Effect of Endangered Species Act Listing on the Oil and Gas Industry and the CCAA Option

Posted on April 30, 2012 by Donald Shandy

The oil and gas industry has lately been at the center of the debate over the scope and reach of the Endangered Species Act (“ESA”).  (See, for example, an August 2011 blog by Pamela Giblin).  Creative approaches will be needed to insulate against potential liability. 

When the U.S. District Court for the District of Columbia approved two settlements in multidistrict ESA litigation (MDL No. 2165) on September 9, 2011, the U.S. Fish and Wildlife Service (“FWS”) committed to, among other things, review over 250 candidate species and determine whether to issue a proposed listing rule or to issue a finding that listing is not warranted by the end of fiscal year 2016.  Among those first on the list to be decided are species located in areas of significant oil and gas development and potentially impacted by oil and gas operations.  For example, the Dunes Sagebrush Lizard (also known as the Sand Dune Lizard), a candidate species under the ESA, is known to exist in the energy-rich Permian Basin.

Once a species is listed as endangered or threatened, protective measures apply to the species and its habitat under Section 9 of the ESA.  The ESA prohibits the possession, sale, import, and/or export of endangered species, as well as the “take” of a listed wildlife species by a private or public entity.  Section 3 of the ESA defines the term “take” broadly to mean “harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect, or to attempt to engage in any such conduct.”  Even activities that are not designed or intended to harm a species, but that could do so indirectly, such as servicing a well, can constitute a take prohibited by the ESA. The ESA subjects any person who violates the statute or its implementing regulations to an array of civil and criminal sanctions.

A decision on whether or not to list the Sand Dune Lizard is due in June 2012.  Thus, oil and gas companies operating in areas of lizard habitat, or where other candidate species may exist, need to be thinking proactively about the impacts of a listing.  Some of the tools available to operators can be utilized in advance of listing and can provide important protections and assurances if the species is ultimately listed.  One significant opportunity for an oil and gas company to potentially insulate itself from ESA liability is a conservation agreement. 

Specifically, a Candidate Conservation Agreement with Assurances (“CCAA”) is an agreement, whereby non-federal property owners commit to implement voluntary conservation measures for a candidate species, and in return receive regulatory assurances that additional conservation measures will not be required and additional land, water, or resource use restrictions will not be imposed should the species become listed in the future.  Furthermore, the proactive conservation efforts performed through CCAAs may remove or reduce perceived threats to the covered species, so that FWS could determine that listing the species under the ESA is unnecessary. 

For example, CCAAs have been developed for the Sand Dune Lizard in Texas and New Mexico, and the Lesser Prairie Chicken in New Mexico.  Since assurances under these agreements are only available to operators and land owners who enroll before a species is listed, time is of the essence for projects or operations that may harm candidate species currently under evaluation, particularly the Sand Dune Lizard. 

For oil and gas operators who fail to take any action, the listing of a candidate species affected by development as threatened or endangered could immediately bring their operations to a halt.  FWS estimates that it could take as long as a year or more for an operator to obtain its own individual “take” permit.  Thus, whether or not these species become listed is certainly something to keep an eye on for oil and gas operators and their counsel.

Earth Day 2012 Ten Things You Can Do to Help Save the Planet

Posted on April 26, 2012 by Christopher Davis

April 22, 2012 was the 42nd Earth Day, an event that passed with limited notice by most Americans and the news media. For all but a few of us who work in the field, the environment is no longer a “top 10” issue. Yet objectively, the planet is in materially worse shape than it was on the first Earth Day in 1970. As a species, we are collectively destroying the earth’s natural systems, plundering its resources and squandering its natural capital at an accelerating and unsustainable rate. The “Tragedy of the Commons” that Garrett Hardin wrote so eloquently about in advance of the first Earth Day is rapidly unfolding just as he predicted.  

On a global scale, the earth’s ecosystems are under siege.  With a human population of 7 billion, and headed for at least 10 billion fairly soon, growing greenhouse gas emissions and resultant climate change, increasing regional water scarcity, and growing global competition for dwindling resources, the trends are to put it mildly, not looking good.  It has been estimated that we are now consuming the planet’s resources, emitting pollutants and generating waste at about 1.5 times the earth’s carrying capacity. The “externalities” of our ever growing global economy are overwhelming the earth’s ability to assimilate them.
[For a fairly comprehensive and sobering account of the causes, effects and trends of global environmental degradation, I recommend Paul Gilding’s recent book, The Great Disruption.]

If we continue on our present course, our environmental, social and economic systems appear to be headed for collapse, or at least some very rough sledding with unacceptably high (and of course, inequitably distributed) human and ecological casualties.  Catastrophic and irreversible climate change is a growing possibility, if not a probability, without fundamental changes in how we use energy.  After more than 40 years of effort, and a proliferation of “green” policies and initiatives, we are clearly losing the war of environmental protection and conservation.  This is particularly disquieting for those of us who work in the environmental profession, supposedly understand these issues, and presumably care about the real world outcomes.

