Clock is Ticking on Compliance with New Offshore Regulations

Posted on April 1, 2011 by Eva Fromm O''Brien

Thirteen months. Seems like a long time, right? In many cases, thirteen months is enough time to buy or sell a major business unit, or perhaps even litigate a minor dispute to trial. In this light, it’s easy to think at first glance that thirteen months should be plenty of time to implement the Bureau of Ocean Energy Management, Regulation and Enforcement’s (“BOEMRE”) six-page regulation requiring offshore operators to adopt a Safety and Environmental Management System (“SEMS”) by November 15, 2011. 75 Fed. Reg 63619 (Oct. 15, 2010). Unfortunately, companies who delay preparations to implement 30 C.F.R. Part 250 Subpart S are in for an ugly surprise particularly given that there are now just eight months remaining in the race to compliance. The challenge is amplified because the new regulation adopts the American Petroleum Institute’s Recommended Practice 75 (“RP 75”) in its entirety, converting the formerly voluntary practices into required elements of the regulation. 30 C.F.R. § 250.1902(c).

In my experience, companies tackling the job of creating a SEMS program that is compliant with the new federal regulations have encountered a number of challenges. Although at least sixty percent of operators already have a SEMS program that incorporates many of the elements of RP 75, converting a voluntary program intended to assist companies with internally identifying and resolving weaknesses in environmental, health and safety performance into a full-scale regulatory program complete with public disclosure is a daunting prospect. As an initial matter, the sheer number of potentially-applicable elements is astounding—by my count the regulation imposes well over 150 separate requirements. In order to thoroughly address all applicable requirements, it is likely that many business units or departments will be involved in creating the SEMS plan. While the Health, Safety and Environmental divisions will be inexorably intertwined in the effort, departments that manage contractor relationships and training should also be involved. As with all endeavors that involve multiple personalities and levels of management, coordinating such a large group of people is bound to be taxing. In addition, creating or modifying training programs and rolling those out to employees will be time-consuming. When viewed as a whole, the thirteen-month period to achieve compliance is no walk in the park—for many companies it will be a sprint to the finish.

Although complying with the now-required API practices is a daunting task in and of itself, the regulations, though short, contain significant requirements in addition to RP 75. Most notably, the new regulations require companies to audit themselves and disclose the results of the audit to BOEMRE. The purpose of the audit is to identify areas in which safety and environmental performance need improvement. Under Subpart S, an audit must be conducted by an independent third-party or “designated and qualified” internal personnel. Id. § 250.1920. Before the audit is even conducted, the operator must submit an audit plan to BOEMRE thirty days prior to the audit. The audit plan will identify the facilities to be audited (the audit must cover at least 15% of the operator’s facilities), and the persons conducting the audit. BOEMRE reserves the right to strike a selected independent third party or designated and qualified personnel if they do not meet BOEMRE’s criteria; specifically, the auditor must have an appropriate background, education, technical capabilities, previous experience with BOEMRE requirements, and no conflicts of interest. BOEMRE may also modify the list of facilities selected for auditing. The first audit must be conducted within the first two years of adopting the operator’s SEMS plan; after that, the company may space its audits out by up to three years. The resulting audit report must disclose any deficiencies in the SEMS uncovered by the audit, and must be submitted to BOEMRE within thirty days of the audit’s completion. Along with the audit report, the operator must submit a plan that addresses any deficiencies identified by the audit report, and identifies the individual employee responsible for correcting each deficiency. Given the tough requirements imposed by BOEMRE’s auditing requirements, operators that are already comfortable with their SEMS plan should consider conducting a trial audit prior to the regulation’s effective date, as all audits conducted after November 15, 2011 must follow BOEMRE’s pre-approval and disclosure requirements. The audit should identify any gaps in compliance and provide a roadmap for areas needing corrective action before the November 15th deadline.

