Posted on July 15, 2016
Business groups largely supported the Toxic Substances Control Act (TSCA) Amendments recently signed into law by President Obama to address concerns about the emergence of varying state-by-state requirements regulating the chemicals used in consumer products. But for those wishing to avail themselves of California’s vast and lucrative marketplace, the TSCA Amendments and EPA’s June 29, 2016 plan to begin implementing them may prove to do little to alleviate business’s headaches. While the TSCA Amendments include a number of permanent and temporary federal preemption provisions, they are riddled with holes that may allow California’s activist requirements and plaintiffs’ lawyers to proceed largely unimpeded.
Potential Impact of the TSCA Amendments on California’s Safer Consumer Products (“Green Chemistry”) Program
The Amendment’s preemption provisions could halt or constrain the implementation of the California Safer Consumer Products (SCP) program. The statutory basis for California’s so-called “Green Chemistry Initiative” was enacted just after August 31, 2003 and its initial requirements for Priority Product-chemical pairings were not finalized prior to April 22, 2016 so at least certain types of requirements arising from the SCP program may be subject to TSCA preemption.
But whether these preemption provisions will have a meaningful effect on the future of the SCP program remains to be seen. For example, as long as EPA has not taken any regulatory action on a chemical, California will retain full authority to regulate a product that contains it. Moreover, if the use of the chemical does not fall under EPA’s TSCA jurisdiction, the SCP program’s actions concerning it will never be preempted. (For instance, TSCA does not cover personal care products or beauty products.)
Indeed, California’s requirement that manufacturers of products designated as Priority Products provide the state with data and conduct an Alternatives Analysis pursuant to the SCP program appears to be left unaltered by the new TSCA preemption provisions. Likewise certain forms of regulatory responses to an Alternatives Analysis on a Priority Product, such as mandating certain warnings or other information disclosure requirements, may well be found to survive TSCA preemption.
Potential Impact of the TSCA Amendments on California’s Proposition 65
Proposition 65 requires businesses to provide a “clear and reasonable” warning before knowingly and intentionally exposing a Californian to any detectable amount of a listed chemical unless the business can prove that the exposure level does not pose a significant risk of cancer or is at least 1,000 times below the level which causes no observable reproductive effect. Public prosecutors are meant to be the primary enforcers of Proposition 65, but the statute is most loathed because any individual claiming to act in the public interest also has the ability to enforce it by filing “bounty hunter” lawsuits against manufacturers, distributors, and retailers of consumer products.
California’s federal legislators, including retiring U.S. Senator Barbara Boxer, took pains to ensure that Proposition 65, which was enacted in 1986, remained fully shielded from TSCA preemption. Thus, California can continue to update its list of Proposition 65 chemicals “known” to that State to cause cancer and reproductive harm regardless of the outcome of EPA’s TSCA evaluation on the same chemical. Proposition 65 bounty-hunter lawsuits can also continue to be filed concerning even the most de minimis exposures to chemicals that EPA determines are safe.
That said, it still remains for the courts presiding over Proposition 65 cases to determine if EPA’s risk and safety determinations made pursuant to TSCA will have a significant evidentiary role in a business’s defense of a Proposition 65 claim on grounds other than preemption. California judges may also take EPA’s TSCA determinations about a chemical into account when it comes to assessing (or reducing) Proposition 65 penalties. And, perhaps at best, TSCA’s preemption provisions may also help convince courts that it is inappropriate to allow plaintiffs to continue to use Proposition 65 to obtain chemical “reformulation” of products made for a national or international market instead of just requiring Proposition 65 warnings for them when offered for sale in California.
Posted on June 17, 2016
If you needed any further proof that energylaw is very complicated, Wednesday’s decision in North Dakota v. Heydinger should convince you. The judgment is simple – the 8th Circuit Court of Appeals struck down a Minnesota statute which provides in part that:
"no person shall . . . (2) import or commit to import from outside the state power from a new large energy facility that would contribute to statewide power sector carbon dioxide emissions; or (3) enter into a new long-term power purchase agreement that would increase statewide power sector carbon dioxide emissions."
