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.
Energy Alert
(by Kevin Garber, Sean McGovern and Jean Mosites)
On September 14, 2021, the Sierra Club, PennFuture, Clean Air Council, Earthworks and other groups (Petitioners) 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, § 27. Petitioners argue that increased bond amounts would encourage operators to plug non-producing 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?
Per the EQB Petition Policy, as set forth in the regulations at 25 Pa. Code Chapter 23, DEP has 30 days from receipt of the petitions to determine whether the petitions are complete and if they request an action that can be taken by the EQB that does not conflict with federal law. If the DEP determines the petitions meet the above conditions, the EQB will be informed of the petition for rulemaking and the nature of the request. At the next EQB meeting occurring at least 15 days after the Department’s determination, the Petitioners may make a brief oral presentation and DEP will make a recommendation whether the EQB should accept the petition.
Babst Calland will be tracking these petitions and subsequent actions taken by DEP and the EQB. If you have any questions regarding the potential regulatory changes described in this Alert, please contact Kevin Garber at (412) 394-5404 or kgarber@babstcalland.com; Sean McGovern at (412) 394-5439 or smcgovern@babstcalland.com; or Jean Mosites at (412) 394-6468 or jmosites@babstcalland.com.
Click here for PDF.
The Legal Intelligencer
(by Alex Farone)
The COVID-19 pandemic has broadly affected nearly every state’s unemployment compensation (UC) system in one way or another, and Pennsylvania is no exception. From extended appeal deadlines to an uptick in UC fraud claims, this article sets forth four of the most recent changes or proposed changes to Pennsylvania’s UC system that have arisen due to COVID-19.
- Appeal Deadlines: Extension and Refresher
The process for employees seeking UC benefits can involve several steps and multiple appeals. The first step involves the recently separated employee filing an application for benefits. Applications are processed by one of several UC Service Centers across the Commonwealth. These Service Centers are tasked with making an initial determination on claimants’ applications. The Service Centers’ determinations may be appealed by either the claimant or their former employer to a UC Referee, who will conduct an evidentiary hearing on the merits of the application. The decision of the UC Referee may then be appealed by either party to the UC Board of Review (Board).
Until recently, applicants and employers had just 15 days to appeal initial determinations and referees’ decisions. On June 30, 2021, Governor Tom Wolf signed Act 30, formerly H.B. 178, into law, extending the time period allowed for appeals of UC Service Center determinations and UC Referee decisions from 15 days to 21 days.
Act 30 does not impact the deadlines to file appeals with either the Pennsylvania Commonwealth Court or the Supreme Court of Pennsylvania. An appeal to the Pennsylvania Commonwealth Court from the Board is an appeal as of right, but any further appeal to the Pennsylvania Supreme Court must be specifically permitted by that Court in response to an appellant’s petition for allowance of appeal.
- Commonwealth Court Signals Possibility of “Untimely” UC Appeal Acceptance Due to COVID-19
On August 31, 2021, the Pennsylvania Commonwealth Court issued its opinion in Barsky v. Unemployment Compensation Board of Review, remanding the matter back to the Board and opening the door for consideration of untimely appeals due to COVID-19’s impact. No. 948-CD-2020 (Pa. Commw. Ct. Aug. 31, 2021).
In Barsky, the claimant lost his job in March 2020 when Governor Wolf mandated the closure of non-essential businesses due to the COVID-19 pandemic. Mr. Barsky applied for and received unemployment benefits, until the UC Service Center terminated benefits due to an alleged overpayment. His last day to file a timely appeal to the UC Referee was June 3, 2020, but his appeal was not received until June 4, 2020. The UC Referee held a hearing regarding the timeliness of his appeal and dismissed it as untimely. The Board affirmed.
