Pretrial Practice & Discovery
American Bar Association Litigation Section by the American Bar Association
(By Janet Meub)
Is the fear of contracting COVID-19 a legitimate excuse to avoid a deposition? Two recent cases highlight the issue.
In March 2020, the world shut down to prevent the spread of the novel coronavirus. Courts closed for all but emergency matters. Touching gas pumps, elevator buttons, and doorknobs could be the kiss of death! Others feared handling mail after it was delivered! When the deposition notice arrives, a witness’s fear of contracting COVID-19 is no excuse to avoid a deposition.
In Stowe v. Alford, No. 2:19-cv-01652 KJM AC, 2021 U.S. Dist. LEXIS 98021 (E.D. Cal, May 24, 2021), the parties were unable to agree, among other issues, as to whether the plaintiff should be required to appear without a mask at his remote Zoom deposition. The first deposition was abruptly discontinued when the plaintiff refused to remove his mask. The defendant filed a motion to compel the plaintiff’s second deposition, and the plaintiff argued that the first deposition was discontinued on meritless grounds.
Federal Rule of Civil Procedure 26(b)(1) governs discovery in federal cases. Remote depositions are permissible under Fed. R. Civ. P. 30(b)(4), especially in light of the COVID-19 pandemic. It is in the court’s discretion to determine whether a second deposition is warranted under the circumstances. Rule 26(b)(2)(C). However, what about the mask issue?
The U.S. District Court for the Eastern District of California ordered that the plaintiff appear on Zoom wearing either no protective face covering or a covering, such as a clear face shield, that allows his face to be seen. The court reasoned that it is the plaintiff’s responsibility to ensure that his face is visible, adding “Plaintiff has several options to ensure safety protocols while still appearing unmasked at his remote deposition: he could be in a separate room, he could ensure proper ventilation, he could wear a face shield. To avoid prejudice to the defendant, plaintiff must appear on video without a mask.”
In Nasuti v. Walmart, Inc., No. 5:20-CV-05023-LLP, 2021 U.S. Dist. LEXIS 107274 (D.S.D., June 8, 2021), a pro se plaintiff refused to sit for his deposition citing multiple excuses, including that the timing of the deposition was premature (two pending motions could render discovery moot), the deposition locale had to be Mason City, Iowa (where he moved after filing his employment case in the U.S. District Court for the District of South Dakota, Western Division) because he did not have a car to return to South Dakota, and the deposition must be conducted outdoors due to his COVID concerns.
While he disagreed that the plaintiff’s pending motions stayed discovery, defense counsel attempted to accommodate the plaintiff, offering to conduct the deposition remotely to avoid travel costs, providing a computer when the plaintiff advised he did not have one, and scheduling the deposition in a hotel conference room near the plaintiff’s home and large enough to permit social distancing to alleviate the plaintiff’s health concerns.
Over the course of several weeks, the pro se plaintiff continued to refuse his deposition, reiterating his COVID fears and stating that he was not available on the scheduled date. Defense counsel invited the plaintiff to propose new dates. When no agreement could be reached, the defendant filed a motion to compel, and the plaintiff responded by filing a motion for protective order (framed as a declaration in opposition to the motion to compel) under Rule 26(c) of the Federal Rules of Civil Procedure.
Addressing the plaintiff’s objection to his deposition based on his health and safety concerns due to the ongoing COVID-19 pandemic (among his other arguments), the court noted that as of August 2021, a vaccine was widely available to everyone above the age of 12; and, that as of May 2021, the Centers for Disease Control and Prevention guidelines opined that it was safe for those who are vaccinated to be within six feet of each other and to not wear facemasks. The court further stated that even if the plaintiff was unvaccinated, the defendant had proposed a plan to adequately provide for his safety. The plaintiff had proposed no alternatives despite the defendant’s invitation to do so. The court held that the plaintiff’s argument against conducting his deposition due to his COVID-19 concerns was without merit.
Take off that mask and sit down for your deposition.
Janet Meub is senior counsel at Babst, Calland, Clements & Zomnir P.C. in Pittsburgh, Pennsylvania.
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© 2022. Navigating Depositions During the Pandemic: Fear of COVID-19, Pretrial Practice & Discovery, American Bar Association Litigation Section, August 14, 2022 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
Environmental Alert
(By Christopher (Kip) Power and Marley Kimelman)
On July 21, 2022, the U.S. Department of the Interior’s Office of Surface Mining Reclamation and Enforcement (OSM) released its long-awaited “Guidance on the Bipartisan Infrastructure Law Abandoned Mine Land Grant Implementation” for use by participating states in applying for the first $725 million in funding available for projects involving the reclamation of abandoned mine lands (AML) under the Bipartisan Infrastructure Law (BIL). Overall, the BIL provides a total of $11.3 billion in AML grant funding over 15 years to eligible states to help communities eliminate dangerous environmental hazards and pollution caused by coal mining that took place prior to the August 3, 1977, effective date of the federal Surface Mining Control and Reclamation Act of 1977, 30 U.S.C. 1201, et seq. (SMCRA).
The AML reclamation program, funded by per-ton fees on coal production, was created under Title IV of SMCRA; the BIL provisions (modifying the “AML Economic Revitalization (AMLER) Program”) greatly increase the funding for the program and provide additional factors to be considered in awarding projects under it. Generally, the AMLER Program has provided annual grants to the six Appalachian States with the highest number of unfunded Priority 1 and Priority 2 AML problems based on OSM’s AML inventory data: Ohio, Pennsylvania, West Virginia, Alabama, Kentucky, and Virginia.
As an example of the magnitude of the increased funding from the BIL, since the program was created in 2016, West Virginia (through its Department of Environmental Protection or “WVDEP”) has received approximately $25-$30 million each year to use in awarding contracts for AMLER projects. Under the BIL, the WVDEP anticipates receiving some $140 million each year for the next 15 years to support projects under the program.
However, use of BIL funding does differ from the traditional fee-based AML funding in a few important ways. Some of those differences are:
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- Stand-alone projects classified as Priority 3 (lowest priority under SMCRA Title IV, that are typically last to be addressed) are eligible for BIL funding, regardless of whether the project will be completed in conjunction with other projects classified as Priority 1 or Priority 2 projects under SMCRA Title IV;
- AMD treatment projects that are not part of a qualified hydrologic unit are eligible for BIL funding; and
- Eligible states and tribes are not authorized to place BIL AML grant funds into AMD set-aside accounts.
In spending BIL AML funds, states are directed to prioritize projects that provide employment opportunities to current and former employees of the coal industry. To measure this, states have the option of requiring contractors to affirm that they will give preference to these individuals in any hiring for BIL-funded AML projects, and they may choose to require submission of data substantiating any reported employment of those persons. The guidance also notes that for projects valued in excess of $1 million, states should require a certification that the project will use a unionized workforce or the project applicant should provide an explanation of how its employment practices satisfy a list of key labor-related requirements.
Additionally, in accordance with President Biden’s Executive Order 14008, states are encouraged to prioritize projects that equitably provide funding under the “Justice40 Initiative,” a policy that establishes a goal that 40 percent of the overall benefits from a program should flow to disadvantaged communities. OSM has indicated that in the near future it plans to commence rulemaking around a proposed regulation that would place firm requirements on states to prioritize contractors that provide these employment opportunities. These current policies and future rules make it important that project applicants work closely with the state agency staff in completing the required application materials in a manner that is sufficiently detailed and responsive to these concerns, so that an application is not disqualified from consideration or determined to be of lower merit for failing to do so.
