Energy Alert
(by Timothy Miller, Jennifer Hicks and Katrina Bowers)
The West Virginia Supreme Court of Appeals has accepted four questions certified to it by The United States District Court for the Northern District of West Virginia in Charles Kellam, et al. v. SWN Production Company, LLC, et al., No. 5:20-CV-85. The Court will hear oral argument during the January 2022 term. The Court will address four questions: (1) Is Estate of Tawney v. Columbia Natural Resources, LLC, 219 W.Va. 266, 633 S.E.2d 22 (2006) (Tawney) still good law in West Virginia; (2) What is meant by the “method of calculating” the amount of post-production costs to be deducted; (3) Is a simple listing of the types of costs which may be deducted sufficient to satisfy Tawney; and (4) If post-production costs are to be deducted, are they limited to direct costs or may indirect costs be deducted as well?
At the time of the District Court’s certification in Kellam, defendants’ Motion for Judgment on the Pleadings asserting that the Kellams’ lease complied with Tawney and that the District Court was bound by the decision in Young v. Equinor USA Onshore Properties, Inc., 982 F.3d 201 (4th Cir. 2020) was pending. In Young, the 4th Circuit Court of Appeals reversed Judge Bailey and held the lease clearly and unambiguously allowed the deduction of post-production expenses and noted that “Tawney doesn’t demand that an oil and gas lease set out an Einsteinian proof for calculating post-production costs. By its plain language, the case merely requires that an oil and gas lease that expressly allocates some post-production costs to the lessor identify which costs and how much of those costs will be deducted from the lessor’s royalties.” Young, 982 F.3d at 208. Moreover, the 4th Circuit noted recent criticism of Tawney by the West Virginia Supreme Court of Appeals. See Leggett v. EQT Prod. Co., 239 W. Va. 264, 800 S.E.2d 850 (2017).
For more information about the case, contact Tim Miller at 681.265.1361 or tmiller@babstcalland.com, Jennifer Hicks at 681.265.1370 or jhicks@babstcalland.com, or Katrina Bowers at 681.205.8955 or kbowers@babstcalland.com, who are serving as counsel for the defendants in Kellam.
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The Legal Intelligencer
By Joe Yeager
On Aug. 10, the U.S. Senate passed President Joe Biden’s Infrastructure Investment and Jobs Act (HR 3684 or Infrastructure Bill) by a vote of 69-30. The $1 trillion Infrastructure Bill received bipartisan support with a proposed $550 billion in new infrastructure spending over the next five years that would be offset by a combination of tax and nontax provisions.
Among other proposals, the Senate bill includes a provision to resurrect a modified version of the long-expired Hazardous Substance Superfund Trust Fund (Superfund) excise tax on chemical manufacturing and imports (Superfund excise taxes). The bill reinstates certain excise taxes to replenish the Superfund, which provides the federal government with resources to respond to environmental threats related to managing hazardous substances.
Congress allowed the excise taxes to expire at the end of 1995, and this absence of funds has forced the Superfund to support cleanup efforts through general disbursements of other tax revenues. Although there have been multiple attempts to reinstate the Superfund excise tax over the course of the last 25 years, none garnered as much bipartisan support.
The new version of the Superfund tax would apply to the production of certain chemicals through Dec. 31, 2031, effective for periods after June 30, 2022. In addition, the Superfund tax will increase the rate of tax per ton on a list of taxable chemicals. Its proponents assert that over the course of 10 years, the new tax is estimated to raise approximately $14.4 billion (or $1.2 billion annually). In support of the Infrastructure Bill, the funds would be specifically aimed at shoring up the Superfund, addressing the overall goals of cleanup and protection of human health and the environment from historical contamination, and bolstering EPA efforts to conduct additional investigations and collect more data on newer sites.
As anticipated, there is opposition by industry (led by the American Chemistry Council) with claims that the reintroduction of the Superfund tax would result in shrinking profit margins and place the United States at a disadvantage in the global chemical industry. The American Chemistry Council condemns the new version of the infrastructure tax because they believe it uniquely focuses on chemical manufacturers and importers (the new Superfund tax differs from the original in that it does not impose tax on oil and petroleum). Historically, the Superfund was funded by three excise taxes applied to oil and petroleum products, chemicals and hazardous substances. The prior funding was intended to seek compensation from those entities deemed responsible for contamination. The proposed Superfund excise taxes are not directed at any particular responsible party, rather the tax will be imposed entirely on those companies that import or produce chemicals, chemical compounds or chemical byproducts. Thus, this new tax could unfairly impact a small subset of the industrial sectors that may have contributed to pollution. According to the opposition, the result of this tax will be the forced closure of more than 40 chemical plants and the loss of thousands of industry-related jobs. In addition, the new Superfund tax would likely increase the cost of a variety of consumer goods, including many of the materials needed for infrastructure and climate improvement.
Assuming the bill passes the House and is signed into law by Biden, a logical next question is how this money be used. The intent of the new tax is to provide monies to EPA in order to boost funding of its Superfund program. It is expected that the monies collected would be applied to contaminated sites without viable responsible parties, known as orphan sites. However, the EPA has also intimated it would like to use some of the new revenue to conduct new investigations about newer sites.
The Senate-passed Infrastructure Bill is currently held up in Congress as talks continue on the passage of the overall act, but there is a strong belief that it will pass because it is viewed as an old tax brought back to life. The Superfund tax is promoted by the Biden administration as a way to advance an increased interest in the environment and as a reliable revenue source to help clean up a backlog of legacy orphan sites. Further, there is bipartisan support to fund the bill due to its potential to offset expenses of the overall Infrastructure Bill without raising new broad-based taxes.
The Senate bill has moved to the House of Representatives for approval and is still pending. It will not become law until it has been approved by the House and signed by Biden.
Although developments continue to unfold, including opposition in Congress, resurrection of the Superfund tax could take some months for the House and Senate to pass a final reconciliation tax bill.
Babst Calland Clements & Zomnir environmental attorneys will continue to track Superfund developments and their implications to the industry in the coming months.
Click here to view the article online in the November issue of the Legal Intelligencer.
Reprinted with permission from the November 4, 2021 edition of The Legal Intelligencer© 2021 ALM Media Properties, LLC. All rights reserved.
Pipeline Safety Alert
(by Keith Coyle, Jim Curry and Brianne Kurdock)
On November 2, 2021, the Pipeline and Hazardous Materials Safety Administration (PHMSA) released a pre-publication version of its final rule for onshore gas gathering lines. The final rule, which represents the culmination of a decade-long rulemaking process, amends 49 C.F.R. Parts 191 and 192 by establishing new safety standards and reporting requirements for previously unregulated onshore gas gathering lines. Building on PHMSA’s existing two-tiered, risk-based regime for regulated onshore gas gathering lines (Type A and Type B), the final rule creates:
- A new category of onshore gas gathering lines that are only subject to incident and annual reporting requirements (Type R); and
- Another new category of regulated onshore gas gathering lines in rural, Class 1 locations that are subject to certain Part 191 reporting and registration requirements and Part 192 safety standards (Type C).
The final rule largely retains PHMSA’s existing definitions for onshore gas gathering lines but imposes a 10-mile limitation on the use of the incidental gathering provision. The final rule also creates a process for authorizing the use of composite materials in Type C lines and prescribes compliance deadlines for Type R and Type C lines. Additional information about these requirements is provided below.
Type R Lines
The final rule creates a new category of reporting-only regulated gathering lines. These gathering lines, known as Type R lines, include any onshore gas gathering lines in Class 1 or Class 2 locations that do not meet the definition of a Type A, Type B, or Type C line. Operators of Type R lines must comply with the certain incident and annual reporting requirements in Part 191. No other requirements in Part 191 apply to Type R lines.
Type C Lines
The final rule creates a new category of regulated onshore gas gathering lines. These gathering lines, known as Type C lines, include onshore gas gathering lines in rural, Class 1 locations with an outside diameter greater than or equal to 8.625 inches and a maximum allowable operating pressure (MAOP) that produces a hoop stress of 20 percent or more of specified minimum yield strength (SMYS) for metallic lines, or more than 125 psig for non-metallic lines or metallic lines if the stress level is unknown.