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Troubled Times in Legal Education

Posted on April 23, 2012 by Irma S. Russell

The topic I have chosen for this blog may be a surprise to some.  It is not about a late-breaking environmental case--though we have had a couple in Montana recently.  It does not analyze a new regulation or explain a newly-discovered risk of industry practice.  It is not about the new federal guidance (such as the National Forest System Land Management Plan).  Rather, my focus is on the recent challenges in legal education.  While this topic is not substantively environmental, it will have an impact on the practice of environmental law in the not-too-distant future.

Just as we need a rational energy policy, we need a system of legal education that serves the public good.  We need to study seriously our nation’s policies on supporting and delivering legal education.  The importance of rule of law and lawyers to our democracy can hardly be overstated.  Public support for education in general and legal education in particular has declined over the last two decades to the point that people who want to make law their life’s work are facing an uphill battle and society is facing a situation in which no one except the wealthy can afford legal representation.

The challenges facing legal education today have been the subject of numerous recent articles.  Rising debt burdens law school graduates as they search for jobs in a tight market.  In January, the ABA Journal reported that America's law students borrowed at least $3.7 billion in 2010.  In [that same year], 85 percent of law graduates from ABA-accredited schools had an average debt load of $98,500, according to data collected from law schools by U.S. News & World Report.  At 29 schools, that amount exceeded $120,000.  In contrast, only 68 percent of those grads reported employment in positions that require a JD nine months after graduation.  Less than 51 percent found employment in private law firms.  The influx of so many law school graduates--44,258 in 2010 alone, according to the ABA--into a declining job market has created serious repercussions.   

In addition to facing high debt loads and fewer job opportunities, law graduates are confronted by criticism that law school is too theoretical and does not fully prepare graduates for practice.  Jeffrey W. Carr, the general counsel of FMC Technologies, stated in a New York Times article, “The fundamental issue is that law schools are producing people who are not capable of being counselors.  They are lawyers in the sense that they have law degrees, but they aren’t ready to be a provider of services.”  Over the last two decades, schools have added offerings in clinics, externships, and simulations to introduce more experiential learning into their curriculum.  Today, the vast majority of the nation's 200 law schools provide students with some kind of clinical training.  Nevertheless, there is no denying that new law graduates continue to need on-the-job training and mentoring by employers and colleagues before they are ready to fully embrace all aspects of the practice.

The American College of Environmental Lawyers (ACOEL) has been looking for innovative ways to fulfill its service mission to the profession.  The ideas include working with law faculty to survey the skills and knowledge new lawyers need to succeed in our profession and to make recommendations for changes in law schools.  I agree whole-heartedly with this and other innovative suggestions for developing our service and improving the profession, but I want to suggest an additional (old) avenue for this service: mentoring.

Mentoring is important for many reasons, and it serves as a way of bridging the gap in knowledge between the theory and practice in the law.  Mentoring is also an opportunity for lawyers to help others gain insight and judgment.  ACOEL members and other environmental practitioners have numerous opportunities to assist students and young lawyers.  Now, more than ever, there is a need for passionate, competent lawyers in environmental law and related fields, and these new lawyers will need mentors.  They will need mentors to be able to serve their clients and also to achieve the sense of serving the public good – one of the principal reasons students enrolled in law school in the first place. 

Practitioners can contribute in a variety of ways.  If you see a lack of mentoring in today's legal profession and want to contribute to this need, I hope you will reach out to a law school near you and offer to help mentor students and newly licensed lawyers.  I also hope you will consider supporting your own law school or others--particularly those that focus on environmental law--to help ensure the next generation of lawyers has the tools and opportunities to flourish in the practice of environmental law and to serve the public in this crucial field.

Will we ever have a national energy policy?

Posted on April 18, 2012 by Michael Rodburg

USEPA continues its program of death by a thousand cuts to the coal industry, but does the agency’s actions reflect a coherent national energy policy? On March 27, 2012 the EPA issued its new source performance standards for new power plants limiting CO2 emissions per megawatt-hour of produced electricity to a level about that of state-of-the-art, combined-cycle, gas-fired power plants. Importantly, industry observers claim that the level is far below what the best coal-fired power plants can achieve at least without commercially unavailable and quite expensive carbon capture technology.  While certain exceptions within the rule preclude stating that EPA has banned the use of coal in new plants, it comes pretty close.  That reminds me of an often repeated statement of an old client of mine back in the 1970’s whose recycled solvent fuel business and the EPA just didn’t get along that well—he would remark that “if coal were discovered today, EPA would never allow it to be burned.”  He appears to have been ahead of his time.

Of course one winner in this is natural gas.  With new sources of natural gas from shale and fracking having driven natural gas prices downward relative to coal and oil, old King Coal has been facing a distinct price disadvantage for years.  EPA had further disadvantaged coal and oil as a result of last year’s cross-state air pollution rule.  Last December, EPA’s MATS rule (mercury and air toxics standards) for power plants further adversely affected coal. Is EPA’s latest effort merely the coup de grace?

