Articles, Alerts & Perspectives

Administrative Watch

The U.S. Court of Appeals for the District of Columbia Circuit has vacated a USEPA memorandum aimed at limiting the reach of Summit Petroleum Corp. v. USEPA, (6th Cir. Aug 7, 2012), a case which condemned USEPA’s use of a functional interrelationship test in making single source determinations for air permitting. In Summit, the Sixth Circuit Court found that the regulatory term “adjacent” unambiguously relates only to physical proximity, and that USEPA’s contrary interpretation, which evaluated the functional interrelatedness of emission sources to determine whether they were adjacent, was inconsistent with both the plain meaning of the federal Clean Air Act (CAA) regulations and their history.

Following the Summit ruling, in December 2012, the USEPA Office of Air Quality Planning and Standards issued a memorandum (known as the “Summit Directive” or “Directive”) to all Regional Air Division Directors and Air Program Managers advising that, in the Sixth Circuit states of Michigan, Ohio, Tennessee and Kentucky, USEPA permitting officials “may no longer consider interrelatedness in determining adjacency when making source determination decisions.” With respect to regions of the country beyond the Sixth Circuit, however, the Summit Directive specified that agency officials would continue to consider functional interrelatedness in making source determinations.

A petition for review of the Summit Directive was filed shortly thereafter with the D.C. Circuit Court by a non-profit trade association representing resource extraction and manufacturing companies. The National Environmental Development Association’s Clean Air Project (NEDA/CAP) argued that the Directive violated CAA and regulatory provisions requiring national uniformity when administering CAA programs. NEDA/CAP also argued that the Directive resulted in a competitive disadvantage for member companies located outside of the Sixth Circuit, where USEPA would continue to rely on vague notions of functional interrelatedness to aggregate emission sources and thus require major source permitting. …

Administrative Watch

In an opinion strictly interpreting the statutory text of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), the U.S. Supreme Court limited the scope of a CERCLA provision that is designed to extend state law claims for personal injury or property damage resulting from hazardous substance contamination. Although the case may have limited practical application because of the relatively unique nature of the North Carolina law involved, the Supreme Court’s decision in CTS Corp. v. Waldburger has the effect of cutting off the plaintiffs’ claims for injuries allegedly caused by decades-old contamination.

As background, Congress enacted Section 9658 of CERCLA in 1986 to protect plaintiffs from having their personal injury or property damage claims prematurely extinguished by operation of state statutes of limitation. Under the “discovery rule” established by Section 9658, state statutes of limitation will not begin to run until a plaintiff discovers (or reasonably should have discovered) that the claimed harm was caused by contamination. Any state statute that holds otherwise is preempted by CERCLA.

In CTS, the Supreme Court was asked whether Section 9658, which by its express terms preempts conflicting state statutes of limitations, also preempts state statutes of repose. Although statutes of limitations and statutes of repose both may operate to prohibit a plaintiff from bringing a claim based on the passage of time, the two policies have distinct purposes. A statute of limitations requires a plaintiff to file a lawsuit within a certain timeframe after the claim arises in order to limit stale claims where evidence and witnesses may have been lost. On the other hand, a statute of repose represents a legislative policy decision that a defendant should be free from liability after a certain time (i.e., a “hard stop” to tort liability). …

Administrative Watch

Proposed regulatory amendments published on April 19, 2014 are likely to affect hundreds of facilities in Pennsylvania. The Pennsylvania Department of Environmental Protection (PADEP) has estimated that 141 sources will need to install additional pollution control equipment under the proposal. In addition, environmental advocacy groups began criticizing the rule as being too lenient even before it was published.

The Pennsylvania Environmental Quality Board published proposed amendments to PADEP regulations in 25 Pa. Code Chapters 121 and 129 (relating to general provisions; standards for sources). The proposed rule would require all major stationary sources of nitrogen oxides (NOx) or volatile organic compound (VOC) emissions, or both, to apply “reasonably available control technology” (RACT). NOx and VOC controls are required because the Commonwealth is located in the Northeast Ozone Transport Region.

The proposed rule would establish presumptive RACT for nine source categories: combustion units; boilers; process heaters; turbines; engines; municipal solid waste landfills; municipal waste combustors; cement kilns; and other sources that are not regulated elsewhere under Chapter 129. Facility owners and operators would be required to either meet the presumptive RACT emission limitations and requirements or negotiate alternative requirements with PADEP.

