The Legal Intelligencer
(by John McCreary)
This is the latest installment of the author’s obsessive examination of Pennsylvania’s Medical Marijuana Act (MMA) and the employment law issues it creates. By this point in our examination, it is now established, at least in the trial courts of the Commonwealth, that the MMA created a private cause of action for medical marijuana users claiming that an employer has discriminated against them because of their medical marijuana use. See e.g., Judge William J. Nealon’s comprehensive opinion in Palmiter v. Commonwealth Health Systems, No. 19-CV-1315, 2019 Pa. Dist. & Cnty. Dec. LEXIS 12307 (Lackawanna Cty. 2019); Hudnell v. Thomas Jefferson University Hospitals, Inc., 2020 U.S. Dist. LEXIS 176198; 2020 WL 5749924 (E.D. Pa. 2020)(citing Palmiter). See 35 P.S. § 10231.2103(b)(“No employer may discharge, threaten, refuse to hire or otherwise discriminate or retaliate against an employee … solely on the basis of such employee’s status as an individual who is certified to use medical marijuana …”)(emphasis supplied).
In a surprising development (at least to the author), however, Commonwealth Court construed the emphasized language in a manner favorable to employers who continue to enforce “zero tolerance” and similar drug policies. In Harrisburg Area Community College v. PHRC, 245 A.3d 283 (Pa.Cmwlth. 2020) (HACC) a nursing student with a valid medical marijuana prescription was expelled from the nursing program after testing positive for marijuana metabolites. She brought a claim before the Pennsylvania Human Relations Commission (PHRC) for disability discrimination against HACC under the Pennsylvania Human Relations Act’s (PHRA) public accommodation provisions, claiming that her medical marijuana use did not impact her ability to complete the nursing coursework and that HACC should be required to reasonably accommodate her by permitting her to use medical marijuana to treat symptoms of her underlying disabilities (post-traumatic stress disorder and irritable bowel syndrome). HACC filed a motion to dismiss before the PHRC, contending that the definition of “disability” under the PHRA precluded the use of medical marijuana even when such use was permitted under the MMA. See 43 Pa.C.S.A. §954(3)(p.1)(3)((p.1)(“The term “handicap or disability,” with respect to a person, means: … (3) being regarded as having such an impairment, but such term does not include current, illegal use of or addiction to a controlled substance, as defined in section 102 of the Controlled Substances Act ( Public Law 91-513 , 21 U.S.C. § 802)”). PHRC denied the motion and HACC appealed.
After a thorough examination of both the PHRA and the MMA, Commonwealth Court found “unpersuasive” PHRC’s argument that the legalization of medical marijuana in Pennsylvania via the MMA required accommodation under the PHRA, primarily because of the definition of disability excluded use of marijuana. The Court further observed that:
[E]ven as to employers/employees, which is not the case at hand, the MMA only prohibits discrimination against an employee because of his or her status as a certified user under section 2103(b)(1), 35 P.S. § 10231.2103(b)(1). While employers are prohibited from discriminating or retaliating against individuals based on their status as certified users of medical marijuana, section 2103(b)(2) of the MMA provides that employers are not required to provide an accommodation to employees on their premises, nor are employers prohibited from disciplining employees who are under the influence of medical marijuana on work premises:
(2) Nothing in this act shall require an employer to make any accommodation of the use of medical marijuana on the property or premises of any place of employment. This act shall in no way limit an employer’s ability to discipline an employee for being under the influence of medical marijuana in the workplace or for working while under the influence of medical marijuana when the employee’s conduct falls below the standard of care normally accepted for that position.
35 P.S. § 10231.2103(b)(2) (emphasis added).
245 A.3d at 291-292 (emphases in original).
The surprising aspect of the decision is the Court’s statement that the MMA protects only the status of certified user, not actual marijuana use itself pursuant to that status. The author earlier remarked on the General Assembly’s idiosyncratic choice of this language in the first installment of this series (The Legal Intelligencer, February 9, 2017 online edition) and noted in the second installment (The Legal Intelligencer, March 21, 2019 online edition) how courts elsewhere had rejected this constrained reading of virtually identical language. See, e.g., Noffsinger v. SSC Niantic, 338 F.Supp.3d 78, 84-85 (D.Conn. 2018)(“Under defendant’s restrictive interpretation of the statute, employers would be free to fire status-qualifying patients based on their actual use of medical marijuana—the very purpose for which a patient has sought and obtained a qualifying status. That makes no sense …”). The third installment (The Legal Intelligencer, September 20, 2020 online edition) surveyed caselaw from other jurisdictions holding in similar manner.
The HACC Court’s construction of the MMA is contrary to at least one earlier Pennsylvania trial court decision. In Laidacker v. Berwick Offray, LLC, No. 726 of 2019, 2020 WL 3410881 (Columbia Cty., January 2, 2020) the court rejected the “status vs. use” distinction:
In our case, defendant’s argument [that only status is protected, not actual use] is equally incredulous. The whole purpose of the PMMA is to provide protection to a qualifying cardholder against employment-related discrimination. The language in the statute specifically states: “No employer may discharge, refuse to hire or otherwise discriminate….”
… If this court assumes defendant’s interpretation of the statute, the protections afforded under the statute would be meaningless, and every medical marijuana patient could be screened out by a facially neutral drug test.
2020 WL 3410881 at *5 (footnotes omitted). HACC seemingly holds that the “meaningless protections” decried by the Laidacker court are all that the MMA requires. The author is not convinced that this is correct.
Because of the weight of authority elsewhere and Supreme Court’s admonition that the MMA is to be liberally construed, Gass v. 52nd Judicial District Lebanon County, ___ Pa. ___, 232 A.3d 706 (2020), it is unlikely that Commonwealth Court’s Harrisburg Area Community College decision is the last word on this issue. The author remains uncertain about what and who is protected by the ambiguous antidiscrimination provisions of the MMA. Moreover, because HACC was not an employment case its whole analysis of the MMA’s employment law provisions may be dictum and therefore non-precedential. Further clarity awaits additional decisions from Superior Court and ultimately from the Pennsylvania Supreme Court, which once and for all can tell us whether the Act protects actual use of medical marijuana, or only the status of being a medical marijuana patient. The author, therefore, is confident that there will be a fifth installment of this series and is gratified that, for the moment at least, his original interpretation of the statute has been vindicated and plausibly may be argued in defense of claims of employment discrimination brought under the MMA.
For the full article, click here.
Reprinted with permission from the August 12, 2021 edition of The Legal Intelligencer© 2021 ALM Media Properties, LLC. All rights reserved.
Environmental Alert
(by Julie Domike and Gina Falaschi)
On August 5, 2021, President Biden signed an Executive Order on Strengthening American Leadership in Clean Cars and Trucks[1] (Executive Order). The White House signing event included American automakers Ford, GM, and Stellantis, as well as the United Auto Workers (UAW), demonstrating support for the president’s Build Back Better agenda and investment in U.S. leadership in electric vehicles and batteries, manufacturing, and jobs. In conjunction with the signing of this Executive Order, the United States Environmental Protection Agency (USEPA) and United States Department of Transportation (USDOT) announced coordinated notices of proposed rulemaking that are intended to roll back the previous administration’s emissions and fuel economy regulations.
Executive Order
The Executive Order sets a new target to make half of all new vehicles sold in 2030 zero-emissions vehicles, including battery electric, plug-in hybrid electric, or fuel cell electric vehicles. The Executive Order also directs USEPA to initiate a rulemaking to establish new vehicle and engine emissions standards, including for greenhouse gas emissions. The Administration instructs the agency to set the following:
- New emissions standards, including for greenhouse gas emissions, for light- and medium-duty vehicles for model years (MY) 2027 through at least MY 2030, by no later than July 2024;
- New nitrogen oxides standards for heavy-duty engines and vehicles beginning with MY 2027 and extending through and including at least MY 2030, by no later than December 2022; and
- New greenhouse gas emissions standards for heavy-duty engines and vehicles to begin as soon as MY 2030, by no later than July 2024.
USEPA must also consider updating the existing greenhouse gas emissions standards for heavy-duty engines and vehicles beginning with MY 2027 and extending through and including at least MY 2029 to account for the role that zero-emission vehicles may have in emissions reductions.
The Administration instructs USDOT to establish new fuel economy standards, as follows:
- For passenger cars and light-duty trucks beginning with MY 2027 and extending through and including at least MY 2030, by no later than July 2024;
- For heavy-duty pickup trucks and vans beginning with MY 2028 and extending through and including at least MY 2030, by no later than July 2024; and
- For medium- and heavy-duty engines and vehicles to begin as soon as MY 2030, by no later than July 2024.