Don’t get me wrong.  I’m not a coal apologist.  One need not be a fan or sworn enemy of either natural gas or coal, of free markets or environmental regulation, to realize that something is going on that is important to our national energy situation with no one particularly in charge.  After all, coal mining, transportation and existing uses drive tens of thousands of jobs and the economy of such disadvantaged states as West Virginia.  Presidents and presidential candidates have decried our lack of a national energy policy for 30 years with meager results. 

My point is otherwise: What does the overall national interest—economic, energy and environment—have to say about the relative use of coal vs. natural gas vs. petroleum vs. nuclear power?  Should EPA’s rule, based on concerns for global warming and not immediate health and safety, trump everything else?  Should we increase our reliance on natural gas at the expense of coal?  Should we be at the mercy of market forces without regard to our long term, sustainable future?  Should we simply use a bumper sticker (“Drill, baby, drill”) instead of reasoned policy? 

What passes as policy is a series of regulatory silos each with its own raison d’etre—FERC, NRC, EPA, DOE. And, of course, Congress, some of whose members can’t wait to kill alternative energy policies (solar), decry subsidization for renewables while rejecting as nearly immoral attempts to eliminate out of date tax subsidies for oil and gas (Subsidies at today’s prices?  Give me a break!). EPA’s new rule, in isolation from everything else, is merely another example of our lack of a coherent national policy on energy.  It may be a good environmental rule, but is it good for the country?

GHG Oral Argument: The Best Chance to Avoid the Tailoring Rule's Absurd Results

Posted on April 17, 2012 by John Milner

On February 28 and 29, 2012, the U.S. Court of Appeals for the District of Columbia Circuit heard oral argument in Coalition for Responsible Regulation v. EPA, No. 09-1322 et. al., consolidated challenges to the U.S. Environmental Protection Agency (EPA) ’s greenhouse gas (GHG) regulations.  These regulations are being challenged by a coalition of industry groups and some states (the Coalition).  The Coalition argues that the EPA does not have the authority to regulate GHGs from stationary sources under the Clean Air Act (CAA)’s Prevention of Significant Deterioration (PSD) permitting program without Congress amending the law.

The Coalition is asking the Court to vacate EPA’s rules regulating greenhouse gases, including the so-called Tailpipe and Tailoring Rules, on the grounds that  they are contrary to the Clean Air Act and deviate from the explicit emission permitting thresholds in the CAA.  As Peter Keisler, a lawyer for the National Association of Manufacturers (NAM) argued, “the agency crossed the line from stationary interpretation to statutory revision” and violated the law by raising the emissions thresholds far above those provided for by Congress in the CAA in order to avoid issuance of an unmanageable number of PSD permits in the short term . 

The PSD program applies to new major sources or major modifications at existing sources for pollutants where the area the source is located is in attainment or unclassifiable with the National Ambient Air Quality Standards (NAAQS).  As Keisler explained to the court, 83% of the GHG emissions from stationary sources would be regulated if EPA addressed greenhouse gas emissions solely in permits for the larger sources already subject to PSD requirements based on their emissions of criteria pollutants. 

As Keisler then explained, under EPA’s Tailoring Rule which requires permits based solely on greenhouse gas emissions, 86% of the GHG emissions from stationary sources would be regulated – “a very tiny increment of difference, but a huge difference” in the number of sources that would now be regulated.  And this increment of difference between 83% to 86% would translate into stationary sources never before regulated and now required to meet all PSD requirements, including implementation of costly best available control technology (BACT).

A decision by the Court is expected this summer. 

Having participated in oral argument preparation and having observed both days of the oral arguments, it is my impression that the NAM arguments against EPA's Tailoring Rule provide the Coalition with the best chance for victory.  NAM’s sound interpretation of the CAA and Congressional intent, coupled with the "avoidance of absurd results" doctrine, would blunt EPA's quantum leap through the CAA to create non-statutory GHG emission thresholds capturing only an additional 3% of stationary sources that were previously unregulated and would now have to bear crippling air pollution control costs for no real environmental benefit.  This is the real absurdity of EPA's Tailoring Rule that I hope the court's decision will remedy.

EPA Proposes Carbon Dioxide Emissions Standard for New Fossil Fuel Power Plants

Posted on April 13, 2012 by Daniel Riesel

By Daniel Riesel and Vicki Shiah, Sive Paget & Riesel, PC

On March 27, the U.S. Environmental Protection Agency proposed a rule limiting carbon dioxide (“CO2”) emissions from new power plants fired by fossil fuels such as coal or natural gas.  The rule applies to new fossil fuel-fired electric utility generating units in the continental United States; they do not apply to existing units or new “transitional” units that already have received preconstruction air emission permits and that start construction within 12 months of the proposed rule’s publication in the Federal Register.

