Environmental Groups Set Stage for Likely Legal Challenge to FERC GHG NEPA Review Policy
By Steven M. Siros
On May 18, 2018, the Federal Energy Regulatory Commission (FERC) issued an order denying a rehearing request on FERC’s prior issuance of a certificate of public convenience and necessity for a natural gas pipeline project for Dominion Transmission. An environmental group had challenged that certificate, arguing in part that FERC failed to adequately consider the upstream and downstream impacts of the project. These upstream and downstream impacts, according to the environmental group, included greenhouse gas (GHG) emissions. FERC, on a party-line vote, concluded that the upstream and downstream GHG impacts of this particular project were not sufficiently causally connected to and/or the reasonable foreseeable effect of the project and therefore fell outside of the scope of the required NEPA analysis. FERC distinguished its holding with the decision in Sierra Club v. FERC, 867 F.3d 1357 (D.C. Cir. 2017) by noting that in that case, the pipeline project was delivering natural gas to identifiable gas-fired electric generating plants and therefore the downstream use of the gas was foreseeable.
The Delaware Riverkeeper Network sent a letter to FERC asking it to formally rescind its May 18 order, claiming that FERC’s decision was contrary to the requirements of NEPA. This letter, along with similar letters from other environmental groups, are likely precursors to legal challenges to FERC’s interpretation of its obligations under NEPA. Notwithstanding the positions being advanced by these environmental groups, FERC continues to review and approve pipeline projects without requiring a detailed analysis of GHG emissions as evidenced by FERC’s May 31 approval of the Okeechobee Lateral Project.
White House Cites National Security Concerns as Administration Moves to Save Coal and Nuclear Power Plants
By Matthew G. Lawson
A combination of stagnant power consumption growth and the rise of natural gas and renewable power sources has resulted in the displacement and potential closure of many older coal and nuclear power plants in the United States. According to the U.S. Energy Information Administration, since 2008, coal and nuclear energy have seen a continuous decline in their percentage of the nation’s total energy generation market. And in 2015, the closure of coal fueled power plants accounted for more than 80% of the nation’s retired energy generating capacity.
In an attempt to reverse these trends, President Donald Trump has ordered Energy Secretary Rick Perry to take “immediate action” to stem the closure of nuclear and coal power plants. In an official White House statement issued on June 1, 2018, the Trump Administration stated that “keeping America's energy grid and infrastructure strong and secure protects our national security… Unfortunately, impending retirements of fuel-secure power facilities are leading to a rapid depletion of a critical part of our nation's energy mix, and impacting the resilience of our power grid.”
The statement is not the first time the Administration has asserted that coal and nuclear plants are critical to national security. In January of this year, Mr. Perry presented a sweeping proposal to the Federal Energy Regulatory Commission (“FERC”), which requested subsidies for struggling coal and nuclear plants that were no longer able to operate profitably in the current energy markets. In presenting the proposal, Mr. Perry argued that coal and nuclear plants’ unique ability to store at least 90 days of fuel on-site made the energy sources critical to the reliability and stability of the United States’ energy markets. In a 5-0 decision, FERC rejected the Energy Secretary’s proposal, and casted doubt on Mr. Perry’s claims that energy markets would become vulnerable and unreliable without contributions from coal and nuclear power.
It appears the Trump Administration may now be seeking a more direct route to provide assistance to coal and nuclear power plants. According to Bloomberg, a draft memo from the Department of Energy (“DOE”) reveals that the agency is considering using its authority under Section 202(c) of the Federal Power Act and the Defense Production Act of 1950 to force regional grid operators to buy electricity from a list of coal and nuclear plants the department deems crucial to national security. The plan would require suppliers to purchase power from the plants for 24 months in order to starve off closures as the Administration works to provide a long-term solution. If the DOE plan is implemented, it is likely to face legal challenges from both utilities and environmental groups. Regardless of whether the DOE elects to pursue this strategy, it appears that the Trump Administration is focused on working to protect aging coal and nuclear plants.