The two agencies must coordinate as appropriate in developing these rulemakings. They must also consult with the Departments of Commerce, Labor, and Energy to achieve the zero-emission vehicle target, accelerate innovation and manufacturing, strengthen the domestic supply chain for the automotive sector, and promote job growth. Pursuant to the Executive Order, USEPA must develop these rulemakings in coordination with the State of California, which has the authority to and does establish its own emissions standards pursuant to Section 209 of the Clean Air Act.
Proposed Rulemakings Announced
On August 5, USEPA and USDOT’s National Highway Traffic Safety Administration (NHTSA) also announced rulemaking to revise the previous administration’s rollbacks of fuel efficiency and emissions standards in accordance with the executive order President Biden signed on his first day in office, Executive Order on Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis.[2] This January 20, 2021 executive order directed agencies to review the Trump administration’s final rule “The Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021–2026 Passenger Cars and Light Trucks.”[3] The 2020 SAFE rule made near-term fuel efficiency and emission standards less stringent than those previously set for the applicable model years.
The agencies are revising the 2020 rule to increase the stringency of fuel economy and emissions standards through MY 2026. NHTSA’s proposed rule starts in MY 2024 and would achieve a fleet average almost 9 miles per gallon higher than the SAFE rule by 2026. USEPA’s proposed 2023-2026 MY light-duty standards would achieve 10 percent greater emissions improvement than the SAFE rule standards for MY 2023 vehicles and then 5 percent greater emissions improvement each following year.
USEPA also announced a new rule to reduce air pollutants, including GHGs, from heavy-duty trucks. The rule, to be finalized next year, will apply to heavy-duty vehicles starting in MY 2027. It will set new standards for criteria pollutants for the entire sector as well as targeted upgrades to the current GHG emissions standards for MY 2027. A second rule will set GHG emission standards for new heavy-duty vehicles for MY 2030 and beyond.
If you have any questions or would like further information regarding the current or proposed federal regulations, please contact Julie R. Domike at 202-853-3453 or jdomike@babstcalland.com or Gina N. Falaschi at 202-853-3483 or gfalaschi@babstcalland.com.
Click here for PDF.
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[3] “The Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021–2026 Passenger Cars and Light Trucks,” 85 Fed. Reg. 24174 (April 30, 2020).
Renewables Law Blog
(By Ashleigh Krick)
On July 12, 2021, Ohio Governor Mike DeWine signed into law Senate Bill 52 providing counties with the authority to block the construction of certain large solar and wind facilities in unincorporated townships. The law goes into effect on October 11, 2021. In short, Senate Bill 52 allows county commissioners to establish restricted areas in unincorporated townships prohibiting the construction of solar developments with generating capacity over 50 MWs and wind farms with over 5 MWs of generating capacity. If a township is incorporated, it retains jurisdiction to regulate whether the development occurs rather than defer to the county commissioners. Senate Bill 52 also contains requirements pertaining to public meetings in the counties that the facility will be located and decommissioning requirements. Practically speaking, Senate Bill 52 means that even if a solar or wind company obtains the necessary land rights to construct a solar or wind facility, counties can block its construction.
Senate Bill 52 follows a string of legislative actions in Ohio that appear to have stifled development and investment in solar and wind in the state. For example, in 2014, Ohio passed legislation requiring wind farms to be setback a minimum of 1,125 feet from the nearest adjacent property line. In contrast, oil and gas production wells are only required to be located at least 100 feet from the nearest homes. Since Ohio enacted the wind farm setback requirement, only one wind farm has been approved in the state.
While the full impact of Senate Bill 52 is unknown at this time, solar and wind developers can expect some counties to begin using their authority to restrict the location of solar and wind developments after the law goes into effect in October.
Tags: construction, land rights, Ohio, Senate Bill 52, solar, solar facilities, wind, wind facilities
The Legal Intelligencer
(by Matt Wood)
Over the past few months, Governor Tom Wolf’s administration, the Pennsylvania Department of Environmental Protection (DEP), and other governmental stakeholders, have made strides toward better understanding and addressing contamination of state waters with perfluoroalkyl and polyfluoroalkyl substances (PFAS). Specifically, recent sampling efforts of certain public water systems (PWSs) and surface waters have resulted in new information about the prevalence of PFAS in state waters and have informed DEP actions toward regulating certain PFAS compounds.
Public Water Source Sampling
On June 3, 2021, the Wolf administration released sampling results from an approximately two-year long statewide effort to sample PWSs for certain PFAS compounds. PFAS are a group of manmade chemicals used in numerous industrial, commercial, and consumer products. Prominent examples include non-stick and waterproofing applications and as chemical components of fire fighting foams. In recent years, PFAS chemicals have been discovered in the environment, including in groundwater (some used as drinking water sources), and in humans, plants, and animals and some studies suggest that PFAS can negatively affect human health. Because they do not break down naturally in the environment (including in the human body), they are commonly called “forever” chemicals.
In September 2018, Governor Wolf created via Executive Order a PFAS Action Team to investigate and address potential PFAS concerns in the Commonwealth. The Action Team, made up of agency heads from multiple Pennsylvania agencies, subsequently developed a plan to sample PWSs for PFAS. Specifically, the Action Team identified PWSs within a half-mile of potential PFAS sources (such as military, fire training, and manufacturing facilities).
In June 2019, the DEP started sampling these PWSs (as well as other locations outside of the half-mile radius of potential sources to establish a baseline). The initial round of sampling was analyzed for only six PFAS compounds, but the two subsequent rounds (conducted in 2020 and 2021) were analyzed for 18 PFAS compounds using an updated method (Environmental Protection Agency Method 537.1, updated in November 2018). During its 2020 and 2021 mobilizations, DEP also resampled the PWSs it had previously sampled in 2019 and analyzed those samples using the updated method.
In total, DEP collected 412 total samples and from those, only eight of the 18 PFAS compounds analyzed were found at sampled sites. They were: PFOA, PFOS, PFNA, PFHxS, PFHpA, PFBS, Perfluorohexanoic acid (PFHxA), and Perfluoroundecanoic acid (PFUnA), with PFOA and PFOS being the most commonly detected (at 112 sites and 103 sites, respectively). Although PFAS compounds remain unregulated at the federal level (EPA is currently in the process of developing a federal drinking water standard for both PFOA and PFOS), EPA did establish in 2016 a combined drinking water Health Advisory Level (HAL) for PFOA and PFOS of 70 parts per trillion (ppt). The purpose of the PFOA/PFOS HAL, which is not an enforceable standard, is to set a concentration at or below which EPA believes health effects are not expected to occur over a lifetime of exposure, meaning it is intended to be protective of consumers, including sensitive populations.
In only two of the sampled locations, State of the Art, Inc. in Centre County, and Saegertown Borough in Crawford County, did the combined PFOA/PFOS concentrations exceed EPA’s combined PFOA/PFOS HAL. Considering the totality of the sampling results, the Wolf administration concluded that PFAS contamination is not widespread across the Commonwealth. This conclusion, however, did not address broader stakeholder concerns that EPA’s PFOA/PFOS HAS is inadequate to protect public health and should be updated. Such concerns, and in the absence of federal action to address PFAS, have driven other states to conduct their own investigations of PFAS compounds over the past few years and promulgate regulatory standards for PFOA and PFOS far lower than the HAL, as well as for other PFAS compounds. Examples include: New Jersey (PFOA – 14 ppt; PFOS – 13 ppt; and PFNA – 13 ppt), New Hampshire (PFOA – 12 ppt; PFOS – 15 ppt; PFNA – 11 ppt; and PFHxS – 18 ppt), New York (PFOA – 10 ppt and PFOS – 10 ppt), and Michigan (PFOA – 10 ppt; PFOS – 16 ppt; PFNA – 6 ppt; PFHxS – 51 ppt; PFBS – 420 ppt; HFPO-DA – 370 ppt; and PFHxA – 400,000 ppt).
DEP Actions toward Regulating PFAS
Since DEP released its PFAS sampling data, it has taken substantive steps toward regulating certain PFAS compounds. First, at a June 15, 2021 Environmental Quality Board (EQB) meeting, DEP rejected a Delaware Riverkeeper Network petition to establish a maximum contaminant level (MCL) for PFOA of 1 ppt (or no greater than 6 ppt), finding that the recommendation did not take into account all of the factors DEP must consider to establish a PFOA MCL. Instead, at DEP’s recommendation, the EQB voted to proceed with a proposed rulemaking to establish a MCL for PFOA based on available data, studies, and science, and considering factors such as health effects, technical limitations, and costs.