Covered power plants would be required to meet an output-based standard of 1,000 pounds of CO2 per megawatt-hour.  This standard favors natural gas over coal.  EPA states that “[n]ew natural gas combined cycle power plant units should be able to meet the proposed standard without add-on controls.”  By contrast, coal-fired power plants would not be able to meet this standard without carbon capture and storage technology, which is still under development and is expected to be quite costly – though EPA expects that the cost of such technology will decrease over time.

It is not clear whether the proposed regulation will have a significant effect on the energy industry, as the standard appears to reinforce current trends rather than require radical changes.  In the preamble to the proposed rule, EPA notes that, at present, “the industry generally is not building” coal-fired power plants and is not expected to do so “for the foreseeable future,” while natural gas is becoming more common as an energy source.   According to EPA, the 1,000 lb/MWh standard is already being met by 95% of natural gas-fired combined cycle power plants that commenced operation between 2006 and 2010.

The proposed rule (a New Source Performance Standard under Section 111 of the Clean Air Act) results from a settlement between EPA and a group of states and environmental groups.  These plaintiffs sued EPA in opposition to the agency’s refusal, in 2006, to establish greenhouse gas emission standards for new and modified power plants.  EPA was required to revisit this decision in the aftermath of the U.S. Supreme Court’s landmark decision in Massachusetts v. EPA, which affirmed EPA’s statutory authority under the Clean Air Act to regulate greenhouse gas emissions.

Under the settlement giving rise to the standard proposed last week, EPA had also agreed to establish CO2 emissions guidelines for existing fossil fuel power plants.  EPA has yet to propose such standards, and the time frame for its doing so is uncertain; EPA Administrator Lisa Jackson recently stated, "[w]e don't have plans to address existing plants."

The full text of the proposed rule is available here.  Public comments are being accepted under Docket ID No. EPA‐HQ‐OAR‐2011‐0660 at www.regulations.gov for 60 days after the proposed rule’s publication in the Federal Register.

IT IS NOT WISE TO PUT THE CART BEFORE THE HORSE

Posted on April 12, 2012 by Richard Sherman

Many environmental lawyers get involved in alternative energy development projects. But some may not have the engineering or technical background to understand some of the nuances of such projects.

Recently, a local municipal corporation installed three 1.5 MW wind turbines at its wastewater treatment facility, with the attendant publicity regarding reducing its electric energy consumption from the local distribution utility. The turbines have been up for some time but are not operating. Why not? Because, prior to erecting the turbines, the corporation did not negotiate, execute and implement an interconnection agreement with the local distribution company. And it may be some time before such agreement is executed and the interconnection is made.

Meanwhile, the turbines stand erect and motionless. While some may find this visually pleasing, what most do not realize is that wind effects on a motionless turbine – even when the turbine blades are feathered – produce considerable strain on the turbine components and may result in metal fatigue or breakage sooner than anticipated, with the consequent increase in unbudgeted maintenance and replacement costs. Such costs could have a material effect on the economic viability of the project.

Sign and implement the interconnection agreement first. You have been warned.

Finally! OSHA Revises Hazard Communication Standard

Posted on April 11, 2012 by Earl Phillips

OSHA recently announced its final rule final rule revising the Hazard Communication Standard (HCS). Originally promulgated in 1983, the HCS is based on workers' "right to know" about the hazards they face in the workplace. The intent of the revised HCS is to clarify the information provided to workers, based on an employee's "right to understand" workplace hazards. Click to view OSHA's press release, "US Department of Labor's OSHA revises Hazard Communication Standard: Regulation protects workers from dangerous chemicals, helps American businesses compete worldwide."

The revised HCS reflects the United Nations' Globally Harmonized System of Classification and Labeling of Chemicals (GHCS), which was negotiated by a variety of stakeholders around the world. Because American workers may use chemicals made abroad (and workers abroad may use US-produced chemicals), a consistent labeling standard around the world will enhance worker safety by making labels easier for everyone to understand.

The revised HCS makes three primary changes from the current standard:

Hazard Classification
Chemical producers and importers still bear the responsibility for classifying hazards presented by chemicals. The revised HCS provides detailed criteria for classifying the type and severity of hazard presented. The intent of the new information on hazard class and severity category is to efficiently provide guidance on the appropriate response to exposure.

Chemical Labels
The new rule requires a standardized label design that includes the use of pictograms, shown on the Hazard Communication Standard Pictogram Quick Card, which depict the type of hazard presented. Labels are also required to include a "signal word" ("danger" for more severe hazards and "warning" for less severe hazards) and a precautionary statement suggesting safety measures. A sample Hazard Communication Standard Label is available on the OSHA website. 

Safety Data Sheets
OSHA will now require a standardized 16-section format for Safety Data Sheets (SDSs), formerly known as Material Safety Data Sheets or MSDSs. This is expected to enhance ease of use, especially in an emergency, by ensuring that key information (for example, spill response procedures) can be quickly found within the document. The new SDS format is shown on the OSHA website. 