CRA Survives Constitutional Challenge—Are More Rules and Guidance at Risk of Disapproval?
By Steven M. Siros
A recent decision by the U.S. District Court for the District of Alaska rejected efforts by the Center for Biological Diversity (the “Center”) to challenge the constitutionality of the Congressional Review Act (CRA). The CRA, which was originally enacted in 1996, allows for Congressional disapproval of rules promulgated by administrative agencies under limited circumstances. Historically, the CRA had been used sporadically, but the current Congress has relied on the CRA on at least 16 occasions to roll back Obama administration regulations, and more CRA resolutions may be on the horizon.
In Center for Biological Diversity v. Zinke, the Center challenged the use of the CRA to invalidate a Department of Interior (DOI) rule which limited certain hunting and fishing practices on Alaskan National Wildlife Refuges. More specifically, the Center argued that the CRA unconstitutionally allowed Congress to alter DOI’s authority without using bicameralism and presentment to amend the underlying statutes that gave DOI its authority over the National Wildlife Refuges in Alaska. The Center also argued that the CRA’s prohibition on the issuance of a future rule in “substantially the same form” violates the separation of powers doctrine.
The district court dismissed the Center’s lawsuit, finding that “Public Law 115-20 was passed by both the House and the Senate and submitted to the President for approval as required by the CRA—which was also passed by both houses of Congress and signed into law by the President. Thus, the requirements of bicameralism and presentment are met and [the Center’s] separation of powers concerns fail to state a plausible claim for relief.” The court further noted that “[a]ny injury caused by DOI’s inability to promulgate a substantially similar rule, in the absence of any assertion that DOI would otherwise do so, is too speculative to constitute a concrete or imminent injury and is insufficient to confer Article III standing.” The court also noted that even if the Center could establish an “injury in fact,” the Center had not adequately alleged how invalidating the CRA would redress the Center’s alleged injuries.
Although the CRA remains in full force and effect, one might wonder whether it will retreat back into the shadows at least until the next administration. The conventional view had been that Congress only has 60 days after a rule takes effect to pass a CRA resolution disapproving it. However, lawmakers in Congress are advancing a more novel interpretation of the CRA to review (and potentially disapprove) older rules (and guidance). If a rule or guidance was not officially “submitted” to Congress for review (and many apparently have not officially been submitted), then the current administration could now submit them for review which would restart the 60-day clock. For example, in April, the Senate voted to disapprove a 2013 Consumer Financial Protection Bureau guidance on auto loan financing. The House has not yet taken action on the resolution. If, however, the guidance were to be disapproved under the CRA, then the effect of that disapproval is that the agency will be unable to enact a “substantially similar” rule or guidance. That is really the true power of the CRA, and word is that members of Congress are reviewing older rules and guidance that could be the target of a CRA resolution. Whether the CRA remains a powerful tool this far into the Trump administration remains to be seen, but one can expect that the Center’s constitutional challenge to the CRA is unlikely to be the last.
EPA Air Chief Supports Draft House Bill Revising CAA ‘Modification’ Definition
By Allison A. Torrence
Congressman Morgan Griffith (R-VA) has introduced a discussion draft of a bill that proposes to revise the definition of “modification” in the Clean Air Act (CAA) to “clarify when a physical change in, or change in the method of operation of, a stationary source constitutes a modification or construction.”
Under current law, EPA determines whether a change at an existing facility is a “modification” that requires new source review (NSR) by looking at whether the change increases the annual emission rate of an air pollutant. Under Congressman Griffith’s proposal, a change at an existing facility will only be a “modification” if it results in an increase to the hourly emission rate of an air pollutant. This change is significant because it would enable facilities to make changes that would allow them to operate for longer hours, thus increasing annual emissions, as long as the hourly emissions don’t increase.
The proposed bill also makes clear that the term “modification” does not include changes to an existing stationary source that reduce the amount of any air pollutant or that are designed to restore, maintain, or improve the reliability or safety of the source.