During a July 29, 2021 presentation to the Public Water System Technical Assistance Center (TAC; which advises and directs DEP on various issues, including regulations governing PWSs), DEP proposed establishing a PFOA MCL of 14 ppt and a PFOS MCL of 18 ppt. Referencing supporting evidence, the agency found, among other things, that the proposed MCLs (1) are technically feasible; (2) increase public health protection by 90 percent for PFOA and 93 percent for PFOS; (3) strike a balance between public health protection and costs; and (4) are within the range and same magnitude as other state standards. DEP also proposed not establishing at this time MCLs for PFNA, PFHxS, PFHpA, PFBS, and HFPO-DA, primarily citing a lack of occurrence data. Although DEP is progressing toward promulgating MCLs for two PFAS compounds (the first time DEP has taken such a step for any chemicals), until the standards are finalized via rulemaking, EPA’s HAL remains the unenforceable reference point for PFOA and PFOS in drinking water in Pennsylvania.
Outside of these efforts, the PFAS Action Team has taken other steps to address PFAS in Pennsylvania. These include: (1) proposing soil and groundwater medium-specific concentrations for PFOA, PFOS, and PFBS (the rule establishing the MSCs is currently undergoing final review; the proposed MSCs are available here); (2) working to assist communities and private well owners in the event PFOA/PFOS contamination exceeds EPA’s HAL (70 ppt); (3) developing procedures for identifying and assessing commercial/industrial properties that have contaminated private and/or public drinking water sources; and (4) conducting surface water sampling to inform the development and implementation of a statewide monitoring strategy, water quality standards, assessment methods and/or permitting requirements (discussed briefly below). DEP’s final public drinking water sampling results are available here and its Pre-Draft Proposed PFAS Rule Presentation and related materials are available here.
Surface Water Sampling
In March 2021, the United States Geological Service (USGS) released the results of a collaborative sampling effort with DEP of certain surface waters in the Commonwealth. The samples collected raw, untreated surface water from 178 DEP Surface Water Quality Network (WQN) sites and were analyzed for 33 PFAS chemicals and 18 PFAS precursors. Although analysis detected the presence of PFAS in some of the discrete samples, the detections were below EPA’s PFOA/PFOS HAL (note that because this sampling effort collected raw, untreated surface water and not finished drinking water, and used different laboratory methods, the HAL is not directly applicable). A summary of the USGS/DEP surface water sampling can be found here, and the surface water sampling data itself can be found here.
Although Pennsylvania has not moved as quickly as other states to regulate PFAS compounds, the actions discussed above mark significant progress in that direction. Interested parties can likely expect further announcements and developments in the coming months. Babst Calland’s environmental remediation attorneys will continue to track the PFAS developments in Pennsylvania and are available to assist you with PFAS-related matters. For more information on this and other remediation matters, please contact Matthew C. Wood at (412) 394-6583 or mwood@babstcalland.com, or any of our other attorneys in this practice.
For the full article, click here.
Reprinted with permission from the August 5, 2021 edition of The Legal Intelligencer© 2021 ALM Media Properties, LLC. All rights reserved.
Smart Business
(by Sue Ostrowski featuring Kate Cooper)
“With the pandemic, our clients suddenly cared a lot about whether their contracts included a force majeure provision, what it said, what it meant and how it could be interpreted,” says Cooper.
Smart Business spoke with Cooper about force majeure provisions and how approaches to them are changing.
What are force majeure provisions?
Force majeure provisions govern the conduct of both parties if unexpected or unforeseeable events result in a party being unable to deliver on the terms of the contract, with an emphasis on the unforeseeable. They’re designed to cover unexpected events and potentially allow you to delay delivering on a contract. But the provisions are not a get-out-of-jail free card, and in most circumstances, they do not let a party to a contract completely off the hook.
The disruption to the supply chain caused by the pandemic and government shutdowns has drawn renewed attention to these clauses. For example, when suppliers couldn’t deliver to their customers, those disruptions had a knock-on effect down the supply chain. Companies aiming to avoid breaching their contracts were hopeful that their force majeure provisions would provide them with relief. However, many were disappointed to find that what they wanted to do — whether that be delay performance obligations, or even terminate the contract entirely — wasn’t permitted by the language of the specific provisions set forth in their contracts.
How is the conversation regarding force majeure changing?
It will be difficult to argue that the pandemic is an unforeseeable event now that we are a year and a half into COVID-19, meaning that COVID-19 (and pandemics generally) will need to be specifically referenced in the provision in order for it to be enforceable in most jurisdictions. Contracts differ greatly in how they define force majeure, what types of events will trigger the provision and what remedies will be available to the parties, so businesses need to have a clear understanding of the specific language of their provision and its impact if triggered.
Businesses should ensure that they are tailoring their force majeure provisions to their particular circumstances, and they should consider whether it is more appropriate to include specific COVID-19 language outside of the force majeure clause.
When drafting new contracts, make sure you understand the events upon which you, or your counterparty, may wish to delay performance, and define these provisions in a clear way that connects the dots between that triggering event and the party’s inability to perform its contractual obligations.
Working with an expert legal adviser allows you to draft your contracts on a practical level in order to protect your business interests when these events arise and future disruptions occur. Relevant questions include, ‘How do your operations work? How do you fulfill contracts? What would be an impediment to doing so?’ It may be appropriate to explore options that would permit parties to renegotiate the contract or extend delivery times upon the occurrence of one of these unforeseeable events.
Pre-pandemic, most businesses did not anticipate the importance of force majeure provisions and defining the ‘unforeseeable.’ Now that so many companies have experienced how challenging these issues can be as a result of the COVID-19 pandemic, and how nuanced the interpretation of these force majeure provisions are, business leaders need to focus on crafting the appropriate coverage in their agreements for these risks post-pandemic. Paying close attention to these issues at the time your contract is being negotiated and collaborating with your counterparty on identifying potential issues and how to resolve them can prevent your business from having to absorb the costs of dealing with these issues when they occur, or entering into litigation to resolve them.
For the full article, click here.
For the PDF, click here.
The American College of Environmental Lawyers (ACOEL)
Babst Calland Managing Shareholder Donald C. Bluedorn II was recently elected as an Active Fellow to The American College of Environmental Lawyers for 2021.
The American College of Environmental Lawyers announced that this year it has elected 22 new Active Fellows and two Honorary Fellows to membership in the College. Each individual was selected for his or her distinguished experience, high standards of practice and substantial contributions to the field of environmental law.
ACOEL President, Mary Ellen Ternes, partner with Earth & Water Law, LLC, stated, “The 22 lawyers elected as Fellows to the College represent the best environmental lawyers in government service, public interest, academia, and private practice from across the country. Our new Fellows have earned this recognition based on their career achievements and as leaders in the broad and diverse areas of environmental law and policy. Our Honorary Fellows have distinguished themselves for their substantial contributions as leaders in thought and action regarding Environmental Justice.“
ACOEL Press Release
The PIOGA Press
This article is an excerpt from The 2021 Babst Calland Report, which represents the collective legal perspectives of Babst Calland’s energy attorneys addressing the must current business and regulatory issues facing the oil and natural gas industry. The full report is available online at reports.babstcalland.com/the-2021-babst-calland-report-1.
Pennsylvania royalty cases
In two recent cases litigated by Babst Calland, courts applying Pennsylvania law reaffirmed that operators were entitled to deduct post-production costs from royalty payments based on lease language containing references to “at the wellhead” provisions. On April 28, 2021, the Court of Common Pleas of Butler County in Dressler v. PennEnergy Resources considered this issue where the lease provided that the gas royalty was to be paid based on “gas sold at the well.” The court held that phrase equated to “at the wellhead” language, which mandates using the net back method for calculating royalties―thus justifying post-production cost deductions.
A nearly identical decision was rendered by the United States District Court for the Western District of Pennsylvania less than two weeks later in Coastal Forest Resources Co. v. Chevron USA, Inc. There, the district court held that the lease’s royalty provision containing “at the wellhead” language had to be broadly interpreted to also allow for post-production cost deductions. Both cases relied on the Pennsylvania Supreme Court’s decision in Kilmer v. Elexco Land Servs., Inc., where “at the wellhead” was defined, to justify their holdings. It is likely that the two decisions will help temper further royalty litigation on the propriety of post-production deductions.