EFFECTIVE DATE
Chemical producers and importers are required to implement the revised label and SDS formats in 2015. As the GHSC labels are phased in around the world, American workers may start to receive labels and SDSs in the new format before the labeling rule goes into effect in the US. Therefore, to ensure that employees understand the new labels, OSHA requires US employers to train employees on the new label elements and SDS format by December 1, 2013.

Ecosystem Services – A New Tool for Mitigating Water Development?

Posted on April 9, 2012 by Martha Pagel

The use of ecosystem services as a tool for compensatory mitigation is off to a slow start in Oregon.  It remains to be seen whether state agencies will effectively embrace and implement this relatively new approach to setting priorities and standards for mitigation programs. A specific question from the standpoint of water use and development is whether a wide range of ecosystem services can be used as an alternative to “bucket-for-bucket” in-stream flow replacement as mitigation to offset new water development.

The concept of ecosystem services – defined as “the benefits human communities enjoy as a result of natural processes and biodiversity” – has been recognized in Oregon law since 2009. (ORS 468.581(3)). The law establishes a general policy to support the maintenance, enhancement and restoration of ecosystem services in Oregon (ORS 468.583). Agencies are “encouraged” to use ecosystem services markets as a means to meet mitigation needs for various programs, and are directed to consider mitigation strategies that recognize the need for biological connectivity and ecological restoration efforts at a landscape scale rather than exercise an “automatic preference for on-site, in-kind mitigation” in making mitigation decisions (ORS 468.587(2)). See “Adventures in Water Quality Mitigation” for additional background.

Despite this policy and directive, the Oregon Water Resources Department (OWRD) has not yet taken any actions to modify its mitigation policies relating to issuance of new water right permits.  Under long-standing procedures, OWRD requires mitigation for new uses that are determined to have the potential to interfere with in-stream flows needed for fish that are listed as sensitive, threatened or endangered under state or federal programs.  (OAR Chapter 690, Division 33).

The need for mitigation arises most often in the context of reviewing applications for new ground water use. When the ground water source is determined to be in hydraulic connection to surface waters providing habitat for the listed fish species, mitigation may be required to offset the expected surface water depletion. Based on guidance from a biological opinion issued in a specific water right permit matter some years back, OWRD typically requires “bucket-for-bucket” mitigation in the form of in-stream flow restoration at or above the stream reach that will be affected by the ground water use. 

Applicants generally obtain mitigation water by acquiring and cancelling other existing water rights for surface water use.  In practice, the system results in a de facto cap and trade program, conditioning approval of new water rights on the cancellation of existing rights. 

In a few regions of the state – most notably the Deschutes Basin in Central Oregon – the bucket-for-bucket replacement approach works because mitigation water is generally available through voluntary markets.  This somewhat unique set of circumstances arises because of population growth and land use changes in an area of relatively marginal farming productivity.  As farm lands are converted to housing and urban uses in and near the cities Bend, Redmond and Prineville, the existing water rights become available for mitigation purposes.

In other parts of the state – most notably the highly productive and water-efficient farming region in the mid-Columbia Basin – the fact situation is quite different.  There is very little mitigation water available because existing water rights are needed to maintain existing agricultural production levels.  The frustration for economic development interests is exacerbated by the enormous volume of flow in the Columbia River and huge reservoir pools created by the federal hydropower system, both of which are untouchable because of the regulatory limitations on new withdrawals.   

The issue of ecosystem services as a potential alternative for mitigation took center stage briefly in the 2012 legislative session – but the discussion resulted in no action. HB 4126 would have spurred availability of ecosystem services markets by focusing on improved methodologies for quantifying and applying ecosystem services “credits.” Another bill that was hotly debated but eventually died in committee was focused directly on the Columbia Basin problems.  HB 4101 would have required OWRD to “consider new mitigation options for new surface water diversions” in the Columbia River Basin. The mitigation wording was specifically intended to open the door for alternatives to the “bucket-for-bucket” approach.  By putting the ecosystem services concept to work, mitigation alternatives could reasonably include investment in high value habitat restoration, including temperature reduction or other water quality improvements in priority tributaries to offset direct withdrawals from the Columbia River. 

For many of us directly involved in the Columbia River debates in Oregon, this new approach could be a key to unlocking access to the river for new economic use.  Without this policy change, Oregon water uses will continue to see little or no new irrigation development in the area because of the lack of traditional mitigation sources.  The Governor and legislative leadership are already working on a revival of the HB 4101 discussion in 2013.