On appeal to the Commonwealth Court, Mr. Barsky alleged that his representative mailed his appeal documents on time and offered evidence of a U.S. Postal Service (USPS) receipt indicating the documents were mailed on June 1, 2020. He also argued a health condition that placed him at risk of contracting COVID-19 in public spaces, as well as the USPS backlog of mailing operations due to COVID-19, caused his otherwise timely mailing to be delivered after the appeal deadline, and therefore his appeal should have been permitted nunc pro tunc, as if it been delivered timely. Recognizing that an appeal nunc pro tunc (“now for then”) is warranted where the filing delay was caused by non-negligent circumstances, the Commonwealth Court remanded to the Board to consider whether the USPS tracking number on the envelope received by the UC Service Center was filed timely and warranted an appeal.
The effects of the Commonwealth Court’s Barksy decision are significant for both claimants and employers when arguing timeliness of UC appeals and requests for nunc pro tunc relief. Though the safest options for ensuring timely appeals are to e-mail or fax the appeal for verifiable, same-day receipt, or mailing the appeal from a USPS office via certified mail, Barksy indicates that COVID-19-related disruptions to USPS operations may be sufficient to allow an appeal nunc pro tunc where the appellant can demonstrate they mailed the appeal documents in sufficient time to reach the UC Center under traditional circumstances.
- New Proposed Legislation: Lowering Aid and Limiting Repayment Requirements
Two bills proposed this year in the Pennsylvania House of Representatives illustrate some of the Commonwealth’s attempts in balancing unemployment needs with transitioning Pennsylvanians back to work.
Proposed H.B. 508 would phase out Pennsylvania’s participation of federal COVID-19-related UC programs established through the 2021 American Rescue Plan Act, which are currently enhancing and extending benefit payments to Pennsylvania UC claimants. If signed into law, the bill would also provide for a back-to-work bonus program to incentivize UC claimants to promptly seek and maintain employment. This program would provide a $300 bonus to former UC claimants who are employed by a single employer for four consecutive weeks. An additional $300 would be available if the former claimant remains with the same employer for an additional four weeks (a total of eight consecutive weeks). On June 9, 2021, this bill was recommitted to the Pennsylvania House Appropriations Committee.
Proposed H.B. 1027 would prohibit Pennsylvania’s Department of Labor and Industry from seeking repayment of UC benefit overpayments made through no fault of the claimant. Exceptions to the repayment prohibition would apply if the overpayments were made due to a claimant’s false or fraudulent statement, or a failure to disclose pertinent information. On March 26, 2021, this bill was referred to the Pennsylvania House Committee on Labor and Industry.
- Be Suspicious of Scams and Fraud Schemes
As recently recognized by the Pennsylvania legislature in proposing the repayment exceptions within H.B. 1027, employers and the Pennsylvania Department of Labor and Industry have recently been faced with an uptick of attempted fraud by supposed UC claimants seeking overpayments or identity thieves seeking UC benefits. As of March 2021, at least 50,000 reports of UC fraud have been made to the Pennsylvania Department of Labor and Industry since the COVID-19 pandemic began. Over 300 complaints of UC fraud during the pandemic have been reported to the Pennsylvania Office of the Attorney General, which led to at least 29 arrests.
It is important for employers to remain vigilant regarding UC documents they receive that may indicate an instance of attempted fraud. Common red flags include receiving UC documents for employees whose employment was never interrupted, receiving multiple UC documents for a single claimant, or receiving UC documents for former employees where the personal information such as birth date or social security number appears to be inaccurate.
Employers should not hesitate to verify a UC form’s legitimacy with the UC Service Center if its accuracy is in doubt. For example, some recently issued (and otherwise legitimate) documents omitted the claimant’s name. Employers can verify the legitimacy of a form because each includes a unique UC code that can be verified with the UC Service Center upon receipt by calling 833-728-2367.
For the full article, click here.
Reprinted with permission from the September 16, 2021 edition of The Legal Intelligencer© 2021 ALM Media Properties, LLC. All rights reserved.