To be eligible for an award, project applicants must not be permit-blocked under the federal and state regulations that determine eligibility for mining permits and provisional permits, as implemented by OSM’s Applicant/Violator System (or “AVS”). In addition, states are expected to follow best practices in engaging input from local communities and other stakeholders in selecting and developing eligible projects.
Finally, OSM has determined that all BIL AML funded reclamation projects are major federal actions and are therefore subject to review under the National Environmental Policy Act (NEPA). Although NEPA allows for the development and approval of Categorical Exclusions (CE) from the statutory environmental review process (and OSM has a number of CEs in place), OSM anticipates that AMLER projects will typically require completion of at least an Environmental Assessment (EA). In this regard, OSM stresses that projects that will be completed in phases must be evaluated in a single NEPA review document, and all connected actions (regardless of funding source) are considered part of a single project under NEPA.
West Virginia Tax Credits for Reclamation of Bond-Forfeited Sites. On a separate but related note, pursuant to W.Va. Code § 22-3-11(g)(2), West Virginia allows current mine operators to enjoy substantial tax credits for performing reclamation work at mine sites that were the subject of bond forfeitures after August 3, 1977 (so-called “Special Reclamation Fund” or “SRF” sites, that are not eligible for AML funding). Under that statute and associated regulations at W.Va. C.S.R. § 110-29-1, et seq., a mining company may claim dollar-for-dollar credits against its 27.9 cents per-ton SRF fees, calculated based upon the WVDEP’s estimated costs for reclaiming a site — even if the operator spends less to complete the work.
For questions about the AML funding programs and other reclamation contract opportunities available under SMCRA and delegated state mine regulatory programs, please contact Christopher B. (Kip) Power at (681) 265-1362 or cpower@babstclland.com, or Marley R. Kimelman at (202) 853-3464 or mkimelman@babstcalland.com.
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PIOGA Press
(By Kevin J. Garber)
On July 8, the Commonwealth Court enjoined the Department of Environmental Protection and the Environmental Quality Board from implementing the Regional Greenhouse Gas Regulations, which means the regulations are not effective as of the date of this article (August 5, 2022). DEP and EQB immediately appealed that decision to the Supreme Court where we await further developments from the high court.
As background, under the final RGGI regulations that EQB adopted in July 2021, regulated sources must acquire 50 percent of the necessary CO₂ allowances for 2022 emissions by March 1, 2023 and acquire 100 percent of their allowances for the compliance period by March 1, 2024. DEP set a partial-year emissions cap of approximately 40.7 million tons of CO₂ for the remainder of 2022 and approximately 75.5 million tons for 2023, which will gradually decline to approximately 58 million tons in 2030. The modeled allowance price was in the $3-4/ton range when DEP developed the regulations but has increased substantially to $13.90/ton at the last auction on June 1, 2022. The potential financial impact on businesses and consumers is now much greater than originally predicted. At auction prices of $13-14/ton, implementation of the RGGI program in Pennsylvania is expected to cost $700-800 million per year, or nearly $4 billion over five years at current auction prices.
A group of labor and industry petitioners and a group of elected officials (including the chairs of the House and Senate Environmental Resources and Energy committees) are challenging the regulations in Commonwealth Court. They contend the regulations are an unconstitutional tax and that the Air Pollution Control Act does not provide authority for DEP and EQB to promulgate them. Several business and industry groups including the Pennsylvania Manufacturer’s Association, the Pennsylvania Chamber of Business and Industry, and the Industrial Energy Consumers of Pennsylvania filed amicus briefs supporting the challengers. Public interest groups filed amicus briefs supporting the agencies. In separate July 8 opinions in both cases, Commonwealth Court Judge Wojcik held there is a substantial legal question as to whether the regulations are an unconstitutional tax because the revenue to be generated vastly exceeds that necessary to administer the CO₂ budget trading program. The rulemaking record estimated that DEP would use only six percent of auction proceeds to administer the program. DEP acknowledged during the hearing that the estimated receipts for the 2022-23 budget year to be directed into its Clean Air Fund would exceed $443 million. By comparison, over the past five years, there was roughly $20-25 million in the Fund annually and the total amount the General Assembly appropriated to DEP was $169 million. Based on this, the Court found the legal issue to be considerable enough to enjoin the regulations. However, the court rejected the argument, for injunction purposes, that DEP does not have authority under the Air Pollution Control Act to promulgate them.
The agencies’ July 11 appeal to the Supreme Court acted as an automatic stay of Judge Wojcik’s injunction. The elected officials then petitioned to vacate the automatic stay, which the Commonwealth Court granted on July 25, thereby reinstating the injunction. The agencies filed an Emergency Application to Reinstate the Automatic Stay on July 26 with the Supreme Court, but the Court has not ruled on that application as of August 5.
So, what’s next? First, the Supreme Court will review whether the Commonwealth Court had sufficient grounds to enjoin the regulations. The Supreme Court has not yet set an argument date on the appeal. It seems unlikely that a decision will be forthcoming in the third quarter of this year. Second, litigation on the merits of the challenge will continue before the Commonwealth Court. Briefing will take place in September and October, and arguments are currently slated for the Commonwealth Court’s 2022 argument session in Philadelphia. And third, the courts must sort out third-party petitions to intervene in the litigation. A group of environmental organizations (including the Sierra Club, NRDC, and Clean Air Council) together with Constellation Energy Corporation applied to intervene in the Commonwealth Court matter but the Court denied the petition, finding their interests to be adequately represented by DEP and EQB. They also have appealed to the Supreme Court.
There are very important issues with potentially significant consequences to be resolved in a relatively short – period. If the regulations are upheld, the regulated budget sources, which currently comprise about 60 electricity generating facilities (most of which are natural-gas fired), must secure 50 percent of their allowances by March 1, 2023 at auction prices that have risen steadily since the regulation was first proposed. The key legal issues before the Commonwealth and Supreme Courts – i.e., when does revenue generated by an environmental program become a tax that must be imposed by the General Assembly, and to what extent may DEP and EQB rely on general rule-making authority in environmental statutes to promulgate regulations concerning subject matter that is not itself expressly covered in the underlay statute – have implications beyond the RGGI program. Stay tuned!
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Reprinted with permission from the August 2022 issue of The PIOGA Press. All rights reserved.
Legal Intelligencer
(By Gary Steinbauer and Christina Puhnaty)
In June 2022, the U.S. Environmental Protection Agency proposed revisions to its greenhouse gas reporting program rule (GHGRP rule or rule). See 87 Fed. Reg. 36,920 (June 21, 2022). Established in 2009 following a Congressional mandate in the 2008 Consolidated Appropriations Act, the GHGRP rule requires large direct sources of greenhouse gas (GHG) emissions (e.g., with certain exceptions, sources emitting at least 25,000 metric tons of carbon dioxide equivalent), fuel and industrial gas suppliers, and carbon dioxide injection sites to report total annual GHG emissions and other information using specific calculation methodologies. See generally 40 C.F.R. Part 98. The rule requires reporting for over 40 different source categories, with more than 8,000 facilities reporting annually. According to EPA, the reported data cover covers 85% to 90% of the GHG emissions in the United States, and data collected under the program shows that Pennsylvania ranks among the top five states with the highest reported GHG emissions.