The Sackett Effect

Posted on April 6, 2012 by Paul Seals

On Friday, March 30, the United States Environmental Protection Agency (“EPA”) announced that the agency was withdrawing its December 7, 2010 Imminent and Substantial Endangerment Administrative Order (“AO ”) issued unilaterally to Range Resources Corporation and Range Resources Production Company (“Range”).  With much fanfare and national media attention, EPA issued the AO to address the contamination of two water wells in North Central Texas.  EPA alleged that the source of the contamination was from Range’s oil and gas activities, including hydraulic fracturing, in the Barnett Shale Formation.  Range has challenged EPA’s action with pending litigation in the Northern District of Texas and in the Fifth Circuit.  Was EPA’s decision to withdraw its AO an outgrowth of the recent unanimous Supreme Court decision in Sackett v. EPA?

In addition to ordering replacement water supplies to the recipients of water from the affected water well, the AO included the requirements that Range study a twenty-county aquifer, identify gas flow pathways anywhere within that aquifer regardless of their source, and prepare a plan to eliminate those flows and remediate any area of the aquifer that has been impacted by gas from any source.  Range was to identify and sample all private water wells within 3,000 feet of their two suspect gas wells, as well as all the water wells serving a subdivision in Parker County.  Range informed EPA that it disputed the validity of the AO and would not comply with some of its terms.

In addition to Range’s challenge to the AO, the Railroad Commission Texas, the state agency with sole jurisdiction and responsibility for the control and disposition of waste and the abatement and prevention of pollution of surface and subsurface water resulting from oil and gas activities, called a hearing to consider whether Range’s operations caused or contributed to the contamination of the water wells in question.  Based on the evidence presented at the hearing, conducted on January 19-20, 2011, the Railroad Commission found that the contamination of the water wells came from the shallower Strawn gas field, which begins about 200 to 400 feet below the surface.  Geochemical gas testing demonstrated that the natural gas seeping into the water wells did not match the gas produced by Range from the much deeper Barnett Shale field, which is more than 5.000 feet below the surface in that area of Parker County.  The evidence showed that hydraulic fracturing of gas wells in the area could not result in communication between the Barnett Shale gas field and the shallow aquifers from which water wells in the area produce.  EPA chose not to participate in the state hearing process.

EPA brought a civil enforcement action in the Northern District of Texas against Range on January 18, 2011, Case No. 3:11-cv-00116-F, seeking injunctive relief and civil penalties for Range’s failure to comply with the AO.  Range filed a petition for review on the AO with the 5th Circuit on January 20, 2011, Case No. 11-60040, challenging the AO and the constitutionality of the AO statutory scheme as interpreted and applied by EPA.

The district court in its Order Denying Without Prejudice Defendants’ Motion to Dismiss and Staying Case, 2011 WL 2469731 (N.D.Tex.), struggled with EPA’s claim that it only has to prove noncompliance with the AO and the Court has no jurisdiction to review the factual and legal basis of the AO. The Court found that the AO was a final agency action, but stayed the case pending the 5th Circuit decision.

The issues before the 5th Circuit included whether the AO was final agency action and, if so, has Range been provided due process. Oral argument was considered on October 3, 2011.

On March 21, 2012, a unanimous Supreme Court held in the Sackett case that AOs issued under the Clean Water Act constitute final agency action. Under the Administrative Procedure Act, Respondents, like Chantell and Michael Sackett, are afforded pre-enforcement review of the factual and legal basis of the AO and may bring a civil action under the APA to challenge the AO.

Given the opinion for a unanimous Supreme Court in the Sackett case, EPA must have felt less than enthusiastic about its prospects in the pending Range cases. On Friday afternoon, March 30 with no fanfare and limited media attention, EPA announced the withdrawal of the Range AO. In a letter to EPA on the same date, Range confirmed the withdrawal of the AO and a related joint stipulation to dismiss EPA’s enforcement action and committed to sample twenty private water wells located in southern Parker County on a quarterly basis for one year, a substantial reduction in the scope and magnitude of the terms in the AO.

EPA’s hasty dismissal of the Range case raises some interesting questions. Did EPA agree to withdraw the Range AO in order to minimize the litigation risk of establishing pre-enforcement review rights of respondents to unilateral AOs under the Safe Drinking Water Act?  How extensive will the Sackett case be applied to unilateral AOs authorized under other non-Clean Water Act statutes administered by EPA and other federal agencies? What are the implications to EPA’s ability to react quickly to bonified public health emergencies? Will Congress need to overhaul statutory AO provisions to avoid the problem confronted in Sackett?

A GREENER SHADE OF GREEN (with apologies to Procol Harum)

Posted on April 4, 2012 by Robert M Olian

A Superfund cleanup project is, of course, an exercise in "greening" the environment, in that the remediation project is designed to remove contamination from the environment and return the affected property to beneficial use. With the February 2012 publication of EPA's "Methodology for Understanding and Reducing a Project's Environmental Footprint" report, EPA has begun to formalize a process for ensuring that the remediation itself is done as greenly as possible.

The methodology describes a total of 21 metrics by which the greenness of a cleanup can be measured across five core elements: air, water, energy, materials and waste, and land/ecosystems. The report contains planning checklists (warranted to be "user-friendly") and a series of spreadsheets (which are assuredly not user-friendly) illustrating formats for organizing raw data and quantifying impact estimates.