Operators of Type C lines are subject to the same Part 191 requirements as Type A and Type B lines and must comply with certain Part 192 requirements for gas transmission lines, subject to the non-retroactivity provision for design, construction, initial inspection, and testing, as well as other exceptions and limitations that vary based on the outside diameter of the pipeline and whether there are any buildings intended for human occupancy or other impacted sites within the potential impact circle or class location unit for a segment. The final rule also provides additional exceptions from certain requirements, including for grandfathered pipelines if a segment 40 feet or shorter in length is replaced, relocated, or otherwise changed. A chart illustrating the applicable requirements is provided below.
In addition to prescribing these new requirements, the final rule authorizes the use of composite materials in Type C lines if the operator provides PHMSA with a notification containing certain information at least 90 days prior to installation or replacement and receives a no-objection letter or no response from PHMSA within 90 days.
Deadlines
The effective date of the final rule is 6 months after the date of publication in the Federal Register. Operators of Type R and Type C lines must comply with the applicable requirements in Part 191 starting as of the effective date, although the first annual report is not due until March 15, 2023. Operators must also comply with the requirement to document the methodology used in determining the beginning and endpoints of onshore gas gathering within 6 months of the effective date, and operators of Type C lines must comply with the applicable requirements in Part 192 within 12 months of the effective date. Operators may request an alternative to these 6- and 12-month compliance deadlines by providing PHMSA with a notification containing certain information at least 90 days in advance and receiving a no-objection letter or no response from PHMSA within 90 days.
Other Considerations
In accordance with 49 C.F.R. § 190.335, administrative petitions for reconsideration must be filed with PHMSA within 30 days of the final rule’s publication in the Federal Register. Petitions for judicial review must be filed within 89 days of the final rule’s publication in the Federal Register or, if an administrative petition for reconsideration is filed, within 89 days of PHMSA’s decision on the petition.
For a more detailed assessment or to discuss the implications of the Final Rule, please contact Keith Coyle at 202.853.3460 or
KCoyle@babstcalland.com, Jim Curry at 202.853.3461 or JCurry@babstcalland.com, or Brianne Kurdock at 202.853.3462 or
BKurdock@babstcalland.com.
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GO-WV News
By Christopher (Kip) Power
The West Virginia Department of Environmental Protection (WVDEP) is continuing work on rules for permitting of geologic storage of captured CO2 — a necessary (but not sufficient) element in developing a CCS industry.
As discussed in the August GO-WV News, the WVDEP released proposed amendments to its Underground Injection Control (UIC) permitting and related regulations (47 CSR 13) on June 23, 2021 and held a public hearing on the proposed rules on July 23, 2021. Although they include substantial changes to the rules for Class 1 permits (governing hazardous waste injection wells) and Class 2 permits (for enhanced recovery of oil and gas, and disposal of produced water), the rule changes primarily consist of an entirely new section establishing a permitting program for Class 6 wells (those used for injecting carbon dioxide for the purpose of permanent geologic sequestration). Those proposed new Class 6 rules are largely modeled on EPA’s detailed “Class VI” regulations promulgated under the federal Safe Drinking Water Act (40 CFR 146).
Ten organizations (including GO-WV and several environmental/citizen groups) filed comments on the draft amendments, and a few of their representatives spoke at the hearing. By letter dated July 23, 2021, the WVDEP released copies of the written comments it received, along with its responses. There was a total of 10 comments that the WVDEP considered to be meritorious enough to alter the proposed rule language in minor ways, almost all of which consisted of typographical errors (along with the elimination of the use of Roman numerals for identifying the “classes” of permits). The final agency-approved rule proposal was filed with the Legislative Rule-Making Review Committee on July 30, 2021 (incorporating most, but not all, of the edits mentioned in the WVDEP’s July 23 letter).
As expected, most of the comments centered on the proposed Class 6 UIC permit provisions. In this regard, the WVDEP acknowledged that it is seeking to incorporate the Class 6 provisions (new section 13) so that the approved regulations may be included as a part of an “Application for Substantial Program Update” to be filed with the EPA, requesting that WVDEP be granted primacy over the Class 6 UIC well permit program. However, for the most part the WVDEP found that concerns raised by commenters pertaining to this aspect of the regulations either addressed matters within the agency’s discretion under the rules as drafted or exceeded the scope of the UIC program. Those topics deemed to be beyond the scope of the regulations include pore space ownership (or “subsurface trespass”) concerns, enhanced set-back requirements for Class 6 projects located near sensitive areas, “liability for accidents,” and the potential transfer of liability to the State for a completed CO2 sequestration site.
The WVDEP did address two Class 6-focused comments. First, it noted that the Division of Water and Waste Management has tentatively agreed to the terms of a Memorandum of Understanding (MOU) with the West Virginia Geological and Economic Survey (WVGES) to review each application for a Class 6 well permit related to geologic matters, including seismicity. Although the WVDEP believes “the likelihood of induced seismicity is low,” its application for primacy over the Class 6 program will specify that no Class 6 permit application will be considered for approval until after such a WVGES review has been completed. Second, the WVDEP stated that it will await approval of primacy over the Class 6 well permit program, and some actual experience with processing Class 6 well permit applications, before it considers whether to seek a supplemental source of funding for the additional administrative burdens imposed by that program.
In short, the WVDEP’s proposal to amend its UIC regulations to incorporate the Class 6 UIC permit program, which is an important undertaking and will be a key part of application for primacy over that program, is moving along in the rule-making process. However, vesting authority in the WVDEP to issue such permits in West Virginia will almost certainly not be sufficient in and of itself to incentivize the development of carbon dioxide injection and sequestration projects of any significant size.
As other states have done (e.g., North Dakota, Texas), it is reasonable to expect that the West Virginia Legislature will need to enact statutes establishing some fundamental property and liability principles that will govern this new industry before any organization will seek a Class 6 permit to construct a sequestration facility here. Given the number of recent federal legislative proposals that promote the use of some form of carbon capture and sequestration as an important part of the country’s evolving energy policy, and the substantial additional funding that will presumably be available to support such projects, it would appear there is no time to waste in developing those complementary laws.
Click here to view the article online in the November issue of GOWV News.
Smart Business
(by Sue Ostrowski featuring Moore Capito)
For years, the banking industry has functioned in the same ways it always has. But FinTech — financial technology — is revolutionizing the way things are done and increasing access to financial tools for those who may not have previously had it.
“At its core, FinTech is when you have the convergence of an emerging technology and a financial service,” says Moore Capito, shareholder at Babst Calland. “It’s using innovation to compete with traditional methods of delivering financial services.”
Smart Business spoke with Capito about how FinTech is revolutionizing the financial industry, the opportunities it presents and challenges it poses.
How is Fintech Changing the Financial Industry?
There are a lot of unbanked, or underbanked, people that have difficulty accessing the traditional banking industry. FinTech products, sometimes in collaboration with a traditional bank, can provide better financial services to these individuals, especially in rural areas where there is less access to bricks-and-mortar banks.
There are potentially endless applications, from insurance to mobile banking, cryptocurrency, investment apps, and financial products including mortgages — the most well-known being PayPal. The onset of COVID accelerated the necessity and the willingness to adapt with FinTech, doing more transactions remotely from phones and bringing finance directly to individuals, instead of individuals going to a physical banking location.
On the economic development side, entrepreneurs are coding programs that create the functionality behind the apps. And states such as West Virginia have created regulatory sandboxes for FinTech entrepreneurs. These let participants apply to come in and test their products in the marketplace without going the traditional regulatory route, allowing them to become viable and ready for commercialization before becoming regulated by state agencies. It gives them two years to be able to exist with greater leniency and more flexibility, to be leaner and nimbler to develop their products.
What are the Challenges of Fintech?
Traditional finance wants to protect itself against changes to how it operates, which can be a challenge. In a lot of states, the banking industry is slow to move. It’s a conservative industry, and it is hesitant to accept change. It has resisted for a long time because emerging technology can be disruptive.
