amended the city’s “Fair Practices Ordinance: Protections Against Unlawful Discrimination” ordinance (the ordinance amendment). Citing the U.S. Census Bureau 2015 report, the ordinance amendment claims that in Pennsylvania, women are paid 79 cents for every dollar a man makes, Phila. Code Section 9-1131(1)(a). It also claims that women of color are paid even less—African-American women are paid only 68 cents to the dollar, Latina women are paid 56 cents to the dollar and Asian women are paid 81 cents to the dollar.
The ordinance amendment made it an unlawful employment practice for “an employer, employment agency, or employee or agent thereof” to “inquire about a prospective employee’s wage history, require disclosure of wage history, or condition employment or consideration for an interview or employment on disclosure of wage history, or retaliate against a prospective employee for failing to comply with any wage history inquiry.” Further, the ordinance amendment made it unlawful to rely on the wage history of a prospective employee from any current or former employer in determining wages for a prospective candidate. Violation of the ordinance amendment subjects employers to civil and criminal penalties, including up to $2,000 per violation (Phila. Code Section 9-1105(d)), as well as an additional $2,000 and 90 days in jail for repeat offenses (Phila. Code Section 9-1121).
While the ordinance amendment was pending before the Philadelphia City Council, the Chamber of Commerce for Greater Philadelphia (the Chamber) provided testimony opposing the bill. While recognizing a concern for wage equality, the Chamber raised concerns that a prohibition on wage history inquiries will negatively impact employers that use salary history to evaluate potential candidates.
Ultimately, the opposition was to no avail, as the Philadelphia City Council passed the ordinance amendment in a 16-0 vote. Mayor James Kenney signed the ordinance amendment into law on Jan. 23; it would have taken effect on May 23, and would have been the first law in effect to prohibit inquiry into an applicant’s salary history (Massachusetts’ law is not effective until July 1, 2018, and New York City’s ordinance is not effective until Oct. 31 of this year).
Prior to taking effect, however, the Chamber filed a lawsuit in the U.S. District Court for the Eastern District of Pennsylvania requesting declaratory and injunctive relief, see The Chamber of Commerce for Greater Philadelphia v. City of Philadelphia, 17-cv-01548 (E.D. Pa. April 6). In the lawsuit, the Chamber argued that the amendment would have disadvantaged Philadelphia businesses. Specifically, the Chamber alleges that wage history is “important to the hiring process because employers use it, among other things, to identify job applicants they cannot afford, to set a competitive, market-based salary for their positions, and to assist in evaluating applicants’ prior job responsibilities and achievements.”
The legal bases for the Chamber’s request were three-fold. First, the Chamber argued that the ordinance amendment violates the First Amendment free speech rights of employers and is insufficiently tailored to reducing gender-based wage disparities. Second, the Chamber argued that the ordinance amendment violates the due process clause of the 14th Amendment based on the severe penalties for violating the ordinance amendment. Third, the Chamber argued that the ordinance amendment’s definition of the word “employer” is overbroad and therefore invalid because it applies to even to those employers who are located outside of Philadelphia. Specifically, it defines employers as “any person who does business in the city of Philadelphia through employees or who employs one or more employees.” Thus, the Chamber requested that the district court enter a judgment declaring the ordinance amendment as void and of no force.
In response to the complaint and motion for preliminary injunction, the city of Philadelphia has raised the issue of whether the Chamber has standing to prosecute its lawsuit and briefing on this issue is currently underway. On May 30, Judge Mitchell S. Goldberg granted the city’s motion and dismissed the complaint on the grounds that the Chamber had not shown that at least one of its members would have standing to bring the suit. Judge Goldberg did, however, grant the Chamber leave to amend its complaint on or before June 13, 2017.
Meanwhile, efforts by the Pennsylvania legislature to pre-empt the Philadelphia ordinance are underway. Sen. Thomas J. McGarrigle, a Republican serving part of Chester and Delaware counties, is the prime sponsor of SB 241, which seeks, among other things, to amend Pennsylvania’s Equal Pay Law so that ordinances, such as the one passed in Philadelphia, are pre-empted by the Equal Pay Law. SB 241 is currently making its way through the Pennsylvania House of Representatives.
While there are few answers for employers and employees regarding wage history inquiries, what is certain is that the law in this area is developing quickly. The clear trend by local and state governments is to attempt to close the wage gap through the prohibition of salary history inquiries. Thus, this may be a good time for employers to revisit their practices and procedures with respect to salary history inquiries and to keep updated on this rapidly changing legal landscape.
*Reprinted with permission from the 6/1/17 issue of The Legal Intelligencer. © 2017 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
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The PIOGA Press
The oil and gas industry has enjoyed recent successes in two types of ordinance challenges in Pennsylvania. The first victory came in another in a growing line of zoning ordinance validity challenges, this one in Mount Pleasant Township, Washington County. The second victory came in a challenge to Grant Township, Indiana County’s prohibition on underground injection wells.
Mount Pleasant Township
As we reported last year for The PIOGA Press, five municipalities faced zoning ordinance validity challenges in 2015 and 2016. The cases were inspired largely by the Pennsylvania Supreme Court’s plurality opinion in Robinson Township v. Commonwealth, and essentially argued that the ordinances did not regulate oil and gas development stringently enough, that zoning ordinances cannot permit oil and gas uses in agricultural or residential districts, and that municipalities must engage in extensive environmental assessments when enacting regulations.[1] The zoning hearing boards in Allegheny Township, Westmoreland County, Middlesex Township, Butler County, and Pulaski Township, Lawrence County, each rejected these arguments and upheld the ordinances. The remaining two challenges, in Robinson Township and New Sewickley Township, did not proceed to the merits.[2]
In May 2016, while the Allegheny and Middlesex cases were pending on appeal before the Commonwealth Court and the Pulaski case was pending before the Lawrence County Court of Common Pleas, Citizens for Pennsylvania’s Future (PennFuture), with assistance from Fair Shake Environmental Legal Services (Fair Shake), challenged the Mount Pleasant Township, Washington County, zoning ordinance on similar Robinson Township-based grounds.
Range Resources-Appalachia, LLC, MarkWest Energy Partners, L.P., and owners of a proposed well site intervened in the case. The Mount Pleasant Township Zoning Hearing Board took testimony through nine nights of hearings and ultimately decided, as did the zoning hearing boards in the previous challenges, to uphold the targeted ordinance.
Critically, in the Mount Pleasant Township validity challenge, PennFuture offered a variety of witnesses as experts on the alleged health, property value, and environmental impacts of oil and gas development. The board universally rejected this testimony:
- Ned Ketyer, M.D., a Washington County pediatrician, testified to his belief that oil and gas development can pose health risks for children. He also testified that he assumed gas development results in harmful exposures to air emissions based on what he had seen and smelled, but that he had not reviewed air emission data or monitoring studies. The board did not find his testimony to be “credible to the extent necessary to consider in this matter.”
- Dr. Thomas Daniels, a professor of city and regional planning at the University of Pennsylvania, opined that oil and gas development is an “industrial” use that should not be placed in residential and commercial districts. However, the board noted that Dr. Daniels had never observed oil and gas development, was not familiar with Mount Pleasant Township and was unaware of well setbacks imposed by state law. The board rejected Dr. Daniels’ characterization of unconventional natural gas development as an “industrial” use, his opinion that the challenged ordinance was inconsistent with the township’s comprehensive plan and his opinion that the ordinance violates basic zoning principles.
- Dr. Christopher Timmins, an economist from Duke University, described his Pennsylvania-wide regression analysis study. That study concluded that a gas well can negatively impact the value of groundwater-dependent homes within a kilometer. However, Dr. Timmins also testified that his study did not take into account the timing of a well (i.e., whether it was in the development or production phase) at the time of a sale or whether mineral rights were conveyed with the property. The board rejected the conclusions of his study. Range presented several experts in defense of the ordinance:
- Anthony Gaudlip, Range’s director of civil/environmental engineering and construction, testified about the mandatory state and local permitting procedures related to the development of an oil and gas well. The board found this testimony to be credible and directly relevant, concluding it demonstrated “that outside of the control of the Township, there are in place considerable protections of the residents of the Township relative to unconventional gas developments.”