The Pennsylvania Environmental Quality Board will hold three public hearings on the RACT proposal in May 2014. Public comments will be accepted until June 30, 2014. If you own or operate a major stationary source of NOx or VOC emissions, or both, your facility is likely to be affected by this rulemaking. For additional information regarding compliance options, please contact Michael H. Winek at (412) 394-6538 or mwinek@babstcalland.com, or Meredith Odato Graham at (412) 773-8712 or mgraham@babstcalland.com.

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Administrative Watch

On January 13, 2014, the United States Environmental Protection Agency (EPA) released a final rule that will allow entities to complete manifest forms required under the Resource Conservation and Recovery Act (RCRA) through a computer-based e-Manifest system hosted by EPA. The rule will offer hazardous waste handlers an efficient alternative to the current time-consuming paper manifest forms. However, generators who want to use the system will be charged user fees and must ensure that all downstream waste handlers also agree to use the system. Entities will still be allowed to use paper manifest forms on an interim basis, which must be sent to EPA for manual entry into the e-Manifest system once it is developed.

The e-Manifest Alternative
The new e-Manifest forms will carry the same legal force as the paper forms, and individual states cannot require paper forms to be completed if the e-Manifest system is used. There are several issues that handlers should be aware of when using the e-Manifest system:

• to use the e-Manifest system, the rule requires all entities in the chain of custody to agree upfront to use the system instead of using paper forms. Generators should ensure that transporters and receiving facilities are willing to participate in the e-Manifest system;

• the e-Manifest system is XML-based. Entities who want to use the system should ensure their computing system supports XML architecture; and

• the rule states that manifest data are not confidential business information. Aggregate data requests from the e-Manifest system may possibly reveal customer lists for receiving facilities, or process information for generators.

While not yet finalized, e-Manifests will likely be executed by using a PIN/password and ID system under the following steps:

• the generator enters waste descriptions, certifies in the system that the waste shipment is properly packaged, and presents a government-issued photo ID to the transporter during pickup. …

Administrative Watch

The Ohio Department of Natural Resources, on February 21, 2014, published draft rules concerning horizontal well site construction. The public comment period for the draft rules ends on March 10, 2014. A subsequent 30-day comment period will be announced after the draft rules are formally proposed. The draft rules are available on the Division of Oil and Gas Resources Management’s website,oilandgas.ohiodnr.gov.

The rules require approval of a well site by the Chief of the Division of Oil and Gas prior to construction of the site. “Well site” is defined as including the well pad, all associated production activities, and access roadways. The rules require submission of an application containing extensive and detailed information, including detailed drawings, a sediment and erosion control plan, a dust control plan, a geotechnical report, and a storm water hydraulic plan.

The rules create an approval process that is not linked to the issuance of well drilling permits, and is therefore a new, independent approval requirement. The rules as drafted present numerous and significant issues regarding establishing the boundaries of a well site and the nature and extent of information needed to obtain approval of the site.

For additional information on the draft rules, and to obtain assistance on submitting comments, please contact David Northrop at 412-394-6590 or dnorthrop@babstcalland.com.

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Administrative Watch

On October 31, 2013, Ohio Governor Kasich signed Substitute House Bill 72 (HB 72) into law. HB 72 amends various Sections of the Ohio Revised Code (the Code), in part, to modernize the county recorder requirements. Regarding Sections of the Code which set forth procedural requirements for the forfeiture of oil and gas leases (Section 5301.332) and the abandonment of severed mineral interests (Section 5301.56 (2006), also known as the Dormant Mineral Act), HB 72 adds the requirement that a Notice of Failure to File be recorded in order to effectuate the forfeiture of an oil and gas lease or the abandonment of a mineral interest under the Dormant Mineral Act. This replaces the current procedural requirement that the recorder place a marginal notation on the lease or on the record of which the severed mineral interest is based to complete a claim under these Sections of the Code. HB 72 becomes effective on January 30, 2014.