However, we need to be engaging with startup businesses that are innovating. We are living in a changing market, and we need to lean into these changes that are not only moving the industry forward but that are creating jobs. Disruption can be scary for big, entrenched industries. But while it can be intimidating, rising tides lift all ships and everyone becomes better as a result.
The second challenge is to ensure the consumer is protected. By their very nature, some startups fail, and we need to ensure no consumers are hurt in cases where a business doesn’t get off the ground.
What Does the Future of Fintech Look Like?
It’s unbelievable how quickly it’s continuing to grow. Even with a recent downturn in the economy, we’ve seen increased investment; the venture capital community is investing billions of dollars in a year where there has been quite a bit of handwringing. While technology and disruption can be scary, these products, once tested and trusted, create conveniences that are making people’s financial lives happier and healthier.
The entrepreneurial community in the FinTech space is very vibrant, and they are attracted to places that want them. We have created a very welcoming and forward-thinking space for entrepreneurs that only not serves the state and the wider region, but that also has a global impact.
For full article, click here.
For the PDF, click here.
Environmental Alert
(by Matt Wood and Mackenize Moyer)
On October 18, 2021, the U.S. Environmental Protection Agency (EPA) released its comprehensive strategy for addressing per- and polyfluoroalkyl substances (PFAS), “PFAS Strategic Roadmap: EPA’s Commitments to Action 2021–2024” (Roadmap). PFAS are a large group of manmade chemicals that have been widely used in various consumer, commercial, and industrial applications since the around 1940s and more recently have been discovered in environmental media (e.g., groundwater), as well as in plants, animals, and humans. PFAS do not tend to break down naturally, and evidence suggests that exposure to PFAS can lead to adverse health effects. As such, the EPA Council on PFAS, established by EPA Administrator Michael S. Regan in April 2021, developed the Roadmap to “pursue a rigorous scientific agenda to better characterize toxicities, understand exposure pathways, and identify new methods to avert and remediate PFAS pollution.”[1]
The Roadmap highlights EPA’s “whole-of-agency” approach, that includes proposed actions across program offices, as well as the PFAS “lifecycle” (i.e., activities that occur prior to PFAS entering the environment, such as manufacturing). EPA’s “Key Actions” illustrate this approach and are informed by one or more of the Roadmap’s three central directives: (1) Research; (2) Restrict; and (3) Remediate. A selection of the Roadmap’s Key Actions is summarized below.
Office of Water
- Establish a National Primary Drinking Water Regulation (NPDWR) for PFOA and PFOS – In March 2021, EPA published the Fourth Regulatory Determinations, which included a final determination to regulate PFOA and PFOS in drinking water. EPA expects to issue a proposed NPDWR for PFOA and PFOS in fall 2022. A final regulation is anticipated in fall 2023.
- Reduce PFAS Discharges through NPDES Permitting – EPA is seeking to use existing NPDES authorities to reduce PFAS discharges at the source. Proposals include monitoring requirements at facilities where PFAS are expected or suspected to be present in wastewater and stormwater discharges and issuing new state permitting guidance. These proposals are expected winter 2022.
- Restrict PFAS Discharges from Industrial Sources through a Multi-Faceted Effluent Limitations Guidelines (ELG) Program – By 2024, EPA plans to make significant progress in its ELG regulatory work by addressing PFAS from specific industrial sources. As examples, EPA intends to: (1) Develop rules to restrict PFAS discharges from industrial categories, where existing data support it (e.g., plastics and synthetic fibers); (2) Study facilities where EPA has preliminary data on PFAS discharges (e.g., electronic components); and (3) Complete data reviews for industrial categories for which there is little known information on PFAS discharges (e.g., plastics molding and forming).
- Finalize Risk Assessment for PFOA and PFOS in Biosolids – By winter 2024, EPA intends to complete a risk assessment to determine whether to regulate PFOA and PFOS in biosolids.
Office of Air and Radiation
- Build Technical Foundation to Address PFAS Air Emissions – No PFAS compounds are currently listed as hazardous air pollutants (HAPs), but EPA is building the technical foundation to inform future decisions, e.g., identifying sources of PFAS air emissions; developing and finalizing monitoring approaches for measuring stack emissions and ambient concentrations of PFAS; and developing information on cost-effective mitigation technologies. EPA expects to evaluate mitigation options, including listing certain PFAS as HAPs and/or pursuing other regulatory and non-regulatory approaches, by fall 2022.
Office of Land Emergency and Management
- Designate PFOA and PFOS as CERCLA Hazardous Substances – EPA intends to publish a proposed rule to designate PFOA and PFOS as CERCLA hazardous substances in spring 2022 (with a final rule expected summer 2023). These designations would require facilities to report PFOA and PFOS releases above applicable reportable quantities and allow EPA to use additional enforcement and cost recovery authority, including potentially “reopening” previously remediated Superfund sites.
- Issue Advance Notice of Proposed Rulemaking (ANPR) for Various PFAS under CERCLA – EPA expects to issue an ANPR in spring 2022 to propose designating other PFAS as hazardous substances under CERCLA and to seek input on designating precursors, additional PFAS, and groups or subgroups of PFAS.
Office of Chemical Safety and Pollution Prevention
- Develop National PFAS Testing Strategy – EPA is developing a national PFAS testing strategy to address data gaps regarding PFAS toxicity and better understand potential hazards from categories of PFAS (most PFAS have little or no toxicity data). EPA intends to use its TSCA authority to require PFAS manufacturers to fund and conduct additional studies, with the first round of test orders on selected PFAS expected to be issued by the end of 2021.
Cross-Program Actions, Public Engagement, and Other Developments
In addition to individual programmatic actions, EPA’s “whole-of-agency” approach includes collaboration between EPA offices, utilizing enforcement tools from multiple environmental authorities (e.g., RCRA, CERCLA, the Clean Water Act, and TSCA), to identify and address past and ongoing PFAS releases from various sources. These tools include, among other things, conducting inspections, collecting data, and issuing information requests, as well as addressing or limiting future releases, and likely will expand in the coming years. At the recommendation of the National Environmental Justice Advisory Council, EPA will also directly engage with communities in all EPA Regions to understand the impacts of PFAS contamination on their lives – experiences EPA will rely on to inform the actions summarized in the Roadmap. Similarly, EPA has identified developing meaningful educational materials as an important tool to assist the broader public in understanding PFAS and their potential risks. To keep stakeholders informed, EPA will report annually on its progress implementing the Roadmap’s actions.
Recent developments indicate that EPA aims to move swiftly to accomplish its goals. One week after releasing the Roadmap, EPA announced that it had finalized a human health toxicity assessment for GenX chemicals (a subset of PFAS), which the agency identified in the Roadmap as a fall 2021 goal. The finalized assessment represents a preliminary step toward developing health advisory levels (HALs) for GenX under the Safe Drinking Water Act, an action that EPA expects to complete in spring 2022. Although HALs are informational in nature (i.e., they are non-regulatory and non-enforceable), their development could be an interim step toward EPA establishing NPDWRs for GenX chemicals.
On October 26, 2021, in response to a petition from New Mexico Governor Michelle Lujan Grisham, EPA Administrator Regan announced that EPA plans to initiate two rulemakings to address PFAS. Under the first rulemaking, EPA will propose adding four PFAS as RCRA Hazardous Constituents, PFOA, PFOS, PFBS, and GenX, making them subject to corrective action requirements (such a designation would also inform future efforts to regulate PFAS as a listed hazardous waste). The second proposed rulemaking, related to the first, will clarify in applicable regulations that emerging contaminants such as PFAS (that meet the statutory definition of hazardous waste) can be cleaned up via the RCRA corrective action process. EPA Administrator Regan specifically highlighted these proposed rulemakings as part of EPA’s broader strategy to address PFAS contamination.
Conclusion
The Roadmap represents EPA’s broadest strategy to address PFAS since the agency released its 2019 PFAS Action Plan. That is, it sets specific timeframes to accomplish a range of identified actions that span multiple EPA offices, various statutory and regulatory programs, and the “lifecycle” of PFAS. Moreover, as many of EPA’s actions represent preliminary or interim steps in their respective regulatory processes, and as EPA continues to gather data on PFAS, stakeholders likely can expect the Roadmap to evolve over time as EPA accomplishes its goals (e.g., EPA may add new, future actions).