Oil and gas lease negotiations are not covered by the Pennsylvania Unfair Trade Practices and Consumer Protection Law
On March 24, 2021, the Pennsylvania Supreme Court issued its 6-1 decision in Commonwealth v. Chesapeake Energy Corp. The court considered whether the Attorney General could sue natural gas operators under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL). The Attorney General alleged, among other things, that the defendants violated the UTPCPL by engaging in deceptive practices while negotiating natural gas lease agreements with landowners. The Supreme Court reversed the Commonwealth Court’s en banc decision, which held that such transactions are subject to the UTPCPL.
The central issue in the case was whether “trade and commerce” under the UTPCPL included natural gas companies purchasing property rights when they entered into oil and gas lease agreements with landowners. The Supreme Court looked to the UTPCPL statutory definition of “trade and commerce” to determine that the “UTPCPL clearly regulates the conduct of sellers and does not provide a remedy for sellers to exercise against buyers.” Id. at 946 (emphasis added). The Supreme Court rejected the Commonwealth Court’s reliance on dictionary definitions of those terms when the legislature had specifically defined them. Id. (“Thus, the legislature chose to define trade and commerce as only acts of selling for purposes of the UTPCPL, even though the ordinary meaning of those terms signifies both buying and selling goods.”).
The court held that in the oil and gas context, the companies were in the position of a buyer, purchasing rights to the landowners’ mineral estate and the landowners were in the position of the sellers, conveying those rights. Accordingly, the court held that the UTPCPL does not apply to such transactions.
Real estate & land use
Robinson Township/ERA-based challenges to ordinances permitting oil and gas development continue to fail, but home rule charters prohibiting development open a new battlefield.
Anti-industry activists continue to rely on the Pennsylvania Supreme Court’s decision in Robinson Township v. Commonwealth in support of their challenges to the substantive validity of zoning ordinances permitting oil and gas development, on the basis that these ordinances violate substantive due process and Article I, Section 27 of the Pennsylvania Constitution, commonly known as the Environmental Rights Amendment (ERA).
As discussed in previous Reports, local zoning hearing boards, common pleas courts and the Commonwealth Court have consistently rejected these challenges, and the Supreme Court has declined to hear appeals in any of these cases. The list of unsuccessful challenges to the substantive validity of local zoning ordinances allowing oil and gas development continues to grow. Early this year, objectors voluntarily discontinued their Commonwealth Court appeal of another zoning hearing board decision rejecting similar claims.
As of this writing, two Robinson Township-based challenges to the validity of zoning ordinances permitting oil and gas development remain pending in Commonwealth Court. The first involves an appeal of a decision by the Murrysville Zoning Hearing Board in Westmoreland County, rejecting a validity challenge to that community’s ordinance. The Murrysville ordinance limits oil and gas development to an overlay district and imposes an additional setback of 750 feet from the well pad to occupied structures, the net effect of these two restrictions being to limit oil and gas development to less than 5 percent of the municipality’s land mass. As such, the ordinance is far more restrictive that any of the ordinances previously found to be valid by the Commonwealth Court. The parties have briefed and argued the case and a decision is pending.
Ironically, the second case remaining pending in Commonwealth Court involves a challenge to the Robinson Township, Washington County, zoning ordinance, the objectors there essentially arguing that the township’s ordinance authorizing oil and gas development is contrary to that very same township’s prevailing position in the Supreme Court’s Robinson Township decision. The zoning board originally dismissed the challenge on ripeness and standing grounds. After a long delay by the objectors in prosecuting their appeal, the Washington County Court of Common Pleas conducted a de novo hearing, after which it dismissed the appeal on standing grounds. The parties have briefed and argued this case before Commonwealth Court, and a decision is pending.
Despite this string of successes by municipalities, pro-development residents and natural gas operators, this has not stopped groups from going to great lengths to halt all oil and natural gas development at the local level. After the operator of a proposed underground injection well in Grant Township, Indiana County, successfully pursued a federal court challenge to the validity of a township ordinance prohibiting the deposit of waste from oil and gas operations, the township adopted a home rule charter essentially mirroring the prohibitions in the invalidated ordinance. In 2017, the Pennsylvania Department of Environmental Protection (DEP) granted the operator’s well permit and filed a petition for review with Commonwealth Court seeking declaratory relief that state laws such as the Oil and Gas Act and the Solid Waste Management Act preempt the charter’s prohibition on injection wells. The township filed counterclaims contending that these state laws violated the ERA. The Commonwealth Court denied DEP’s preliminary objections and a trial on the merits is anticipated to occur later this year.
Pennsylvania Supreme Court considers and then decides not to consider the standard of review in land use decisions
Early this year, the Pennsylvania Supreme Court agreed to hear two issues relating to the standard of review applicable to local land use decisions in a case involving the approvals of two unconventional natural gas well pads in Penn Township, Westmoreland County. Both the Court of Common Pleas of Westmoreland County and the Commonwealth Court affirmed these well pad approvals. The Supreme Court directed the parties to address the capricious disregard standard of review, which had only been applied in previous decisions when a local agency deliberately ignores relevant competent evidence. The second question was whether the Commonwealth Court properly considered the alleged cumulative impacts of developing multiple unconventional natural gas well pads within the township. The Pennsylvania State Association of Township Supervisors and the Marcellus Shale Coalition filed briefs in support of the township zoning hearing board’s approvals. After briefing and oral argument, on June 22, 2021, the Supreme Court, in a one-line order and without supporting opinion, dismissed both appeals as having been improvidently granted.
Trends in local ordinances
Since last year’s Report, Pennsylvania municipalities continue to adopt ordinances impacting oil and natural gas activities. In addition, many have begun to attempt to address issues involving renewable energy systems such as wind and solar energy operations. Although most regulations are found in zoning ordinances, others, including road weight, noise or street opening ordinances impact energy industry operations of all types.
For oil and natural gas, ordinances imposing substantially increased setbacks are an ongoing challenge. For example, Leetsdale Borough, Allegheny County, placed a proposed oil and gas zoning amendment into pending status which would subject well sites to setbacks ranging from 1,500 feet to 2,800 feet. Municipalities also are placing an increased emphasis on more stringent noise limitations. One success story is in Union Township, Washington County, where input from operators during the consideration of a new ordinance resulted in temporary development activities such as pad development, drilling and completions being exempted from the township’s new low-frequency dBC limits. Despite this victory, ordinances containing increased application requirements such as air, water, soil testing and other environmental study requirements of questionable legality continue to proliferate.
Local ordinances addressing pipelines also have become a recent trend. Uwchlan Township, Chester County, amended its subdivision and land development ordinance to require that new residential, commercial, educational and institutional uses maintain a 300-foot setback from any existing or proposed transmission pipeline rights-of-way.
In some cases, municipalities are attempting to stop certain oil and natural gas activities. In Clara Township, Potter County, the board of supervisors took the initial steps to change its form of government to a home rule charter municipality, a move promoted by anti-industry groups to block a proposed oil and gas wastewater injection well. In Allegheny County, a council member recently proposed legislation to bar the county from entering into any agreement for any industrial or commercial land uses on or below the surface of any lands the county has designated as a park. This would include natural gas extraction by conventional or unconventional means and utilization of any other extractive technologies or methods.
Numerous municipalities across Pennsylvania have considered or enacted ordinances impacting renewable energy operations. Over the last year, over 50 municipalities across 30 counties in Pennsylvania have considered land use ordinances that regulate solar energy. These are primarily municipalities located in south-central and southwestern Pennsylvania. For example, Washington Township, Franklin County, enacted an amendment to its zoning ordinance regulating the use of solar and wind power in the township which set forth permitting requirements, setbacks, and use specifications for both principal and accessory renewable energy systems.
Monitoring these proposals and enactments is necessary to anticipate upcoming restrictions and take advantage of new opportunities. The pandemic put a temporary hold on municipal activity for a couple months, but the pace of ordinance activities is generally back to pre-pandemic levels.
For the full article, click here.
Reprinted with permission from the June 2021 issue of The PIOGA Press. All rights reserved.
The PIOGA Press
(by Ashleigh Krick)
On June 7, the Pipeline and Hazardous Materials Safety Administration (PHMSA) issued an advisory bulletin (ADB) reminding owners and operators of gas and hazardous liquid pipeline facilities of a self-executing mandate from the “Protecting our Infrastructure of Pipelines and Enhancing Safety Act of 2020” (PIPES Act of 2020).
Statutory mandate
The mandate, codified at Section 114(b) of the PIPES Act of 2020, provides that by December 27, 2021, “each pipeline operator shall update the inspection and maintenance plan prepared by the operator under section 60108(a) of title 49, United States Code, to address the elements described in the amendments to that section made by [Section 114(a)].”