Supreme Court Gets Back to Basics in Declining to Hear Three Environmental Cases

Posted on March 2, 2010 by Eva Fromm O''Brien

The United States Supreme Court recently declined to hear three relatively high-profile environmental cases: Croplife America v. Baykeeper (a permitting clash between FIFRA and CWA); Texas Water Development Board v. Department of Interior (weighing the designation of a nature refuge under NEPA versus economic development); and Rose Acre Farms Inc. v. United States (regulatory taking claim as a result of agency action). After a 2008-2009 term where the Court seemed to take aim at the environmentalist cause, the Court may have put some wind back in the environmentalist’s sails by declining to consider these three separate industry challenges to federal environmental regulations.



EPA Rulemaking for CWA & FIFRA Permitting



In Croplife America v. Baykeeper, the Court decided not to review the Sixth Circuit’s year-old ruling in National Cotton Council v. EPA requiring farmers to secure Clean Water Act permits for the use of pesticides already permitted under FIFRA.  EPA had claimed that FIFRA approval incorporated compliance with the Clean Water Act, however, the Sixth Circuit ruled that the government was obligated to ensure that farmers using pesticides were subject to both regulations. The decision had been stayed until April 2011 while EPA reviews and revises its NPDES permitting process to comply with the ruling.



Two different groups—one representing environmental interest groups and the other representing industry interest groups—opposed the EPA’s new permitting rule as exceeding the EPA’s interpretive authority, and argued that it would create redundant bureaucracy and hamper agricultural production by forcing farmers to decide between not applying pesticides and risking legal and enforcement actions for discharging without a permit.


Environmental Conservation versus Future Development


Another case denied review was Texas Water Development Board v. DOI, which weighed prospective future development against environmental conservation.  The Supreme Court’s decision will disrupt any future plans by Dallas-area officials to build the proposed Lake Fastrill reservoir along the Neches River.



In Texas Water Development Board, the Fifth Circuit Court had unanimously upheld a lower court’s decision that the Fish and Wildlife Service did not violate the NEPA by designating 25,000 acres of east Texas wetlands as the Neches River National Wildlife Refuge. In opposing the designation, local governments asserted they would likely need to build the reservoir by 2050 in order to accommodate increased water demand. However, the Fifth Circuit found that this project may never take place or may occur at a different site. Importantly, the “effects of establishing the refuge, and thus precluding the reservoir, are highly speculative and cannot be shown to be the proximate cause of future water shortages in Dallas.” 



Regulatory Taking Claims for Enforcement of Regulations



Finally, the Court declined to review Rose Acre Farms Inc. v. United States, a suit brought by an egg farm against the federal government for damages after a crack-down on potential salmonella contamination. Following an outbreak that was traced back to the farm, the USDA destroyed some of the farm’s eggs and required the company to sell others on the less-lucrative market for liquid, pasteurized eggs.



Rose Acre sued to recoup lost revenue, arguing that the government response constituted a “regulatory taking” under the Fifth Amendment. The Court of Federal Claims awarded Rose Acre $5.4 million in damages, but that award was overturned by the U.S. Court of Appeals for the Federal Circuit.  In its petition for review, Rose Acre Farms argued that the government responded to contamination fears in a way that focused the economic impact “narrowly and devastatingly, upon egg producers generally and Rose Acre specifically.”



The Supreme Court’s decision to pass on the case leaves the Federal Circuit’s decision as the precedent for future takings cases involving federal agencies. As such, the government may have less to fear from regulatory takings claims when enforcing its public health and environmental regulations.



Declining to hear these cases, while generally viewed as favorable to environmentalists, may be reconciled with the Court’s overall trends in environmental cases over the past several terms. None of these declined cases originated in the Ninth Circuit, a jurisdiction that seems to garner heightened scrutiny from the Supreme Court, as the Court has repeatedly reined the Ninth Circuit’s high-profile, often pro-environment decisions.  The Court has shown that it will look to the plain language of an underlying statute and its overall structure in trying to interpret Congress’ intent. More importantly, when there is room for interpretation, the Court has emphasized giving deference to agency expertise and decision-making. Thus, the question is not whether the Court may be pro- or anti-environment in a given term—it is simply whether it is abiding by its core principles and themes.