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Sixth Circuit Rules for Producer in Royalty Dispute

Posted in Energy

On May 21, 2020, the Sixth Circuit Court of Appeals ruled for a lessee in an oil and gas lease dispute, finding that the lessee properly considered post-production costs when calculating the landowners’ royalties.  See Henceroth v. Chesapeake Exploration, LLC, 6th Cir. No. 19-3942.

The lessee, Chesapeake Exploration (Chesapeake), produced oil and gas from the plaintiff-landowners’ property, which it sold at the wellhead to its affiliate, Chesapeake Marketing (Marketing).  Marketing then prepared the products for sale downstream.  This involved arranging for pipeline transportation and processing natural gas into methane and natural gas liquids.  Once downstream, Marketing sold the finished products to third parties at prices that reflected the added value of these post-production services.  Marketing paid Chesapeake based on the prices it received from these third parties, less Marketing’s post-production costs.  Chesapeake, in turn, paid the landowners on the amounts it received from Marketing.  The landowners sued Chesapeake, claiming it underpaid their royalties because the royalties were based on the amounts Chesapeake received from Marketing, rather than on the higher downstream prices that Marketing realized on its sales to third-party purchasers.

The Sixth Circuit found that Chesapeake properly paid the landowners according to the terms of their leases.  Those leases provided that Chesapeake would pay royalties on gas and oil “produced and marketed from the Leasehold.”  Thus, “the first sale price is the proper royalty base.”  Chesapeake extracted, i.e., “produced,” the raw products from the ground and immediately sold, i.e., “marketed,” the products to Marketing.  “And all of this happens at the property (‘from the Leasehold’), not downstream.”  The court disagreed with the landowners’ claim that Chesapeake did not “market” the oil and gas and that the only actual marketing occurred when the products were sold to unaffiliated third parties.  Citing a recent Ohio appeals decision involving similar leases, the court noted that the dictionary “definition of ‘market’ is ‘to expose for sale in a market’ or to ‘sell’ . . . which is what happens when [Chesapeake] sells oil and gas to [Marketing].”

Read the decision here.

 

Ohio Appellate Court Holds that Words of Inheritance are Required to Reserve Oil and Gas Interests

Posted in Energy

Recently, in Peppertree Farms v. Thonen, 2020-Ohio-3043, Ohio’s Fifth Appellate District considered whether certain ancient royalty and fee oil and gas reservations terminated upon the grantor’s death. The Court held that they did because the grantors failed to include words of inheritance in their reservation clauses. As a result, each grantor’s reserved oil and gas interest did not transfer to his heirs and assigns.

Prior to enactment of Section 8510-1 of the General Code (now R.C. 5301.02) in 1925, words of inheritance were required to convey real property in perpetuity. Failure to include words of inheritance limited the duration of the estate conveyed to the grantee’s life (or, in the case of reservations, the grantor’s life). However, Ohio courts have applied this rule differently to “exceptions” and “reservations.” If the language used in the deed constituted an “exception,” words of inheritance were not required because the grantor was deemed to be retaining a portion of his former estate. If the language used in the deed constituted a “reservation,” words of inheritance were required because the grantor was deemed to be creating a new property interest.

In Peppertree, the Court held that each of the deeds created “reservations.” Notably, it even held that the fee oil and gas reservation was a “reservation.” In so holding, the Court relied, in part, on the Ohio Supreme Court’s decision in Chesapeake Exploration, L.L.C. v. Buell, 144 Ohio St.3d 490, to find that whenever minerals are severed from the surface, two new and separate estates are created – a surface estate and a mineral estate. Thus, although the grantor had title to the oil and gas at the time he executed the subject deed, his reservation was deemed to be a “reservation” because the severance created a new oil and gas estate.

The Peppertree decision appears to be in conflict with Ohio’s Seventh Appellate District’s decision in Headley v. Ackerman, 2017-Ohio-8030, which seems to analyze this issue under a different lens. We will update this blog post in the event of an appeal to the Ohio Supreme Court.

 

 

Update Regarding Ohio Land Professional Registrations

Posted in Energy

The Ohio Department of Commerce, Division of Real Estate & Professional Licensing, recently reached out to Ohio’s “land professionals” (i.e., oil and gas landman registered with the Division) concerning renewing their registerations. Ohio law requires land professionals to renew their registrations annually on or before April 30. However, in light of House Bill 197, land professionals now have additional time to renew their registrations. House Bill 197 extends the deadline for land professionals to renew registrations to either ninety days after the emergency order ends or December 1, 2020 – whichever is sooner. Further, during this time period, a land professional’s registration will remain active even though it has not been renewed.