Section 114(a) of the PIPES Act of 2020 added to 49 U.S.C. § 60108(a) that, in deciding on the adequacy of an inspection and maintenance plan, PHMSA or a certified state authority must consider the extent to which the plan will contribute to “eliminating hazardous leaks and minimizing releases of natural gas from pipeline facilities” and “the extent to which the plan addresses the replacement or remediation of pipelines that are known to leak based on the material (including cast iron, unprotected steel, wrought iron, and historic plastics with known issues), design, or past operating and maintenance history of the pipeline.”
Additionally, Section 114(a) added to 49 U.S.C. § 60108(a) that inspection and maintenance plans must “meet the requirements of any regulations promulgated under section 60102(q).” Section 60102(q) is a new rulemaking mandate from Section 113 of the PIPES Act of 2020 that requires PHMSA to issue new leak detection rules for operators of regulated gas gathering, transmission, and distribution lines by December 27, 2021.
Section 114(a) also provided that PHMSA or a relevant state authority must review each plan not later than December 27, 2022, and then every five years.
Advisory bulletin
PHMSA issued the ADB to reiterate the mandate from Section 114 of the PIPES Act of 2020. Notably, PHMSA stated in the ADB that Section 114 applies to all pipeline facility owners and operators, including owners and operators of hazardous liquid pipeline facilities.
• Natural gas releases and hazardous leaks. While the PIPES Act did not define the type of natural gas releases or hazardous leaks operators are required to address, the ADB provides that an operator’s plan must address both intentional and unintentional releases of natural gas. PHMSA characterized intentional releases as including venting during normal operations or due to equipment design (e.g., pneumatic device bleeds, blowdowns, incomplete combustion or overpressure protection venting). Unintentional releases, the ADB explains, include any unintentional leaks from equipment, including pipelines, flanges, valves, meters, etc.
• Pipelines known to leak. With respect to addressing the replacement or remediation of pipelines that are known to leak based on the material (e.g., cast iron, unprotected steel, wrought iron, and historic plastics with known issues, according to PHMSA), design, or past operating and maintenance history, the ADB states that PHMSA will evaluate how the operator’s plans address reducing leaks from pipelines with these issues.
• Inspection and maintenance plans. PHMSA stated in the ADB that the updated plans must be “tailored to the operator’s pipeline facilities, supported by technical analysis where necessary, and sufficiently detailed to clearly describe the manner in which each requirement is met.” PHMSA also cited to page 17 its existing Part 192 O&M Enforcement Guidance and page 18 of its existing Part 195 O&M Enforcement Guidance.
• Inspections. PHMSA noted that it, along with state authorities, would be inspecting operator’s plans to determine whether they adequately address the PIPES Act mandate. PHMSA explained that it would evaluate the steps taken by an operator to prevent and mitigate both intentional and unintentional releases of natural gas.
For the full article, click here.
Reprinted with permission from the July 2021 issue of The PIOGA Press. All rights reserved.
Pipeline Safety Alert
(by Keith Coyle and Ashleigh Krick)
On July 15, 2021, the Pennsylvania Public Utilities Commission (PA PUC) issued a Notice of Proposed Rulemaking Order (NOPR) proposing to change the regulations applicable to public utilities that transport petroleum products and other hazardous liquids in Pennsylvania. The NOPR follows an Advanced Notice of Proposed Rulemaking (ANOPR) that the PA PUC published on June 29, 2019, seeking comments on an expanded regulatory framework for hazardous liquid public utilities. The proposed regulations go beyond the minimum federal pipeline safety regulations in 49 C.F.R. Part 195 and would impose significant new requirements on public utilities in Pennsylvania.
Below is a summary of the significant items from the proposed regulations. Public utilities in Pennsylvania that transport hazardous liquids should carefully review the proposed regulations, the potential impact to their operations, and provide comments to the PA PUC accordingly. Comments will be due 60 days from the date the NOPR is published in the Pennsylvania Bulletin.
Reporting (§ 59.133-59.134)
- Proposes to require that an operator provide an unredacted failure analysis report based on laboratory testing and root cause analysis to the PA PUC within 120 days of a reportable accident or within 10 days of report completion, whichever comes first. If the reports are not completed within those timeframes, the public utility must provide updates to the PA PUC every 14 days. The analyses must be conducted by a PA PUC-approved independent third-party lab and consultant.
- In addition to the requirements in 49 C.F.R. Part 195, Subpart B, the PA PUC proposes to require notification of the following:
- Proposed major construction, major reconstruction, or major maintenance involving an expenditure of more than $300,000 or 10% of the cost of the pipe in service, whichever is less, 45 days prior to commencement.
- Maintenance, verification digs, and assessments involving an expenditure in excess of $50,000, and the unearthing of suspected leaks, dents, pipe ovality features, cracks, gouges, or corrosion anomalies, or other suspected metal losses, 10 days prior to commencement.
- Any variations from a public utility’s established construction methodologies 30 days prior to commencement.
- The introduction of a hazardous liquid 30 days prior to such introduction.
- Immediate notification of excavation damages, washouts, or unplanned replacement of any pipeline section or cut out.
Design and Construction (§ 59.135 – 59.138)
- Section 59.135 proposes to require that public utilities account for anticipated external loads from landslides, sinkholes, subsidence, and other geotechnical hazards in the design of pipeline facilities.
- For new pipelines, and any converted, relocated, replaced, or otherwise changed existing pipelines, § 59.136 proposes to:
- Prohibit a pipeline from being constructed under a private dwelling, industrial buildings, and places of public assembly.
- Provide that miter joints are not permitted.
- Require that all girth welds must be nondestructively tested.
- Require that a public utility specify intervals for verifying and maintaining the depth of cover for all pipe, except that depth of cover for pipe under active commercial farms must be verified every three years.
- Require that a minimum of 12 inches of clearance be maintained between any pipe and other underground structures (no exceptions including between a public utility’s own structures).
- Include specific emergency flow restricting device (EFRD) installation requirements on pipelines transporting highly volatile liquids (HVLs).
- Require public utilities to develop and maintain risk-based plan for valve spacing.
- Require installation of barriers to protect against large vehicles at above ground valve stations adjacent to roadways.
- For public utilities using horizontal directional drilling (HDD), trenchless technology (TT), or direct buried methodologies, § 59.137 proposes to include requirements for the following:
- 30-day and 24-hour notice to the PA PUC and affected public before beginning HDD, TT, or direct buried activities.
- Require that, for certain installations, utilities consider geological and environmental impacts and comply with the Department of Environmental Protection’s (DEP) Trenchless Technology Technical Guidance and all relevant DEP regulations related to water wells and supplies. Also, require that geotechnical evaluations and sampling be conducted under certain conditions, and provided to the PA PUC upon request.
- Sets forth certain compliance, notification, and corrective action requirements if HDD, TT, or direct buried methodologies will result in adverse impacts to a private or public water supply source.
- Section 59.138 proposes to require that pipelines installed prior to 1970 must be hydrostatically tested every 10 years and inspected using in-line inspection tools at least every 2 years. Pipelines installed after 1970 must be hydrostatically tested every 3 years. For pipelines that have been placed back in service after a leak, a utility must assess using in-line inspection tools every year until 6 years has passed without another leak. Further, the PA PUC proposes to require that a utility notify it at least 5 days prior to starting a pressure test.
Operations and Maintenance (§ 59.139)
- Section 59.139 proposes several new operations and maintenance requirements, including for emergency response procedures, liaison activities with emergency responders and school administers, public awareness communications, line markers, inspections of rights-of-way, leak detection and odorization.
- Emergency Response: The PA PUC proposes several additional requirements with respect to emergency response, including that:
- Public utilities consult with emergency responders in developing and updating emergency response procedures.
- Emergency response manuals address: (1) steps for informing emergency responders of the procedures for requesting information regarding a pipeline, (2) development of a continuing education program, and (3) performance of table-top drills twice a year and an annual response drill that simulates a pipeline emergency.
- Public utilities hold in-person liaison activities with emergency responders twice per year; however, if the utility’s efforts to arrange in-person meetings are unsuccessful there are alternative measures provided. Also proposes to establish liaison requirements with school administrators.
- Public Awareness: Proposes additional requirements beyond those in API RP 1162 by requiring public utilities to provide baseline messages to the affected public and emergency responders at least twice a year and to public officials annually. Also, the PA PUC proposes to require that public utilities hold regular, open meetings with the affected public, emergency responders, and public officials. The proposed regulations define affected public as “residents and places of congregation (businesses, schools, etc.) along the pipeline and the associated right-of-way within 1,000 feet, or within the lower flammability limit (LFL), of a pipeline or pipeline facility, whichever is greater.”