At the May 16, 2018, Energy and Commerce Committee Subcommittee on the Environment hearing, William Wehrum, EPA Assistant Administrator for Air and Radiation, told the subcommittee that he strongly supported the proposed bill. The Democrats on the subcommittee opposed the proposal and ranking member Frank Pallone, Jr. (D-NJ) made a statement critical of the proposed bill:
The ultimate test for any legislation to reform the NSR program is simply this: will it reduce air pollution? By that test, this bill fails. There is no doubt this bill will increase pollution. Republicans are simply resurrecting previously rejected ideas promoted during the Bush Administration by two of today’s witnesses: Assistant Administrator Wehrum and Mr. Holmstead. Together, they have worked for years to undermine the NSR program.
The current definition of “modification” for the NSR program is found at 42 U.S.C. § 7411(a)(4):
The term “modification” means any physical change in, or change in the method of operation of, a stationary source which increases the amount of any air pollutant emitted by such source or which results in the emission of any air pollutant not previously emitted.
Congressman Griffith’s discussion draft proposes the following, revised definition:
(A) The term “modification” means any physical change in, or change in the method of operation of, a stationary source which increases the amount of any air pollutant emitted by such source or which results in the emission of any air pollutant not previously emitted. For purposes of the preceding sentence, a change increases the amount of any air pollutant emitted by such source only if the maximum achievable hourly emission rate of an air pollutant for such source after the change is higher than such maximum achievable hourly emission rate for such source during the 10-year period immediately preceding the change.
(B) Notwithstanding subparagraph (A), the term ‘modification’ does not include a change at a stationary source that—
(i) reduces the amount of any air pollutant emitted by the source per unit of output; or
(ii) is designed to restore, maintain, or improve the reliability or safety of the source, except when the change increases the maximum achievable hourly emission rate of any air pollutant for the source relative to such rate during the 10-year period immediately preceding the change and the Administrator determines that such increase is harmful to human health or the environment and that the change is not environmentally beneficial.
This proposal is in its initial stages and the prospects of this or a similar bill emerging from committee and passing the House and Senate are uncertain. We will be following this issue and report on any further developments.
Fracking Industry Warns of “Devastating Effects” from Pennsylvania Court Ruling
By Matthew G. Lawson
On April 2, 2018, the Pennsylvania Superior Court issued a potentially groundbreaking decision by holding that trespass and conversion claims arising from hydraulic fracturing are not precluded by the rule of capture. In reaching this conclusion, the court found that the Southwestern Energy Production Company (“Southwestern”) may have committed trespass when it extracted natural gas located under neighboring properties by draining the gas through fissures created from hydrofracturing fluid. Such a holding was almost universally thought to be precluded by the rule of capture. The rule of capture, which can be traced back to 18th century fox hunting, has historically been applied to find that oil and gas companies cannot be held liable for “capturing” oil and gas that drain naturally from neighboring land as a result of legal extraction activities. In differentiating hydraulic fracking from traditional oil and gas extraction, the court focused on the fact that hydraulic fracking actually pumps fluid across property lines to open up non-natural fissures that allow the natural gas to seep back across the property to be extracted.
The potential impact of the Pennsylvania court’s decision has spurred high levels of concern from the greater fracking industry. On the same day that Southwestern filed an appeal requesting an en banc rehearing of the decision, seven separate industry trade groups filed leave with the court seeking permission to file amicus briefs urging the court to grant Southwestern the rehearing. One of these groups, the Marcellus Shale Coalition (“MSC”), is a collection of approximately 200 producers, midstream, and local supply-chain companies that produce more than 95% of the natural gas in Pennsylvania. The group has asserted that the April 2nd ruling interrupts well-established law and creates an “unprecedented form of tort liability” that threatens the entire industry. In a similar filing, the Pennsylvania Chamber of Business and Industry stressed that the decisions could have devastating effects on the industry and the economy of Pennsylvania. According to the American Petroleum Institute, the hydraulic fracking industry currently provides an estimated 322,600 jobs to Pennsylvania and contributes nearly $44.5 million in revenue to the state’s economy.