 

U.S. Supreme Court: Indirect Discharge Into Groundwater Covered Under Clean Water Act

Posted in Energy, Environment

On April 23, 2020, the U.S. Supreme Court, in a 6-3 decision, held that a permit is required for either “a direct discharge of pollutants from a point source into federally regulated navigable waters, or when there is the functional equivalent of a direct discharge.” County of Maui, Hawaii v. Hawaii Wildlife Fund et al., Case No. 18-260 (April 23, 2020). The decision focused on whether the Clean Water Act (CWA) regulates groundwater and thus has implications for sites with contaminated groundwater and the use of CWA citizen suits. The Court majority fashioned a 7 factor test to determine whether groundwater is regulated under the CWA. The case was on appeal from the 9th Circuit Court of Appeals.

At issue in the case was whether the County of Maui’s (Maui) unpermitted injection of wastewater into deep underground wells that then seeped into groundwater and, via groundwater transport, ultimately discharged into the Pacific Ocean, violated Section 301 of the CWA, which prohibits the discharge of any pollutant into the navigable waters of the United States. 33 U.S.C 1311(a). The Court, based on an analysis of three key terms expressly defined under the CWA – “pollutant”, “point source”, and “discharge of a pollutant”, rejected Maui’s means-of-delivery test under which a permit is required only if the point source itself (e.g. a pipe) delivers the pollutant to navigable waters. Justice Breyer, who authored the majority opinion, noted that if Maui’s interpretation were accepted, a pipe owner could “simply move the pipe back, perhaps only a few yards, so that the pollution must travel through at least some groundwater before reaching the sea.”

The Court also rejected the 9th Circuit’s analysis which held that a permit is required when the pollutants are “fairly traceable” from the point source to navigable waters. The Court held that the “fairly traceable” standard was too broad, citing the “power of modern science” to detect pollutants years after their release in minute quantities. Recognizing that the “functional equivalent” standard lacks specificity, the Court identified seven factors that may be relevant in determining whether the “functional equivalent of a direct discharge” has occurred: (1) transit time, (2) distance traveled, (3) the nature of the material through which the pollutant travels, (4) the extent to which the pollutant is diluted or chemically changed as it travels, (5) the amount of pollutant entering the navigable waters relative to the amount that leaves the point source, (6) the manner by or area in which the pollutant enters the navigable waters, and (7) the degree to which the pollution has maintained its specific identity. The Court further explained that “functional equivalent” decisions should not create serious risks of undermining state regulation of groundwater or of creating loopholes that undermine the CWA’s basic federal regulatory objectives.

The three dissenting justices (Gorsuch, Thomas and Alito), held that a permit is only required for direct discharges into navigable waters.

U.S. EPA and Army Corps Publish Final Navigable Waters Protection Rule

Posted in Energy, Environment

On April 21, 2020, U.S. EPA and the Army Corps of Engineers published the final Navigable Waters Protection Rule amending the definition of “Waters of the United States” (the “2020 WOTUS Rule”). Under the 2020 WOTUS Rule, four categories of jurisdictional WOTUS are subject to regulation under the Clean Water Act (CWA):

1. The territorial seas and traditional navigable waters,
2. Perennial and intermittent tributaries to those waters,
3. Certain lakes, ponds, and impoundments, and
4. Wetlands adjacent to jurisdictional waters

The 2020 WOTUS Rule also identifies 12 categories of water features that are excluded from the definition of WOTUS, including ephemeral features, groundwater, and several ditches. In an effort to provide clarity and maintain consistency with the express language of the Clean Water Act, the 2020 WOTUS Rule revises the definition of several key terms and includes newly defined key terms. Some of the new and revised key terms defined under the final 2020 WOTUS Rule include: “tributary”; “adjacent wetlands”; “upland”; “waste treatment system”; “perennial”; “intermittent”; and “ephemeral”.

The 2020 WOTUS Rule is effective on June 22, 2020. Once effective, the 2020 WOTUS Rule replaces the October 2019 “Step One Rule,” which repealed the 2015 WOTUS Rule and re-codified the pre-2015 rules. Litigation surrounding the 2015 WOTUS rule was plentiful and contentious. The 2020 WOTUS Rule is expected to face similar legal challenges.