Why, you ask?
- The panel opinion, by Judge Loken, stated that the Minnesota statute violates the dormant Commerce Clause, by regulating purely “extraterritorial” economic activity.
- Judge Murphy, in the first concurrence, disagreed with Judge Loken’s conclusion that the statute violates the dormant Commerce Clause, but joined the judgment, because she concluded that the statute is preempted by the Federal Power Act.
- Judge Colloton, in the second concurrence, agreed with Judge Murphy that the statute does not violate the dormant clause, but also concurred in the judgment. Judge Colloton concluded that, to the extent that the “statute bans wholesale sales of electric energy in interstate commerce,” it is preempted by the Federal Power Act. However, Judge Colloton wrote separately, because he at least partially disagrees with Judge Murphy (as well as with Judge Loken) and does not believe that the Minnesota statute constitutes a complete ban on wholesale sales of energy that increase CO2 emissions. However, Judge Colloton concluded that, to the extent that the statute is not preempted by the Federal Power Act, it is preempted by the Clean Air Act.
Is that sufficiently clear?
I do feel compelled to add two final notes. First, I don’t understand why Judge Loken wrote the panel opinion, when his rationale did not command a majority. Indeed, as Judge Colloton pointed out, the Court should not even have reached the constitutional issue, since a panel majority existed that was prepared to strike down the Minnesota statute on statutory grounds. (Preemption is considered a statutory, not a constitutional, rationale.)
Second, don’t analogize the electric energy transmission to the flow of water in a pipe, at least before Judge Murphy. Here’s your electricity and magnetism primer for the day, courtesy of the Judge.
"In the electricity transmission system, individual electrons do not actually “flow” in the same sense as water in a pipe. Rather, the electrons oscillate in place, and it is electric energy which is transmitted through the propagation of an electromagnetic wave.
Certainly brought me back to course 8.02 at MIT. Not one of my favorites.
Posted on June 24, 2015
The State of Texas took swift action to block a municipality seeking to limit fracking. In response to a 59 to 41% vote of its citizens, in November 2014, the City of Denton adopted an ordinance banning the well completion activity of hydraulic fracturing or fracking, which involves the high pressure injection of water, with proppants and small amounts of chemicals, into tight formations thousands of feet below surface to create and prop open fractures that facilitate the flow of oil and gas.
Hours after the ordinance’s adoption, the Texas General Land Office and Texas Oil & Gas Association filed suit in Denton County district court, seeking to declare the ban invalid. They argued that the ordinance intruded on powers granted by the legislature to the Railroad Commission of Texas and the Texas Commission on Environmental Quality and thus was preempted by state law. On May 18, 2015, before the court could rule on the law suit, Texas Governor Greg Abbott signed into law House Bill 40, which removes the authority of Denton and all other Texas municipalities to regulate not only fracking, but also all other oil and gas operations. On June 17, 2015, in recognition of House Bill 40, Denton’s City Council voted to amend its ordinance by repealing it in its entirety.
In seeking to reconcile the interests of those concerned with state government intruding on local rule with the interests of mineral owners and their lessees concerned with intrusive governmental restrictions on the use of their property, House Bill 40’s approach arguably was solomonesque. In just 3 pages, the bill allowed cities, under certain circumstances, to regulate above ground activities related to oil and gas operations, but barred them from regulating oil and gas operations per se, reserving that regulation to the state.
House Bill 40 declares that oil and gas activities are subject to the exclusive jurisdiction of the state, but clarifies that municipalities may adopt an ordinance that regulates above ground activities related to oil and gas operations, including ordinances governing fire and emergency response, traffic, lights, or noise, or imposing reasonable setback requirements. The statute requires, however, that such an ordinance be “commercially reasonable,” not effectively prohibit an “oil and gas operation” conducted by a reasonably prudent operator, and not otherwise be preempted by state or federal law. The statute defines the quoted terms. It also creates a presumption that an ordinance is considered prima facie to be commercially reasonable if it has been in effect for 5-years and has allowed oil and gas operations to continue during that period.