Despite the speed at which EPA and the Biden administration appear to be moving to address PFAS, many states have developed (or are currently developing) their own applicable regulations. For example, in recent years, New Jersey set maximum contaminant levels (MCLs) in drinking water for PFOA, PFOS, and PFNA, and designated all three compounds as hazardous substances under state law. In Pennsylvania, the Department of Environmental Protection is in the process of proposing MCLs in drinking water for PFOA and PFOS. In short, while EPA implements its strategy over the coming months and years, relevant parties in many states have been (or will be) operating under applicable state regulations. The Roadmap and related materials are available on EPA’s website here.
Babst Calland will continue to track EPA’s proposed actions (and other developments, e.g., at the state level) and are available to assist you with PFAS-related matters. For more information for this or other remediation matters, please contact Matthew C. Wood at (412) 394-6583 or mwood@babstcalland.com, Mackenzie Moyer at (412) 394-6578 or mmoyer@babstcalland.com, or any of our other environmental attorneys.
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[1] PFAS Strategic Roadmap: EPA’s Commitments to Action 2021–2024, 6.
Click here for PDF.
Renewables Law Blog
(By Bruce Rudoy)
NextEra Energy Inc.’s CEO, Jim Robo, has pushed Congress to extend clean energy tax credits as the company announced record renewables contracts and a major hydrogen project yesterday. Robo said odds are “reasonably high” of an extension if a consensus can be reached on what would be in the reconciliation bill. There is wider support in Congress to expand clean energy tax credits compared to the proposed $150 billion Clean Electricity Performance Program or carbon pricing. Other proposals have included a broad clean energy tax overhaul that some large energy companies say they support. “If something happens there, we feel good about the fact that there will be a long-term extension of the credits,” Robo said, adding that he foresees tax policy support for hydrogen and energy storage investments. “It would be very constructive for us.” As one of the world’s largest renewable energy developers, NextEra has a lot to gain if the Biden administration is successful in financially encouraging wind, solar and other technologies to cut U.S. power sector emissions in half by 2030. President Biden has set the goal of decarbonizing the grid by 2035. “We are increasingly thinking about ourselves as the company that’s going to lead not only the clean energy transformation of the electric grid but really the clean energy transformation of the U.S. economy and the decarbonization of the U.S. economy,” he said. The way Robo sees it, a low-emissions grid is critical to decarbonizing the transportation and industrial sectors. The falling costs of renewable resources combined with utility, corporate and state goals aimed at cutting emissions are driving large-scale projects nationwide. NextEra’s renewable energy unit signed a record 2,160 megawatts of solar, wind and storage projects during the third quarter, the company said during a conference call with Wall Street analysts. This includes 1,240 MW of new wind projects, the largest amount signed during a three-month period in the company’s history, said Rebecca Kujawa, NextEra’s chief financial officer. Even with the future of tax credits in play, NextEra now has more than 18 gigawatts of signed contracts in its development queue, including more than 7,600 MW worth of projects post-2022.
Electric companies nationwide are targeting hydrogen as a new option for emission-free electricity. Kujawa yesterday said NextEra has inked a deal to build a 500 MW wind project designed to power a green hydrogen fuel cell company. “Green” hydrogen is made from water and renewable electricity. That company wants to build a hydrogen electrolyzer nearby and use the wind power to meet up to 100 percent of its load requirements, Kujawa said. The hydrogen produced would be sold to commercial and industrial end-users to replace their current electricity that comes from other forms of hydrogen and fossil fuels, she said. The goal is to further accelerate the decarbonization of the industrial and transportation sectors, she said. Electric companies are eying expanded used of hydrogen during the later part of the 2020s and the next decade, Kujawa said, because it’s likely that long-duration storage will be developed by then. The transportation sector may be able to take advantage of green hydrogen earlier, however, she said. “The big question mark would be whether or not there’s a hydrogen production tax credit ultimately, in the final reconciliation bill,” she said. She said the $3-a-kilogram PTC “really closes the gap” between natural gas-based hydrogen and green hydrogen. That would create more opportunities to replace gas-based hydrogen with green hydrogen and expand renewable energy options. “We’ll know a lot more in January once we see the final package, if there is one,” she said.
E&E News | Article | NextEra announces record renewables, major ‘green’ hydrogen project (politicopro.com)
Tags: decarbonizing, electricity, emission free electricity, Hydrogen, renewable energy
Pittsburgh Business Times
(by Daniel Bates featuring Keith Coyle and Blaine A. Lucas)
Even as opposition grows for energy pipelines, and government agencies toughen their regulation of the industry, pipelines remain the most safe, efficient and effective means to transport much-needed natural gas and other energy products from wells to end users to generate power, manufacture goods and heat homes.
So said Keith Coyle, a shareholder with law firm Babst Calland whose practice areas include energy law and pipeline and hazmat safety.
“We’re in a moment right now where we’re seeing some growing opposition to natural gas pipeline infrastructure,” Coyle said in making his case for the importance of supporting and protecting the nation’s energy pipeline infrastructure. “We’re seeing efforts to encourage governmental authorities to ban the construction of new pipelines or to delay the issuance of permits that are necessary for projects to move forward. We’re also seeing litigation that’s being used as a tool to try to block new pipelines or stop the operation of existing pipelines.”
Coyle and his colleague, Babst Calland shareholder Blaine Lucas, took their stand in favor of safe and efficient pipeline infrastructure as part of a recent discussion with the Pittsburgh Business Times on “The Challenges and Opportunities for the Pennsylvania Gas Pipeline Industry.”
Coyle and Lucas are quick to suggest that the current political climate, as well as the growing opposition from environmental activists and others, are problematic not just for the energy industry, but for people, the economy – and safety.
“One of the things that concerns me is if we remove pipelines from the equation, everything about the energy transportation network becomes less safe,” Coyle said. “You’ll end up encouraging the use of other forms of transportation to move gas and other energy products to market, and those other forms of transportation are not as safe as pipelines.
“The other thing we need to think about is who’s going to be impacted if pipelines are unavailable to move products,” he continued. “In a lot of cases, the people who are most affected are those who are the most in need. We’re talking about people who can be really harmed if energy is not safely and reliably available.”
Coyle cited the situation this past year in Texas, when a series of unexpected storms left parts of the state without a sufficient supply of power for a prolonged period and challenged the state’s energy infrastructure going forward.
“Think about what happened in Texas earlier this year during a brief energy crisis,” he said. “People lost their lives. It was a very difficult and challenging event we’re still trying to unwind. Then think about what happened in Texas and expand that on a broader scale if we’re not able to move energy to market. Customers aren’t able to turn their lights on. Hospitals aren’t able to operate. That’s what’s concerning to me for the long term.”
Such challenges hit home, Coyle said, because of Pennsylvania’s leading role in providing such energy to much of the country via pipelines.
“Pennsylvania plays such a critical role in meeting seasonal changes in energy demand,” he said.
Safest mode of gas transportation
For Pennsylvania, energy pipelines are, as Coyle said, “extremely, extremely important.” He noted that Pennsylvania is one of the country’s leading exporters of energy to other states, largely via a network of pipeline infrastructure – trailing only Texas and Wyoming.
“Most of the country’s natural gas is transported by pipelines, and that’s because pipelines are just the safest and most efficient way of moving energy products,” Coyle said.
In 2019, he said, there were an estimated 38,000 transportation-related fatalities in the United States – but only 12 involving pipelines, according to the Bureau of Transportation Statistics. And of an estimated 2.7 million transportation-related injuries that occurred in 2018, only 81 of those injuries involved pipelines.
“If you look at the data and statistics, what you’ll see is pretty clear: pipelines are extremely safe, and they’re necessary to move products from where they’re produced to end-users,” Coyle said. “And if we didn’t have pipelines, quite frankly, Pennsylvanians and the rest of the country would be a lot less safe than they are today.”
Pipeline primer
To understand what’s at stake for the energy industry and end-users in the pipeline debate, Coyle discussed what he described as four key types of pipelines that make up the country’s energy infrastructure. First are the production pipelines, which tend to be located near the well heads that are extracting the gas from the ground.