Renewables Law Blog
(By Ashley Krick)
On September 8, 2021, the Department of Energy (DOE) released its Solar Futures Study providing a blueprint for the role of solar energy in decarbonizing the nation’s power sector. The 310-page Study outlines a future in which solar provides 40% of the nation’s electricity supply by 2035 through cost reductions, technological improvement, rapid deployment, and supportive policies. And, with the electrification of buildings and the transportation sector, solar could also power 30% of all building end uses and 14% of transportation end uses by 2050.
The Study identifies several policy initiatives needed to support the deployment of solar at this scale, including decarbonization targets, R&D investments and cost reductions, changes to wholesale electricity market regulation, and transmission development, to name a few. In order to meet the 40% by 2035 goal, the Study estimates that the U.S. must install an average of 30 GW of solar capacity per year between now and 2025 and 60 GW per year from 2025-2030, with a total of 1,000 GW of solar deployed by 2035. If the solar industry sees this level of growth, the Study estimates that the industry could employ up to 1.5 million people by 2035. The Study also highlights the important role that battery storage and demand-side management will play given that solar power varies based on daily and seasonal patterns.
With solar power currently providing approximately 3% of the nation’s electricity supply, the DOE’s 40% goal will be contingent on many factors supporting the industry in the coming years, including cost reductions, supportive policies, and widespread deployment.
Tags: Department of Energy, DOE, renewable, renewable energy, solar, solar energy
The PIOGA Press
(by Lisa Bruderly)
The U.S. Environmental Protection Agency (EPA) and U.S. Army Corps of Engineers announced, on September 3 that they had halted implementation of the current definition of “waters of the United States” (WOTUS) effective immediately and reverted back to the pre-2015 definition until further notice. The switch follows an August 30 order from the U.S. District Court for the District of Arizona, which remanded and vacated the definition of WOTUS promulgated by the Trump administration in 2020 (commonly referred to as the Navigable Waters Protection Rule (NWPR)) in the case of Pascua Yaqui Tribe v. U.S. Environmental Protection Agency. While there was speculation that the court’s vacatur could be narrowly interpreted to apply only to states where the plaintiffs in the case were located (i.e., Arizona, Minnesota, Washington and Wisconsin), EPA and the Corps are applying the change in WOTUS definition nationwide.
Importance of the definition of WOTUS
The definition of WOTUS identifies which waters are federally-regulated under the Clean Water Act (CWA), and therefore determines when a federal permit is required for projects (e.g., pipelines, access roads, well pads) that involve dredging or filling of a waterbody (i.e., a Section 404 permit). The WOTUS definition also affects federal spill reporting and spill prevention planning.
With regard to Section 404 permitting, the more expansive the definition of WOTUS, the more waters that are federally-regulated. The extent of WOTUS impacts resulting from a project determines whether an individual or a general Section 404 permit is required, with the process for obtaining an individual permit typically resulting in more Corps involvement, delay and expense.
Significance of the change in WOTUS definition
When the Trump administration promulgated the NWPR in 2020, environmental groups criticized and challenged the new WOTUS definition, claiming it was too narrow and did not federally regulate enough types of waters. For example, the NWPR did not federally regulate ephemeral streams or other waters based on Justice Anthony Kennedy’s “significant nexus” test, introduced in the seminal Supreme Court opinion Rapanos v. United States and Carabell v. United States.
By vacating the NWPR, WOTUS are again described under a definition promulgated in the late 1980s and interpreted in subsequent EPA/Corps guidance that was issued following the Rapanos and Solid Waste Agency of Northern Cook County (SWANCC) v. United States Supreme Court decisions. This earlier definition and subsequent interpretations are generally considered to be more expansive and inclusive than the NWPR. Subsequently, reverting to this earlier definition is expected to result in more waters being federally regulated.
Biden administration’s plan to revise the WOTUS definition
President Biden has always intended to revise the definition of WOTUS. In his first week in office, he asked EPA and the Corps to consider revising or rescinding the current definition. On June 9, EPA and the Corps announced their intent to revise the WOTUS definition “to better protect our nation’s vital water resources.” The agencies identified a two-step rulemaking process, which would first restore protections in place prior to 2015 with updates to reflect relevant Supreme Court decisions, and a second rulemaking that would continue to “refine and build” on the prior definition. In addition to developments in science, EPA and the Corps identified that the new rulemaking would consider, among other things, the effects of climate change and input received from disadvantaged communities with environ-mental justice concerns.