- Ross H. Pifer, director of the Center for Agricultural and Shale Law at Penn State Law, testified to the historic compatibility of oil and gas development and agriculture, and the reflection of that compatibility in various state laws. The board recognized Professor Pifer as an expert and accepted his findings and opinions.
- Dr. Christopher Long, an environmental and health consultant with Gradient, based his testimony on his review of materials including peer-reviewed published studies on air impact analysis in the Marcellus Shale region, various governmental reports and datasets, and commissioned studies in the Marcellus Shale region. He concluded that there exists a sizeable body of ambient air monitoring studies that can be used to assess the health risks associated with oil and gas development and that these studies do not support claims of widespread air exposures of public health concern. The board found that Dr. Long is “an expert with respect to toxicology, air exposures, and human risk assessment” and accepted his opinions and findings.
- Jerry Dent, managing director with Alvarez & Marsal, testified as an expert on the impact of environmental issues on property values. Based on his analysis of local market-based sales data and related information, he concluded there was no evidence that unconventional natural gas development caused a systematic diminution of residential property values in the township. The board found Mr. Dent to be an expert on the subject matter and concluded that his opinions and findings were credible.
PennFuture presented Dr. Seth Shonkoff, executive director of PSE (Physicians, Scientists and Engineers) – Healthy Energy, in rebuttal to Dr. Long’s testimony. Dr. Shonkoff did not find error in the basic information included in Dr. Long’s report, but did criticize various aspects of Dr. Long’s testimony. However, the board noted inconsistencies among some of the studies Dr. Shonkoff relied upon, that the epidemeloigical studies Dr. Shonkoff referenced were not based on actual air monitoring data, and that his criticism of Dr. Long’s testimony was inconsistent with the data and evidence presented. The board concluded that Dr. Shonkoff’s testimony was “equivocal, not properly founded, and not credible” and thus disregarded it.
PennFuture did not appeal the board’s decision.
In addition to filing the Mount Pleasant Township challenge while the Allegheny Township and Middlesex Township cases were pending before the Commonwealth Court, PennFuture pursued the case while the Pennsylvania Supreme Court was considering two relevant cases, namely Pennsylvania Environmental Defense Foundation v. Commonwealth (argued in March 2016) and Gorsline v. Board of Supervisors of Fairfield Township (argued in March 2017). Both cases include Robinson Township arguments like those raised in Mount Pleasant Township, and, once decided, may have direct bearing on the viability of this line of validity arguments.
Despite the pendency of these appeals, Fair Shake filed another challenge—this one to the Penn Township, Westmoreland County, zoning ordinance—in April. The zoning ordinance in Upper Burrell, Westmoreland County, was also challenged in February. These new cases are substantially similar to the challenges that have already been decided.
Grant Township
Pennsylvania General Energy, L.L.C. (PGE) recently succeeded in its challenge to Grant Township, Indiana County’s underground injection well ban. In 2014, the township worked with the Community Environmental Legal Defense Fund, an antiindustry, anti-corporation Pennsylvania-based community rights organization, to enact a self-styled “Community Bill of Rights” ordinance. The ordinance specifically banned underground injection wells and purported to supersede any state or federal injection well permit. PGE, which obtained an EPA underground injection well permit in 2014 and had applied for a Pennsylvania Department of Environmental Protection (DEP) permit, filed a complaint in United States District Court for the Western District of Pennsylvania in October 2015 challenging the constitutionality, validity and enforceability of the ordinance.
The District Court initially invalided six provisions of the ordinance on state law grounds in 2015[3], and went on to grant three of PGE’s six motions for summary judgment on the remaining federal claims in March 2017. The court found that Grant Township’s ordinance violated the Equal Protection Clause of the Fourteenth Amendment because it discriminated against corporations, the Petition Clause of the First Amendment because it attempted to limit PGE’s access to the courts and the Due Process Clause of the Fourteenth Amendment because it demonstrated “irrational and arbitrary behavior, which acknowledges language contrary to existing law and takes the purpose outside of the original point of the Ordinance.” The court rejected Grant Township’s motion for summary judgment on its counterclaim, which claimed that PGE is violating the rights of Grant Township’s residents to “local community self-government.” PGE’s requests for damages, and injunctive and declaratory relief, remain viable after this ruling.
On the heels of the court decision invalidating Grant Township’s ordinance ban, DEP reissued[4] PGE’s underground injection well permit. DEP then filed actions against Grant Township and Highland Township, Elk County, asking the Commonwealth Court to invalidate and enjoin enforcement of similar provisions that both townships had added to a home rule charter. In April 2017, the Commonwealth Court issued orders in both cases, temporarily enjoining the townships from enforcing their charters, pending a final determination on the merits. ■
The law firm of Babst Calland in Pittsburgh represented Range and PGE in these cases. For more about Grant Township and Highland Township, see April’s PIOGA Press, page 6. If you would like additional information about developments in this article, contact Krista-Ann Staley at 412-394-5406 or kstaley@babstcalland.com, or Blaine Lucas at 412-394-5657 or blucas@babstcalland.com.
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American College of Environmental Lawyers
(by Chester Babst)
When President Trump issued his energy-related Executive Order in March directing further review by the EPA Administrator of, among other things, the Clean Power Plan, it signaled the death knell for what was arguably President Obama’s centerpiece domestic action on climate change. But while the Order’s likely intent to neutralize this and other rules would have appeared to pave the way for a flurry of lawsuits filed by environmental groups and States particularly concerned about global warming, the federal dockets have thus far been somewhat quiet with respect to the Trump Administration’s handling of prior climate change-related rulemaking.
A group of 10 states have begun to push back, though, by filing a petition in the Second Circuit. The rule that is requested to be reviewed? It doesn’t involve coal-fired power plants. Nor wellpads or compressors. Rather, the petition involves rulemaking aimed at the ominous … ceiling fan. The rule, enacted by the Department of Energy in January, establishes minimum energy efficiency standards for fans manufactured after January 2020 pursuant to the Energy Policy and Conservation Act. According to the DOE, the rule is projected to reduce carbon dioxide emissions by over 200 million tons and methane emissions by 17 million tons through 2049. Some 12 days after the rule was finalized, DOE delayed the effective date by 60 days with the stated intent of conducting further review and consideration of new regulations, consistent with the Freeze Memo. In March, DOE subsequently pushed back the effective date even further until September, with the basis being that DOE Secretary Rick Perry was, perhaps unsurprisingly, unable to accomplish the review and consideration of the rule within the 60-day timeframe. Additional energy efficiency rulemakings finalized but not published under the Obama Administration currently remain unpublished.
The significance of the lawsuit is not so much about its substantive impact on climate change. After all, the projected GHG reductions under the ceiling fan rule are only a small fraction of those projected as part of the Clean Power Plan, which itself left some wondering whether it could meaningfully affect climate change on a global level. Further, the Clean Power Plan’s vitality was already in question following the Supreme Court’s stay. Rather, the petition carries broader implications for the Trump Administration’s apparent strategy of stalling, as opposed to directly revising or withdrawing, environmental rulemaking that it fundamentally opposes. The strategy is not a wholly illogical one, especially considering the possible legal and practical limitations that some commentators have expressed the Administration might initially face if it were forced to provide, on-the-record, a definitive basis for full-fledged withdrawal of notable climate change regulations.
One of the key figures for the petitioners, New York Attorney General Eric Schneiderman, has contended that the DOE’s delays violate the Administrative Procedure Act in that they constitute a substantive revision to a final rule without going through proper notice and comment. He is joined by nine other states (California, Connecticut, Illinois, Maine, Massachusetts, Oregon, Pennsylvania, Vermont, and Washington) as well as New York City. If the petitioners prevail, it will likely force EPA and other agencies to confront existing rulemaking head-on, and would otherwise challenge the viability of President Trump’s energy-related Executive Order, including associated OMB guidance for implementation of the rule review procedures. Further pressure could also come as a result of a challenge to the so-called “2-for-1” Executive Order, which environmental groups have claimed also directs arbitrary repeal of rulemakings. But until then, neither industry nor environmentalists should be surprised if climate change or other significant environmental regulations carried over from the Obama Administration remain in an infinite loop of administrative review.
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Pipeline & Gas Journal
A Conversation with Babst Calland Energy Attorney Keith Coyle.
P&GJ: What are you hearing from the pipeline industry in terms of its expectations on anticipated federal regulatory reforms resulting from President Trump’s executive actions? What are the financial and safety stakes at hand?