The proposed rule does not limit covered sources’ GHG emissions or require sources to take any steps to reduce their GHG emissions. It is strictly a reporting rule, creating a massive dataset that the EPA uses to assess trends and make other policy decisions. The EPA publishes summaries of annual GHG emissions data, including summaries of GHG emissions by sector and facility, geographic information on reported GHG emissions, and environmental justice-related information for each sector.
This GHG emissions data are taking on greater significance as more companies focus on environmental, social and governance (ESG) issues and roll out net zero target dates. In addition, the Securities and Exchange Commission’s recently proposed climate disclosure rule provides that registrants reporting under the SEC reporting regime would be able to rely on data reported under the EPA’s GHGRP rule to partially fulfill their SEC climate-related reporting obligations. See 87 Fed. Reg. 21,334 (Apr. 11, 2022).
According to the EPA, its latest proposed revisions are designed to improve the quality of reported data by changing, among other things, GHG emissions calculations and monitoring methods. In addition, the EPA is proposing to require the reporting of data from certain new source categories as well as new emission sources within existing source categories. The EPA’s proposed revisions to the rule come after roughly six years of no changes. The public comment period for the EPA’s proposed revisions to the GHGRP rule closes on Oct. 6, after being extended an additional 45 days after numerous industry trade groups and other reporters raised concerns about the adequacy of the initial 60-day comment period.
Several of the more noteworthy proposed revisions to the Rule include:
Exiting the GHGRP and Continuing Obligations: The EPA proposes to clarify that reporters seeking to “off-ramp” or exit the GHGRP because calculated GHG emissions are below the reporting threshold, must use the Rule’s emissions estimation methodologies to determine their ability to “off-ramp.” The EPA is also proposing to clarify that the rule’s emissions estimation methodologies must be utilized after exiting the GHGRP to determine whether reporting is triggered again during subsequent years. These proposed revisions have the effect of limiting covered sources to the EPA’s emissions estimation methodologies to exit and potentially return to the GHGRP.
Petroleum and Natural Gas-Related Revisions: The EPA has revised the Petroleum and Natural Gas Systems reporting requirements at 40 C.F.R. Part 98, Subpart W approximately ten times since the rule first required reporting from this source category in 2010. In its latest round of proposed revisions, the EPA states that it is seeking to improve data quality and require reporting for new emission sources. These proposed changes will almost certainly result in higher emissions estimates for petroleum and natural gas facilities than in previous years. Sources that will be covered by reporting requirements for the first time include pneumatic controller venting, abnormal emission events that are unaccounted for with existing reporting requirements (i.e., “other large release events” such as storage wellhead leaks and well blowouts), and acid gas removal vents. The EPA is also proposing to revise existing requirements for emissions from several sources within this source category, including glycol dehydrator vents, liquids unloading, atmospheric storage tanks, associated gas flaring, and equipment leaks. See 87 Fed. Reg. at 36,962–82. Many of these proposed revisions are based on the EPA’s recently proposed changes to the new source performance standards (NSPS) and emissions guidelines (EG) for volatile organic compound and methane emissions from the oil and natural gas industry that would be codified at 40 C.F.R. Part 60, Subpart OOOOa, OOOOb, and OOOOc. See 86 Fed. Reg. 63,110 (Nov. 15, 2021). The EPA proposed the changes to the NSPS and EG in November 2021, without releasing proposed regulatory text. The EPA’s reliance on these proposed NSPS and EG revisions to justify changes to the GHGRP Rule raises questions, particularly when the changes to the NSPS and EG are very likely to be challenged.
Additional Data Proposed for Cement, Glass, and Iron and Steel Industries: For these source categories, the EPA proposes to collect more detailed data to verify reported emissions and, in some instances, calculate back-estimates of process emissions. For example, the EPA proposes requiring affected cement facilities to report emission equations inputs to the agency. The EPA seeks to add this requirement for cement production to back-estimate reported GHG emissions. For glass production, the EPA proposes to require facilities report the “annual quantity of glass produced by the facility in tons, by glass type, from each continuous glass melting furnace and from all furnaces combined.” For iron and steel production, the EPA proposes to require facilities to report the specific type of unit that is an emission source, as well as the annual production capacity and operating hours of the unit. The EPA is also proposing to streamline monitoring requirements for iron and steel production under 40 C.F.R. Part 98, Subpart Q, giving reporters several options to account for carbon dioxide uptake in produced metal materials.
Proposed Clarifications on Carbon Sequestration and Hydrogen Production: EPA is proposing to refine and add requirements to subparts of the GHGRP related to carbon dioxide suppliers, carbon capture and sequestration (CCS), and hydrogen production. 87 Fed. Reg. at 37,012 (carbon dioxide); 37,016 (CCS); 36,958 (hydrogen production). The EPA is also proposing to add a new subpart to the GHGRP Rule—Subpart VV—to create an additional reporting option for geologic sequestration of carbon dioxide in association with enhanced oil recovery operations. Id. at 37,016. These proposed changes are described by EPA as improving the data surrounding these activities. Tax incentives, such as the Internal Revenue Code Section 45Q credit, have relied on the GHGRP rule calculation methodologies as the basis for demonstrating the amount of tax credits available to entities engaged in carbon capture and sequestration. See 26 U.S.C. Section 45Q; IRS Notice 2009-83, //www.irs.gov/pub/irs-drop/n-09-83.pdf. The calculation methodologies in the GHGRP rule for CCS and hydrogen production may continue to serve as guideposts for future tax and financial incentives in these emerging areas.
Potential New Sectors: The EPA’s proposal solicits input on whether it should expand the GHGRP rule to include new source categories, including energy consumption, ceramics production, calcium carbide production, coke calcining, carbon dioxide utilization and others. The EPA has pledged to continue using GHGRP data to evaluate potential new regulations for reporting sectors. Companies currently reporting under the GHGRP and those engaged in activities that are the subject of the proposed rule should carefully review the EPA’s proposed revisions and understand how they may affect their reporting obligations under the GHGRP rule and any future SEC climate disclosure requirements, as well as ongoing ESG initiatives and progress toward achieving net-zero goals.
Gary Steinbauer is a shareholder and Christina Puhnaty is an associate in Babst Calland Clements and Zomnir’s environmental group. Their practices focus largely on matters arising under the Clean Air Act, analogous state clean air laws, and their implementing regulations. Contact them at gsteinbauer@babstcalland.com and cpuhnaty@babstcalland.com.
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Reprinted with permission from the August 4, 2022 edition of The Legal Intelligencer© 2022 ALM Media Properties, LLC. All rights reserved.
FNREL Mineral and Energy Law Newsletter
Pennsylvania – Mining
(By Joseph K. Reinhart, Sean M. McGovern, Gina N. Falaschi and Christina Puhnaty)
Effective May 12, 2022, the Office of Surface Mining Reclamation and Enforcement (OSMRE) approved amendments to the Pennsylvania regulatory program under the Surface Mining Control and Reclamation Act of 1977 (SMCRA). See 87 Fed. Reg. 21,561 (Apr. 12, 2022). The Pennsylvania Department of Environmental Protection (PADEP) submitted the amendments to OSMRE for approval in 2012, and years of correspondence between the agencies followed. OSMRE determined that Pennsylvania’s proposed regulations are in accordance with SMCRA and not inconsistent with the federal regulations implementing SMCRA. By approving the amendments, OSMRE is amending the federal regulations at 30 C.F.R. pt. 938, which codify decisions concerning the Pennsylvania program, to include these amendments to the Pennsylvania program.