- Line Markers: Proposes additional requirements for the placement of line markers.
- Right-of-Way Inspection: Proposes to require ground patrol of pipelines in non-high consequence areas (HCAs) twice a year and ground patrols in HCAs at least 4 times a year. The ground patrol path cannot exceed a lateral distance of 25 feet from the center of the right-of-way. The PA PUC proposes to define ground patrol as “a method of non-aerial patrol that includes walking, driving, using a low-flying drone with sufficient optical resolution operated by a qualified drone operator with an altitude of 25 feet or other like non-aerial means of traversing a pipeline right-of-way.”
- Leak detection: Proposes to require leak detection systems that are Real Time Transient Models under API RP 1130. Public utilities would be required to odorize HVL pipelines if the requirements for leak detection systems are not met in 5 years.
Integrity Management (§ 59.139)
- The PA PUC proposes to require that utilities consult public officials in determining the need for remote controlled EFRDs in all HCAs, and that determining the need for EFRDS be based on limiting the LFL to 660 feet on either side of the pipeline.
Operator Qualification (§ 59.140)
- Proposes to define covered task as “the term as defined in 49 CFR 195.501 (relating to scope) but modifying that term to also include a construction task identified by a hazardous liquid public utility.” Including construction tasks as a covered task would significantly expand an operator’s Operator Qualification (OQ) program.
- Proposes to require a utility’s OQ Plan to include: (1) written qualification program for construction tasks, (2) process for training all individuals qualified to identify and react to facility specific Abnormal Operating Conditions (AOCs), and (3) requalification intervals for each covered task.
Corrosion Control (§ 59.142)
- Proposes to require written procedures for the design, installation, operation, and maintenance of cathodic protection systems, including determining the average and worse case corrosion rate experienced for each pipeline segment. And, proposes to require inspections to determine the adequacy of cathodic protection be conducted on more frequent intervals. Further, the PA PUC proposes to require that public utilities initiate remedial actions within 14 days of discovering any deficiencies.
- Proposes to require public utilities to conduct close interval surveys every three years in accordance with NACE 0207-2007.
Land Agents (§ 59.141)
- Proposes to require land agents to hold valid Pennsylvania professional licenses as an attorney, real estate salesperson, real estate broker, professional engineer, professional land surveyor, or professional geologist during the performance of land agent work or services.
Click here for PDF.
Renewables Law Blog
(By Anna Jewart)
On June 4, 2021, following 21 nights of public hearings held over the course of 15 months, a conditional use application for a proposed 75 megawatt solar energy system filed by Brookview Solar I, LLC, was denied by operation of law due to a two-two tie vote, with one abstention, by the Board of Supervisors of Mount Joy Township, Adams County. The applicant faced many of the same challenges and opposition frequently levied against traditional energy sources.
In November 2019, the applicant submitted its application for a solar energy field, proposed to be sited across eleven properties totaling approximately 374 acres of land located largely within the Township’s Baltimore Pike Corridor District (“BPC”) and partially within its Agricultural District (“AC”). Solar energy systems are a permitted use in the AC district and permitted as a conditional use within the BPC district under the Township Zoning Ordinance, subject to extensive use-specific regulations. The Board began holding public hearings on the application in January 2020 and concluded in March of 2021. On June 4, 2021, a motion to approve the application with conditions resulted in a 2-2-1 vote, as did a motion to deny the application. Under Pennsylvania case law, where a judicial or quasi-judicial body is equally divided, the subject matter with which it is dealing must remain in status quo, in this case resulting in a denial of the application. Due to the 2-2-1 vote, the Township did not prepare official written findings, but submitted two draft decisions in support of the Board’s motions to deny and approve the application, as well as an official decision simply noting the denial as an operation of law. The applicant appealed to the Adams County Court of Common Pleas on June 28, 2021.
The appeal alleges the Board committed an error of law and/or abused its discretion by failing to approve the application. Due to the lack of an official decision, the appeal relies largely upon the limited differences between the draft denial and draft approval decisions. The appeal notes that although the two decisions overlapped on 68 findings of fact and 7 conclusions of law, the draft denial was largely based on a finding that the applicant failed to meet certain specific criteria under the Zoning Ordinance, namely that it had failed to provide a glare study, to submit stormwater plans, or to provide proper performance security related to decommissioning. The appeal alleges the record before the Board, as well as the draft approval decision, demonstrated that a complete glare study had been provided, that the applicant was not required to provide stormwater plans, and that the security met the relevant ordinance criteria. The applicant further argues that because these bases for denial all relate to alleged deficiencies in the application, they could not be considered where the Township had accepted the application as complete.
The appeal further argues the Board erred in denying the application where the draft denial decision was also based on an alleged failure to meet several general, subjective criteria of the Ordinance. After a conditional use applicant presents credible substantial evidence that the proposed use satisfies the ordinance’s specific criteria, the burden shifts to any objectors to prove the application failed to meet the general, subjective criteria in the ordinance. The appeal alleges that because the draft denial decision failed to garner a simple majority, the objectors failed to meet this standard. In addition, it argues the record indicated the evidence presented by the objectors was merely anecdotal conjecture and speculation which was insufficient to meet their high burden of proof.
Although the Brookview Solar project involves newer technology, the legal issues are largely the same as those typically addressed in traditional Pennsylvania land use cases. Furthermore, the Court’s decision on whether to review the matter de novo or to adopt the findings of fact and conclusions of law of either draft decision will have implications for the review of land use decisions generally, not just in the renewable energy field.
Tags: conditional use application, land use, solar energy field, zoning
Renewables Law Blog
(By Bruce Rudoy)
A financial rebound is in progress as COVID-19 becomes less of a driver to business and our general livelihood, and it is one that is apparent in the renewables sector. Experts see growth fueled not just by pent-up demand, but also growing attention to ESG considerations and renewables’ financial advantages.
Corporate merger and acquisition activity was up significantly with solar developers expanding their pipelines, oil and gas companies diversifying into renewables, and funds buying up renewable assets.
According to Mercom CEO Raj Prabhu, Solar project acquisitions reached a record high in the second quarter, he said, with more than 24.7 GW of capacity acquired. That total came from 34 corporate M&A deals, compared to 20 in the first quarter of this year and 13 in the second quarter of 2020.
In the first half of 2021, solar project acquisitions reached 39.3 GW, more than doubling the 14.7 GW acquired in the first half of 2020.
Venture capital funding in particular has experienced a strong recovery. Funding for VC was 680% higher in the first half of the year, compared with last year, with $1.6 billion raised in 26 deals, according to Mercom.
Renewables have been rapidly gaining market share for years. In 2020, the United States saw its fifth consecutive year of renewables consumption growth, reaching a record high of 12% of the country’s total consumption, according to the U.S. Energy Information Administration (EIA).
EIA estimates solar energy accounted for about 11% of last year’s renewable energy consumption, and “overall, 2020 U.S. solar consumption increased 22% from 2019.”
By comparison, the agency said fossil fuel consumption fell last year by 9% to “the lowest level in nearly 30 years.”
The trend is represented globally as well. The International Energy Agency’s (IEA) most recent market update, released in May, found renewable electricity capacity added in 2020 rose by 45% to 280 GW.
“Solar PV installations will continue to break new records, with annual additions forecast to reach over 160 GW by 2022,” IEA said in its analysis. “That would be almost 50% higher than the level achieved in 2019 prior to the pandemic, affirming solar’s position as the ‘new king’ of global electricity markets.”
Corporate solar interest surges as companies exit pandemic and turn focus to ESG issues | Utility Dive
Tags: market share, renewable, renewable energy, Social and Governance (ESG), solar, solar energy, venture capital funding
GOWV News
(by Jennifer Hicks)
The United States District Court for the Northern District of West Virginia recently held that a 2018 amendment to W. Va. Code § 22-6-8 (the “Flat Rate Statute”) “clearly does not apply retroactively.” Although the Supreme Court of Appeals of West Virginia has not yet addressed this issue, this federal court decision is indicative of how the highest court in West Virginia may answer the question raised by plaintiffs in royalty litigation across West Virginia: Does the 2018 amendment apply retroactively to alter the way royalties are paid for wells drilled on a flat rate lease before May 31, 2018?
In Corder v. Antero Resources Corporation, Civil Action No. 1:18-cv-30 (N.D. W.Va. May 12, 2021), the Court analyzed several issues related to the payment of oil and gas royalties pursuant to various royalty provisions. One of the leases at issue was what is commonly referred to as a “flat rate” lease, under which the lessee was required to pay “$100 per year for each and every gas well obtained on the premises[.]”