Coyle: The pipeline industry has been largely supportive of the actions taken by the new administration. The temporary regulatory freeze the White House imposed on Inauguration Day deferred several significant regulations that President Obama tried to issue at the end of his administration. President Trump’s approval of the Dakota Access and Keystone XL pipelines also fulfilled a key campaign promise and represented a sharp break from the policies pursued by his predecessor.
The recent executive orders on regulatory reform should have a positive impact on federal oversight of the pipeline industry during his administration. If President Trump is able to implement these reforms, the pipeline industry will be operating in a more efficient and effective regulatory environment, which should reduce unnecessary costs and encourage additional investment and development.
P&GJ: How could the Trump administration’s energy regulatory policies affect pipeline safety at the state level?
Coyle: The state agencies that regulate pipeline safety must adopt the minimum federal safety standards established by the Pipeline and Hazardous Materials Safety Administration (PHMSA). PHMSA initiated two rulemaking proceedings during the Obama administration that proposed significant changes to the safety standards for hazardous liquid and natural gas pipelines.
The new administration is going to have a lot of influence in determining whether and to what extent these regulatory changes become law in the near future. PHMSA is also required, under President Trump’s executive orders on regulatory reform, to identify obsolete or unnecessary regulations for revision or repeal. Both of these initiatives will have an impact on the federal pipeline safety regulations that state agencies are required to adopt and enforce.
P&GJ: What kind of reaction might the energy industry expect from environmentalists or activists as the Trump administration pursues its new energy regulatory agenda?
Coyle: Environmental and pipeline advocacy groups have already expressed strong opposition to the new administration’s regulatory agenda, and the energy industry should expect these groups to remain very active throughout the Trump presidency. Coordinated efforts to delay or block new projects, a trend that spread in the Obama administration, will continue and litigation will be used as a tool for pursuing policy objectives. Expect legal challenges to President Trump’s regulatory reform initiatives as well as citizen suits targeting specific pipeline operators, facilities, or projects.
P&GJ: Do you think the Trump administration’s new energy regulatory policies are impacting pipeline projects? If so, is that impact positive or negative?
Coyle: President Trump’s new energy regulatory policies produced two key victories in the early days of his administration – federal approval of the Dakota Access and Keystone XL pipeline projects. The temporary regulatory freeze that the White House imposed on Inauguration Day also deferred implementation of several significant regulations that would have adversely affected the pipeline industry. The impact of President Trump’s executive orders on regulatory reform will need to be evaluated over the long term, but the expectation is that federal agencies will focus more directly on ensuring that regulations affecting the energy industry are necessary and cost-effective under the new administration.
P&GJ: When do you expect new leadership at PHMSA to be in place? What do you think should be the top priority of the new regime?
Coyle: The Senate confirmed President Obama’s first PHMSA administrator approximately 10 months after Inauguration Day. The Senate confirmed President George W. Bush’s first administrator of PHMSA’s predecessor agency, the Research and Special Programs Administration, eight months after Inauguration Day. While the Senate’s ability to act on nominees often depends on the press of other business, and there are a lot of items of important legislative items on President Trump’s agenda, I hope the new PHMSA administrator will be in place by the fall as in past administrations, if not sooner.
The top priority of the new PHMSA leadership should be implementing the regulatory reforms outlined in President Trump’s executive orders. PHMSA should focus on revising or repealing unnecessary or obsolete regulations that impose undue burdens on the pipeline industry. PHMSA should also carefully review the changes proposed in the outstanding rulemaking proceedings initiated during the Obama administration to ensure consistency with President Trump’s new policies.
P&GJ: What is the status of the hazardous liquid pipeline safety rule that the Obama administration tried to issue in the days before President Trump’s inauguration?
Coyle: The Obama administration released a pre-publication version of the hazardous liquid pipeline safety final rule in mid-January 2017. However, the rule was not published in the Federal Register by Inauguration Day and got returned to PHMSA for further review under the White House’s regulatory freeze memo to ensure consistency with President Trump’s new policies. PHMSA has not provided any additional public information on the status of the rule.
An important issue to watch will be how PHMSA addresses President’s Trump executive order on regulatory reform. The order requires federal agencies to identify two regulations that will be repealed for every new significant regulation that is issued and imposes strict cost limitations for all regulatory actions taken by federal agencies during the current fiscal year, and allows the Office of Management Budget to set similar cost limitations for future fiscal years.
P&GJ: Do you expect the Trump Administration to make significant changes to the proposed mega-rule for gas gathering and transmission lines?
Coyle: The version of the mega-rule the Obama administration released in April 2016 had some very significant flaws, and many of the proposed changes directly conflict with the energy regulatory policies of the new administration. President Trump and the new PHMSA leadership will need to address these concerns during the next phase of the rulemaking process.
PHMSA should revise the gas transmission line proposals to align more closely with the congressional mandates in the 2011 Pipeline Safety Act and eliminate any provisions that do not satisfy the requirements in President Trump’s executive order on regulatory reform. As comments submitted by the pipeline industry show, the Obama administration’s proposed regulations for pipeline materials and maximum allowable operating pressure verification go well beyond the applicable congressional mandates, are unnecessarily burdensome and complex, and cannot be practicably implemented.
PHMSA should also obtain and review additional data before taking any further action to advance the Obama administration’s proposed changes to the gas-gathering line regulations. PHMSA acknowledged during the public comment period that the changes proposed by the previous administration contained significant drafting errors, and an analysis prepared for a pipeline trade association showed that PHMSA underestimated the costs of the gathering line proposals by more than $25 billion over the initial 15-year compliance period.
P&GJ: Will the Trump Administration’s new energy regulatory policies affect federal oversight and enforcement of the pipeline industry?
Coyle: Recent history suggests that oversight and enforcement do not change dramatically from administration to administration. For example, PHMSA initiated nearly 300 pipeline safety enforcement actions in 2005 during the George W. Bush administration, but only initiated about 160 enforcement actions in 2016 during the Obama administration. PHMSA proposed approximately $8.8 million in administrative civil penalties in 2008 during the Bush administration, an amount exceeded during only one year of the Obama administration, when PHMSA proposed approximately $9.8 million in civil penalties in 2013.
Civil penalty amounts may increase due to recent changes in PHMSA’s statutory authority and the methodology used in calculating civil penalties, but I expect federal oversight and enforcement will remain a top priority of the Trump administration.
P&GJ: Do you think industry can comply with the president’s directive to the secretary of Commerce to develop a plan for using U.S. steel in all new, repaired, or replaced pipelines?
Coyle: A lot will depend on the details of the plan that the secretary of Commerce is developing for President Trump. The secretary asked for public comment in mid-March on a set of detailed questions related to domestic steel availability, pipe inventories and materials, and federal permitting requirements. The information provided in response to that request should influence the approach that the secretary takes in the plan, which must be submitted to President Trump by July 23, 2017. The recent announcement that the Keystone XL pipeline will not be subject to the U.S. steel requirement is a positive development, showing that the administration is aware of the potential adverse impacts that might arise if the plan is applied to operators who have already acquired materials for projects under development.
P&GJ: What is the biggest potential challenge for regulatory reform in the pipeline industry?
Coyle: Change is not something that comes easily to the federal government, and the pipeline industry is receiving intense (and in many respects unfair) scrutiny from environmental organizations and other advocacy groups. Accomplishing an ambitious regulatory reform agenda will be extremely difficult in these conditions and will require a sustained commitment from the new administration in the face of significant opposition, at least from certain interest groups. The good news is that the pipeline industry has a strong base of support throughout the public and private sectors and a track record of success that shows that the reforms sought by President Trump can be achieved during his administration.
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James D. Miller, a shareholder in the Litigation and Construction groups at law firm Babst Calland, was selected by The Legal Intelligencer as a “2017 Lawyer on the Fast Track” in Pennsylvania.
The Legal Intelligencer asked the Pennsylvania legal community to submit nominations for the annual Lawyers on the Fast Track honors. After reviewing their results, a six-member judging panel composed of evaluators from all corners of the legal profession and the state selected 32 attorneys as the 2017 Lawyers on the Fast Track. This recognition is only given to attorneys under the age of 40 who have demonstrated excellence in four categories: development of the law; advocacy and community contributions; service to the bar; and peer and public recognition.