“These pipelines don’t usually extend a very long distance, and they’re basically used to move gas from the area where it’s produced to the connection with another pipeline, typically a gathering line,” Coyle explained. “One of the things about production lines is the gas that they carry generally is not suitable for transportation to consumers or even transportation for a great distance.”
Instead, the raw gas is transported to so-called gathering pipelines, which collect the raw gas from various sources and transport it to processing plants, compressor stations and treatment facilities for refinement into “pipeline-quality” gas, he continued.
Third are transmission lines. “They tend to be long-haul pipelines carrying gas that is pipeline-quality, suitable for end use,” Coyle said. “Transmission lines tend to be larger-diameter, higher-pressure lines, bigger lines. The reason for that is we use transmission lines to move gas efficiently and effectively across Pennsylvania and throughout the United States from the areas where gas is produced to the areas where the gas is consumed.”
The fourth type – “probably the one most people are more familiar with – is the distribution line, a smaller, lower-pressure line that transports gas to the end-user, whether residential or commercial.”
Regulatory challenges ahead
As the energy transportation industry continues to grow and evolve and as environmental activists continue to put more pressure on regulators to curtail transportation activities, the energy sector can expect tighter regulation ahead from key federal and state agencies, including the Pipeline and Hazardous Materials Safety Administration (PHMSA), Federal Energy Regulatory Commission (FERC) and the Pennsylvania Public Utility Commission (PAPUC) – some warranted and some more politically motivated, both Babst Calland attorneys agree.
Coyle said a move already is afoot to create new regulatory rules for the oversight of gathering lines, which are becoming larger, with higher pressures. Leading that charge is the federal Pipeline and Hazardous Materials Safety Administration, or PHMSA, which prescribes and enforces safety standards for gas pipelines. Current rules apply mainly to all transmission and distribution pipelines, as well as some gas gathering lines.
“We’ve seen changes in the midstream sector that are driving regulators like PHMSA to reevaluate some of the judgments that they’ve made about the safety of gas gathering lines [which tend to be located in rural areas with sparse populations],” Coyle said. “One of the things we’re seeing as a result of shale gas development is some larger-diameter, higher-pressure gathering lines that are moving larger volumes of gas that is produced at the well head to the central collection points. When you have larger-diameter, higher-pressure pipelines, you have more potential risk to public safety.”
Consequently, PHMSA has been working on a new rule to “extend safety standards and reporting requirements to these rural lines,” he said. “The last time I checked, the rule was over at the Office of Management and Budget for review…We expect OMB to complete its review maybe later this year, and we may see a final rule that’s published either at the end of this year or early next year.”
As such, Coyle said he expects the change to make a significant impact on the industry since a majority of rural gathering lines around the country have remained largely unregulated until now.
“You’re going to be complying with some of these new federal safety standards that apply to the pipelines,” he said of the industry’s response to the impending new rule. “You’re going to have to provide data to the federal government about your operations and your mileage. So that’s going to be a significant change in the industry – something that might have some growing pains associated with it.”
DEP and the regulation of pipelines
Generally speaking, the Pennsylvania Department of Environmental Protection (DEP) does not regulate the pipelines themselves. However, DEP does regulate the grading and other surface disturbance of land associated with the construction of pipelines through the issuance of what is called an Erosion and Sedimentation Control General Permit (ESCGP), Lucas noted. “DEP will also be involved and may require permits if pipelines encroach on stream crossing or wetlands,” he said.
Local regulatory role and industry challenges
Local regulation of pipelines is much more limited than that of federal and state agencies. As Lucas explained, local governments are generally prohibited, the legal term is they are “preempted”, from regulating FERC-regulated pipelines and other facilities. Further “downstream”, residential and commercial service lines fall primarily within the jurisdiction of the Pennsylvania Public Utility Commission.
Municipalities do retain some jurisdiction over the “upstream” production and gathering lines connecting the gas produced at the well pads with the downstream transmission lines through their zoning ordinances and certain other ordinances. However, Lucas observed that most zoning ordinances tend to focus more on what are perceived as more impactful facilities such as well pads and compressor stations. As a result, “in most instances, local governments tend to limit their regulation of gathering lines to issuance of permits for grading and road crossings”.
In connection with FERC’s regulation of transmission lines, operators have the power of eminent domain to acquire land for necessary pipelines. However, Lucas noted that no such rights extend to operators in dealing with gathering lines. When an operator wants to connect a production line to a gathering pipeline, that operator has to obtain voluntary rights of way or easements from “dozens, if not hundreds” of property owners.
“Where that comes into play at the local level is on some of these applications – for example, on well pads, the operators will not have in place all those agreements yet, yet the local ordinances may say, ‘tell us exactly where your pipeline is going to be,’ which might not be either practical or feasible at that stage of the process.”
So-called setbacks, which are minimum distance requirements from the pipeline to the property line or an adjacent residential or commercial structure, also are becoming more restrictive and difficult to comply with at the local level, Lucas explained.
“We see those all the time,” Lucas said. “If they’re 30 or 50 feet, for example, it’s manageable. But some of those required setbacks are getting so large that they’re basically making it impossible to draw a line for a [gathering] pipeline to connect a well pad to a transmission line.”
A hopeful future
Both Coyle and Lucas remain hopeful for the energy pipeline industry, particularly in a state where natural gas continues to play such an important role in the economy.
“Pennsylvania is such an important energy state, particularly for natural gas,” Coyle concluded. “Pipelines are the primary means of transporting natural gas throughout the United States…Pipelines are the safest means for moving energy products. They’re very necessary for how we live every day, and I hope pipelines continue to be in the mix as we look toward new sources of energy because I think they make us all safer.”
Business Insights is presented by Babst Calland and the Pittsburgh Business Times. To learn more about Babst Calland and its energy practice, go to www.babstcalland.com.
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The Legal Intelligencer
(by Anna Jewart)
The requirements of a municipal zoning ordinance are strictly applied, and landowners must comply with the express use and dimensional limitations applicable in the zoning districts in which their properties are located. Landowners wishing to stray from the regulations of that district are usually forced to request relief in the form of a variance, the standards for the granting of which are quite rigorous. However, Article VII of the Pennsylvania Municipalities Planning Code, (MPC), 53 P.S. Sections 10701-10713, authorizes municipalities to enact, amend and repeal provisions within a zoning ordinance fixing standards and conditions for a “planned residential development” (PRD), a form of land development intended to offer an alternative to traditional, cookie-cutter zoning. The opinion of the Commonwealth Court in Gouwens v. Indiana Township Board of Supervisors (Gouwens II), offers an opportunity to revisit the foundations of PRD regulation and to explore the requirements for the tentative approval of a PRD. See Gouwens v. Indiana Township Board of Supervisors, Nos. 544, 992-994 C.D. 2020, 2021 (Pa. Cmwlth. July 8, 2021), publication ordered (Sept. 7, 2021)(Gouwens II), on appeal following remand of Gouwens v. Indiana Township Board of Supervisors, Pa. Cmwlth., No. 1377 C.D. 2018, (filed June 25, 2019), publication ordered (Sept. 7, 2021) (Gouwens I).
A PRD is a larger, integrated residential development that may not meet the use and dimensional standards normally applicable in the underlying zoning district. The idea behind PRD regulations is to create a method of approving large developments which overrides traditional zoning controls and permits the introduction of flexibility into their design. PRD provisions are intended to address a growing demand for housing of all types and design by promoting and encouraging flexibility in land-use regulation, innovation in residential design and layout, and more efficient use of land and public services, while insuring development is carried out under administrative standards and procedures that prevent undue delay. Although PRD regulations represent an opportunity for departure from the terms of the zoning ordinance, they must be based on and interpreted in relation to the statement of community development objectives of that ordinance and must contain certain provisions.
When considering PRD applications, a municipality is required to meet procedural requirements distinct from those imposed upon typical zoning applications. A governing body or planning agency reviewing a planned residential development application must hold a public hearing, and thereafter grant outright or conditional “tentative approval,” or deny the same. The tentative approval of a PRD overrides the zoning ordinance requirements as to that location, and effectively amends the zoning map, pending final approval.