On the same day, the Department of Justice (DOJ) filed a motion to request remand of the NWPR to EPA and the Corps. DOJ also asked courts to stay judicial challenges to the current WOTUS definition while the Biden administration reconsidered the definition. However, the court in the Pascua Yaqui Tribe case, instead remanded and vacated the NWPR definition. This vacatur prompted the EPA/Corps decision on September 3 to revert to the pre-2015 WOTUS definition.
Anticipated impact and timing
While the WOTUS definition proposed by the Biden administration will certainly be more expansive than the NWPR, it is yet unclear how far the pendulum will swing with the proposed rulemakings. The agencies have expressed their intent to develop a “durable” definition of WOTUS based on input from “diverse perspectives and based on an inclusive foundation.” To start this process, the agencies solicited pre-proposal written recommendations about how to define WOTUS and implement this definition. In addition, the agencies held several public meetings, during which the public could pro-vide verbal recommendations. More public engagement is anticipated, including 10 geographically focused roundtables for stakeholders.
Among other things, the Biden administration’s definition of WOTUS will most likely regulate waters (including ephemeral streams) that are considered to have a “significant nexus” to traditionally navigable waters. This definitional change is expected to require more energy infrastructure projects to obtain federal CWA permitting, thus extending the time and increasing cost of permitting for many projects that impact waters. No timeframe for the new rulemakings has been announced. While EPA’s Spring 2021 Unified Agenda of Regulatory and Deregulatory Actions identified revision of the definition of WOTUS as a “long-term action,” with unspecified dates for the proposed and final actions, it is unclear whether this most recent change in WOTUS definition will change the schedule for proceeding with the proposed rulemakings.
Babst Calland will continue to track developments related to the federal regulation of waters and will provide necessary updates. If you have any questions or would like any additional information, please contact Lisa M. Bruderly at 412-394-6495 or lbruderly@babstcalland.com.
For the full article, click here.
Reprinted with permission from the September 2021 issue of The PIOGA Press. All rights reserved.
Energy Alert
The United States District Court for the Northern District of West Virginia has certified questions to the West Virginia Supreme Court of Appeals asking whether the seminal decision in Estate of Tawney v. Columbia Natural Resources, LLC, 219 W.Va. 266, 633 S.E.2d 22 (2006) regarding the deductibility of post-production expenses remains the law of West Virginia, and if so, the proper interpretation of Tawney.
In Charles Kellam, et al. v. SWN Production Company, LLC, et al., No. 5:20-CV-85, a class action royalty case, the District Court, Judge John Preston Bailey, certified on his own motion whether Tawney remains the law of West Virginia, whether the lease in question allowed the deductions, and the proper application of Tawney. The District Court certified the questions without ruling on the defendants’ pending Motion for Judgment on the Pleadings which argued the Kellam’s lease complied with Tawney and the District Court was bound by the decision in Young v. Equinor USA Onshore Properties, Inc., 982 F.3d 201 (4th Cir. 2020), where the Fourth Circuit Court of Appeals reversed Judge Bailey and held a similar lease clearly and unambiguously allowed the deduction of post-production expenses. The Kellam’s lease states the lessee agrees to pay the lessor “as royalty for the oil, gas, and/or coalbed methane gas marketed and used off the premises and produced from each well drilled thereon, the sum of one-eighth (1/8) of the price paid to Lessee per thousand cubic feet of such oil, gas, and/or coalbed methane gas so marketed and used . . . less any charges for transportation, dehydration and compression paid by Lessee to deliver the oil, gas, and/or coalbed methane gas for sale.”
In Young, the Fourth Circuit Court of Appeals rejected the finding by Judge Bailey that the lease did not contain sufficiently explicit language about the method of calculating deductions and therefore did not comply with Tawney, noting 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.