The amendments to the Pennsylvania program are related to the beneficial use of coal ash at active surface coal mining sites. OSMRE identified key provisions of the amendments as “operating requirements for beneficial use, including certification guidelines for chemical and physical properties of coal ash beneficially used and water quality monitoring requirements.” 87 Fed. Reg. at 21,562.
The amendments include adding definitions to 25 Pa. Code chs. 287 and 290 as well as adding sections to chapter 290 that included the following, among others: general requirements for beneficial use (§ 290.101); beneficial use at coal mining activity sites (§ 290.104); coal ash certification (§ 290.201); exceedance of certification requirements (§ 290.203); water quality monitoring (§ 290.301); requirements for monitoring points (§ 290.302); and standards for wells and casing of wells (§ 290.303).
Copyright © 2022, The Foundation for Natural Resources and Energy Law, Westminster, Colorado
FNREL Mineral and Energy Law Newsletter
Pennsylvania – Mining
(By Joseph K. Reinhart, Sean M. McGovern, Gina N. Falaschi and Christina Puhnaty)
On May 28, 2022, the Pennsylvania Department of Environmental Protection (PADEP) finalized the draft technical guidance that explains PADEP’s considerations when evaluating liners and cap systems installed at coal refuse disposal areas (CRDAs) that was discussed in Vol. XXXVIII, No. 4 (2021) of this Newsletter. See PADEP, Final Technical Guidance Document—Liners and Caps for Coal Refuse Disposal Areas (May 28, 2022). The purpose of the guidance document is to “explain[] the procedures that [PADEP] will use in approving liners and caps for facility designs and the criteria for as-built certifications for [CRDAs].” Id. PADEP issued a comment and response document with the final guidance. See PADEP, Comment and Response Document (May 28, 2022).
Commenters raised concerns with the extent to which PADEP could enforce the requirements in the guidance document because the document is cited in the regulatory text at 25 Pa. Code § 90.50. PADEP, however, explained that this reference does not make the guidance document binding, as “[g]uidance does not rise to the level of regulation because it is possible to deviate from guidance as necessary.” Comment and Response Document at 5.
PADEP also clarified that it is not the agency’s intent to revisit CRDAs that are already reclaimed and have achieved their final configuration and vegetation. Id. Where final configuration and vegetation has not yet been achieved, however, PADEP will require that “the operation is completed with a minimum combined thickness of 4 feet of cover, or a demonstration that the previously approved cover material and thickness will be as effective as 4 feet of combined thickness as per [25 Pa. Code § 90.125(c)].” Id. The guidance document does not acknowledge the waiver in section 90.125(c) for “coal refuse disposal areas permitted prior to July 27, 1991 if the requirements of [25 Pa. Code §§ 90.150–.157 and 90.159–.165] can be attained.” Id. at 13.
In response to one comment pointing out that section 90.50 does not explicitly distinguish between liners and caps, PADEP clarified that the agency’s main purpose in issuing this revised guidance is “to incorporate caps because they are necessary components of most permits under the requirements of Chapter 90.” Id. at 4.
PADEP also reiterated its position that clay layers as a cap are not typically suitable for “circumstances with high hydraulic head conditions, slurry impoundments or as a permanent cap for any coal refuse,” but applicants will have the opportunity to make a demonstration that a clay cap is at least as effective as a synthetic one. Id. at 7. PADEP also reiterated that synthetic liners currently constitute the “best available technology currently feasible.” Id. at 14. Additionally, PADEP revised the guidance to require a minimum hydraulic conductivity for “low hydraulic conductivity soils” (clay) of 1 x 10-7 cm/sec. Id. at 10.
The final technical guidance document was effective upon issuance on May 28, 2022.
Copyright © 2022, The Foundation for Natural Resources and Energy Law, Westminster, Colorado
FNREL Mineral and Energy Law Newsletter
Pennsylvania – Mining
(By Joseph K. Reinhart, Sean M. McGovern, Gina N. Falaschi and Christina Puhnaty)
On July 8, 2022, the Commonwealth Court of Pennsylvania granted a preliminary injunction preventing the State from participating in the Regional Greenhouse Gas Initiative (RGGI) pending resolution of a case. As previously reported in Vol. 39, No. 2 (2022) of this Newsletter, the Pennsylvania Department of Environmental Protection’s (PADEP) CO2 Budget Trading Program rule, which links the commonwealth’s cap-and-trade program to RGGI, was published in the Pennsylvania Bulletin in April 2022. See 52 Pa. Bull. 2471 (Apr. 23, 2022). RGGI is the country’s first regional, market-based cap-and-trade program designed to reduce carbon dioxide (CO2) emissions from fossil fuel-fired electric power generators with a capacity of 25 megawatts or greater that send more than 10% of their annual gross generation to the electric grid.
On April 25, 2022, owners of coal-fired power plants and other stakeholders filed a petition for review and an application for special relief in the form of a temporary injunction, and a group of state lawmakers filed a challenge as well. See Bowfin KeyCon Holdings, LLC v. PADEP, No. 247 MD 2022 (Pa. Commw. Ct. filed Apr. 25, 2022). The commonwealth court held a hearing on May 10 and 11, 2022, on the application for special relief.
Because the commonwealth court had not granted the application for preliminary injunction by July 1, 2022, the date on which compliance was to begin under the rule, sources were obligated to begin tracking CO2 emissions for compliance purposes and planned to participate in the upcoming RGGI CO2 allowance action in September 2022.
On July 8, 2022, the commonwealth court granted a preliminary injunction. The order and opinion enjoined the administration and enforcement of RGGI until further order. The court found there is substantial legal question with respect to whether RGGI is an unconstitutional tax given the revenue expected to be generated versus the cost to administer the regulations. The court also found that the petitioners would face immediate and irreparable harm if the rulemaking is ultimately held invalid because the cost of compliance, including lost profits, would not be recoverable because PADEP and Pennsylvania’s Environmental Quality Board (EQB) enjoy sovereign immunity. The court concluded an injunction is reasonably suited to abate the effects of the rulemaking should it be deemed invalid.
Upon appeal of the preliminary injunction by PADEP and the EQB to the Supreme Court of Pennsylvania, the July 8 ruling was automatically stayed, which occurs as a matter of procedure when a state entity appeals to the supreme court. On July 25, 2022, the commonwealth court reinstated its earlier preliminary injunction ruling that a group of state lawmakers who filed one of two legal challenges against the rule had satisfied their burden of proof to establish the requirements to vacate the stay.
On July 12, 2022, natural gas companies Calpine Corp., Tenaska Westmoreland Management LLC, and Fairless Energy LLC filed a third legal challenge to the rule with arguments similar to those brought in the other two cases. See Calpine Corp. v. PADEP, No. 357 MD 2022 (Pa. Commw. Ct. filed July 12, 2022). Oral argument before the commonwealth court on the merits of these three cases will not likely occur prior to September 2022, at the earliest.
Further information regarding the rule and the history of the rulemaking can be found on PADEP’s RGGI webpage at https://www.dep.pa.gov/Citizens/climate/Pages/RGGI.aspx.