Flat rate leases are governed in West Virginia by W. Va. Code § 22-6-8, which was originally enacted in 1982 and first amended in 1994, to require that no permit for a flat rate well would be issued unless the lessee swore by affidavit that it would pay the lessor no less than one-eighth of the total amount paid to or received by or allowed to the lessee at the wellhead for the oil and gas so extracted, produced or marketed. In 2017, in Leggett v EQT Prod. Co., 800 S.E.2d 850, 862 (W.Va. 2017), the Supreme Court of Appeals of West Virginia interpreted this language as allowing a pro-rata deduction or allocation of all reasonable post-production expenses actually incurred by the lessee, and held that a lessee may utilize the “net-back” or “work-back” method to calculate royalties owed to a lessor pursuant to a lease governed by W. Va. Code § 22-6-8(d).
In 2018, following the Leggett decision, the West Virginia Legislature amended W. Va. Code § 22-6-8 to require that in order to obtain certain permits, a flat-rate lessee must provide an affidavit swearing that it will pay the lessor “not less than one eighth of the gross proceeds, free from any deductions for post-production expenses, received at the first point of sale to an unaffiliated third-party purchaser in an arm’s length transaction for the oil or gas so extracted, produced or marketed before deducting the amount to be paid to or set aside for the owner of the oil or gas in place, on all such oil or gas to be extracted, produced or marketed from the well.”
In Corder, the plaintiffs argued that the 2018 amendment to the Flat Rate Statute should apply retroactively to prohibit the lessee from taking deductions of post-production expenses from the plaintiffs’ royalties. The Court ultimately disagreed with the plaintiffs, explaining that “[t]he presumption is that a statute is intended to operate prospectively, and not retrospectively, unless it appears, by clear, strong and imperative words or by necessary implication, that the Legislature intended to give the statute retroactive force and effect.” Corder at 33 (quoting Syl. Pt. 2, Martinez v. Asplundh Tree Expert Co., 803 S.E.2d 582 (W. Va. 2017)). The Court further explained that there is a long-standing principle under West Virginia law that “[n]o statute, however positive, is to be construed as designed to interfere with existing contracts, rights of action, or suits, and especially vested rights, unless the intention that it shall so operate is expressly declared.” Id. (quoting Syl. Pt. 3, Rogers v. Lynch, 29 S.E. 507 (W. Va. 1897)). The Court found that the 2018 amendment to the Flat Rate Statute does not state in “clear, strong[,] and imperative words” that it applies retroactively, nor does it specify any intent by the legislature to clarify the existing law on flat rate leases or to overrule the holding of the Supreme Court of Appeals in Leggett. Rather, the 2018 amendment prohibits the issuance of any new permit unless the lessee first agrees to pay royalties pursuant to the language of the 2018 amendment. The Court held that, “Based on this, the 2018 amendment clearly does not apply retroactively.”
For the full article, click here.
Joseph Markman
Hart Energy
The Babst Calland law firm’s annual report includes a chat with Sen. Joe Manchin and an assessment of the impact of President Biden’s government-wide climate approach.
President Joe Biden’s ambition to entirely wean the U.S. from fossil fuels by 2035 is “unattainable, not doable,” Sen. Joe Manchin (D-W.Va.) told a Babst Calland law firm panel during a recent webinar. The recording is included in the firm’s annual energy industry report, released June 30.
“There’s no way that we can eliminate our way to a cleaner climate,” the chairman of the Senate Committee on Energy and Natural Resources said, noting that the country could not make a sufficient worldwide difference because other countries will not follow its lead in cutting oil, gas and coal from the global energy mix. “Not going to happen.”
In its report, Pittsburgh-based Babst Calland focused on how the oil and gas industry, recovering from the economic impacts of the COVID-19 pandemic, is at an inflection point as it awaits the full impact of President Joe Biden’s climate-centric policies and the emergence of ESG (environmental, social and governance) concerns in investing decisions.
Manchin told the attorneys he was concerned about the federal permit approval process, and how the sluggish system could hinder the oil and gas industry’s—and the country’s—ability to build the infrastructure necessary to put the energy transition into effect. The senator has supported legislation to speed the permitting process.
“I don’t know any other way to get it done,” Manchin said. “We might not live long enough to see half of it being built if we don’t do something.”
The report addressed regulatory delays, as well, noting how they continue to threaten major pipeline projects in the Appalachian region.
“Producers in Appalachia are still in need of more transportation capacity to the Gulf and along the eastern seaboard, yet a plethora of public agencies and other stakeholders along the proposed pipeline routes continue to register objections,” the report said. “Fortunately, significant infrastructure is already in place, but efforts to add to that capacity will likely become a bigger and more costly challenge under the current permitting regime.”
Uncle Sam and ESG
Babst Calland pointed to burgeoning ESG reporting as among the most notable developments of the past year in the energy sector.
“Company reports and commitments to best practices have taken many different forms, but most are in response to pressure from financial investors and other stakeholders,” the report said. “Responsibly sourced gas certification programs are gaining traction. Engagement by the entire supply chain is helping to achieve the needed focus on ESG issues, some of which have been embraced by the industry for many years and are now getting the broader attention they deserve.”
Not only investors, but the federal government is focusing more on ESG issues. The report noted that a year ago, the Securities and Exchange Commission (SEC) did not impose more specific disclosure requirements for climate change risk because the standard in place was sufficient for investors to make informed decisions.
However, earlier this year, acting SEC Chair Allison Herren Lee said the agency would examine the effectiveness of climate-related disclosures in public company filings. Babst Calland also noted that SEC staff are evaluating climate change disclosure rules with the intent of “facilitating the disclosure of consistent, comparable, and reliable information on climate change.”
The report did not forecast the direction the agency will take under new Chairman Gary Gensler, but warned “the days could be numbered for the old materiality standard, and public companies may soon be required to perform a deeper analysis of their own climate change impacts as well as the risk climate change poses to their business.”
See You in Courts
The Babst Calland team did not attempt to soft-pedal the meaning of Biden’s government-wide approach.
“President Biden’s series of executive orders and the anticipated agency actions across the executive branch have the potential to change the nature of the administrative state in a manner not seen in decades,” they wrote. The report also touched on state and local initiatives to support electric vehicle usage, and to ban natural gas hookups in new construction, as proposed in San Francisco, New York and Berkeley, Calif.
Climate change-related litigation in federal and state courts is on the rise, the attorneys said, and the suits are coming from all directions.
“Cases include those initiated by states, cities and municipalities against energy companies under tort, fraud and misrepresentation theories seeking damages associated with the cost of improving infrastructure to mitigate alleged effects of climate change,” the report said. “Claims by public interest groups and individuals against the federal and state governments alleging violations of constitutional rights, third-party challenges to permits and approvals; and shareholder/investor claims against public companies alleging misrepresentation of the value of assets in financial filings.”
The report identified several notable developments, including:
- A decision by the Ninth Circuit in February to not rehear “Juliana et al. v. U.S.” In its original decision, it ruled that individual plaintiffs lacked standing to sue the United States for a constitutional fundamental right to a “climate system capable of sustaining life.”
- In April, the Second Circuit affirmed dismissal of New York City’s suit against five energy companies that alleged the companies were responsible for the city’s costs in response to climate change impacts because of their role in the production and sale of fossil fuels.
In May, the U.S. Supreme Court ruled that an appellate court improperly limited its review of a district court’s order that removed Baltimore’s climate suit to state court. The question was whether climate change tort lawsuits filed in state courts can be moved to federal court based on anticipated defenses that concern federal law. The Supreme Court did not consider any issues in the case other than the appellate court’s restriction of its review. “Looking ahead, the procedural issues in the above cases must be addressed before the viability of and potential liability from these claims can be determined,” Babst Calland attorneys wrote. “Because of the variety of jurisdictions involved, consistent outcomes in similar lawsuits are not guaranteed.”
To view article on Hart Energy.com, click here.
Environmental Alert
(by Matt Wood)
On June 3, 2021, the Wolf administration released the complete results of sampling for perfluoroalkyl and polyfluoroalkyl substances (PFAS) by the Pennsylvania Department of Environment Protection (PADEP) from certain public drinking water systems located throughout the Commonwealth. PFAS, a “family” of manmade chemicals in use since the 1940s, have myriad applications in consumer, commercial, and industrial products. More recently, PFAS have been discovered in various environmental media (e.g., drinking water sources), plants, animals, and humans. Due to their persistence in the environment – they do not tend to break down naturally – PFAS have been called “forever” chemicals and some research suggests that exposure to PFAS can cause various adverse health effects.