Sixth Circuit Refuses to Toll Statute of Limitation in Oil and Gas Royalty Case

Posted in Energy

The United States Court of Appeals for the Sixth Circuit recently ruled that a certain group of landowners were not entitled to have Ohio’s 4-year oil and gas royalty statute of limitation tolled against Chesapeake Appalachia, LLC, finding that Chesapeake did not engage in fraudulent concealment.

In Lutz v. Chesapeake Appalachia, L.L.C., No. 19-3315, certain landowners sued Chesapeake claiming that the company improperly calculated gas royalty payments. The landowners did not sue until 2009. However, they alleged that Chesapeake started miscalculating gas royalty payments as far back as 1993. Ohio has a 4-year statute of limitation with respect to oil and gas royalty claims. Thus, unless an exception applied, the landowners would not be able to potentially recover royalties that were payable before 2005.

The landowners claimed that the Court should toll the statute of limitation because Chesapeake fraudulently concealed the basis for the landowners’ pre-2005 royalty claims. After extensive discovery, the trial court ruled that the landowners failed to substantiate their claim. In particular, the landowners admitted two key facts. First, the landowners admitted that they did not confirm the information in their royalty check stubs (e.g., pay rate, market price, deductions). Second, the landowners admitted that they did not reach out to Chesapeake with questions about their royalty payments. The landowners’ admissions undermined their claim that Chesapeake fraudulently concealed the alleged underpayments to prevent their discovery.

The landowners appealed and the Sixth Circuit Court of Appeals affirmed the trial court’s decision. In order to toll the statute of limitation on grounds of fraudulent concealment, the landowners had to prove four elements:  (1) a factual misrepresentation; (2) that the misrepresentation is misleading; (3) that the misrepresentation induced actual reliance that was reasonable and in good faith; and (4) that it caused detriment to the relying party. Even if the landowners established the first two elements, the Court found that the landowners failed to establish the last two elements. Certain landowners admitted that they did not read the royalty check stubs they received. Others admitted that they only read the net amount. Based on these admissions, the Court found the landowners failed to establish that they relied upon any purported misrepresentation in their royalty check stubs. Finding no reliance, the Court also found that the figures in the landowners’ royalty check stubs had no detrimental effect on the landowners’ behavior. “All told, it was not the stubs that ‘kept [the landowners] from timely brining suit.’ It was their own conduct.”

The landowners countered that it was reasonable for them to do nothing with respect to their pre-2005 royalty claims. They alleged that there was nothing in the royalty check stubs to suggest to a reasonable person that wrongdoing was afoot. However, the Court rejected this proposition noting the availability of public information concerning gas prices and production and the fact that the landowners undertook no investigation to confirm the information in their royalty check stubs.

You can read the Court’s decision here

USEPA Releases Draft Guidance which would allow additional construction activities in advance of obtaining a pre-construction permit

Posted in Environment

On March 25, 2020, USEPA released draft guidance regarding its interpretation of “begin actual construction” under the regulations implementing the New Source Review (NSR) permitting program.

Those regulations provide that “[n]o new major stationary source or major modification to which the requirements of paragraphs (j) through (r)(5) of this section apply shall begin actual construction without a permit that states that the major stationary source or major modification will meet those requirements.” 40 CFR § 52.21(a)(2)(iii) (emphasis added).

Under USEPA’s current interpretation of this regulatory definition, it largely considers almost every physical on-site construction activity that is of a permanent nature to constitute the beginning of “actual construction,” even where that activity does not involve direct construction “on an emissions unit.”  For example, in USEPA’s 1995 Seitz Letter, it stated that, “[p]rohibited (permanent and/or preparatory) preconstruction activities . . . would include any construction that is costly, significantly alters the site, and/or [is] permanent in nature.”

The Draft Guidance would change this interpretation, and under USEPA’s revised interpretation:

a source owner or operator may, prior to obtaining an NSR permit, undertake physical on-site activities – including activities that may be costly, that may significantly alter the site, and/or are permanent in nature – provided that those activities do not constitute physical construction on an emissions unit, as the term is defined in 40 CFR §52.21(b)(7). Further, under this revised interpretation, and in contrast to the 1986 Reich Memorandum, an “installation necessary to accommodate” the emissions unit at issue is not considered part of that emissions unit, and construction activities that involve an “accommodating installation” may be undertaken in advance of the source owner or operator obtaining an NSR permit.