Copyright © 2022, The Foundation for Natural Resources and Energy Law, Westminster, Colorado
FNREL Mineral and Energy Law Newsletter
Pennsylvania – Mining
(By Joseph K. Reinhart, Sean M. McGovern, Gina N. Falaschi and Christina Puhnaty)
The agenda for the August 9, 2022, Pennsylvania Environmental Quality Board (EQB) meeting included a vote on the final rulemaking for water quality standards for manganese in 25 Pa. Code chs. 93 and 96. This rulemaking was prompted by the addition of subsection (j) to section 1920-A of the Administrative Code of 1929, 71 Pa. Stat. § 510-20, by Act 40 of 2017. Act 40 directed the EQB to promulgate regulations under Pennsylvania’s Clean Streams Law, 35 Pa. Stat. §§ 691.1–.1001, and related statutes to require that the water quality criteria for manganese established under 25 Pa. Code ch. 93 be met.
The EQB approved the proposed manganese rule in December 2019 and the Pennsylvania Department of Environmental Protection (PADEP) held three public hearings on the rulemaking in 2020. See Vol. XXXVII, No. 4 (2020); Vol. XXXVII, No. 1 (2020) of this Newsletter. Since the proposed rulemaking, PADEP has met with the Mining and Reclamation Advisory Board, the Aggregate Advisory Board, the Public Water Systems Technical Assistance Center Board, and the Water Resources Advisory Committee to discuss the proposed rule.
The proposed manganese rule adds to table 5 in 25 Pa. Code § 93.8c a numeric water quality criterion for manganese of 0.3 mg/L intended to “protect human health from the neurotoxicological effects of manganese.” Executive Summary at 1. Section 93.8c establishes human health and aquatic life criteria for toxic substances, meaning PADEP is now regulating manganese as a toxic substance. The existing criterion of 1.0 mg/L, which was established in section 93.7 as a water quality criterion, will be deleted. The 0.3 mg/L standard will apply to all surface waters in the commonwealth. PADEP identifies the parties affected by the rule to be “[a]ll persons, groups, or entities with proposed or existing point source discharges of manganese into surface waters of the Commonwealth.” Id. at 3.
PADEP also specifically identifies “[p]ersons who discharge wastewater containing manganese from mining activities” as affected parties, and expects mining operators to have to perform additional treatment to meet this new criterion. Id. Final amendments to treatment systems will be implemented through PADEP’s permitting process and other approval actions. Consulting and engineering firm Tetra Tech estimated the overall cost to the mining industry to achieve compliance with the 0.3 mg/L criterion “could range between $44–$88 million in annual costs (that is, for active treatment systems using chemical addition for manganese removal) and upwards of $200 million in capital costs.” Comment and Response Document at 213.
The proposed manganese rule had included language supporting two alternative points of compliance for the proposed manganese criterion. The first alternative proposed to move the point of compliance to the point of all surface potable water supply withdrawals. The second alternative proposed to maintain the point of compliance in all surface waters at the point of discharge. PADEP received over 800 comments supporting maintaining the point of compliance at the point of discharge and in the final rulemaking has removed the first alternative option.
The EQB was scheduled to vote on the final rulemaking at its August 9, 2022, meeting. If the EQB adopts the regulation as final, it will then be sent to the House and Senate Environmental Resources and Energy standing committees and the Independent Regulatory Review Commission for approval. If approved, the regulation then goes to the Attorney General’s Office for final approval before being published in the Pennsylvania Bulletin. The EQB meeting agenda and other materials can be found at https://www.dep.pa.gov/PublicParticipation/Environmental Quality/Pages/2022-Meetings.aspx.
Copyright © 2022, The Foundation for Natural Resources and Energy Law, Westminster, Colorado
West Virginia Attorney Joseph Bunn has joined Babst Calland’s Charleston office as a shareholder and member of its Corporate and Commercial practice group.
Mr. Bunn focuses his practice in financial transactions, mergers, acquisitions, and divestitures. He also counsels clients in other strategic areas such as corporate governance issues and miscellaneous contracts. Over the course of his practice, Joe has negotiated and drafted numerous transactions for buyers and sellers ranging in size from approximately $10 million to $325 million.
“Joe Bunn is well-known in industry in West Virginia and across the country. We’re very pleased to have him as part our team,” said Don Bluedorn, Babst Calland’s Managing Shareholder. “His proven experience in working with clients in the energy industry is a great fit for our Firm, and most importantly for our clients.”
“I am excited to be joining a well-respected legal team in West Virginia representing such a wide range of clients in West Virginia and throughout the country,” said Bunn.
Mr. Bunn earned his J.D. from West Virginia University, and received his undergraduate degree from William & Mary. He is a member of the American Bar Association, and is the Chairman of the Coal Subcommittee of the West Virginia State Bar.
Prior to obtaining his law degree, he worked for a Fortune 500 company and a middle market company where he served numerous roles involving strategic planning, capital raises, and acquisitions and divestitures.
Smart Business
(By Sue Ostrowski featuring Michael Fink)
While a company can structure a financing round in many ways, there’s been increasing concern that convertible securities can result in out-of-line liquidity preferences for some investors.
“This concern, however, can be addressed via conversion to a shadow series of preferred stock, an increasingly common option,” says Michael Fink, shareholder at Babst Calland.
Smart Business spoke with Mr. Fink about how a shadow series works, when to use it, and the pros and cons of doing so.
How does a shadow series work?
It’s quite common for companies to fundraise using convertible notes (or other convertible securities) for early or bridge rounds, providing for interest and a discount on share price as a reward for the extra risks inherent in these investments. Noteholders, therefore, receive more shares on conversion than their investment would otherwise provide. For example, a 20 percent discount on conversion price implies a 25 percent increase in shares issued for the same purchase price.
Those additional shares are beneficial in terms of enhanced voting power, more dividends and potentially more participation rights. In this example, it also provides for an additional 25 percent liquidation preference over the amount invested. Is this too much of a good thing?
Noteholders took more risk by investing earlier, but over the past decade or so, founders and later investors have started questioning whether this ‘liquidation windfall’ is more of a benefit than that extra risk justifies.
A shadow series is a compromise approach to address this windfall — the notes convert to a ‘shadow series’ of the preferred stock purchased by later equity investors, identical in all ways but with a lower liquidation preference.
What are the pros and cons of a shadow series?
Whether characteristics of shadow series are pros or cons depends on your personal position. Noteholders may lament their loss of the liquidation windfall, while everyone else views it as a pro.
But, separate classes of stock typically have separate class votes on certain charter amendments, meaning a small group of shadow series stockholders may have veto rights they otherwise wouldn’t have. This could be a pro for the note investors but a con for everyone else (although this can be attenuated via stockholder agreements). This analysis can get nuanced quickly, but it is clear there are pros and cons to all sides.
How frequently are shadow series used?
My first transaction involving a shadow series was only in 2018, but since then I would estimate they have been a feature in roughly a quarter to a third of the financings I have run. This appears in line with broader national trends — I have seen reports estimating that around a third or so of preferred stock sales over the past couple of years (including pandemic years) include a shadow series of some sort.
How can a company determine whether a shadow series is the right path to take?