While the methodology will primarily be applied to future remediation projects, the techniques are already being tested at a few ongoing remediation sites that have "volunteered" to pilot the methodology. For example, at one site in the Midwest that is in the middle of long-term groundwater pump-and-treat, an EPA consultant examined the project to determine whether the carbon emissions associated with the electricity (generated by the local utility at a coal-burning power plant) needed to run the pumps and associated air strippers could be reduced.

No word yet on whether the next level of meta-analysis will require investigating how to minimize the resources used to analyze the footprint “greenity” of the underlying project itself.

CAN A TOWN BAN NATURAL GAS DRILLING USING LOCAL ZONING ORDINANCES?

Posted on April 3, 2012 by Eileen Millett

For anyone who thought New York State was galloping toward exploration, development and regulation of drilling for natural gas, and for anyone who wondered how and when you’d see the brakes applied, two towns did just that during the third week of February. Using local zoning ordinances, the towns of Dryden and Middlefield banned drilling for natural gas within their geographic boundaries.  How they did so, whether they are on solid legal ground for their bans, and what, if anything, the state can or should do to further enhance the development of natural gas are important questions.

Drilling for natural gas, which has gone on for decades in the west, has expanded rapidly in the east in recent years, largely due to a technique known as hydraulic fracturing or hydrofracking.   For property owners, leasing land for gas drilling has created an economic boon, and with it the potential for bringing jobs to a portion of the state that has long been economically depressed, along with the prospect of lessening the nation’s dependence on foreign energy sources.  At the same time, hydrofracking has heightened concerns about contamination of well water, air pollution, and the generation of hazardous waste, as well as other environmental concerns. 

For now at least, it appears that towns in New York State may ban gas drilling within their borders if they choose to do so.  Two statutes in particular – aided by judicial interpretation – support bans like those enacted by the Town of Dryden and the Town of Middlefield.  In regulating oil and gas development, the Oil, Gas and Solution Mining Law (OGSML), set forth in Environmental Conservation Law (“ECL”) Article 23, Title 3, and the Mined Land Reclamation Law (“MLRL”), set forth in ECL  Article 23, Title 27, come into play. 

On February 21, 2012, in Anschutz Exploration Company v. Town of Dryden, Index No. 2011-0902, Tompkins County Supreme Court Justice Phillip Rumsey ruled that the OGSML does not preempt local restrictions that ban gas drilling within the geographic boundaries of the municipality.  Similarly, on February 24, 2012, in Cooperstown Holstein Corp. v. Town of Middlefield, Index No. 0011-0930, Otsego County Acting Supreme Court Justice Donald F. Cerio ruled that the OGSML does not preempt a local municipality from enacting a land use regulation within its geographic jurisdiction, and that a local municipality may permit or prohibit gas drilling in conformity with statutory authority.

The New York State Court of Appeals reached a similar decision in Frew Run Gravel v. Carroll, 71 N.Y.2d 126 (1987) with respect to a comparable provision of the MLRL that empowers the New York State Department of Environmental Conservation (“NYDEC”) to regulate mining and the reclamation of mined lands.   The Frew Run court held that zoning ordinances were not the type of regulatory provision that the legislature foresaw as being preempted by the MLRL and made a distinction between the regulation of how property may be used, i.e., the local zoning ordinance, and the regulation of mining activities.  Just 11 years later, the Court of Appeals again examined the supersession claim clause of the MLRL in In the Matter of Gernatt Asphalt Products, Inc. v. Town of Sardinia, 87 N.Y.2d 668 (1996) and likewise concluded that zoning ordinances were not the type of regulatory provision that the legislature foresaw as being preempted by the MLRL.

The Town of Dryden and the Town of Littlefield decisions relied on these authorities, and thus are on solid legal footing.  As a result, a municipality in New York State is free to ban operations related to oil and gas production within its borders just as towns are free to use zoning ordinances to ban mining activity, even recognizing an incidental effect on the oil, gas drilling or mining industry. 

What does this mean for gas drilling in New York State?  Dryden and Middlefield are but two towns in upstate New York that have taken action. Whether these towns are outliers or the start of a trend remains to be seen.  Many citizens of New York long have said that towns should have the authority to block natural gas drilling within their boundaries.  However, towns may forego bans on gas drilling because of the perceived economic benefits.  

The development of natural gas drilling in New York is in its early stages.  During the early run-up to exploration and development of natural gas, the NYSDEC Commissioner, with one stroke of a pen, banned natural gas drilling in the entire New York City watershed, as well as in the City of Syracuse watershed.  The Commissioner’s action alleviated concern that hydraulic fracturing might harm pristine drinking water for those two major cities.  Such environmental concerns could be the subject of sharp debate in other towns where gas drilling is proposed. 