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PIOGA Press
The opening days of the Trump administration have seen a flurry of activity focused on regulations affecting the oil and gas industry. President Donald Trump has issued a series of executive orders and presidential memoranda aimed at reducing regulations that impact the energy industry. Congress has also used its authority under the Congressional Review Act (CRA) to repeal several recently issued regulations. While the industry has largely applauded these moves, environmental groups have signaled they intend to challenge these actions aggressively in court.
Executive actions and presidential memoranda
On January 20, the new White House chief of staff issued a regulatory freeze memo instructing executive branch agencies to (1) withdraw rules that had been sent to the Federal Register but had not yet been published; (2) refrain from sending new rules to the Federal Register for publication until a senior official appointed by the administration had reviewed the contents of the rule; and (3) extend the effective date for those rules that had been published prior to Inauguration Day but had not yet taken effect.
On January 24, President Trump issued memoranda calling for the expedited review and approval of the Keystone XL Pipeline and Dakota Access Pipeline projects, which had been blocked or stalled during the previous administration. The president also directed the secretary of commerce to develop a plan within 180 days for using materials and equipment produced in the United States in all new, repaired or replaced pipelines.
On January 30, the president issued an executive order entitled “Reducing Regulations and Controlling Regulatory Costs” (informally known as “the Two-for-One Order”). The Two-forOne Order requires agencies to identify two regulations for repeal for every new regulation the agency proposes or promulgates. The Two-for-One Order also establishes cost caps for regulatory action. The net incremental cost cap for the remaining portion of fiscal year 2017 is zero, and the Office of Management and Budget (OMB) is directed to set the cost caps for future fiscal years. In other words, federal agencies cannot advance a new rule between January 20 and September 30 (the end of the current fiscal year) without first identifying two regulations for repeal under the Two-for-One Order, and the net incremental costs for new regulations must be zero.
On February 2, the Office of Information and Regulatory Affairs (OIRA), a division of the OMB, issued interim guidance to agencies on how to implement the Two for One Order. OIRA made several clarifications in the interim guidance:
- The guidance narrowed the application of the Two-for-One Order to significant rulemakings and guidance documents.
- Agencies do not have to comply with the Two-for-One Order if a statute or court decision requires otherwise.
- The Two-for-One Order does not apply to independent agencies (i.e., the Federal Energy Regulatory Commission), but those agencies are encouraged to identify existing regulations that could be repealed or revised to reduce costs.
- Agencies can use the savings acquired from regulations repealed by an act of Congress (i.e., Congressional Review Act resolutions) to offset the costs of new rules.
- Agencies can pair two rules from different divisions within the agency to achieve the required cost-savings. The rules repealed do not have to bear a substantive connection to the one that is being issued.
- Agencies are prohibited from using the regulatory impact analysis (RIA) created during the original rulemaking process. The RIA used to support the costs or proposed savings must be based on ongoing costs.
On March 28, the president issued the “Promoting Energy Independence and Economic Growth” executive order. The president directed agencies to review existing regulations that potentially burden the “development or use of domestically produced energy resources.” Of particular note, the president directed the Environmental Protection Agency (EPA) to review the Clean Power Plan final rule and the Emission Standards for New, Reconstructed and Modified Sources final rule. The president also rescinded the Council on Environmental Quality’s August Trump environmental regulation: Continued from page 1 2016 final guidance, which urges agencies to consider the effects of greenhouse gas emissions in their National Environmental Policy Act reviews. Finally, the president rescinded the six technical documents that the previous administration had relied on to support the Social Cost of Carbon, the framework to determine the benefits of reducing carbon emissions. (See related article on page 4.)
Congressional Review Act
Congress has used its authority under the CRA to pass joint resolutions of disapproval nullifying regulations finalized in the waning days of the Obama administration. The CRA allows Congress to take expedited action to overrule regulations issued by federal agencies within the previous 60 legislative days. To date, Congress has introduced 15 joint resolutions seeking to overturn a regulation finalized between June 13, 2016, and January 3, 2017. Of the 13 joint resolutions that have passed both houses of Congress, President Trump has signed eight into law. By comparison, prior to 2017 Congress had successfully used the CRA only once.
Several of these resolutions are of interest to the energy industry. The president has withdrawn the Department of Interior’s Stream Protection Rule, which would have imposed new limitations on coal mining operations; an Occupational Safety and Health Administration rule that would have made recordkeeping requirements a continuing obligation; and a Securities and Exchange Commission rule that would have required oil companies to disclose operations in foreign countries.
In February, the House of Representatives passed a joint resolution withdrawing the Bureau of Land Management’s rule establishing emission limits on oil and gas companies operating on public land. However, the Senate has yet to pass this resolution. Congress is also reviewing the EPA’s final rule amending the accident prevention and emergency response requirements of the Risk Management Program. The March 30 deadline to introduce new joint resolutions has now passed; however, Congress has until approximately May 9 to vote on the remaining joint resolutions.
Environmental non-governmental organization response
Environmental groups have already instituted lawsuits challenging several of these presidential and congressional actions. On February 8, Public Citizen, Natural Resources Defense Council and the Communications Workers of America filed suit in the U.S. District Court for the District of Columbia seeking declaratory and injunctive relief from the Two-for-One Order. Other groups have expressed an interest in seeking judicial reviewing of some of the other recent actions, including the executive order related to the Clean Power Plan final rule.
If you have questions regarding the regulatory developments or challenges described in this article, please contact Brianne K. Kurdock at 202-853-3462 or bkurdock@babstcalland.com.
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The State Journal
The “law.” We all agree we need laws to be a civil society, but like other cornerstones of America’s political and social house — such as “liberty” and “freedom” and “equality” — the “law” is complex and can mean many different things.
For example, the law can mean the statutes found in the United States Code or the West Virginia Code that represents the formal laws passed by the Legislature and signed by the head of the executive branch of government. In West Virginia, the state Legislature — both the Senate and House — just concluded 60 days of crafting, debating, amending, rejecting and passing laws that will either by signed into law or vetoed by Gov. Jim Justice. Those that become a law will become part of West Virginia Code.
The law also means the regulations created by government agencies that are supposed to control the way something is done or the way people behave in order to ensure that the intent of the statute is followed. This law, which has the force and effect of a statute, is not considered or voted upon by elected legislators, which is why some believe that the proliferation of regulations from federal agencies must be checked.
The law also means the common law that forms the basis for many civil lawsuits. Whether a party is “negligent” or a product is “defective” is based upon the common law that has developed through court decisions over the years. The common law of West Virginia has been developed by the Supreme Court of Appeals of West Virginia since we became a state in 1863, and even then, West Virginia adopted the common law of Virginia, which had in turn adopted the common law of England.
The law can, in every context, be messy and unwieldy. One lobbyist mumbled to me when I recently walked into the state Capitol, “Welcome to the sausage factory.” Listening to a legislative committee or a floor session is a good reminder that the process by which a piece of legislation becomes a law can be messy indeed. Anyone caught up in the judicial system, whether criminal or civil, understands that the court system can be expensive and, at times, bewildering. And for those seeking to have a final decision rendered by the West Virginia Supreme Court, the time between the filing of a lawsuit or claim and a final decision can be lengthy.
Yet, the “rule of law” remains a bedrock principle of our democracy, even if, as Winston Churchill famously said, “Democracy is the worst form of government, except for all the others.” Without the law, our institutions, our federal, state and local governments and our society would fall apart. Recent events in Venezuela, where the Supreme Court under the control of President Nicolas Maduro effectively disbanded Congress for a few days before international pressure forced its reinstitution, remind us that President Dwight D. Eisenhower was correct when he observed, “The clearest way to show what the rule of law means to us in everyday life is to recall what has happened when there is no rule of law.” Certainly, news accounts from around the world — Syria, Afghanistan, South Sudan, Somalia — demonstrate that despotism and violence fill the vacuum when the rule of law is missing.
As the West Virginia Legislature ends its session, a session marked by emotional budget choices, bruising battles over water and environmental issues, as well as difficult and complex discussions about changes to our tax structure, it’s important to remember that in our state and in our country, the rule of law should be — must be — respected. And if you believe that the law should be changed, well, the “sausage factory” will be open again next year.