When a PRD has been tentatively approved, the municipality must communicate the decision in writing to the applicant within 60 days following the conclusion of the hearing or 180 days after the date of filing of the application, whichever occurs first. Pursuant to Section 709 of the MPC, 53 P.S. Section 10709, a written decision on a PRD application must include not only conclusions, but also findings of fact and reasons supporting the tentative approval or denial of the application. The MPC expressly requires the decision set forth with particularity in what respect the plan would or would not be in the public interest, including, but not limited to: the extent to which the plan departs from zoning and subdivision regulations otherwise applicable to the property; the purpose, location and amount of common open space proposed; and the manner in which the design of the plan does or does not provide adequate control over vehicular traffic. As outlined in Gouwens II, a municipality’s tentative approval of a PRD may be fatally flawed if it fails to clearly articulate how the plan meets the specific criteria as well as the purpose described in the zoning ordinance.
In Gouwens I, the previous decision of the Commonwealth Court prior to remand, a developer filed an application in Indiana Township, Allegheny County (township), for a PRD consisting of 91 townhouses (plan). In January 2018, the Township Board of Supervisors (board) tentatively approved the plan, despite the fact certain items did not strictly conform to the PRD provisions in the township zoning ordinance (ordinance). In particular, certain details related to the variety of housing, the percentage of the project dedicated to common open space, and the length of a cul-de-sac did not adhere to ordinance requirements. Following the township’s determination, objectors appealed to the trial court, alleging in part that the plan did not meet ordinance requirements and the board’s decision was inadequate under the MPC.
On appeal, the trial court affirmed the tentative approval without taking on additional evidence. objectors again appealed to the Commonwealth Court, which agreed that the Board did not comply with the requirement in Section 709(b) of the MPC that its determination explain how the plan responds, or fails to respond, to specific enumerated ordinance criteria. Consequently, the matter was remanded to the board with directions to issue a new decision with appropriately rendered findings of fact and reasons for the grant of the tentative approval. On remand the board issued a revised decision in support of its grant of tentative approval of the plan. Objectors again appealed to the trial court which again affirmed, and objectors appealed to the Commonwealth Court once more.
On appeal in Gouwens II, the objectors argued that the board’s revised decision still failed to adequately support its determination. The first issue involved whether the plan’s proposal to include three townhouse designs but no other types of housing met the ordinance requirement that a PRD may be approved “if and only if they accomplish” certain purposes, including providing a “variety in the type, design and arrangement of housing units.” The board alleged that the purpose of this requirement was to promote a variety of housing within the township, rather than within the PRD itself, which the court rejected as not reasonable or consistent with the plain language of the ordinance.
The court then turned to whether the Board failed to adequately support its conclusions that the plan met two of the public interest criteria regarding common open space and internal traffic design. As noted above, these criteria are mandated by the MPC and must be adopted in some form within a zoning ordinance’s PRD provisions. Addressing the open space issue first, the court determined that while 60% of the property was proposed to be “open space,” much of it was either to be used for stormwater management, or was located on steep slopes which the developer described as “passive open space,” to be viewed but not used recreationally. The court noted the term “common open space,” as defined in the MPC and ordinance, has been interpreted as a means to ensure the PRD contains mechanisms to provide greater opportunity for recreation and to provide for the conservation and more efficient use of open space ancillary to dwellings. The court rejected the assertions of the developer, adopted by the board, that “passive open space” or portions used for stormwater management constituted “common open space” as defined by the ordinance. It therefore determined the board’s conclusion that the plan met this requirement constituted legal error and an abuse of discretion.
The third issue involved the length of a cul-de-sac proposed to be located within the plan. The ordinance’s PRD requirements stated a PRD proposal must ensure the “physical design of the [PRD] adequately provides for internal traffic circulation and parking …” and requires the “dimensions and construction of … streets … within the PRD will comply with the standards of the township at the time the application is approved.” The township had enacted a “Cul-de-Sac Ordinance” that required cul-de-sacs be no longer than 800 feet including turn-around. In reviewing the plan, the board granted modification of the Cul-de-Sac Ordinance in order to permit a cul-de-sac which exceeded 800 feet. The court found the board had erred by willfully and capriciously disregarding competent and relevant testimony related to the safety issues posed by the length of the cul-de-sac. It further found the board’s decision to grant the modification of the 800-foot limit, and the determination the plan met the adequate traffic circulation requirement, to be legally insufficient and an abuse of discretion.
Because the plan was found to not comply with the requirements of the zoning ordinance, the board’s grant of tentative approval was found to be in error and the trial court’s affirmance of the same was reversed. The Gouwens I and II decisions underscore that while in concept PRDs are intended to encourage flexibility in use and design, that flexibility is constrained by the express requirements of the MPC and underlying zoning ordinance.
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Reprinted with permission from the October 21, 2021 edition of The Legal Intelligencer© 2021 ALM Media Properties, LLC. All rights reserved.
Energy Alert
(by Mike Winek, Gary Steinbauer, Gina Falaschi and Christina Puhnaty)
The U.S. Environmental Protection Agency (EPA) has pledged to issue, within days from now, proposed new Clean Air Act (“CAA” or “Act”) regulations for methane emissions from the oil and gas sector. EPA’s forthcoming proposal is expected to broaden the scope of its current methane requirements for new, modified, or reconstructed sources within the oil and gas sector. In addition, for the first time, EPA will propose nationwide methane emission guidelines for existing sources within the sector that individual states will be responsible for implementing. As the oil and gas sector awaits the new proposed methane requirements, this Alert summarizes the important and rare developments that have unfolded in the relatively brief history of EPA regulating methane emissions from the oil and gas sector.
Obama Administration Issues Initial Regulations of Methane Emissions from Oil and Gas Sector. EPA issued its first set of oil and gas methane-specific emission regulations in 2016 during the Obama administration. The 2016 regulations amended the then-current new source performance standards (NSPS) and promulgated new standards to directly regulate emissions of methane, as well as volatile organic compounds (VOC), from new, modified, and reconstructed equipment, processes, and activities across the entire oil and gas sector. The 2016 amendments to the NSPS were codified at 40 C.F.R. Part 60, Subpart OOOOa (Subpart OOOOa).
Subpart OOOOa included specific limits on methane emissions for new, modified, and reconstructed sources within the production and processing segments of the oil and gas sector. It also included VOC and methane standards for emission sources in the transmission and storage segments, which were previously unregulated. Subpart OOOOa did not limit aggregate methane emissions from affected facilities within the oil and gas sector. Rather, it regulated specific emissions sources used at well sites, compressor stations, and processing plants. These sources include compressors, pneumatic controllers, pneumatic pumps, well completions, storage vessels, fugitive emissions from well sites and compressor stations, and equipment leaks at natural gas processing plants. 40 C.F.R. §§ 60.5360a–60.5439a (2016). Among its various requirements, Subpart OOOOa included leak detection and repair (LDAR) requirements for fugitive emission components well sites and compressor stations and certain equipment at natural gas processing plants. 40 C.F.R. §§ 60.5397a and 60.5400a.
Trump Administration Promulgates Rule Rescinding Methane Requirements in Subpart OOOOa. EPA under the Trump administration finalized amendments to Subpart OOOOa on September 14, 2020, which were referred to as the “Policy Amendments.” Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources Review, 85 Fed. Reg. 57,018 (Sep. 14, 2020). After removing the transmission and storage segment from the NSPS for the oil and gas sector, the Policy Amendments rescinded the methane-specific requirements in Subpart OOOOa that applied to the production and processing segments, leaving only VOC-specific requirements for affected sources within the production and processing segments.
One day after promulgating the Policy Amendments, EPA issued a companion regulation known as the “Technical Amendments,” which revised certain remaining VOC-only requirements in Subpart OOOOa for the production and processing segments. Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources Reconsideration, 85 Fed. Reg. 57,398 (Sep. 15, 2020).