The stated concerns of the Denton ordinance generally related not to fracking, but rather to the above ground impacts of the oil and gas activities it facilitated, that is, things like traffic, lights, noise, and safety concerns. The Denton ordinance did express concern with the potential for contamination of drinking water aquifers, but studies, including EPA’s recently released draft assessment on fracking, generally have shown that concern to be related more to oil and gas activities generally than to the subsurface migration of contaminants associated with fracking per se.
Even in fossil energy friendly Texas, fracking can be controversial. The new state statute allows municipalities to address above ground effects related to oil and gas operations, subject to certain limits to be more fully fleshed out, but reserves to the state the power to regulate oil and gas operations per se. This approach preserves local authority over things that arguably mattered most to the citizens of Denton, while preserving regulation of oil and gas development by the agencies that have historically regulated them.
Posted on April 1, 2015
In February 2015, the states of Connecticut, Massachusetts and Rhode Island announced their intent to seek new large-scale clean-energy projects through a multi-state procurement process. According to the draft Request for Proposal (RFP) the “essential purpose” of this procurement is to “identify any projects that offer the potential for the Procuring States to meet their clean energy goals in a cost-effective manner that brings additional regional benefits.” The draft RFP seeks bids for the delivery of Class I renewable energy projects (i.e. solar, wind, biomass, fuel cells in Connecticut, and some hydroelectric) through power purchase agreements, combined power purchase agreements and transmission upgrades, or transmission projects with clean energy delivery commitments. Because each state has different procurement laws and different definitions of “renewable energy”, the draft RFP notes that contracts for any selected projects must be negotiated with the relevant electric distribution companies (EDC) and approved in accordance with applicable state and federal laws.
To encourage the generation of renewable energy, many states have adopted Renewable Portfolio Standards (RPS) to require electric distribution companies and retail electric suppliers to include an increasing percentage of renewable energy in their mix of generation resources. Unfortunately, the RPS alone seems insufficient to encourage the development of enough renewable energy resources to address the renewable energy and climate change policies of the states. Therefore, the three New England states, as well as others, are experimenting with different methods to incentivize renewable energy generation. Given the substantial capital requirements for constructing new electric generating facilities and the need for an assured revenue stream, long-term power purchase agreements are increasingly being used to encourage the construction of new energy resources. The RFP to be issued by the three New England states seeks to attract new large scale renewable energy projects by offering successful bidders long-term energy contracts.
One question raised by this new approach to encourage the construction of reasonably-priced renewable energy resources is whether federal law preempts the states from contracting for large wholesale electric generation, despite independent state policies designed to encourage the development of more renewable energy resources. This issue has been raised in several recent federal lawsuits.
Last year, both the Fourth and Third Circuit Courts of Appeals concluded that state programs awarding long term contracts to new electric generating facilities were preempted by the Federal Power Act. In PPL EnergyPlus, LLC v. Nazarian, 753 F.3d 467 (4th Cir. 2014), the Fourth Circuit held that a fixed, twenty-year energy contract for a new Maryland generating facility was preempted by federal law. Using an RFP process, Maryland selected a company to build a power plant and sell its energy and capacity on the federal interstate wholesale market. Under the approved contract, the winning project was eligible for payments from the local EDC that amounted to the difference between the price paid in the interstate market and the amount approved in its EDC contract. The Fourth Circuit concluded that the Maryland law was field preempted because it functionally sets the rate that the generator receives for sales in the interstate energy market, an area within the exclusive jurisdiction of FERC.
Similarly, the Third Circuit, in PPL EnergyPlus, LLC v. Solomon, 766 F.3d 241 (3d Cir. 2014), held that federal law preempted a New Jersey statute under which the state solicited and awarded bids for new electric generating capacity using long-term energy capacity agreements. The Third Circuit, however, acknowledged that states have a role to play in energy markets, and stated that not every state program that has an effect on interstate electric rates will be preempted. The court explained that states may utilize measures that subsidize generators without being preempted, as long as such subsidies do not essentially set wholesale prices.