In the September 14, 2021 Order certifying the questions to the West Virginia Supreme Court of Appeals, Judge Bailey relied on his similar reasoning in Young, which the Fourth Circuit Court of Appeals rejected.
The West Virginia Supreme Court of Appeals may reformulate the questions and will decide whether to accept the certified questions for review. If they do, a briefing schedule will be entered, and the court will also decide whether to allow limited or full oral argument.
For more information about the case contact Tim Miller, tmiller@babstcalland.com, Jennifer Hicks, jhicks@babstcalland.com, or Katrina Bowers, kbowers@babstcalland.com, who are serving as counsel for the defendants in Kellam.
Click here for PDF.
Pipeline Safety Alert
(by James Curry and Evan Baylor)
If enacted, the Senate Infrastructure Investment and Jobs Act of 20211 (Infrastructure Bill) would provide $1 billion for the newly established Natural Gas Distribution Infrastructure Safety and Modernization Grant Program (Program) to be administered by the Pipeline and Hazardous Materials Safety Administration (PHMSA). The program would offer $200 million in grant funding each year for five years, starting in fiscal year 2022. The funding would be available only to municipal and community owned utilities. Eligible projects would include the repair, rehabilitation, or replacement of natural gas distribution pipeline systems and the acquisition of equipment to improve pipeline safety and avoid economic losses. In choosing projects, PHMSA would consider: (1) the risk profile of applicant’s current pipeline systems, including if they are prone to leaks; (2) whether a project may generate jobs; (3) whether a project may benefit disadvantaged communities; and (4) and how a project would impact economic growth.
If enacted, the $1 billion Program would reflect a substantial expansion of PHMSA’s current grant programs both in terms of the amount of funding available and because it would authorize spending on capital projects.
Given the scope of this program, if it is adopted into law, stakeholders may have practical questions on how PHMSA would implement it. For example, would capital projects funded through the Program trigger NEPA? Or would a Categorical Exclusion apply? Current DOT Categorical Exclusions may not cover projects and PHMSA does not have its own set of Categorical Exclusions.2 Would PHMSA need to propose implementing regulations for the Program or could it adopt a less formal application process and criteria? How would PHMSA choose projects, given the broad criteria outlined in the Infrastructure Bill? And would PHMSA limit projects to only physical infrastructure or could projects also include technology, software, and cybersecurity improvements? Further, would PHMSA have sufficient current staffing to administer the Program?
The Infrastructure Bill is not yet enacted. It still requires passage in the House before it would move to President Biden’s desk.
If you have any questions or would like further information regarding the proposed Natural Gas Distribution Infrastructure Safety and Modernization Grant Program, please contact Jim Curry at 202.853.3461 or jcurry@babstcalland.com.
Click here for PDF.
_________________________
1 H.R.3684 – 117th Congress (2021-2022): Infrastructure Investment and Jobs Act, H.R.3684, 117th Cong. (2021), https://www.congress.gov/bill/117th-congress/house-bill/3684.
2 U.S. DOT Order 5610.1C: Procedures for Considering Environmental Impacts at Sect 4(C). In 2016, DOT proposed changes to Order 5610.1C to add categorical exclusions, which if adopted would not likely apply to the Program. U.S. DOT Order 5610.1D: Procedures for Considering Environmental Impacts [Draft] at Sect. 10.
Environmental Alert
(by Lisa Bruderly)
The U.S. Environmental Protection Agency (EPA) and U.S. Army Corps of Engineers (Corps) announced, on September 3, 2021, that they would halt implementation of the current definition of “waters of the United States” (WOTUS) effective immediately and revert back to the pre-2015 definition until further notice. The switch is the result of an August 30, 2021 order from the U.S. District Court for the District of Arizona in the case of Pascua Yaqui Tribe v. U.S. Environmental Protection Agency, which remanded and vacated the definition of WOTUS promulgated by the Trump administration in 2020 (commonly referred to as the Navigable Waters Protection Rule (NWPR)). While there was speculation that the court’s vacatur could be narrowly interpreted to apply only to states where the plaintiffs in the case were located (i.e., Arizona, Minnesota, Washington and Wisconsin), EPA and the Corps have changed the WOTUS definition nationwide.