Mychal Schulz is an attorney in at Babst, Calland, Clements & Zomnir P.C. in Charleston focusing on energy, employment, and commercial litigation. He is a member of the West Virginia Business & Industry Council and sits on the Board of Directors of Leadership West Virginia.
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Oil & Gas Journal
Air emissions data from actual monitoring and testing contradict articles based on different methods claiming to have found health hazards related to oil and gas work. Data collected by objective parties in the northeastern US over the past 6 years indicate that air quality around oil and gas operations is, in fact, safe. This observation contrasts starkly with arguments made in a variety of published studies cited by opponents of domestic shale development.
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Pennsylvania Business Central
By R. Brock Pronko
Historically, one of the biggest policy differences between Republicans and Democrats has been over labor issues such as unions vs. “right-to-work”, minimum wage, the overtime rule, graduate students’ right to unionize, limiting litigation in EOEC cases, pay transparency, equal pay for women, employee health care benefits, retirement payouts and class action waivers.
As a businessman, sometimes Donald Trump has had an strained relationship with labor unions during the construction of his hotels and golf resorts, occasionally resulting in regulatory disputes and legal battles. A probusiness president and Republican-majority Congress are now in a position to “repeal and replace” pro-labor laws enacted by President Obama and Congressional Democrats.
The President appointed as acting chairman of the National Labor Relations Board Phillip Miscimarra, who has been characterized by Democrats as an “an anti-union lawyer.” The NLRB consists of three members from the President’s party and two members from the opposition. The board currently has two vacancies that will be filled by the President, giving pro-business members the majority.
In 2007, VP Mike Pence, then a U.S. representative from Indiana, voted against the Employee Non-Discrimination Act, which aimed to prevent job discrimination based on sexual orientation. He also voted against raising the minimum wage.
Republican governors have signed “right-to-work” laws. Last month, Missouri became the 28th state to pass a “right-to-work” law. “Right-to-work” laws prohibit labor unions from requiring workers to pay dues as a condition of employment, but by federal law unions are required to provide fair representation to all workers covered by a contract regardless if they pay dues.
If confirmed, Supreme Court justice nominee Neil Gorsuch will likely vote in favor of conservative Republican policies on labor cases that come before the court.
Pennsylvania Business Central reached out to experienced and attorneys College to look at how this sweeping regime change might impact workers and employers: Amy Marshall from Babst Calland and Phil Miles with McQuaide Blasko.
PBC: What issues championed by the NLRB under President Obama are likely to be overturned by appointees of the Trump administration?
Miles: When control of the NLRB changes parties we usually see subtle shifts more than vast sea changes. For example, the Obama NLRB reversed a prior ruling and allowed certain university graduate assistants to unionize. The Obama NLRB also broadened recognition of smaller unions often called micro-or mini-bargaining units, allowed employees to petition for union elections with electronic signatures and lowered the bar for establishing “joint employment.” For example, making it easier for employees of a fast food franchise to argue that they are jointly employed by the franchisee and the franchisor. I suspect the Trump NLRB will revisit some of these battlegrounds and generally take a narrower view.
PBC: Are we likely to see an impact on the EEOC such as gender issues in the workplace?
Miles: Trump proposed paid maternity leave on the campaign trail and he even mentioned paid family leave in his recent speech to Congress. I think this will happen.
Marshall: The President tried to address the transgender issue with bathrooms in schools by throwing it back to the states. The Supreme Court kicked that case back to the fourth circuit court and said it needed to re-examine the issue by looking at Title 9, the federal civil right law that prohibits sex discrimination in education.
It doesn’t mean that gender discrimination litigation won’t move forward if there’s a case filed against a school or an employer, it just might mean that the EEOC takes a different tact on what issues they want to push and what they don’t.
PBC: The Heritage Foundation, a conservative think tank, has said that America no longer needs unions because they do not reward workers based on individual merit but treat everyone the same through collectively bargaining, which stifles creativity and individual initiative, while also causing companies to move jobs out of the country to lower labor costs.
The argument from the other side is: Great companies don’t view employees as “inputs” or “costs,” and they don’t try to pay them as little as they can to keep them from quitting. They view employees as the extremely valuable assets. Most importantly, they share their wealth with them. Pro-union advocates argue that one of the factors in the growing income inequality in the U.S. is due to the biggest companies no longer sharing their wealth with rank-and-file employees.
What’s your take on these opposing views of unions?
Miles: Is it too much of a cop out to say they’re both right? The truth is that most unions reward seniority rather than merit and make it more difficult to terminate employees who just aren’t working out because the employer usually must have “just cause” and be able to prove it in arbitration. That said, unions provide a stronger voice at the bargaining table for groups of employees that would otherwise have very little bargaining power if going it alone. Collective bargaining facilitates “sharing the wealth” and mutually agreeing to other terms and conditions of employment.
Marshall: The whole point of a union is to speak as one to make sure employees get the benefits they deserve. It works well in some industries but in others, not so well, for example, the health care industry. I’ve had clients who were union employees and their union didn’t do anything when they needed them, even though they paid into the union for the better part of their employment. In other instances, the union was helpful. Grad students should certainly receive good health benefits especially since many of them have small children.
There’s still a good reason to have unions today, because you can see many larger industries where you’ve got a certain classification of employees that without protection, management could take all kinds of actions against them that would jeopardized their employment for no good reason other than management has made a bottom line decision.
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Breaking Ground
On Thursday, March 9, 2017, the Construction Services group of the law firm of Babst Calland Clements & Zomnir, P.C. held its annual Year in Review Seminar. Attended by over 100 construction professionals, Babst Calland’s Year in Review Seminar summarized and addressed the implications of the most noteworthy construction-related legal developments of 2016, including the latest amendments to Pennsylvania’s Mechanics’ Lien Law, labor and employment issues, cases interpreting Pennsylvania’s payment acts, construction claim damages, and a recent decision involving a jurisdictional dispute on a public construction project.
MECHANICS’ LIEN LAW AMENDMENTS
On October 14, 2014 then-Governor Tom Corbett approved legislation amending Pennsylvania’s Mechanics’ Lien Law. Commonly referred to as Act 142, the amendments established a structured procedure for owners, contractors, and subcontractors to receive and give notice of mechanics’ lien claims, as well as a central electronic repository under which these notices must be filed (the “Directory”). Act 142 was widely supported by both owners (along with construction lenders) and contractors as a means to better identify all subcontractors and material suppliers with lien rights on a project.
Act 142 became effective on December 31, 2016, and the new notice requirements apply only to “searchable projects” beginning after that date and costing at least $1.5 million. Specifically, Act 142 allows the following four notices to be filed with the Directory: (1) Notice of Commencement; (2) Notice of Furnishing; (3) Notice of Completion; and (4) Notice of Nonpayment. Use of the Directory is discretionary, but an owner must file a Notice of Commencement before any labor, work, or materials are furnished for the project if the owner wishes to avail itself of the Directory’s protections. If an owner files a Notice of Commencement, a subcontractor (defined as including first and second tier subcontractors or material suppliers) must file a Notice of Furnishing detailing the work it performed within 45 days of first performing that work or delivering materials to preserve its lien rights. Act 142 also permits – but does not require – an owner to file a Notice of Completion within 45 days of “actual completion” of work on the project, and allows a subcontractor to file a Notice of Nonpayment if it does not receive complete payment for its work or materials. The Directory can be accessed at http://www.scnd.pa.gov/.
EMPLOYMENT AND LABOR DEVELOPMENTS
On April 17, 2016, Governor Tom Wolf signed Pennsylvania’s medical marijuana program into law. The Medical Marijuana Act (“MMA”) “legalizes” marijuana in Pennsylvania for the treatment of certain chronic conditions, including cancer, Lou Gehrig’s disease, multiple sclerosis, and Crohn’s disease. While many patients needing medical marijuana will be physically incapable of working, those individuals who are diagnosed with MMA-eligible conditions such as chronic pain or post-traumatic stress disorder will present significant work-related issues.
Unfortunately, the plain language of the MMA creates conflicting rights for both employers and employees. Yet the MMA is unlikely to have significant impacts on the construction industry because it affirmatively states employers are not required to make any accommodations of the use of medical marijuana. As “zero tolerance” policies and negotiated drug-free workplace protocols are common in the industry, construction employers are unlikely to experience any serious disruptions from the MMA.