Draft Guidance at 11-12.

This revised interpretation would allow a wide range of construction activities to occur, although USEPA expressly notes that any construction “may be wasted should the owner or operator be required to re-do or revise work already completed in order to obtain a permit or should it ultimately be the case that no permit is issued or if the permit review agency determines that design changes (e.g., stack height, emission unit location, etc.) are needed ….”  Draft Guidance at 12.

Finally, the Draft Guidance notes that permitting agencies and sources “will still have to make case-specific determinations regarding the scope of the emissions unit in question.”  Draft Guidance at 20.  Detailed guidance on the scope of an emission unit is expressly beyond the scope of the Draft Guidance.  Draft Guidance at 20.  That said, the Draft Guidance notes that:

a source or permitting authority would be acting contrary to the purpose and intent of EPA’s interpretation of “begin actual construction” set forth here were that source or permitting authority to take an unduly broad or otherwise unreasonable view of the scope of an emissions unit that fails to recognize a distinction between an emissions unit and the major stationary source.

Draft Guidance at 22.

The USEPA Draft Guidance, if finalized in its current form, is not expressly applicable to state or local permitting agencies, though they may look to it for guidance as well.

USEPA is accepting comments on the draft guidance through May 11, 2020.  Comments can be submitted on-line here, or by email to draft_permitting_guidance@epa.gov.

Please contact Vorys environmental attorneys Anthony Giuliani at ajgiuliani@vorys.com, Ryan Elliott at rdelliott@vorys.com, or Mac Taylor at mwtaylor@vorys.com if you have questions about the applicability of the Draft Guidance or NSR requirements more generally.

New USEPA COVID-19 Enforcement Guidance Issued (Plus Similar State Policies Being Announced)

Posted in Environment

As an update to our previous post regarding COVID-19 and environmental compliance, new developments at the state and federal levels continue, especially with respect to the exercise of enforcement discretion.

USEPA GUIDANCE

Summary

On March 26, 2020, USEPA issued a memorandum entitled COVID-19 Implications for EPA’s Enforcement and Compliance Assurance Program (the “COVID-19 Memorandum”).

Through the COVID-19 Memorandum, subject to several conditions, USEPA has adopted a policy of not seeking penalties for violations of routine compliance monitoring and reporting requirements caused by COVID-19.  With respect to other potential violations (emissions limit exceedances, etc.) USEPA will take the COVID-19 pandemic into account when considering the whether an enforcement response is appropriate.

In addition, subject to several conditions, generators of hazardous unable to meet regulatory timeframes to transfer waste off-site due to the COVID-19 pandemic will continue to be treated as generators, not treatment, storage, and disposal facilities.

The COVID-19 Memorandum does not apply to: 1) prevention of, response to, or reporting of accidental releases, 2) criminal violations, or 3) activities carried out under Superfund and RCRA Corrective Action enforcement instruments (separate policies are expected).  COVID-19 Memorandum at 2, 7.

In addition, USEPA suggests that facilities subject to an administrative order or consent decree take advantage of force majeure provisions of those agreements.

Further details regarding the COVID-19 Memorandum are below.

Conditions on Enforcement Discretion

The exercise of any enforcement discretion under the COVID-19 Memorandum is conditioned upon:

“1. Entities should make every effort to comply with their environmental compliance obligations.

and

2, If compliance is not reasonably practicable, facilities with environmental compliance obligations should:

a. Act responsibly under the circumstances in order to minimize the effects and duration of any noncompliance caused by COVID-19;

b. Identify the specific nature and dates of the noncompliance;

c. Identify how COVID-19 was the cause of the noncompliance, and the decisions and actions taken in response, including best efforts to comply and steps taken to come into compliance at the earliest opportunity;

d. Return to compliance as soon as possible; and

e. Document the information, action, or condition specified in a. through d.”

COVID-19 Memorandum at 1-2.

Routine Compliance Monitoring and Reporting

The COVID-19 Memorandum outlines USEPA’s decision to use its enforcement discretion not to seek penalties for “violations of routine compliance monitoring, integrity testing, sampling, laboratory analysis, training, and reporting or certification obligations in situations where the EPA agrees that COVID-19 was the cause of the noncompliance and the entity provides supporting documentation to the EPA upon request.”  COVID-19 Memorandum at 3.