Importance of the Definition of WOTUS
The definition of WOTUS identifies which waters are federally-regulated under the Clean Water Act (CWA), and, therefore, determines when a federal permit is required for projects that involve dredging or filling of a waterbody (i.e., a Section 404 permit) or the discharge of pollutants into a surface water (i.e., a NPDES permit). The WOTUS definition also affects federal spill reporting and spill prevention planning.
With regard to Section 404 permitting, the more expansive the definition of WOTUS, the more waters that are federally-regulated. The extent of WOTUS impacts caused by a project determines whether an individual or a general Section 404 permit is required, with the process for obtaining an individual permit typically resulting in more Corps involvement, cost and delay.
Significance of the Change in WOTUS Definition
When the Trump administration promulgated the NWPR in 2020, environmental groups criticized and challenged the new WOTUS definition, claiming that it was too narrow and did not federally regulate enough types of waters. For example, the NWPR did not federally regulate ephemeral streams or other waters based on Justice Anthony Kennedy’s “significant nexus” test, introduced in the seminal Supreme Court opinion – Rapanos v. United States and Carabell v. United States.
By vacating the NWPR, WOTUS are defined under a definition promulgated in the late 1980s and interpreted in subsequent EPA/Corps guidance documents that were issued following the Rapanos and Solid Waste Agency of Northern Cook County (SWANCC) v. United States Supreme Court decisions. This earlier definition and subsequent interpretations are generally considered to be more expansive and inclusive than the NWPR. Subsequently, reverting to this earlier definition is expected to result in more waters being federally-regulated.
Biden Administration Intent to Revise the WOTUS Definition
President Biden has always intended to revise the definition of WOTUS. In his first week in office, he asked EPA and the Corps to consider revising or rescinding the current definition. On June 9, 2021, EPA and the Corps announced their intent to revise the WOTUS definition “to better protect our nation’s vital water resources.” The agencies identified a two-step process, which would first restore protections in place prior to 2015 with updates to reflect relevant Supreme Court decisions, and a second rulemaking that would continue to “refine and build” on the prior definition. In addition to developments in science, EPA and the Corps identified that the new rulemaking would consider, among other things, the effects of climate change and input received from disadvantaged communities with environmental justice concerns.
On the same day, the Department of Justice (DOJ) filed a motion to request remand of the NWPR to EPA and the Corps. DOJ also asked courts to stay judicial challenges to the current WOTUS definition while the Biden administration reconsidered the definition. However, the court in the Pascua Yaqui Tribe case, instead remanded and vacated the NWPR definition. This vacatur prompted the EPA/Corps decision on September 3, 2021 to revert to the pre-2015 WOTUS definition.
Anticipated Impact and Timing
While the WOTUS definition proposed by the Biden administration will certainly be more expansive than the NWPR, it is yet unclear as to how far the pendulum will swing with the proposed rulemakings. The agencies have expressed their intent to develop a “durable” definition of WOTUS based on input from “diverse perspectives and based on an inclusive foundation.” To start this process, the agencies solicited pre-proposal written recommendations about how to define WOTUS and implement this definition. In addition, the agencies held several public meetings, during which the public could provide verbal recommendations. More public engagement is anticipated, including 10 geographically focused roundtables for stakeholders.
Among other things, the Biden administration’s definition of WOTUS is most likely to regulate waters (including ephemeral streams) that are considered to have a “significant nexus” to traditionally navigable waters. This definitional change is expected to require more projects to obtain federal CWA permitting, thus extending the time and increasing cost of permitting for many projects with impact to waters.
No timeframe for the new rulemakings has been announced. While EPA’s Spring 2021 Unified Agenda of Regulatory and Deregulatory Actions identified revision of the definition of WOTUS as a “long-term action,” with unspecified dates for the proposed and final actions, it is unclear whether this most recent change in WOTUS definition will also change the schedule for proceeding with the proposed rulemakings.