NYSDEC is still six months to a year or more away from adopting a final environmental impact Statement regarding drilling, and ultimately, it may not even be up to New York.  The Environmental Protection Agency has empowered a team of experts to examine the technology and the science of hydraulic fracturing, and to make recommendations that could include extensive federal regulation.  When New York is ready to look at permit applications, the NYSDEC can evaluate the legal landscape to determine how the courts have handled the fracking cases.  As for the New York legislature, assuming that the bans on natural gas drilling are upheld, its willingness to tackle an issue as controversial as natural gas drilling will depend on the price of natural gas, the economic landscape, and the will of the State Executive branch.  For those of you keeping score, for now, it is towns, two, New York State, zero.

1Using water at high pressure, hydrofracking can break rocks deep underground.  In using this technique, drilling begins vertically and is then done horizontally, opening a larger land area to well placement and allowing for the extraction of more product.
 2The OGSML contains the following statement:  “The provisions of this article shall supersede all local laws or ordinances relating to the regulation of the oil, gas and solution mining industries; but shall not supersede local government jurisdiction over local roads or the rights of local governments under the real property tax law.” ECL 23-0303(2) (emphasis added).
 3In Frew Run, the Court of Appeals examined the supersedure provision of the MLRL, which at that time provided:  “For purposes stated herein, this title shall supersede all other state and local laws relating to the extractive mining industry; provided, however, that nothing in this title shall be construed to prevent any local government from enacting local zoning ordinances or other local laws which impose stricter mined land reclamation standards or requirements than those found herein.” ECL 23-2703(2) (emphasis added).

Don’t Mess With Texas – EPA Loses Battle With TCEQ

Posted on April 2, 2012 by Eva O'Brien

If you live in Texas or have driven through the state, you know that our popular anti-litter campaign slogan is “Don’t Mess With Texas.”  This slogan may have also been appropriate for the 5th Circuit’s recent decision in Luminant Generation Company, et al. v. U.S. Environmental Protection Agency, No. 10-60891, slip op. (5th Cir. Mar. 26, 2012), where the court came down hard on the U.S. Environmental Protection Agency (“EPA”) for its very late disapproval of revisions to Texas’s State Implementation Plan (“SIP”) pertaining to standard permits for  pollution control projects (“PCPs”).   

In Luminant, the 5th Circuit noted that the federal Clean Air Act (“CAA”) “prescribes only the barest of requirements” for New Source Review (“NSR”) of minor new sources of air pollutant emissions.  It found that EPA had not identified a single violation of the CAA or EPA’s regulations and thus had no legal basis for its disapproval of the PCP Standard Permit provisions, striking down as arbitrary and capricious the “three extra-statutory standards that the EPA created out of whole cloth.”  Id. at 21.  Two of those standards referenced Texas law and a third was based on too much agency discretion in permit issuance.

Noting that EPA failed to act until three years after the 18 month statutory deadline for EPA action had passed, the court ordered EPA to expeditiously reconsider the SIP revision submission made by the Texas Commission on Environmental Quality (“TCEQ”), and compared the “sweeping discretion” given to the states in developing their SIPS to EPA’s “narrow task” of “ensuring” that the Texas regulations “meet the minimal CAA requirements that govern SIP revisions to minor NSR, as set forth in 42 U.S.C. § 7410 (a)(2)(C) and § 7310(l).”  Id.  The court then stated that this limited review “is the full extent of EPA’s authority in the SIP-approval process because that is all the authority that the CAA confers.”  Id. at 21-22.

For the past several years, the TCEQ and EPA have butted heads over various aspects of Texas’s SIP.  This was the third of three cases heard by the 5th Circuit on SIP reviews, albeit the first in which a decision has been rendered.  Oral arguments were held in the other two pending cases last fall – the first relating to Texas’ Qualified Facilities program, Texas Oil & Gas Association, et al. v. U.S. EPA, No. 10-60459 (5th Cir. filed Jun. 11, 2010), and the second relating to Texas’s Flexible Permit Program, Texas v. U.S. EPA, No. 10-10614 (5th Cir. filed Jul. 26, 2010). 

Of these three cases, the EPA’s disapproval of Texas’s Flexible Permit Program has caused the most tension between the agencies.  That program provides facilities with flexibility to reduce emissions by the most cost-effective means through allocation of emissions on a facility-wide basis rather than by source point, and has been a basic tenet of permitting in Texas since 1994.  The end result of the Flexible Permit Program—which Texas considers akin to the federal Plantwide Applicability Limit (“PAL”) under the New Source Review program—not only gave facilities greater flexibility and control, but actually reduced emissions and provided for compliance with all state health standards, as well as all applicable federal Clean Air Act requirements. 

Given that EPA’s delay in disapproving these last two aspects of the Texas SIP was even more egregious (effectively up to sixteen years), it is likely that the 5th Circuit will view the EPA’s actions in those cases with a similarly critical eye.  We in Texas hope that the court continues to call EPA to task for its past unpopular and unwarranted decisions with respect to Texas’s SIP.