In 2013, Connecticut solicited proposals for large scale renewable energy through an RFP process. That solicitation resulted in the selection of a 250 MW wind project in Maine and a 20 MW solar project in Connecticut. Both projects were awarded long term power purchase agreements for the energy produced by these projects. A disappointed bidder, Allco Finance Limited, filed suit alleging preemption, following Nazarian and Solomon. On December 10, 2014, the district court dismissed the case, finding that a disappointed bidder lacks standing. Allco Finance, Ltd. v. Klee. Nevertheless, the court ruled on the merits. The district court concluded that the state RFP process was not preempted, rejecting Allco’s argument that the state-approved contracts set the wholesale price for energy produced by the successful bidders. The court ruled that the effect of the Connecticut program on the interstate market was at most indirect and would cause no market distortion. Allco has appealed the district court’s decision to the Second Circuit.
The use of an RFP process to encourage the development of renewable energy projects through the award of long term energy contracts is an effective way to procure lower cost renewable generation. The Connecticut Z-REC program, which awards long term Renewable Energy Credit (“REC”) contracts, has proven to be successful in driving down the cost of solar renewable energy credits from small (less than 1 MW) solar projects. In light of the federal preemption obstacles in awarding long-term wholesale electricity contracts, another approach may be to support large scale renewables by procuring long term contracts for RECs and allowing the energy price to be set by the interstate markets. Since a REC represents the renewable attribute of electricity, and not the energy itself, such procurement should avoid the preemption issues identified by the Third and Fourth Circuits. This may provide a path forward for states to pursue their clean energy goals by incentivizing larger scale renewable resources.
Posted on January 28, 2014
On December 19, 2013, in Robinson Township v. Pennsylvania, a three-justice plurality of the Pennsylvania Supreme Court revived the previously moribund Environmental Rights Amendment of the Pennsylvania Constitution, which provides:
The people have a right to clean air, pure water, and to the preservation of the natural, scenic, historic and esthetic values of the environment. Pennsylvania’s public natural resources are the common property of all the people, including generations to come. As trustee of these resources, the Commonwealth shall conserve and maintain them for the benefit of all the people.
Pa. Const. art. 1, § 27. According to the plurality, lower courts interpreting the provision had been disregarding the constitutional text in favor of a judge-made rule under which the Environmental Rights Amendment offered protection only through implementing legislation. The plurality noted that when “prior decisional law has obscured the manifest intent of a constitutional provision . . . [,] adjustment of precedent is . . . salutary.” Slip op. at 64.
The realigned jurisprudence, under the plurality’s interpretation, now recognizes a directly enforceable right to clean air, pure water, and to the preservation of the natural, scenic, historic and esthetic values of the environment, which limits state power; common ownership of public natural resources, meaning all resources that “implicate the public interest” (air, water, wild flora and fauna) but are outside the scope of purely private property; and a trustee relationship, under which both state and local government must manage those resources for the benefit of “all the people,” including future generations. The trust provision may be enforced by “citizen beneficiaries. . . in accordance with established principles of judicial review,” id. at 85, as well as by municipalities on behalf of their citizens.
Relying exclusively on the trust provision, the plurality ruled that provisions of a state law that purported to preempt local environmental regulation of oil and gas operations and that required localities to authorize drilling in all zoning districts violated the Environmental Rights Amendment. A concurring opinion by one justice, based on substantive due process, resulted in a 4-2 decision invalidating those provisions. The decision thus transforms a state ceiling on environmental regulation of the oil and gas industry into a floor.
In more than 70 pages addressed to the Equal Rights Amendment, the plurality dropped tantalizing hints about the further potential reach of its analysis. The opinion suggests that government actions imposing “much heavier environmental and habitability burdens” on some properties and communities than on others—i.e., causing environmental injustice—violates the trustee’s obligation to manage the trust corpus for the benefit of “all the people.” Under the plurality’s interpretation, moreover, respect for the rights of future generations requires that the state’s power to promote prosperity “be exercised in a manner that promotes sustainable property use and economic development.” Id. at 79. Whether Pennsylvania’s judiciary is ready for the new jurisprudence of environmental rights contemplated by the plurality remains to be seen. A motion for reconsideration is pending before the Supreme Court.