Work with an experienced adviser, who will look at the state of the company and its financial strength, fundraising needs, general market conditions and the market for investments. An experienced corporate finance attorney can model out different capitalization and liquidation scenarios, showing the impact of including or foregoing a shadow series. These advisers can give the issuer the information it needs to have a meaningful discussion with current and potential future investors to get the company in front of the issue.
Companies concerned about out-of-line liquidity payments are more frequently addressing that concern via a shadow series. If you haven’t heard about this option, or are not sure how it works to address a liquidation imbalance, contact an attorney with experience in this area to determine if it is a viable option for your company.
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Janet K. Meub recently joined Babst Calland as senior counsel in the Litigation and Employment and Labor groups. Ms. Meub has significant experience in the areas of employment and labor law, professional liability defense, insurance coverage and bad faith litigation, toxic tort litigation, nursing home negligence, and medical malpractice defense. She has a diversified practice that includes defending employers, healthcare providers, law enforcement and other professionals, and non-profits, at all levels of civil litigation through trial. She routinely counsels non-profit clients on employment matters including discrimination, wage and hour, FMLA and represents employers in PHRC/EEOC matters and at unemployment compensation hearings.
Prior to joining Babst Calland, Ms. Meub was a principal at Dickie, McCamey & Chilcote. She is a 2001 graduate of Duquesne University School of Law.
Legal Intelligencer
(By Gina N. Falaschi and Marley R. Kimelman)
On June 30, 2022, the United States Supreme Court issued its opinion in West Virginia v. EPA. The Court held that the United States Environmental Protection Agency (EPA) exceeded its rulemaking authority under Section 111(d) of the Clean Air Act in promulgating the 2015 Clean Power Plan (CPP). The majority found that the term “best system of emission reduction” does not include a regulatory scheme that requires shifting power generation from coal to natural gas and renewable or other zero-emitting sources. While a narrow holding, this decision will impact the Biden administration’s coming regulations regarding power plants and many future rulemakings as well.
Background
Section 111 of the Clean Air Act directs EPA to list categories of stationary sources that it determines cause or contribute significantly to air pollution. For each of these categories, the agency must promulgate standards of performance for new or modified sources under Section 111(b). A standard of performance is defined as:
a standard for emissions of air pollutants which reflects the degree of emission limitation achievable through the application of the best system of emission reduction which (taking into account the cost of achieving such reduction and any non-air quality health and environmental impact and energy requirements) the [EPA] Administrator determines has been adequately demonstrated.
42 U.S.C. §7411(a)(1) (emphasis added). Under Section 111(d) of the Clean Air Act, when EPA has set new source performance standards addressing emissions of a particular pollutant from a particular type of new or modified stationary source under Section 111(b), it must address emissions of the same pollutant by existing sources, but only if that pollutant is not already regulated under the National Ambient Air Quality Standards or Hazardous Air Pollutant Program.
After the Court found that greenhouse gases are air pollutants under the Clean Air Act in Massachusetts v. EPA, EPA made an endangerment finding that greenhouse gas pollution threatens Americans’ health and welfare by leading to long-lasting changes in climate that can have negative effects on human health and the environment. 74 Fed. Reg. 66,496 (Dec. 15, 2009). Upon making this endangerment finding, EPA was required by the statute to set new source performance standards for major sources of greenhouse gases like power plants, and, because greenhouse gases are not otherwise regulated, for existing sources as well. In October 2015, the Obama administration finalized two rules, one for new and modified sources and the other for existing sources, known as the CPP. 80 Fed. Reg. 64661 (Oct. 23, 2015).
In the CPP, EPA calculated rate-based (amount of carbon dioxide emitted per megawatt hour generated) and mass-based (total amount of carbon dioxide emitted per year) targets for each state through application of three “building blocks” that were deemed to constitute the “best system of emission reduction…adequately demonstrated” (BSER). These “building blocks” include: (1) improvements to heat rates (a measure of heat input to power output efficiency) achieved at individual power generation facilities; (2) shifting power generation to natural gas-fired or combined cycle (NGCC) facilities; and (3) increased power generation from renewable and zero-emitting sources. The latter two “building blocks” constituted the CPP’s “generation shifting” scheme, such that the EPA determined that the BSER included restructuring the nation’s overall mix of electricity generation, to transition from 38 percent from coal-fired sources to 27 percent from coal-fired sources by 2030.
The CPP was immediately challenged in the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit). The D.C. Circuit rejected a petition to stay the rule. Upon appeal to the Supreme Court, however, the Court stayed the rule. Upon the change in presidential administration, the Trump EPA asked the D.C. Circuit to suspend litigation pending the new administration’s review of the CPP. In 2019, the Trump administration simultaneously repealed the CPP and promulgated the Affordable Clean Energy (ACE) rule. 84 Fed. Reg. 32520 (July 8, 2019). Public health organizations, environmental organization, cities, and states challenged the ACE rule in the D.C. Circuit. Industry groups also filed petitions in the D.C. Circuit challenging EPA’s authority to regulate carbon dioxide emissions in the ACE rule, and 30 cities and states intervened. These challenges were consolidated into a single docket. American Lung Association v. EPA, Docket No. 19-01140 (D.C. Cir.). After extensive briefing followed by over nine hours of oral argument, the D.C. Circuit struck down the ACE rule and remanded it to the agency. American Lung Assn. v. EPA, 985 F. 3d 914 (D.C. Cir. 2021).
On February 12, 2021, the Biden EPA issued a memorandum explaining that it did not believe the D.C. Circuit’s decision striking down the ACE rule reinstated the CPP and thus states would not be required to submit the plans required under the rule. Memorandum from Joseph Goffman, Acting Assistant Administrator for Air and Radiation, to Regional Administrators (Feb. 12, 2021).
A coalition of states and power and coal companies led by West Virginia’s Attorney General Patrick Morrisey petitioned the Supreme Court to review the decision to strike down the ACE Rule and reinstate the CPP. Specifically, the petitioners asked the Supreme Court to revisit the D.C. Circuit’s holding that EPA’s ACE rule, and the simultaneous repeal of the CPP, was based on a “mistaken reading of the Clean Air Act.” Petitioners contended that the “generation shifting” scheme employed by the CPP cannot be a “system of emission reduction” under Section 111 of the Clean Air Act. Despite EPA’s decision not to seek states’ compliance with the CPP, the Supreme Court granted certiorari.
The Court’s Analysis
Chief Justice John Roberts authored the majority opinion for the Court. The 6-3 majority reversed and remanded the D.C. Circuit’s ruling.
First, the Court found that the petitioners had proper Article III standing. The Court then found that the CPP, which the D.C. Circuit’s ruling purports to put back into effect by vacating the ACE Rule and its embedded repeal of the CPP, harmed the states. West Virginia v. Environmental Protection Agency, No. 20-1530, slip op. at 14 (2022). Further, the Biden administration’s commitment not to enforce the CPP would not moot the case unless it is “absolutely clear wrongful behavior could not reasonably be expected to recur.” Id. at 15-16. Because EPA could reimpose the generation shifting emissions limits in another form, the Court did not dismiss the case as moot. Id. at 16.
On the merits, the majority found that EPA had exceeded its authority under the federal Clean Air Act. The majority explained that Congress had not been sufficiently specific in granting EPA the authority to implement a generation shifting regulatory scheme to constitute BSER under Section 111(d), and regulating greenhouse gas emissions from power plants in such a way constitutes a “major question.” Id. at 4. The “major question doctrine” holds that if Congress intended agencies to make sweeping, economy-wide changes with their regulations, the relevant legislation must say so “specifically and clearly.” Id. at 28.