Congress Intervenes to Restore Methane Requirements in Subpart OOOOa. On June 30, 2021, President Biden signed into law a joint congressional resolution disapproving of the Policy Amendments rule. The resolution was issued under the Congressional Review Act (CRA), a statute granting Congress the time-limited authority to rescind administrative rules based on a simple-majority vote in both the Senate and the House of Representatives and signature by the president. The CRA resolution retroactively revoked the Policy Amendments rule, restoring the Obama administration’s NSPS for the oil and gas sector, including the methane-specific requirements of Subpart OOOOa.
More specifically, the CRA resolution, among other things, restored the Subpart OOOOa methane-specific requirements for sources in the production, processing, and transmission and storage segments that commenced construction, reconstruction, or modification after September 18, 2015. Because the Technical Amendments rule was unaffected by the CRA resolution, the VOC-only requirements contained therein remain in effect. From a legal standpoint, the CRA resolution means that affected sources within the production and processing segments, at least temporarily, have different technical requirements related methane and VOC emissions.
Looking Ahead to Proposed New Methane Requirements for the Oil and Gas Sector. EPA’s Acting Assistant Administrator for the Office of Air and Radiation has indicated that EPA will propose “updated” and “upgraded” rules for new, modified, and reconstructed emissions sources currently regulated under Subpart OOOOa. In addition, EPA will be proposing to significantly expand the scope of existing federal oil and gas methane regulations to include emissions guidelines for existing sources that are not regulated under Subpart OOOOa (unless and until the existing sources are modified or reconstructed).
Babst Calland is closely tracking EPA’s efforts to propose new methane requirements for the oil and gas sector. Regulated parties would be well-advised to prepare now to review, evaluate, and consider commenting on EPA’s proposed new methane requirements. If you have questions about Subpart OOOOa or the forthcoming new proposed methane requirements for the oil and gas sector, please contact Michael H. Winek at (412) 394-6538 or mwinek@babstcalland.com, Gary E. Steinbauer at (412) 394-6590 or gsteinbauer@babstcalland.com, Gina N. Falaschi at (202) 853-3483 or gfalaschi@babstcalland.com, or Christina Puhnaty at (412) 394-6514 or cpuhnaty@babstcalland.com.
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The PIOGA Press
(by Kevin J. Garber, Sean M. McGovern and Jean M. Mosites)
On September 14, the Sierra Club, PennFuture, Clean Air Council, Earthworks and other groups submitted two parallel rulemaking petitions to Pennsylvania’s Department of Environmental Protection (DEP) asking the Environmental Quality Board (EQB) to require full-cost bonding for conventional and unconventional oil and gas wells, for both new and existing wells. The petitions do not address or consider the permit surcharges and other funding mechanisms for plugging wells, including the federal infrastructure bill that is expected to provide millions of dollars to plug abandoned wells.
Background
The Pennsylvania General Assembly addressed and increased bonding in 2012. Under Act 13, well owners/operators are required to file a bond for each well they operate or a blanket bond for multiple wells. Currently, the bond amount for conventional wells is $2,500 per well, with the option to post a $25,000 blanket bond for multiple wells. 72. P.S. §1606-E. For unconventional wells, the current bond amount required varies by the total well bore length and the number of wells and is limited under the statute to a maximum of $600,000 for more than 150 wells with a total well bore length of at least 6,000 feet. 58 Pa.C.S. §3225(a)(1)(ii). EQB has statutory authority to adjust these amounts every two years to reflect the projected costs to the Commonwealth of plugging the well.
Proposed changes to bond amounts
The petitioners contend that a lack of full-cost bonding has resulted in the abandonment of thousands of wells and that such wells pollute the environment and adversely affect the health of communities, and allege that the EQB has an obligation to increase bond amounts pursuant to the petition under the Environmental Rights Amendment. Pa. Const. art. I, § 1 27. Petitioners argue that increased bond amounts would encourage operators to plug nonproducing wells or provide funds for the state to plug wells if an operator does not plug them.
The petitioners rely upon the EQB’s authority to adjust a well’s bond “every two years to reflect the projected costs to the Commonwealth of plugging the well” (58 Pa.C.S. § 3225(a)) to propose a dramatic increase in bond amounts, applying the increases retroactively.
Petition for full-cost bonding for conventional wells. The petition for conventional well bonding seeks to amend 25 Pa. Code § 78.302.
The petition requests the bond increase from $2,500 to $38,000 per well and the blanket bond increase from $25,000 to the sum of the applicable individual bond or security amount required for each well. For example, a blanket bond for 10 wells at $38,000 per well would total $380,000. The petitioners contend that the proposed bond amount is supported by an expert analysis of average well plugging costs from 1989 to 2020. The expert report concludes that the bond should be raised to $25,000 and $70,000, for conventional and unconventional wells respectively. The petition notes, however, that $38,000 is in line with DEP’s estimate of $33,000 for its average historical cost of plugging abandoned/ orphaned conventional wells.
The amendment requested would apply to new as well as existing wells drilled after April 17, 1985. The amendment also would require DEP to report to EQB every two years (four years, if two is not feasible) whether EQB should adjust the bond amount.
Petition for full-cost bonding for unconventional wells. The petition asks EQB to adopt a new regulation for unconventional wells in 25 Pa. Code Chapter 78, which would mirror an amended regulation for conventional wells, even though 25 Pa. Code § 78a.302 already exists and would contradict the proposed new regulation.
The petitioners want EQB to increase the bond from the current range, which starts at $4,000 per well, to $83,000 per unconventional well. Blanket bonds would equal the sum of the applicable individual bond or security amount required for each well. For example, a blanket bond for 10 wells at $83,000 per well would total $830,000. The petitioners rely on substantially the same analysis and rationale used in their petition for conventional wells to support the increased bond amounts.
Like the petition for conventional wells, the regulation would apply to new and existing unconventional wells drilled after April 17, 1985, and would require DEP to report to EQB every two years (four years, if two is not feasible) whether EQB should adjust bond amounts.
What happens next?
Under EQB’s Petition Policy (25 Pa. Code Chapter 23), DEP must determine whether the petitions are complete and if they request an action that EQB can take without conflicting with federal law. If DEP determines the petitions meet the above conditions, it will inform EQB of the petition and the nature of the request. The petitioners may make a brief oral presentation at the next EQB meeting occurring at least 15 days after the department’s determination, and DEP will make a recommendation whether the EQB should accept the petition.
Babst Calland is tracking these petitions and subsequent actions taken by DEP and the EQB. If you have questions regarding the potential regulatory changes described above, please contact Kevin Garber at 412-394-5404 or kgarber@babstcalland.com; Sean McGovern, 412-394-5439 or smcgovern@babstcalland.com; or Jean Mosites, 412-394-6468 or jmosites@babstcalland.com.
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Reprinted with permission from the October 2021 issue of The PIOGA Press. All rights reserved.
Smart Business
(by Sue Ostrowski featuring Peter Schnore)
COVID-19 has had a dramatic impact across the board, creating economic uncertainty and having an adverse effect on commercial property values that continues to this day. In Allegheny County, effects are perhaps most pronounced in the office market, and in particular in Class B downtown Pittsburgh office space, but no commercial property type with indoor space has been immune, says Peter Schnore, shareholder at Babst Calland.
“Tenants’ initial response to COVID was a wait-and-see holding pattern with respect to whether they were going to renew leases or move to new space,” says Schnore. “As a result, many landlords have had to dig deep to keep and attract tenants by offering unprecedented periods of free rent or tenant improvement allowances, creating an adverse impact on net operating income. The unknowns surrounding COVID are still affecting nearly all commercial property types, not just office properties.”
Smart Business spoke with Schnore about how COVID is impacting the value of commercial real estate and why it may be a good idea to review your recent tax assessment.
What is the current situation for owners of commercial real estate?
Future uncertainty while we remain in the throes of COVID is driving up risk of commercial property investment, driving down commercial property values. Landlord concessions — in some cases multiple years of free rent or triple-digit tenant improvement allowances — are increasing operating expenses and reducing short-term income, resulting in an immediate and substantial adverse impact on value. As a result, many properties that house office, retail, restaurants, hospitality and others now have assessments that are higher than the current value of the real estate merits.