In other employment news, another attempt is being made to repeal Pennsylvania’s Prevailing Wage Act. Representative Ron Kaufman (R) introduced House Bill 260 based on the argument that prevailing wage rates have resulted in increased public construction costs. House Bill 260 last saw activity on January 31, 2017 when it was referred to the Labor and Industry Committee, and its future remains uncertain. Interestingly, West Virginia repealed its Prevailing Wage Law on February 4, 2016.
PAYMENT ACTS
After years of litigation, the Pennsylvania Supreme Court clarified in Scungio Borst & Assocs. v. 410 Shurs Lane Developers, LLC, whether an owner’s agent could be individually liable under the Contractor and Subcontractor Payment Act (“CASPA”). In Scungio Borst, the owner’s president and 50% shareholder authorized the general contractor to perform over $2 million in extra work. When the general contractor did not receive payment for this extra work, it brought suit against both the owner and its president individually under CASPA. The Pennsylvania Supreme Court held CASPA liability does not extend to an individual. In A. Scott Enterprises, Inc. v. City of Allentown, the Pennsylvania Supreme Court held that an award of interest and attorneys’ fees is not automatic under the Procurement Code, even when a public owner withholds payment in bad faith. While an award of penalties and fees is not mandatory in the presence of bad faith, the court did note that instances where such an award is not required will likely be rare.
CONSTRUCTION CLAIMS: RECOVERY OF DAMAGES
The United States District Court for the Eastern District of Pennsylvania addressed the importance of construction lien waivers and releases, and the practical importance of raising performance and interference issues in a timely fashion. In Bricklayers & Allied Craftworker Local 1 of PA/DE, et. al. v. ARB Construction, Inc. et. al, subcontractor ARB submitted along with each payment application a release of liens releasing all claims against general contractor EBS. Despite having an opportunity to do so, ARB never listed any claims on the reverse side of the release, or anywhere else. When the project encountered issues and ARB attempted to assert claims against EBS, the court reasoned ARB released all claims via the signed releases. ARB could have noted EBS’ failure to honor the terms of the contract, or could have refused to sign the releases. Overall, Bricklayers is a reminder that waivers will be enforced according to their terms, and are not automatically limited to mechanics’ lien rights.
JURISDICTION DISPUTE
In a recent and particularly important case, an appellate court overturned a 2016 decision by the Court of Common Pleas in Wheels Mechanical Contracting and Supplier v. West Jefferson Hills School District and Nello Construction. Specifically, on February 28, 2017, the Commonwealth Court held that challenges to bid specifications should be brought during the bid process or before contracts are awarded and/or construction commences. West Jefferson Hills School District solicited bids for a $100 million high school construction project. As with all public projects in Pennsylvania, the Separations Act required the School District to break out the Project’s electrical, plumbing, HVAC, and general construction contracts. Of relevance in this case, the Project’s specifications assigned all sanitary line, storm line, and water line installations inside the building and up to five feet outside of the building to the plumbing prime contractor. As is common in the industry, all site sanitary, site storm, and site waterline installation more than five feet from the building was assigned to the general prime contractor as “site utility” work because of the significant trenching and backfilling required. In January of 2016, the School District awarded the plumbing prime contract to Wheels Mechanical, and the general construction prime contract to Nello Construction.
On June 1, 2016, Wheels brought suit to stop certain work on the Project. Essentially, Wheels contended that all sanitary sewer, storm sewer, and water line work should have been included as part of the plumbing prime contract – regardless of whether the work was to be performed inside the building or further than five feet from the building. Wheels claimed the School District violated the School Code and Separations Act by failing to include all of this work in the plumbing package. The Laborers District Council of Western PA intervened on behalf of the School District and Nello, and the Plumbers Local Union No. 27 intervened in favor of Wheels.
In a decision that surprised many, the trial court sided with Wheels and granted injunctive relief. However, the Commonwealth Court reversed the trial court’s decision pursuant to the legal doctrine of laches. Simply put, laches refers to a lack of diligence and activity in making a legal claim, or moving forward with legal enforcement of a right. Here, the Commonwealth Court reasoned Wheels had a duty to recognize its claims during the bid process or immediately after contracts were awarded. Instead, Wheels waited nearly seven months after receiving the bid specifications to initiate the action. By that point, all contracts had been awarded and work at the project was well underway.
However, it is important to note that the Commonwealth Court’s ruling did not address the underlying issue of whether the disputed work should actually be included in the prime plumbing or general construction contract. This uncertainty makes this issue ripe for another challenge, and suggests that additional litigation on this topic may occur in the near future. We will also not be surprised if standard specifications are now revised in a way that attempts to avoid this potential jurisdictional dispute.
Matt Jameson chairs the Construction Services Group at Babst Calland and he is a shareholder at the firm. J.D. Mazzocco is an associate attorney is the Construction Services Group at Babst Calland. Please contact either of the authors if you would like a copy of the PowerPoint slides from the referenced seminar or if you would like to receive an invitation to next year’s Babst Calland Construction Law Year in Review seminar.
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The State Journal
West Virginia has a long history of watching most of its natural resources being harvested and sent to out-of-state users who add value to those resources. The same is happening with West Virginia’s natural gas, and we need to do something about it.
Whether it has been coal converted into electricity or timber fashioned into furniture, the value added to West Virginia’s natural resources has too often taken place outside of the state’s borders. Now, as noted in the 2017 Sustainable Energy in America Factbook, the United States has experienced a 79 percent increase in shale gas extraction since 2011, and a 12 percent jump in total gas production in the last five years. Much of this increase centers on the Marcellus and Utica shale plays, of which West Virginia is an important part.
Numerous groups rightly tout the potential for shale gas to provide a better future for both West Virginia and the region. As such, West Virginia must continue efforts to modernize its laws and regulations so natural gas can be economically and efficiently produced. Likewise, we must support the development and construction of intrastate and interstate pipelines that will only increase the demand for West Virginia’s natural gas and contribute to the country’s energy security.
But while production and transmission of natural gas are solid economic drivers for the state, each cubic foot of gas and each gallon of natural gas liquids that leaves West Virginia represents a lost opportunity to add value to that resource right here.
The only way to truly realize the full value of West Virginia’s natural gas is to adopt policies that attract and establish the activities that use — and add value to — that gas. For example, according to the Factbook, natural gas is now the largest source of power in the country, contributing 34 percent to the electricity mix in 2016. A number of natural-gas-fired power plants are being developed in Harrison, Marshall and Brooke counties, each of which will generate electricity that will be sold on the PJM wholesale power grid. The facility in Harrison County will be the first downstream user of natural gas in the county. More such opportunities for downstream use of natural gas within the state must be found.
At the top of the list should be efforts to facilitate the development and construction of an ethane cracker facility and — more importantly — the spinoff activity that necessarily surrounds such a facility. For instance, the cracker Shell Chemical announced in July 2016 would be built in Beaver County, Pennsylvania, will create an estimated 6,000 construction jobs and 600 permanent jobs. More importantly, the spinoff activity — the manufacturers expected to establish facilities to take advantage of the cracker’s products, the local businesses that support the plant directly and restaurants, hotels and shopping centers that benefit indirectly — is estimated to be several times the amount of Shell’s initial investment.
While West Virginia’s legislators have (rightly) been focused on trying to realign West Virginia’s budget, they cannot ignore the long-term need for economic development. The sobering fact is, regardless of how much taxes are (or are not) raised, or how much the state’s budget is (or is not) slashed, without good jobs created by the private sector, tax revenue — in whatever form taxes may take — will continue to fall. The road to economic health for West Virginia, therefore, ultimately must go through the creation of good jobs in the private sector.
What better place to create jobs than in the industries that add value to our natural resources? As Pennsylvania Gov. Tom Wolfe noted when Shell Chemical made its announcement, “The feedstock is here. The workforce is here. Let’s go.” The same is true of West Virginia.
While West Virginia has offered tax incentives in an attempt to lure a cracker facility, government and community leaders need to redouble their efforts, even while tackling difficult budget issues. In addition to tax incentives (the efficacy of which is debated by economists, but which companies insist upon), we must involve all stakeholders in these efforts, including leaders of communities where these facilities may be located, community and technical colleges that can train and supply the skilled labor necessary and utilities and other companies that will provide critical services for new businesses.
Only by adding value will West Virginia truly benefit from the promise held by the abundance of shale gas that lies under our state.