In Southwestern’s own appeal, the company echoed many of the concerns proclaimed by the industry. The company stressed that the decision would “unleash a torrent of speculative lawsuits” that could threaten the economic livelihood of the industry throughout the state. The company also characterized the April 2nd ruling as an impractical precedent for future decisions. Southwestern noted that the opinion would require courts and juries to speculate whether hydrofracturing fluid located miles below the surface ever moved onto neighboring property, which is a task the company portrayed as “a fool’s errand.”
The ultimate resolution of the matter has potentially far-reaching impacts on the U.S. energy markets. Behind Texas, Pennsylvania is the United States’ second largest producer of natural gas. The state generated 19 percent of the United States’ total output in 2017 and has seen steady gains in production output since 2010. Further, the decision raises questions about whether other state courts may adopt the logic of the Pennsylvania Superior Court and similarly hold that trespass and conversion claims against hydraulic fracking are not precluded by the historic rule of capture.
We will continue to track this case as it moves through the Pennsylvania courts.
Can Blockchain Technology Disrupt Renewable Energy Finance?
By Matthew G. Lawson
In 2016, the world underwent its largest ever annual increase in renewable power by adding an estimated 161 gigawatts of capacity in renewable power generation. The increased stemmed from a world-wide investment of USD $240 billion in renewable energy, marking the seventh straight year that the world’s investment in renewable power sources topped $200 billion dollars. Despite the world’s growing investment in renewable power, an estimated 1.2 billion people still live without access to electricity. Individuals without electricity must supplement their energy needs through fuel based lighting and heating. Burning these sources is not only more expensive relative to many forms of renewable power, but also results in the release of toxic fumes and black carbon, which are major contributors to local air pollution and climate change.
So why the disconnect between the world’s rapidly growing supply of more affordable renewable energy and the large quantity of individuals left relying on expensive and dirty alternatives? According to Renewables 2017 Global Status Report, the problem primarily stems from an inability of traditional electricity grids to provide power to these populations. With roughly 80% of those without power living in rural areas, it simply is technologically or economically infeasible to extend traditional grid networks to many of the residents. In cases where the grid has been extended, the added cost of additional infrastructure and energy transport waste can price residents out of purchasing power.
The solution to this problem could be Distributed Renewable Energy (“DRE”) systems combined with Blockchain technology. In short, DRE systems generate and distribute power to local users independent of a centralized grid. The systems often consist of module solar panels or small-scale wind turbines and operate on a Pay-As-You-Go (PAYG) network that allows energy users to pay for only the energy they use on an ongoing basis. In order to manage the creation of PAYG networks, several companies are now turning to Blockchain technology. Blockchain, best known for its use in cryptocurrencies like Bitcoin, functions as a public ledger that allows massive amounts of data to be securely stored and accessed by the general public without a centralized platform. According to one company’s recently released white paper, utilization of Blockchain technology can spur the development of DRE systems by allowing those seeking power generation to connect seamlessly with potential financiers on a global basis without the need for utility companies or governmental bodies acting as a central coordinator. The company’s platform aims to allow applicants, from a single business owner to large-scale communities, to propose energy generating projects, which can be viewed and approved by a community of financers anywhere in the world. Approval of a project, construction of the DRE system, and even future payments for energy use are all conducted utilizing the Blockchain platform.
While the use of Blockchain technology is originating in areas typically underserved by traditional electrical grids, proponents argue that the platform’s built-in efficiencies will result in the technology one day competing with traditional utility owned grids on a worldwide basis. In fact, some companies are already taking steps towards this goal. For example, a microgrid is currently being installed in Brooklyn, New York, which will allow users to generate and sell renewable energy throughout their neighborhood. While it is still unclear what larger role DRE systems will play in future energy networks, the marriage between DRE and Blockchain creates a new playing field for alternative energy generation and delivery.