Settlement Agreements and Consent Decrees

For facilities subject to USEPA administrative settlement orders or consent decrees to which USEPA is a party, facilities should use the force majeure provisions in those documents, including any required notice provisions.  COVID-19 Memorandum at 4.

Facility Operations, including Failure of Air Emission Control or Wastewater or Waste Treatment Systems or other Facility Equipment

The affected facility should submit a notification to the regulatory authority as soon as possible.  “The notification also should include information on the pollutants emitted, discharged, discarded, or released; the comparison between the expected emissions or discharges, disposal, or release and any applicable limitation(s); and the expected duration and timing of the exceedance(s) or releases.”  COVID-19 Memorandum at 5.  USEPA will evaluate the information submitted, and “The EPA will consider the circumstances, including the COVID-19 pandemic, when determining whether an enforcement response is appropriate.”  COVID-19 Memorandum at 5.

Hazardous Waste Generators

If a facility is a generator of hazardous waste and, due to disruptions caused by the COVID-19 pandemic, is unable to transfer the waste off-site within the time periods required under RCRA to maintain its generator status, the facility should continue to properly label and store such waste and take the steps identified above to qualify for enforcement discretion. If these steps are met, as an exercise of enforcement discretion, the EPA will treat such entities to be hazardous waste generators, and not treatment, storage and disposal facilities. In addition, as an exercise of enforcement discretion, the EPA will treat Very Small Quantity Generators and Small Quantity Generators as retaining that status, even if the amount of hazardous waste stored on site exceeds a regulatory volume threshold due to the generator’s inability to arrange for shipping of hazardous waste off of the generator’s site due to the COVID-19 pandemic.  COVID-19 Memorandum at 5-6.

Public Water Systems

In the COVID-19 Memorandum, USEPA “strongly encourages public water systems to consult with the state and EPA regional offices without delay if issues arise that prevent the normal delivery of safe drinking water and encourages states to continue to work closely with the EPA on measures to address the potential impacts of COVID-19. The EPA also encourages certified drinking water laboratories to consult with the state and the EPA if issues arise that prevent laboratories from conducting analyses of drinking water contaminants.”  COVID-19 Memorandum at 6.

USEPA will consider the circumstances, including the COVID-19 pandemic, when determining whether any enforcement response is appropriate at public water systems acting in accordance with this subpart.

Critical Infrastructure

In situations where a facility is essential critical infrastructure, the EPA may consider a more tailored short-term No Action Assurance, with conditions to protect the public, if the EPA determines it is in the public interest. Such determinations are made by the OECA Assistant Administrator on a case-by-case basis. The EPA will consider essential the facilities that employ essential critical infrastructure workers as determined by guidance issued by the Cybersecurity and Infrastructure Security Agency.  COVID-19 Memorandum at 6-7.

STATE GUIDANCE

Some states have adopted similar policies to the federal COVID-19 Memorandum discussed above.  For example, Ohio EPA has established a specific email inbox for receipt of requests for enforcement discretion: EPA.COVID-19REGFLEX@epa.ohio.gov.  Ohio EPA’s COVID-19 site notes that:

All regulated entities remain obligated to take all available actions necessary to ensure compliance with environmental regulations and permit requirements to protect the health and safety of Ohioans and the environment. However, in the instance where regulated entities will have an unavoidable noncompliance situation, directly due to impact from the coronavirus, an email box has been established by Ohio EPA to accept requests for the Director of Ohio EPA to consider providing regulatory flexibility, where possible, to assist entities in alternative approaches to maintaining compliance, such as extending reporting deadlines, consideration of waiving late fees and exercising enforcement discretion.

The email should at a minimum include the following:

  • The specific regulatory or permit requirement which cannot be complied with
  • A concise statement describing the circumstances preventing compliance
  • The anticipated duration of time that the noncompliance will persist
  • The mitigative measures that will be taken to protect public health and the environment during the need for enforcement discretion
  • A central point of contact for the regulated entity, including an email address and phone number

Where alternative compliance options are authorized by Ohio EPA, regulated entities must maintain records adequate to document activities related to the noncompliance and details of the regulated entity’s best efforts to comply.