Mychal Schulz is an attorney in at Babst, Calland, Clements & Zomnir, P.C. in Charleston focusing on energy, employment, and commercial litigation. He is a member of the West Virginia Business & Industry Council and sits on the Board of Directors of Leadership West Virginia.
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PIOGA Press
The Pennsylvania Mechanics’ Lien Law, 49 P.S. § 1101 et seq, provides contractors a powerful legal remedy for recovering payment owed for work performed on a construction project; they can impose a lien against the property on which their work was performed, clouding the owner’s title. As a result of Act No. 142’s amendments to the lien law, effective December 31, 2016, project owners, general contractors, and subcontractors have been evaluating their business practices to ensure compliance with the amended lien law and the subsequent launch of the online State Construction Notices Directory.
Prior to the creation of the directory, there was no streamlined system for owners and general contractors to track subcontractors and suppliers on a project site. This created a lack of certainty with respect to what parties may have lien rights against a property site. The directory (located at www.scnd.pa.gov) helps owners and general contractors track work performed by subcontractors, sub-subcontractors and suppliers.
Required notices under the act
The act creates a more structured notice procedure for owners and contractors on “searchable projects” (projects consisting of the construction, alteration or repair of an improvement costing at least $1.5 million). Specifically, the act permits four new types of filings within the directory: (1) Notice of Commencement, (2) Notice of Furnishing, (3) Notice of Completion and (4) Notice of Nonpayment.
An owner (or an agent of the owner) is required to file a Notice of Commencement to trigger compliance with the act. A Notice of Commencement should be filed before any labor, work or materials are furnished for the project and must contain: (1) the full name, address and email address of the contractor; (2) the full name and location of the project; (3) the county in which the project is located; (4) a “legal description” of the property, including the tax identification number of each parcel included in the project; (5) the full name, address and email address of the project owner; (6) if applicable, the full name, address and email address of the surety for any performance and payment bonds, and the bond numbers; and (7) the “unique identifying number” assigned the notice by the directory.
The owner must post this notice on the project site, make reasonable efforts to ensure it remains posted during the project, and ensure the notice is made part of the contract documents provided to all subcontractors. Contractors must include a provision in each of their subcontracts warning their subcontractors that the failure to file a Notice of Furnishing will forfeit the right to file a mechanics’ lien.
If an owner files a Notice of Commencement, first- or second-tier subcontractors or suppliers must file a Notice of Furnishing within 45 days after first performing work or first providing materials on the job site, containing: (1) a general description of the labor or materials furnished; (2) the full name and address of the person supplying the services; (3) the full name and address of the person who contracted for the services; and (4) a description sufficient to identify the project. The directory will automatically send a copy of all Notices of Furnishing filed on a project to the project owner. The notices will be sent to the email address provided in the Notice of Commencement. The failure to timely file a Notice of Furnishing will result in a loss of lien rights. Just as important, the filing of a Notice of Furnishing does not absolve a subcontractor of strictly complying with the remaining requirements and deadlines for prosecuting a lien claim, as set forth in the lien law.
The act also permits (but does not require) an owner to file a Notice of Completion within 45 days of the “actual completion” of work on the project, for informational purposes. Additionally, subcontractors are permitted (but not required) to file a Notice of Nonpayment when they have not received payment in full for work or materials provided.
Practical implications of the amended lien law to oil and gas projects
The directory provides obvious benefits to owners and general contractors. Nevertheless, there is still much unknown with respect to how the act will impact energy infrastructure projects. Although the case law is not completely settled, it appears from the text of the lien law—and the body of case law developed from it to date—that many well pad development and pipeline construction projects are likely subject to the lien law. For example, a Pennsylvania appellate court has held that a “well for the production of gas, oil or other volatile or mineral substance” falls within the definition of a “structure or other improvement” governed by the lien law, so long as the well involves “the erection or construction of a permanent improvement.”
Additionally, lien rights can attach to subsequent “substantial additions” to an existing improvement (i.e., a previously constructed well pad or pipeline). Another Pennsylvania court opinion held the addition of plastics-making machinery to a preexisting plant was a “substantial” enough addition for the associated work to be covered by the lien law. This suggests that activities such as the installation of additional surface facilities or the erection of infrastructure necessary to tie a well into a pipeline are subject to the lien law.
For owners of oil and gas projects, the greatest amount of confusion to arise from the act will likely relate to providing a “legal description” of the property in the Notice of Commencement, and complying with the act’s posting requirements. In the directory, many owners have merely provided a single address as the “legal description.” This approach may not be practical or feasible for a pipeline construction project, where numerous parcels, deeds and easement agreements or eminent domain condemnations contribute to the scope of the “legal description” of the property. For these projects, owners might consider drafting a description of the property that includes the start and end points of the pipeline and provide a complete list of counties within which the pipeline will be situated. Additionally, owners should carefully consider how to comply with the act’s requirement to “conspicuously post” a copy of the Notice of Commencement at the project site. Given the transient nature of a given work site on a pipeline construction project, owners may consider posting the Notice of Commencement in their office trailers and any trailers belonging to their contractor.
As for their contracts, owners should contractually require contractors (and their subcontractors) to include a provision in each of their subcontracts, and for any subsequent subcontracts entered, warning their subcontractors that the failure to file a Notice of Furnishing will forfeit the right to file a mechanics’ lien. Contractors should require their subcontractors to include the same warning in their contracts with sub-subcontractors.
Given the current new face of the lien law and some of the uncertainties with respect to the lien law’s application to oil and gas projects, it is impossible to predict with certainty how courts will treat some of the filings submitted in the directory, and the representations made therein. Nevertheless, owners and contractors should take steps to ensure their business practices and construction contracts strictly conform to the act’s new requirements.
For additional information about developments described in this article, contact David E. White at 412-394-5680 or dwhite@babstcalland.com or Esther Soria Mignanelli at 412-394-6422 or emignanelli@babstcalland.com.
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SNL Energy
The Trump administration is expected to scale back at least one major safety rulemaking for the natural gas transmission and gathering industries, and possibly alter other recent proposals from the U.S. Pipeline and Hazardous Materials Safety Administration.
“Elections have consequences. These guys are going to be more averse to aggressive regulation than the previous [administration],” said Jeff Wiese, former associate administrator of PHMSA.
PHMSA’s 550-page proposed gas gathering and transmission pipeline safety rule is primed for revision under the new administration, Wiese and other pipeline safety experts familiar with the inner workings of PHMSA said in recent interviews. The sprawling regulation, which has been in the works for years, incorporates congressional mandates, National Transportation Safety Board recommendations and other initiatives. The parts that are not statutorily ordered may be the first to go.
“I do believe there will be adjustments made to the gas rule. … A lot of those parts are NTSB items,” said Wiese, who left PHMSA in 2016 and is now consulting group TRC Companies Inc.’s vice president and national practice leader for pipeline integrity services. “I think there are going to be some compromises made on items that are not statutory mandates.”
Keith Coyle, an attorney with Babst Calland, said he expects PHMSA to substantially walk back the gas transmission and gathering rule proposal under the Trump administration. He agreed that fulfilling NTSB recommendations, although they often form the basis for congressional mandates, will likely drop on PHMSA’s priority list. For instance, the proposed rule’s guidance for verifying the maximum allowable operating pressures and materials of pipelines goes beyond what is covered under Congress’ mandate to the agency, Coyle said.
PHMSA’s decision to regulate gathering lines was not also congressionally mandated, and Coyle said the agency may set that aspect of the rulemaking aside entirely for the time being.
Questions also remain about the future of PHMSA’s hazardous liquids pipeline safety rule, which was finalized but did not make it into the Federal Register before President Donald Trump froze pending new regulations, and the agency’s underground gas storage regulation. Coyle said he expects some simplifications to the hazardous liquids regulation, especially if PHMSA finds it subject to the two-for-one executive order, and that the agency may put on hold a planned second phase of underground gas storage rules.
Richard Kuprewicz, Accufacts Inc.’s president and a pipeline safety expert, warned that limiting pipeline safety oversight could backfire for an administration that is looking to expand the nation’s oil and gas infrastructure. Kuprewicz questioned the utility of broad-strokes executive orders.