Lease Forfeiture
Section 5301.332 of the Code provides a lessor with the right to pursue the forfeiture of a lease so long as there are no producing or drilling oil or gas wells, and: (i) the lease term expired, or (ii) the lessee failed to comply with the covenants of the lease. Currently, the lessor is required to serve notice of the lessor’s intent to declare the lease forfeited, and subsequently file an affidavit of forfeiture. If the lessee, or the lessee’s successors or assigns fail to provide notice to the lessor that the lease is still effective within 60 days of the lessor’s notice, then the lessor may cause the county recorder to note upon the margin of the lease that “This lease cancelled pursuant to affidavit of forfeiture recorded in Lease Vol. …

Administrative Watch

On August 15, 2013, the United States Environmental Protection Agency (EPA) published a proposed and “direct final” rule that expands the options available to parties seeking to qualify for certain defenses to liability under Superfund and other laws. This change will provide prospective purchasers with additional choices when conducting environmental due diligence. Although it will take some time for the market to catch up with this change, it is likely that conducting due diligence using this newest approach will add additional cost and time to a proposed real estate transaction.

Background
When acquiring commercial or industrial real estate, it is critical to conduct due diligence into the environmental conditions and prior uses of the target property. Understanding these conditions not only allows the purchaser to evaluate the potential limitations and risks associated with the property, but this due diligence can also be used to establish defenses to environmental liability. For example, under the federal Superfund law (CERCLA), bona fide prospective purchasers and other “innocent” landowners can be protected from certain environmental liability if they undertake “all appropriate inquiry” (AAI) into the prior ownership and uses of a property before acquiring it.

EPA has established specific standards and practices for conducting AAI (the AAI Rule), and in doing so, specifically recognized ASTM’s 2005 Standard for conducting Phase I Environmental Site Assessments (ASTM E1527-05) as being compliant with the AAI Rule. ASTM is currently revising its 2005 Standard, which will be published as ASTM E1527-13 (the 2013 Standard) when finalized. EPA’s proposed rule would provide parties with the option of using either the 2005 Standard or the new 2013 Standard when conducting AAI.

The 2013 Standard
EPA noted in the proposed rule’s preamble that the agency reviewed the 2013 Standard and determined that there are only “slight differences” between the AAI Rule, the 2005 Standard and the 2013 Standard. …

Administrative Watch

On August 8, 2013, the Pennsylvania Department of Environmental Protection (DEP) announced that unconventional gas well sites will no longer be unconditionally exempt from the requirement to obtain an air quality plan approval. The Air Pollution Control Act authorizes DEP to exempt certain sources from the requirement to obtain a plan approval, i.e., the state air quality “permit” which authorizes the construction and temporary operation of air emissions sources. DEP had previously provided a blanket exemption for both conventional and unconventional well sites, such that operators did not need to obtain a plan approval from DEP prior to constructing wells, wellheads and associated equipment. DEP’s new policy retains the existing broad exemption for conventional well sites, but makes significant changes with respect to unconventional well sites.

DEP released a revised final technical guidance document entitled, “Air Quality Permit Exemptions,” which lists plan approval exemptions by category of emission sources. The newly revised list reflects changes to Exemption No. 33, pertaining to compressed natural gas fueling, and Exemption No. 38, pertaining to conventional and unconventional oil and gas exploration, development, production facilities and associated equipment and operation. Although revised Exemption No. 38 still exempts both conventional and unconventional “wells, wellheads, and associated equipment,” DEP will now require unconventional well operators to meet several criteria in order to qualify for the exemption. These new criteria involve controls and practices that are more stringent than federal air regulations. The new conditions on Exemption No. 38 include:

• Owners and operators must conduct an annual leak detection and repair (LDAR) program for valves, flanges, connectors, storage vessels, and compressor seals that are in natural gas or hydrocarbon liquids service—essentially, LDAR must be implemented across the entire well pad;
• Storage vessels/storage tanks must meet 95% or greater emissions reductions for VOCs; …

Administrative Watch

After months of negotiation, the state of Ohio’s biennial budget was signed into law on June 30, 2013 by Governor John Kasich. The new budget covers a wide range of topics, but it is notable for what it does not include – an increase in the oil and gas severance tax. The budget also makes several changes to oil and gas industry regulations. The changes include:

• Horizontal well owners must report production on a quarterly basis rather than an annual basis;