In addition, the Texas Commission on Environmental Quality announced it will consider requests for enforcement discretion when a situation directly related to COVID-19 results in an unavoidable issue of non-compliance. Regulated entities should email both OCE@tceq.texas.gov and Ramiro.Garcia@tceq.texas.gov with specific information regarding the situation and maintain records adequate to document activities related to the noted issue of noncompliance, including details of the entity’s efforts to comply. The email should contain: (1) a concise statement supporting request for enforcement discretion; (2) anticipated duration for the need for enforcement discretion; and (3) a citation to the regulation or permit provision for which enforcement discretion is requested.

Other states have adopted similar policies, or may be doing so shortly, following the issuance of the COVID-19 Memorandum by USEPA.

 

Before taking advantage of an offer of enforcement discretion by reaching out to a regulatory agency, an environmental attorney should be consulted to ensure that the request meets the requirements of the applicable policy, and to provide advice on the consequences of making the request.

Thinking about delaying environmental compliance due to COVID-19? Think carefully!

Posted in Environment

As businesses across the United States confront the ongoing impact of the COVID-19 pandemic, the Vorys environmental team is ready to provide counsel and guidance on a number of potential issues.  As the situation continues to evolve day by day, we recommend carefully reviewing each of your facilities’ environmental-related permits, orders, and other compliance obligations, keeping the following issues in mind:

  1. Ensure that upcoming reporting, compliance, or permit renewal deadlines are being tracked, and that plans are in place to comply with those timelines. If staffing or other issues might make compliance infeasible, consider whether the state, local, or federal agency with jurisdiction has the authority to waive the deadline.
  2. For permit renewals, recall that under many programs (e.g. NPDES, Title V) a facility is permitted to operate under an existing permit, and the permit shield continues in place, so long as a renewal application is submitted timely.
  3. Consider the entire chain of companies and individuals involved in your compliance and reporting obligations. For example, many facilities rely on third party consultants and labs to meet testing and reporting obligations.  Consider reaching out to these entities to confirm that they have plans in place if, for example, travel restrictions are enhanced.
    1. Ohio EPA has produced guidance (attached) for the designation and identification of essential employees related to the provision of wastewater or water services.
    2. Consider whether your industry/organization could be considered a critical function or essential business. At the federal level, the Department of Homeland Security Cybersecurity and Infrastructure Security Agency (CISA) issued a “Memorandum on Identification of Essential Critical Infrastructure Workers during COVID-19 Response.”  In its guidance, CISA sets forth a recommended list of “Essential Critical Infrastructure Workers” to help determine the sectors, sub-sectors, segments, or critical functions that should continue normal operations.  Ohio has adopted a “Stay at Home” Order excepting many of the same categories of essential businesses.  Other states have adopted similar orders.
  4. Many Orders entered into between regulated entities and environmental regulators include specific compliance deadlines coupled with stipulated penalties for non-compliance, in addition to force majeure provisions. These force majeure provisions often require that notice be provided to the regulator within a specific time period after the regulated entity knew or should have known of the event causing the delay.  Whether a force majeure provision might apply is highly situation specific.  We strongly recommend reaching out to a Vorys environmental attorney before relying on a force majeure provision.
  5. Many environmental agencies may be operating with reduced staffing, or reduced availability of staff. Paperwork and self-reporting obligations will continue to be held to a very high standard.  Do not assume any of these reporting obligations have been waived – as they have not.  It is better to ask for (and receive) permission rather than asking for forgiveness after the fact.
  6. If your business is contemplating a potential halt in operations (even if temporary), consider whether there are environmental laws applicable to ceasing certain operations. For example, Ohio EPA’s cessation of regulated operations requirements which mandates submittals to Ohio EPA.  (Ohio Adm. Code 3745-352.) Your state may have similar cessation obligations; Vorys can assist in the identification of, and compliance with, these requirements.

The list of issues above is not exhaustive, nor is it intended to be an in-depth explanation of each.  There are potentially serious ramifications of unapproved and un-waived non-compliance, including but not limited to potential civil penalties.  In addition, the complexity inherent in obtaining a discretionary waiver of a deadline or other requirement, invoking force majeure, or taking advantage of statutory or regulatory exemption means that an environmental attorney should be involved in any determination involving non-compliance with an obligation imposed by permit, order, rule, statute or any other source.

Please contact any member of the Vorys environmental team for assistance regarding any of the above identified issues, or any other environmental compliance issues facing your business during this tumultuous time.  We will continue to provide updates to this notice as the COVID-19 situation continues to evolve.