Here, the majority found it “highly unlikely that Congress would leave” to “agency discretion” the decision of how much coal-based generation there should be over the coming decades since the agency has no “comparative expertise” in making such policy judgments. Id. at 25. The majority rejected EPA’s argument, holding that Section 111(d)’s use of “best system of emission reduction” did not provide the agency the clear authority needed to employ the generation shifting approach because “the word [system] is an empty vessel” and “[s]uch a vague statutory grant is not close to the sort of clear authorization required by our precedents.” Id. at 28. Further, the majority described Section 111(d) as a “gap filler” that “had rarely been used.” Id. at 6.
In examining Congress’ delegation, the majority explained that the term “system” was used in the past to apply measures under the Clean Air Act that would force individual sources to “operate more cleanly,” never to reduce pollution by “shifting pollution activity from dirtier to cleaner sources.” Id. at 20-21. The proposed scheme “effected a fundamental revision of the statute” in the majority’s view. Id. at 24.
Justice Neil Gorsuch filed a concurring opinion, joined by Justice Samuel Alito, in which he provided several examples of cases that would fall into the “major questions” doctrine: the FDA attempting to ban tobacco, the Attorney General prosecuting doctors who prescribe drugs used for assisted suicide, CDC’s Covid-19 Eviction Moratorium, and OSHA’s COVID-19 vaccine mandate. West Virginia v. Environmental Protection Agency, No. 20-1530, slip op. at 8 (2022) (Gorsuch, J., concurring). These examples could provide a roadmap for future challenges to impactful administrative actions.
In her dissenting opinion, Justice Elena Kagan, joined by Justice Sonya Sotomayor and Justice Stephen Breyer, argued that Congress had, in fact, delegated sufficient authority to EPA to regulate through a generation shifting scheme, and pointed to other sections of the statute pursuant to which EPA utilizes cap-and-trade regulatory schemes based on similar language. West Virginia v. Environmental Protection Agency, No. 20-1530, slip op. at 4 & 9 (2022) (Kagan, J., dissenting). She also expressed concern that the “major question doctrine” would make it harder for agencies to promulgate rules that serve the public interest. Id. at 13.
Key Takeaways
The Court’s decision to grant certiorari came as a surprise to many, as the Biden administration had said it would not enforce the CPP and would propose its own regulation, meaning that the Supreme Court was reviewing a regulation that had never, and would likely never, take effect. As noted in Justice Kagan’s dissenting opinion, because the Court’s docket is discretionary and because no one is subject to the CPP, the Court’s ruling may be viewed as an “advisory opinion on the proper scope of the new rule EPA is considering.” Id. at 4.
The ruling is expected to affect most, if not all, of EPA’s Section 111 rulemakings for greenhouse gases as well as other pollutants. EPA is expected to propose a new power plant regulation in the coming months, which will need to be tailored to fit within the Court’s holding. During a Senate Environment and Public Works Committee hearing on April 6, 2022, EPA Administrator Michael Regan acknowledged as much, saying, “we want to be sure that the rule that we design will fall within where the Supreme Court will land” and that the agency will be “ready to go as soon as the Supreme Court rules.” The U.S. Environmental Protection Agency’s Proposed 2023 Budget: Hearing Before the Senate Committee on Environment and Public Works, 117th Cong. (2022) (statement of Michael Regan, EPA Administrator).
Finally, this opinion raises questions regarding the limit of EPA’s regulatory power under Section 111. While the decision clearly held that generation-shifting is outside of the scope of delegated authority under the Clean Air Act and that inside-the-fenceline systems of emissions reduction are within the scope, the Court did not find that any and all outside-the-fenceline system of emission reduction would be impermissible. This is a potential topic for Clean Air Act litigation in the near future.
Gina Falaschi and Marley Kimelman are associates in Babst, Calland, Clements and Zomnir’s environmental group. Their practice is focused, in part, on compliance matters arising under the Clean Air Act and implementing regulations. Contact them at gfalaschi@babstcalland.com or mkimelman@babstcalland.com.
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Reprinted with permission from the July 21, 2022 edition of The Legal Intelligencer© 2022 ALM Media Properties, LLC. All rights reserved.
The American Oil & Gas Reporter
(By Del Torkelson)
Ensuring energy security and addressing climate change are not mutually exclusive goals, insists Senator Joe Manchin, D-W.V., and it is imperative for the United States to pursue both.
The chairman of the U.S. Senate Energy and Natural Resources Committee offered his perspective on the outlook for the country’s energy policy during a “Message to the Industry” video conversation included in The 2022 Babst Calland Report–Legal & Regulatory Perspectives for the U.S. Energy Industry, which the law firm released in late June. Joining Manchin in the report’s introductory webinar recording were Babst Calland energy attorneys Joe Reinhart, Moore Capito and Jim Curry.
The firm says its 12th annual energy analysis also contains perspectives from energy attorneys on critical issues facing the industry, including:
- Regulatory developments and enduring concern about climate change;
- Cybersecurity risks and the steps companies can take to minimize them;
- The U.S. Securities and Exchange Commission’s environment, social and governance-oriented disclosure requirements, as well as federal and state efforts to promote environmental justice;
- The role hydrogen and carbon capture and sequestration can play, as well as the factors influencing how quickly both technologies can expand;
- Recent and pending regulations related to permitting and operating pipelines; and
- The challenges renewable energy companies must overcome as they secure land and permits.
During the half-hour discussion with Manchin, the senator emphasized that laudable environmental ambitions must be rooted in reality. “You cannot just be aspirational and think ‘This is my wish; I wish it would work that way,’” Manchin advised. “It’s not the real world that we live in–and I have seen the real world. The world depends on the United States of America and West Virginia to provide what they need: life-saving energy that provides for them, their families and their economies.”
U.S. companies produce energy with environmental standards that are much higher than their counterparts in places such as the Middle East, Russia and Venezuela, but American producers must continue shrinking their environmental footprint, he said. Such improvement will come through the industry’s creativity, Manchin predicted, and not through artificial constraints intended to speed fossil fuels’ demise.
“Elimination is not the way to go,” the senator assessed. “Innovation is the way to go.”
Secure Energy Supplies
Reflecting on the United States’ top energy challenges and opportunities, Manchin said the United States must protect itself from the sort of supply chain limitations that have confronted many European countries since Vladimir Putin ordered Russian forces to invade Ukraine. The senator noted that when Germany’s Green Party gained power years ago, it not only embraced alternative energy sources, but also moved to shut down affordable and dependable traditional energy.
“They had nothing to replace it with and got themselves in one heck of a mess,” Manchin observed. “Now they are trying to scurry around and build portable liquefied natural gas terminals.”
Alternative energy sources face their own supply chain vulnerabilities that the United States and its allies will do well to avoid, the senator advised. Efforts in Washington to greatly expand the share of electric vehicles in U.S. fleets without securing and diversifying the components critical to building and powering them is short-sighted, he warned.
“China has captured 80% of processing of all rare earth minerals in the world, which is exactly what we need to have to build the batteries these vehicles run on,” Manchin observed. “I am old enough to remember standing in line trying to buy gasoline in 1974 when OPEC decided to shut us off . . . I sure as heck am not going to sign up to wait for that next battery in 2030 or 2035 when (China) won’t ship over the products we need to build that battery because we have not become self-reliant.”