• Beginning on March 31, 2015, well owners must disclose the country of origin of all steel pipes used in the drilling process;

• Only synthetically lined pits or impoundments may be used for temporary storage of brine and other fluids;

• After January 1, 2014, the storage, recycling, treatment, processing or disposal of brine or other waste substances must be in accordance with a permit issued by the chief of the Ohio Department of Natural Resource’s Division of Oil and Gas Resources Management, and the chief is required to adopt rules addressing the issuance of the permits;

• The owner of a horizontal well must test drill cuttings for the concentration of radium-226 and radium-228 if the material is technologically enhanced naturally occurring radioactive material (TENORM) and is not reused in connection with the well, disposed of by injection or transported out of Ohio;

• The owner or operator of a solid waste facility may accept material containing TENORM if the material contains less than five picocuries per gram above natural background of radium-226 or radium-228; and

• Material that is not TENORM, but has come in contact with refined oil-based substances, may only be disposed at an authorized solid waste facility or used in accordance with rules adopted by the director of environmental production. …

Administrative Watch 

The Ohio Department of Natural Resources, Division of Oil & Gas Resources Management, recently published new guidelines for applications for a unitization order under Revised Code Section 1509.28. That Section provides the method preferred by the industry for creating units for horizontal drilling where parcels within the proposed unit are unleased. The guidelines are intended to formalize the unitization application process and provide consistency and efficiency in the review process. The guidelines provide notice to applicants that applications lacking information listed in the guidelines will be considered to be incomplete, and will not be processed by the division.

Fifteen unitization application requirements are listed, and can be found at http://www.oilandgas.ohiodnr.gov/industry/unitization. Several requirements of particular importance are:

• Applicants must provide an affidavit setting forth a detailed account of the attempts to lease the unleased properties that includes the date of each attempt, identification of both the person contacted and the person who made the contact, and identification of how the contact was made;

• Applicants must provide a list of all uncommitted working interest owners in the unit which includes the name, address, parcel numbers and the respective acreage of each owner;

• Applicants must submit a statement of why unitization is necessary, a description of the plan for development of the unit, identification of the formation to be produced, estimated value of the recovery of oil and gas for each proposed well, an estimated cost of drilling and operating a well and a designated contact person for the applicant; and

• Applicants must bring large exhibits or slides of maps, cross-sections, gamma ray-density logs identifying the proposed formations to be produced and reserve calculations to the hearing.

The published guidelines also provide additional information concerning revisions and updates to applications, the hearing procedures, requests for continuances of the hearing and the division chief’s action on applications. …

Administrative Watch

Numerous sources, from elementary schools to chemical manufacturers will be affected by recently finalized rules governing boilers, process heaters and incineration units. In late December 2012, the U.S. Environmental Protection Agency (EPA) signed the long-awaited final revisions to its combustion air rules affecting boilers, process heaters, incinerators and kilns at a wide variety of facilities and institutions. This rulemaking package includes a revised: (1) Major Source Boiler Rule; (2) Area Source Boiler Rule; (3) Commercial and Industrial Solid Waste Incineration (CISWI) Units Rule; and (4) Non-Hazardous Secondary Materials (NHSM) Rule. After nearly two years of deliberation and legal challenges, the EPA published the final revisions in the Federal Register in late January and early February. The changes to the regulations are effective on different dates.

EPA issued the four rules together because they are interrelated. The two Boiler Rules control emissions of hazardous air pollutants from boilers and process heaters located at industrial, commercial and institutional facilities, while the CISWI Rule controls air pollutants from devices at commercial and industrial facilities (regardless of Major or Area Source designation) that combust “solid waste.” The NHSM Rule defines “solid waste” for purposes of determining which air pollution control rule applies, whether it be the CISWI Rule or one of the Boiler Rules. If, for example, a boiler located at a Major Source facility combusts “solid waste,” which the NHSM Rule defines broadly to include liquids, semisolids and contained gases, then the boiler is subject to the CISWI Rule—not the Major Source Boiler Rule. Generally, the regulated community has preferred to avoid the CISWI Rule, because it imposes tougher requirements than the Boiler Rules’ regime.

The recent revisions should prompt owners and operators of boilers and other combustion devices to evaluate whether their devices are subject to one of these rules. …