 

 

Proposed Amendments to NEPA Regulations

Posted in Energy, Environment

As discussed in an earlier post, found here, the Council of Environmental Quality (“CEQ”) recently published proposed amendments to update the procedural regulations used to implement the National Environmental Policy Act (“NEPA”). The proposed amendments were published in the Federal Register on January 10, 2020 and can be found here. Public comments on the proposed amendments are due on March 10, 2020. A more expansive discussion of the proposed amendments follows.

CEQ’s proposed amendments are the first major changes to NEPA’s procedural regulations since their promulgation in 1978. The proposed amendments aim to increase efficiency of the environmental review process through reductions of paperwork and avoidance of delays. While many of the proposed changes simply reorganize, clarify, or add other non-substantive revisions, the proposed amendments include several significant substantive changes. If adopted, the amendments would apply to all NEPA reviews initiated after the effective date. Agencies would have the discretion to apply the changes to reviews that are ongoing at the time the rule becomes effective.

Threshold analysis of whether NEPA review is required

The proposed amendment includes several provisions intended to clarify how and when an agency decides whether a NEPA review is required and what level of review is required. In §1501.1 of the proposed regulations, CEQ proposes to add a list of considerations to determine if NEPA applies: (1) whether the proposed action is a “major federal action”, (2) whether the action is non-discretionary, (3) whether compliance with NEPA would conflict with other statutory requirements, (4) whether compliance with NEPA would be inconsistent with Congressional intent, and (5) whether the agency has determined that other analyses or processes serve as an equivalent to NEPA. To guide agencies under the first consideration, the proposed amendment narrows the definition of a “major federal action” to only those actions subject to extensive federal control and responsibility. This removes actions from NEPA review where there is “minimal federal funding or minimal federal involvement such that the agency cannot control the outcome on the project.” The agency is seeking public comment on whether to include a dollar or percentage threshold that would determine whether the level of federal funding for a project is sufficient to deem it a “major federal action”.

Although no significant changes are proposed for NEPA’s categorical exclusions (“CEs”), the proposed amendment does provide clarity of an agency’s designation and application of CEs. Under the current rules, CEs are types of actions designated by individual agencies (and included in their internal NEPA compliance regulations) that do not require NEPA review. CEQ is seeking comments on whether it should include specific CEs in the final regulations to be applied by all agencies. Comments are also sought on whether to allow an agency to apply another agency’s CEs to its own actions.

Environmental Assessments (“EA”) and Environmental Impact Statements (“EIS”)

In an attempt to reduce paperwork and increase efficiency, the proposed amendments include several major changes to the EA and EIS requirements. The biggest change in the proposed amendments is to the definition of “effects”. This is significant because the required level of NEPA review turns on the action’s potential effects to the environment. The current “effects” definition is interpreted broadly and requires agencies to consider indirect and cumulative effects of the proposed agency action, meaning more expansive and longer NEPA reviews. The proposed changes narrow the definition so that only those effects that are reasonably foreseeable and have a reasonable close causal relationship to the proposed action must be considered. The proposed amendment explicitly provides that cumulative effects need not be considered, nor should effects be considered significant if they are remote in time or geography, or the result of a lengthy causal chain. This proposed change is certain to attract significant comments.

Similarly, the proposed amendments include limitations to the alternatives that must be considered in an EIS. CEQ’ proposed amendment intends to limit the number of project alternatives considered in an EIS by striking requirements that agencies consider alternatives outside the jurisdiction of the lead agency; only reasonable alternatives are to be considered. CEQ seeks comments on whether a presumptive maximum number of alternatives that must be considered.

Other proposed efficiency changes to the EA and EIS process include time and page limits. CEQ proposes to limit EAs to 75 pages and a one year timeframe for completion. EISs will be limited to 300 pages and a two year timeframe. Both limits are subject to extensions with approval of a senior agency official involved in the review process. Agencies would also be given more flexibility to complete their EAs and EISs by relying on applicants or contractors to provide more information or materials. If an agency relies on the applicant or contractor to prepare the EA or EIS, the agency must still take responsibility for its content and accuracy through an independent evaluation.

Vorys will continue to follow the proposed amendment throughout the public comment process. If you have any questions regarding the changes discussed above, or other proposed changes that are not included in this discussion, please feel free to reach out to a Vorys attorney.