Babst Calland will continue to track developments related to the federal regulation of waters and will provide necessary updates. If you have any questions or would like any additional information, please contact Lisa M. Bruderly at (412) 394-6495 or lbruderly@babstcalland.com.
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RMMLF Water Law Newsletter
(By Lisa M. Bruderly)
On June 25, 2021, the U.S. Army Corps of Engineers (Corps) released the finalized Pennsylvania State Programmatic General Permit-6 (PASPGP-6). See Corps, Special Pub. Notice No. SPN-21-28 (June 25, 2021). Going into effect on July 1, 2021, the permit will expire in five years, on June 30, 2026. Under section 404 of the Clean Water Act, 33 U.S.C. § 1344, and section 10 of the River and Harbor Act of 1899, 33 U.S.C. § 403, PASPGP-6 authorizes work in “waters of the United States” (WOTUS) within Pennsylvania that causes no more than minimal adverse environmental effects. State authorization under the Pennsylvania Department of Environmental Protection’s (PADEP) chapter 105 regulations (typically, a general permit or a waiver) is still required for most activities authorized by PASPGP-6.
For projects that meet the threshold criteria, PASPGP-6 typically provides a quicker and less complicated alternative to obtaining an individual section 404 permit. The permit identifies reporting activities, which require Corps review and coordination, as well as non-reporting activities, which can be authorized by PADEP without Corps involvement. Compensatory mitigation, at a minimum one-to-one ratio, will typically be required for impacts to WOTUS that are greater than 0.1 acre and are a reporting activity.
PASPGP-6 updates include new eligibility and reporting guidelines. Key changes from PASPGP-5 to PASPGP-6 include:
- The 1.0 acre eligibility threshold for temporary and/or permanent impacts to WOTUS was changed to an eligibility threshold for permanent loss, both direct and indirect, of 0.5 acre of WOTUS and 1,000 linear feet of jurisdictional stream channel.
- The eligibility threshold for temporary impacts to WOTUS, including jurisdictional wetlands, was changed from 1.0 acre to unlimited acreage, provided the work is determined to result in no more than minimal impact.
- Eligibility thresholds are determined based on the impacts of each “single and complete project,” as determined by the Corps. Reporting thresholds are determined based on the impacts of the overall project, and not the single and complete project.
- The reporting thresholds of 0.10 acre of permanent wetland conversion and 0.5 acre of temporary and/or permanent impacts to WOTUS were replaced with thresholds of 0.25 acre of permanent impacts to WOTUS, 250 linear feet of permanent impacts to juris-dictional stream channel, and 1.0 acre of temporary impacts to WOTUS.
- Certain formerly ineligible section 10 waters in the Corps’ Pittsburgh District are now eligible for the PASPGP. Except for work that qualifies for authorization under PADEP Waivers 10 and 12, any regulated work within these waters is a reporting activity and requires Corps review.
- Language was added stating that all waters and wetlands are assumed to be WOTUS in the absence of an approved jurisdictional determination.
Grandfathering provisions are in place for activities that were permitted (or intended to be permitted) under PASPGP-5. Generally, verified reporting activities under PASPGP-5 that comply with the terms and conditions of PASPGP-6 are authorized by PASPGP-6. In addition, all previously authorized non-reporting activities under PASPGP-5 that meet the terms and conditions of PASPGP-6 are reauthorized without further notice to the Corps. Activities that obtained PASPGP-5 authorization by June 30, 2021, have a valid state authorization, and commenced construction (or had construction work under contract to commence) prior to June 30, 2021, have until June 30, 2022, at the latest, to complete the regulated work under the terms of the PASPGP-5 authorization and PADEP authorization. The Corps has provided additional guidance on grandfathered activities and other aspects of PASPGP-6 on its websites for the applicable districts.
Copyright © 2021, The Foundation for Natural Resources and Energy Law, Westminster, Colorado