COVID-19 has also impacted business owners who own their own space as they question whether they actually need the amount of space they own. If your space has been sitting partially empty for a year and a half now because employees are working remotely, do you really need to hang on to it? That is adding to the glut of available space on the market and driving down value, including the value of owner-occupied space.
Why might your assessment appear low but actually be high?
In Allegheny County, the last reassessment was in 2012 — thus, the assessment on your tax bill represents value from nearly a decade ago. Pennsylvania has no regular reassessment schedule, and it is easy to forget taxpayers have an annual right to challenge assessments. Each year, the state publishes an equalization ratio for counties based on a comparison of the county’s most recent years’ sales data vs. the sold properties’ assessments. In a properly filed appeal, this ratio can be applied to the property’s current fair market value to set the assessment. Because counties are not required to regularly reassess, the financial benefit of a decreased assessment may be enjoyed for many years.
Importantly, for Allegheny County, there has been a sudden and significant drop in this ratio from last year, the most significant drop since the last reassessment. That makes 2022 a particularly good year for owners to evaluate whether an appeal is warranted.
Owners of commercial properties in Allegheny County have until March 31, 2022, to initiate an appeal; for owners of property in the remainder of Pennsylvania, annual appeal deadlines are between Aug. 1 and Oct. 3, 2022, depending on the county.
What is the appeals process?
Start by gathering your income and expenses for the last three years. Work with an attorney to discuss what the income of the property has been and the expected rate of return. Whether an income-producing investment property or an owner-occupied facility, an attorney, often with the assistance of the right appraiser, can evaluate the current value and help determine whether an appeal is warranted.
Although you can’t file an appeal in Allegheny County until Jan. 1, 2022, talk to an attorney now. Getting your information in order allows you to be prepared when the filing period begins. Property taxes are often the most significant operating expense for an income-producing property, so it’s important to evaluate your situation, with the help of an attorney, to make sure you are not paying more than you should be.
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TRIBLive
JULIA FELTON | Thursday, Sept. 30
A Pittsburgh-based company dedicated to promoting entrepreneurship will receive $250,000 in funding from the U.S. Department of Commerce.
The grant is part of a $36.5 million grant pool that benefited 50 entrepreneurship-focused organizations, nonprofits, institutions of higher learning and state government agencies nationwide. The grants were announced Thursday by Assistant Secretary of Commerce for Economic Development Alejandra Y. Castillo.
The grants are part of the “Build to Scale” program, which aims to accelerate technology entrepreneurship by increasing access to business support and startup capital. The program is administered by the U.S. Economic Development Administration (EDA).
“The ‘Build to Scale’ program strengthens entrepreneurial ecosystems across the country that are essential in the Biden Administration’s efforts to build back better,” Secretary of Commerce Gina M. Raimondo said. “This work is critical in developing the innovation and entrepreneurship our country needs to build back better and increase American competitiveness on the global stage.”
Founded in 2002, Idea Foundry is a global investor with over 250 companies and projects in their portfolio.
The company says it has generated more than $1 billion in economic impact and created more than 1,000 jobs in the region.
It works to strengthen entrepreneurship in Pittsburgh through a model that emphasizes hands-on development and a variety of investment vehicles that enable entrepreneurs to develop and scale their ideas into growing enterprises.
It not only helps to match entrepreneurs with capital, but also to help keep them “alive, growing and in Pittsburgh,” said Michael Matesic, Idea Foundry’s president and CEO.
The company was awarded the 2021 Venture Challenge Grant. It’s intended to “increase access to capital in communities where risk capital is in short supply by providing operational support for early-stage investment funds, angel capital networks or investor training programs that focus on both traditional and hybrid equity-based models,” the Department of Commerce wrote in a press release.
Idea Foundry will provide more than $400,000 in local matching funds. Part of that match is coming from Babst Calland, a Pittsburgh-based law firm that is offering their facilities, time and legal expertise to help investors feel comfortable investing and to help companies show they’re worthy of investment. The law firm has worked with Idea Foundry for about a decade, said Chris Farmakis, a shareholder and chairman of the board at Babst Calland.
“Our law firm has a very growing and robust emerging tech practice, and we’ve had a longstanding relationship with Idea Foundry,” he said, adding that the grant provided an ideal opportunity for a sustainable partnership.
“We feel that this will be a way we can really expand our programs and offer more investment into growing companies,” Farmakis said.
The grant is “significant,” Matesic said, and validates the work the company strives to do in helping entrepreneurs to build and grow their ideas.
“It’s a quilt, and every patch in the quilt makes it a complete blanket,” he said. “This is one more patch to sew into the quilt to give us full coverage for the region so that we not only are noted for the success in starting companies, but we are noted for the ability to grow them locally.”
Julia Felton is a Tribune-Review staff writer. You can contact Julia at 724-226-7724, jfelton@triblive.com or via Twitter .
Click here for article on TRibLive.
GO-WV News
(by Katrina Bowers )
In Williams v. EQT Corp., No. 43-2020-C-26 (Ritchie Co. Cir. Ct. W. Va. Aug. 26, 2021), the Honorable Michael D. Lorensen, sitting by appointment in the Circuit Court of Ritchie County, West Virginia (“Court”), entered an Order finding that the 2018 amendments to W. Va. Code § 22-6-8(e) (“Flat Rate Statute”) did not apply retroactively to permits for oil or gas wells (“permits”) issued before the effective date of the amendments to the Flat Rate Statute.
The plaintiffs, successors in interest to a 1913 lease providing for a flat rate payment of four hundred dollars per year for each and every natural gas well drilled on the leasehold estate (“Lease”), challenged deductions by an operator for severance tax and certain post-production expenses from their royalties.
The West Virginia Legislature addressed the issue of flat-rate leases in 1982, when it enacted the Flat Rate Statute prohibiting the issuance of permits where the right to produce was based upon a lease providing for a flat-rate royalty, unless the permit applicant submitted an affidavit certifying that it would pay the lessor no less than one-eighth of the total amount paid or received by or allowed “at the wellhead” for the oil and gas extracted, produced, or marketed (“permit procedure for flat-rate leases”). Id. at *5-6.
In 2017, the Supreme Court of Appeals of West Virginia addressed the payment of royalties pursuant to flat-rate leases and held that royalty payments subject to the Flat-Rate Statute “may be subject to pro-rata deduction or allocation of all reasonable post-production expenses actually incurred by the lessee.” Id. at *6 (quoting Syl. Pt. 8, Leggett v. EQT Prod. Co., 239 W. Va. 264, 800 S.E.2d 850 (2017)).
The following year, the West Virginia Legislature amended the Flat Rate Statute with its passage of Senate Bill 360, which became effective May 31, 2018. Williams at *7. Similar to the original Flat-Rate Statute, the amended Flat-Rate Statute retained the permit procedure for flat-rate leases. However, unlike the original Flat-Rate Statute, the amended Flat Rate-Statute replaced the “at the wellhead” language with a requirement to pay a one-eighth royalty based on the first unaffiliated sale, free from post-production expenses. Id. at *8. The amended Flat-Rate Statute contained no provision stating that the amendment should be applied retroactively. Id. at *9.
In determining that it was “clear” that the 2018 amendment should not be applied retroactively to permits issued to the operator prior to the effective date of the amendment, the Court focused on four factors. First, Senate Bill 360 does not include any language demonstrating an intent for retroactive application. Second, Senate Bill 360 by its own language stated that it was to be effective ninety days from its passage. Third, the permit procedure for flat-rate leases in the amended Flat-Rate Statute provided that “no such permit shall be hereafter issued . . . .” Id. at *11 (quoting W. Va. Code § 22-6-8(d) (emphasis added)). Fourth, language in the initial version of Senate Bill 360 noting that it was intended to “clarify” the royalty owed was removed and replaced with a caption stating that Senate Bill 360 was “modifying the permit issuance prohibition” in the final version of the bill. Id. at *11.
This decision aligns with a decision from the United States District Court for the Northern District of West Virginia finding that the 2018 amendments to the Flat-Rate Statute do not apply retroactively. Corder v. Antero Res. Corp., No. 1:18CV30, 2021 WL 1912383, at *13 (N.D.W. Va. May 12, 2021).
Click here to view the article online in the October issue of GO-WV News.