To advance local supply chains, the senator said he was helping arrange a North American alliance on matters such as energy and critical minerals. After all, he suggested, Chinese Premier Xi Jinping is drawing lessons from the energy leverage Putin has used against Europe.
As for the leading opportunities Manchin mentioned, the senator pointed toward the United States’ ability to replace significant volumes of Russian oil and gas with production from plays such as the Marcellus and Utica shales. By contrast, he noted, Russian gas is “produced with much more emissions (that harm) the atmosphere.
“This is going to be truly historic,” he predicted. “We have to make sure we can give (European countries) all that support. The greatest support they need is dependable, reliable energy and that is what the United States can do.”
Ultimately, the senator urged, “We must demonstrate that the United States and our allies are going to lead the global decarbonization and produce fossil fuels with lower emissions than any other countries in the world. This includes continuing efforts to minimize methane emissions, growing the production and use of hydrogen, and deploying carbon capture utilization and storage.”
During the half-hour discussion with Manchin, the senator emphasized that laudable environmental ambitions must be rooted in reality. “You cannot just be aspirational and think ‘This is my wish; I wish it would work that way,’” Manchin advised. To hear Senator Manchin’s remarks, request access to the report at https://reports.babstcalland.com/energy2022-2/.
Transmission Infrastructure
Attorney Moore Capito posed a question that centered on opportunities that Manchin perceived to boost U.S. energy production and plausible policy paths to enable them. The senator acknowledged that U.S. political realities limit the scope of possibilities, in part because the Senate has 50 Republicans and 50 Democrats.
“We are in historic times,” he said. “The Senate has never been evenly split for this long in . . . 237 years. Never. Five-six months is as long as it was ever split before. So how do we navigate that?”
As the country works to mitigate energy supply risks, he suggested, policymakers should adopt a broader perspective that integrates big-picture considerations. The country should steer clear of skewed trade practices that make it easy to import from foreign countries with poor records on human rights and environmental protection, Manchin argued.
“Not that we are protectionist, we are just basically trying to level the playing field,” he characterized. “If you are just going to (ignore human rights and the environment) in your country–because it’s communistic or an autocracy–and . . . ship goods into our markets, that has got to stop.”
Although many of Manchin’s congressional colleagues assure him they understand the importance of U.S. energy supplies, he said they also cheer efforts to frustrate pipeline construction. “The Mountain Valley Pipeline is almost 90%-95% completed and the Third Circuit (Court of Appeals) keeps stopping us from moving forward to complete it. That would put 2 billion cubic feet a day into the market,” he lamented. “Until I see those people . . . making a deal in the real world, with its real challenges, I am sure not going down their path and saying, ‘Throw caution to the wind.’
“I want to develop the new technologies for the future,” he assured. “It’s going to have to coexist with realizing that we have to have a real robust fossil industry here.”
Manchin took issue with fossil fuel opponents’ contention that the United States should stop building pipelines to address climate change. “They have been shutting us down everywhere they can,” Manchin described. “They talk a good game, but then they put up so many obstacles. So I said, ‘Fine. Don’t count on me helping you on other areas until you are able to have a clear path of 10 years of how we are going to be able to drill (and) . . . produce.’”
To that end, the senator highlighted the senselessness of imposing strict methane regulations without supporting more transmission infrastructure. “You cannot fine me for methane escape when you will not let me build a pipeline to take the methane,” he mused. “You are either going to be on the team with us or sitting on the sideline watching us play the game.”
Babst Calland’s report also discusses the business outlook for the energy industry and contains sections on climate change; cybersecurity; ESG and environmental justice; hydrogen and carbon capture and sequestration; pipelines; and renewables. To request access, visit https://reports.babstcalland.com/energy2022-2/.
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PIOGA Press
(By Kevin Garber, Varun Shekhar, Gina Falaschi and Marley Kimelman)
This article is an excerpt of The 2022 Babst Calland Report, which represents the legal perspective of Babst Calland’s energy attorneys addressing the most current business and regulatory issues facing the energy industry. To view the full report, go to reports.babstcalland.com/energy2022-2.
On June 30, the United States Supreme Court held, in West Virginia v. EPA, that the U.S. Environmental Protection Agency may not force existing coal-fired power plants to shift their electricity generation to cleaner sources under Section 111(d) of the Clean Air Act, thereby narrowing EPA’s authority to regulate greenhouse gas emissions from power plants.
West Virginia and a coalition of states, power companies and coal interests petitioned the Supreme Court to review the D.C. Circuit’s 2021 invalidation of the Trump administration’s 2019 Affordable Clean Energy rule, which had replaced the Obama administration’s 2015 Clean Power Plan. Under the Clean Power Plan, EPA calculated rate-based (amount of carbon dioxide emitted per megawatt hour generated) and mass-based (total amount of carbon dioxide emitted per year) targets for each state through application of three “building blocks” that were deemed to constitute the “best system of emission reduction…adequately demonstrated” (BSER) under Section 111(d) of the Clean Air Act: (1) improvements to heat rates (a measure of heat input to power output efficiency) achieved at individual power generation facilities; (2) shifting power generation to natural gas-fired or combined cycle facilities; and (3) increased power generation from renewable and zero-emitting sources. The latter two “building blocks” constituted the Clean Power Plan’s designed “generation shifting.” EPA projected that this BSER would drive down electricity derived from coal-fired sources from 38 percent of the nation’s overall generation in 2014 to 27 percent by 2030.
The Supreme Court held that EPA exceeded its authority under Section 111(d) of the Clean Air Act because Congress did not clearly authorize generation shifting regulations to constitute BSER under the statute. The court found EPA’s program presented a “major questions” issue, the resolution of which is to be determined by determining whether Congress so “specifically and clearly” empowered regulatory agencies through legislation to make sweeping, economy-wide changes. Here, the court found it “highly unlikely that Congress would leave” to “agency discretion” the decision of how much coal-based generation there should be over the coming decades. The court stated that the statutory term “best system of emission reduction” did not give the agency the authority to require widespread generation shifting as a means to reduce CO2 emissions because “the word [system] is an empty vessel” and “[s]uch a vague statutory grant is not close to the sort of clear authorization required by our precedents.” The court concluded that a “decision of such magnitude and consequence [i.e., the amount of coal-based generation] rests with Congress itself, or an agency acting pursuant to a clear delegation from that representative body.”
The decision has significant implications for the Biden administration’s focus on climate change specifically and for administrative law generally. For example, it is very unlikely that EPA may adopt a federal carbon cap-and-trade program administratively without Congressional authorization.
The court’s reasoning, while not necessarily binding, should also be persuasive in states that try to adopt wide-ranging climate change programs administratively based on state law, like the Pennsylvania Regional Greenhouse Gas Initiative, where state statutes do not provide such authority.
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Reprinted with permission from the July 2022 issue of The PIOGA Press. All rights reserved.
Babst Calland congratulates Attorney Tim Miller as the recipient of this year’s Energy & Mineral Law Foundation John L. McClaugherty Award, which recognizes outstanding contributions to the Foundation and the field of energy and mineral law. Each year, EMLF recognizes leaders who have shaped EMLF, and who are recognized as industry and community leaders.
To view the EMLF award presentation, click here.