“If you’re trying to accelerate the siting of new pipelines in the United States, and try to create the argument that more regulation is bad on the safety side, you could generate a tremendous amount of opposition as failures start going up because you’ve gutted certain changes that were important in pipeline safety regulation,” Kuprewicz said. “Are you [fighting] this [new regulation] because you’re in the camp that all regulation is bad, or because there really is an issue here?”
PHMSA declined to comment on the specifics of what changes might be made to regulations or processes under the Trump administration, saying only that the issue was the subject of PHMSA’s ongoing regulatory review and that the agency would issue updates when decisions are made.
Depending on the incoming leadership at PHMSA, Wiese said he expects there also may be a subtle shift toward collaboration between regulators and industry in lieu of prescriptive regulation. He noted that that shift was already in the works to some extent with growing emphasis on pipeline safety management systems, an industry recommended practice for risk management. Some regulators, particularly at the state level, have already begun working aspects of the voluntary recommended practice into enforcement settlements with companies.
When PHMSA does choose to increase regulation, Coyle said he expects Trump’s two-for-one executive order to alter the way PHMSA does rulemaking. It may encourage PHMSA to propose a smattering of less ambitious regulations, rather than focusing on a handful of large rulemakings. While this may seem counter intuitive, the executive order is expected to apply to rules that meet certain industry cost thresholds, said Coyle, who was previously an attorney adviser for PHMSA.
“They can pull out some things that maybe are non-significant so they don’t have to run through the two-for-one. And then the things they know are going to be significant, no matter how they try, … they can come up with the ‘twofers’ that they need to try to zero out some of the costs,” Coyle said.
It may also force the agency to pare down its priorities and “think long and hard” before moving forward on new rules, he added.
In looking for past rules to rescind to balance out the costs for new regulations, Trump’s executive order appears to create an incentive for agencies to exaggerate the costs of existing standards to make it seem as though eliminating them offers a greater cost savings, Coyle added.
“It’s an interesting dynamic. In most rulemaking proceedings, agencies try as best as they can to minimize the cost of new regulations. … I think they might have an incentive to go in the other direction and overstate the savings that would be [generated],” he said.
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The Legal Intelligencer
The Pennsylvania Municipalities Planning Code, 53 P.S. Section 10101, et seq., (MPC), the state law establishing the framework for zoning and land use development regulations in Pennsylvania, authorizes a municipality to adopt a zoning ordinance containing provisions permitting uses of land by special exception administered by the zoning hearing board. Pennsylvania courts have consistently explained that a “special exception is neither special nor an exception,” but rather a use of property expressly contemplated by a local governing body to be consistent with the overall zoning plan and the health, safety and welfare of the community, as in Freedom Healthcare Services v. Zoning Hearing Board of New Castle, 983 A.2d 1286 (Pa. 2009).
The law in Pennsylvania concerning the evidentiary standards applicable to special exception applications is well-settled. An applicant for a special exception has both the initial presentation duty and the ultimate persuasion burden as to whether the application: falls within the special exception provision of the zoning ordinance; and satisfies the specific objective criteria set forth in the zoning ordinance, as in Bray v. Zoning Board of Adjustment, 410 A.2d 909 (Pa. 1980).
Once the applicant establishes that the objective criteria of the zoning ordinance have been met, “a presumption arises that the use is consistent with the health, safety and general welfare of the community,” as in MarkWest Liberty Midstream & Resources v. Cecil Township Zoning Hearing Board, 102 A.3d 549 (Pa. Commw. Ct. 2014). At this point, the burden shifts to objectors to present evidence and persuade the zoning hearing board that there is a high degree of probability that the proposed use will have a detrimental impact on the surrounding community above and beyond that which is normally generated by the type of use proposed. Thus, an applicant does not have the burden of establishing “general, nonspecific or nonobjective requirements,” an objector does. Although the ordinance terms can place the ultimate persuasion burden for these general requirements on the applicant, it cannot shift the initial presentation duty.
An objector’s burden cannot be met by a showing of mere speculation of possible harm, potential problems, or generalized fear, as in Manor Health Care v. Lower Moreland Township Zoning Hearing Board, 590 A.2d 65 (Pa. Commw. Ct. 1991). Thus, an objector’s own bald assertions, personal opinions, and perceptions are insufficient, as in Commonwealth v. Pittsburgh, 532 A.2d 12 (Pa. 1987).
The Commonwealth Court most recently reiterated this burden-shifting standard in Allegheny Tower Associates v. City of Scranton Zoning Hearing Board, 2017 Pa. Commw. LEXIS 4 (Pa. Commw. Ct. 2017), where it reversed a zoning hearing board’s denial of a special exception application for a communication tower. There, Allegheny Tower Association applied to the Scranton Zoning Hearing Board for a special exception to construct a 140-foot-high monopole communications tower in the city’s I-L Light Industrial District. The city’s zoning ordinance authorized commercial communications towers in the I-L district by special exception, subject to the satisfaction of specific objective and general standards and criteria. The board held a public hearing on the application, during which Allegheny Tower’s representative testified that the proposed tower would replace an existing 120-foot guy tower, the subject property is surrounded by commercial and industrial uses, and the proposed tower would meet all applicable setback and screening requirements, not disturb the surrounding neighborhood, and comply with all Federal Communications Commission regulations.
Once Allegheny Tower rested its case-in-chief, two objectors testified in opposition to the proposed tower. The objectors raised concerns related to the width of the proposed tower, noting that the existing guy tower is only two feet wide while the proposed tower will be approximately eight feet wide. Additionally, the objectors testified that the proposed tower may lead to increased flooding in the area, be unsightly to residential neighbors located in a near-by zoning district, cause a decline in property values, and fall on an adjacent gas station.
At the conclusion of the public hearing, the four-member board reached a split decision, resulting in a denial of the special exception application, as in Giant Food Stores v. Zoning Hearing Board of Whitehall Township, 501 A.2d. 353 (Pa Commw. Ct. 1985). In its written decision, the board explained that under the city’s zoning ordinance the tower is only permitted if the board finds adequate evidence in the hearing record that the zoning ordinance’s specific objective and general standards and criteria were met. The board concluded that Allegheny Tower did not satisfy one of the zoning ordinance’s general standards because it failed to prove that the proposed tower will not “significantly negatively affect the desirable character of an existing residential neighborhood.”
Allegheny Tower appealed the board’s denial to the trial court, which, without taking new evidence, affirmed. Allegheny Tower then appealed to the Commonwealth Court, arguing that the board improperly placed upon it the burden of proving that the proposed tower will not have a generally detrimental effect on the surrounding neighborhood, a burden that is to be borne by objectors, and the objectors, relying solely upon speculation and unfounded personal opinions, failed to satisfy their burden.
Agreeing with Allegheny Tower, the Commonwealth Court reversed. In doing so, the Commonwealth Court found that the board erred in concluding that Allegheny Tower bore the burden of proving a general standard—that the proposed tower will not significantly negatively affect the desirable character of the existing residential neighborhood—because the objector bore both the initial evidence presentation duty and the persuasion burden regard this general standard. The Commonwealth Court explained that “where a zoning ordinance has not expressly placed the burden of persuasion regarding general detrimental effects to the health, safety and welfare on an applicant, the applicant only has the burden of persuasion as to specific, objective requirements, while objectors have the burden as to all general detrimental effects.”
The Commonwealth Court concluded that the board’s reliance on the objectors’ testimony was insufficient to justify denial of Allegheny Tower’s special exception application. The court explained that objectors’ lay testimony, based solely on their personal opinions, bald assertions and speculation regarding the alleged adverse effects of the proposed tower—increased flooding risk, aesthetic concerns, decreased property values, fall risk—was insufficient to prove that the proposed tower would generate adverse effects greater than those normally expected from this type of use. The court concluded that the protection of aesthetics and property values alone cannot serve as the basis for a zoning hearing board to deny a special exception application, and the objectors offered no clear explanation as to how the proposed tower would exacerbate the pre-existing flooding issues or attempt to substantiate its concerns regarding the tower’s fall risk.
The Commonwealth Court’s decision in Allegheny Tower Associates is an excellent reminder for local governing bodies, zoning hearing boards and landowners with regard to the parties’ respective evidentiary burdens in special exception proceedings. These same principles apply to conditional-use applications heard by municipal governing bodies.
*Reprinted with permission from the 2/16/17 issue of The Legal Intelligencer. © 2017 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
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