Originally initiated in June 2019, the PADEP-led sampling effort targeted public drinking water systems within a half mile of potential PFAS sources (e.g., manufacturing, fire training, and military facilities). PADEP also sampled outside of the half-mile radius of potential sources to establish a baseline. Samples collected in 2019 were analyzed for six PFAS chemicals, but those collected in 2020 and 2021 were analyzed for 18 PFAS chemicals using U.S. Environmental Protection Agency (EPA) Method 537.1 (updated November 2018). As part of the 2020 and 2021 sampling events, PADEP resampled the 2019 sites in order to obtain additional occurrence data.
Of the 18 PFAS chemicals analyzed from the 412 total samples, only eight were found at the sampled sites: PFOS, PFOA PFNA, PFHxS, PFHpA, PFBS, Perfluorohexanoic acid (PFHxA), and Perfluoroundecanoic acid (PFUnA). PFOA and PFOS were the most common, being present at 112 and 103 sites, respectively. In only two locations, however, did the combined PFOA/PFOS concentration exceed the combined PFOA/PFOS 70 parts per trillion (ppt) Health Advisory Level (HAL) set by EPA, which is intended to identify the concentration of PFOA/PFOS in drinking water at or below which adverse health effects are not expected to occur over a lifetime of exposure. The two sites with combined PFOA/PFOS concentrations above the HAL are State of the Art, Inc. in Centre County, and Saegertown Borough in Crawford County. From these results, the Wolf administration concluded that PFAS contamination does not seem to be widespread.
While virtually all of PADEP’s sampling results are below EPA’s HAL for PFOA/PFOS, critics claim that the HAL is outdated, too high to be protective, and should be revised. In the absence of federal action to quickly develop lower standards, many surrounding states have promulgated their own standards. For example, New Jersey set drinking water standards for PFOA (14 ppt) and PFOS (13 ppt) much lower than EPA’s HAL and has also set a drinking water standard for PFNA (13 ppt). Similarly, New York has adopted MCLs of 10 ppt for PFOA and for PFOS. Many of the results from PADEP’s sampling effort have concentrations similar to or above the standards adopted by other states. As noted below, PADEP has announced its intention to establish MCLs for some PFAS compounds, but it is unclear if the agency will establish similarly low standards.
Because Pennsylvania has not set drinking water standards for any of these PFAS chemicals, and because EPA’s HAL for PFOA/PFOS is non-regulatory and not enforceable, PADEP’s sampling results primarily serve to inform PADEP’s current and future actions. The PFAS Action Team, established by Governor Tom Wolf via executive order in September 2018, and the Wolf administration have taken multiple actions to address PFAS in Pennsylvania. These include:
- For the first time in Pennsylvania, initiating the process for setting a Maximum Contaminant Level (MCL) for PFAS (for other drinking water contaminants, PADEP has adopted federal standards, but the federal government has not yet established such standards for PFAS);
- Moving to address PFAS remediation by proposing soil and groundwater medium-specific concentrations for PFOA, PFOS, and PFBS (the rule establishing the MSCs is currently undergoing final review; the proposed MSCs can be found here);
- Working to assist communities and private well owners in the event PFOA/PFOS contamination exceeds EPA’s HAL (70 ppt);
- Developing procedures for identifying and assessing commercial/industrial properties that have contaminated private and/or public drinking water sources.
Other actions and recommendations identified in the PFAS Action Team’s December 2019 Initial Report include developing information-sharing protocols for informing and educating the public about PFAS, establishing processes for sharing information between the PFAS Action Team members (which include multiple state agencies), and exploring funding for PFAS remediation efforts. As a result of its sampling program and other factors, PADEP recommended that the Environmental Quality Board (EQB) move forward with a proposed rulemaking to establish a MCL for PFOA based on available data, studies, and science, considering factors such as health effects, technical limitations, and costs.
Surface Water Sampling
The release of PADEP’s public drinking water source sampling data comes on the heels of USGS’s release of Pennsylvania surface water sampling results in March 2021. That sampling effort, a collaboration between the USGS Pennsylvania Water Science Center and PADEP, collected samples of raw untreated surface water from 178 PADEP Surface Water Quality Network (WQN) sites. The samples were analyzed for 33 PFAS chemicals and 18 PFAS precursors and found PFAS present in some of the discrete samples. These detections, however, fell below EPA’s PFOA/PFOS HAL (note that because this sampling effort collected raw, untreated surface water and not finished drinking water, and used different laboratory methods, the HAL is not directly applicable).
While Pennsylvania has not acted as quickly as other states to promulgate regulations addressing PFAS compounds, its recent sampling efforts, analysis, and other activities show continued progress toward advancing such actions. PADEP’s recommendation that the EQB move forward with a PFOA MCL rulemaking is one such action and we expect further announcements and developments in the coming months. PADEP’s final public drinking water sampling results can be found here, a summary of the USGS/PADEP surface water sampling can be found here, and the surface water sampling data itself can be found here.
Babst Calland’s environmental remediation attorneys will continue to track the PFAS developments in Pennsylvania and are available to assist you with PFAS-related matters. For more information for this and other remediation matters, please contact Matthew C. Wood at (412) 394-6583 or mwood@babstcalland.com, or any of our other attorneys in this practice.
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Smart Business
(by Sue Ostrowski featuring Ashleigh Krick)
Recent high-profile cybersecurity breaches have highlighted how vulnerable even the largest businesses are to disruption. But even the smallest of businesses face risks, says Ashleigh Krick.
“Organizations may think they are not at risk and do not have valuable information, but they should think again,” says Krick, an associate at Babst Calland. “It does not matter what information you have when a hacker just wants money. It’s not just about data; it’s also about shutting down your business to force you to pay a ransom.”
Smart Business spoke with Krick about steps every business can take to protect itself.
How have recent cyberattacks drawn attention to the vulnerability of businesses?
Recent cyberattacks on Colonial Pipeline and JBS Foods have demonstrated the cyber vulnerabilities of even our nation’s most critical industries. In May, Colonial Pipeline fell prey to a ransomware attack, forcing it to halt transportation of gasoline and other fuels on the largest refined products pipeline on the East Coast. The effect was felt by everyone along the East Coast, as disruption to gasoline supply caused consumer panic and gasoline prices to skyrocket.
Not a month later, JBS Foods, the world’s largest processor of fresh beef and pork, was attacked by ransomware, causing its plants to shut down and rendering the business incapable of processing meat. We are still seeing effects from that, which could disrupt the U.S. market and international markets.
In the aftermath of these attacks, the federal government became immediately involved in how businesses were responding to ransomware attacks and questioning whether mandatory cybersecurity standards in the most critical industries are needed.
What should businesses be thinking about cybersecurity?
Every business should be thinking about about cybersecurity. First, conduct risk and security vulnerability assessments to understand your cybersecurity practices, threats and vulnerabilities. If you are unable to do an assessment internally, a consulting organization can help.
Cybersecurity risk and security vulnerability assessments identify information assets that could be affected by a cyberattack and evaluate a business’s information security risks. The assessment should evaluate where your vulnerabilities lie and identify safeguards to address those. It should identify your most critical facilities, activities and information, and the potential pathways to gain access to your networks.
Also, businesses must assess where they are in terms of cybersecurity policies and practices. How do you describe those activities, and how are those practices protecting your information and systems? Are those policies sufficient, or do they need revisions?
What are the next steps?
After evaluating your risks, vulnerabilities and current practices, think about an incident response plan that maps out the response if your business were subjected to a cyberattack. Who would lead that response, and how would you coordinate with internal and external stakeholders?
Review incident response plans often to keep up to date with lessons learned from internal or external cyberattacks and to address new vulnerabilities or potential pathways for malicious actors to gain access to your systems.
It is also important that businesses designate an individual internally to act as a cybersecurity coordinator. This person is charged with establishing and updating procedures, ensuring compliance, reviewing data or security breaches, leading incident response and coordinating with relevant government entities or industry data-sharing organizations. It’s nice to have a plan, but if it is not followed, it’s worthless.
Finally, with the significant uptick in cybersecurity incidents, businesses need to stay aware of the pathways hackers can use to gain access to their systems. The federal government and states are getting involved in privacy and cybersecurity issues, including calling for changes to laws and regulations. Businesses must stay current on changing laws and regulations and how new obligations affect their operations.
History is likely to repeat itself, and there is the potential for severe consequences to both big industry and small businesses. It’s not a question of if, it’s a question of when. Businesses must be asking these questions now to prepare and protect against cyberattacks.
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