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D.C Circuit Court Stay’s U.S. EPA’s Amendments to New Source Performance Standards for Oil/Gas Industry

Posted in Energy, Environment

This post provides important updates to our August 17, 2020 post regarding U.S. EPA’s amendments to the 2012 and 2016 New Source Performance Standards (NSPS) for the Oil and Natural Gas Industry (40 CFR 60, Subpart OOOO and 40 CFR 60, Subpart OOOOa).

First, U.S. EPA published the final amendments in the Final Register on September 14, 2020. The amendments to the NSPS became effective upon publication in the Federal Register.

Next, on the same day that U.S. EPA published the amendments to the NSPS in the Federal Register, several environmental groups filed a Petition for Review in the D.C. Circuit Court challenging U.S. EPA’s amendments. On September 15, 2020, the Petitioners filed an emergency motion for stay and vacatur of U.S. EPA’s amendments. Today, the D.C. Circuit issued an Order that U.S. EPA’s amendments to the NSPS be administratively stayed pending further review and order by the Court regarding Petitioner’s emergency motion for stay and vacatur of the amendments. The Court also ordered that any additional motions to stay in the consolidated cases be filed by September 18, 2020, with EPA’s response to the motion(s) to stay due on September 28, 2020, and any replies be submitted by October 5, 2020.

We will continue to track this case and provide updates on new developments.

The End of COVID-19 Noncompliance Protections

Posted in Environment

This post updates an earlier post outlining the USEPA’s and Ohio EPA’s COVID-19 enforcement policies.

USEPA

USEPA’s general policy to not seek penalties for compliance monitoring and reporting violations ended this week on August 31, 2020.  Violations that occur on and after September 1 are no longer protected by the “enforcement discretion” of the COVID-19 policy.  However, the policy reserves the USEPA’s right to exercise discretion on a case-by-case basis for noncompliance caused by COVID-19 going forward as long as the entity made a “reasonable attempt to comply with guidance from the Centers for Disease Control and Prevention or other agencies” to control the spread of COVID-19.

Ohio EPA

Ohio EPA’s policy, which required regulated entities to apply for regulatory flexibility and “alternative approaches to maintaining compliance,” also ended on August 31, 2020 when the Agency stopped considering new requests for flexibility. Requests submitted prior to August 31, 2020 will still be considered by the Agency.

 

Do not hesitate to reach out to a Vorys environmental attorney with any questions regarding the applicability of either policy to noncompliance instances prior to, or after, August 31, 2020.

Supreme Court of Ohio to Hear DMA Case

Posted in Energy

The Supreme Court of Ohio accepted a case involving the Ohio Dormant Mineral Act (ODMA), Fonzi v. Brown, but held the case until the Court decides Gerrity v. Chervenak.

In Fonzi, the Court will consider issues over the extent of a landowner’s duty to exercise reasonable diligence in notifying mineral owners of an abandonment under the ODMA, the mineral owner’s burden in challenging the sufficiency of that notice, and the parties’ rights when a landowner files a quiet title asserting that no savings events occurred within the twenty-year period preceding the abandonment notice.

Read the full text of the five propositions of law that the Court accepted below the break.

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U.S. EPA Amends New Source Performance Standards for Oil and Gas Industry

Posted in Energy, Environment

On August 13, 2020, U.S. EPA issued two final rules amending the 2012 and 2016 New Source Performance Standards (NSPS) for the Oil and Natural Gas Industry. The first rule makes policy amendments to the 2012 NSPS, 40 CFR Part 60, Subpart OOOO, and the 2016 NSPS, 40 CFR Part 60, Subpart OOOOa, (the “Policy Amendments”); the second rule makes technical amendments to the 2016 NSPS (the “Technical Amendments”).

The Policy Amendments remove the transmission and storage segment from the regulated “source category” under Subpart OOOO and Subpart OOOOa. In doing so, U.S. EPA rescinded all NSPS requirements applicable to the transmission and storage segment. Additionally, the Policy Amendments recognize that controls used to reduce VOC emissions also reduce methane emissions and, thus, rescind the methane standards for the production and processing segments of the oil and gas industry.

The Technical Amendments address several issues raised in petitions for reconsideration of NSPS Subpart OOOOa. Notably, the Technical Amendments reduce the regulatory burden associated with multiple aspects of the NSPS, including the following:

• Exempting qualifying low-production wells from fugitive emissions monitoring requirements, and reducing the frequency of fugitive monitoring from quarterly to semi-annually for gathering and boosting compressor stations;
• Incorporating state fugitive emissions standards for well sites and compressor stations in certain states, including Ohio;
• Providing authorization to utilize additional methods of monitoring to demonstrate pneumatic pumps are operating with no detectable emissions; and
• Establishing separate criteria for calculating potential VOC emissions from individual storage tanks that part of a controlled tank battery.

Click here for a pre-publication version of the Policy Amendments, and click here for a pre-publication version of the Technical Amendments. The Policy Amendments and the Technical Amendments become effective on the date of publication in the Federal Register. Combined, the final rules are expected to save the oil and gas industry millions of dollars in compliance costs each year.

Court of Appeals Again Addresses the Level of Due Diligence Required under the Ohio Dormant Mineral Act

Posted in Energy

On June 1, 2020, the Seventh District Court of Appeals once again addressed the level of diligence required to identify holders of a severed mineral interest under the 2006 version of Ohio’s Dormant Mineral Act (2006 DMA). In Fonzi v. Gary D. Brown & Eclipse Res., 2020-Ohio-3631, the appellee-surface owner filed his notice of abandonment by publication after conducting a search of the public records of Monroe County, Ohio, where his property was located, as well as a brief internet search. Again emphasizing that what constitutes reasonable due diligence will depend on the facts and circumstances of each case, the Court held that the appellee-surface owner did not exercise reasonable due diligence. Consequently, it was improper for the appellee-surface owner to serve his notice of abandonment by publication.

In Fonzi, the deed containing the mineral reservation (Severance Deed) indicated that the grantors, Harry Fonzi II and Elizabeth Fonzi (the parents of the appellants), resided in Washington County, Pennsylvania. Rejecting the appellee-surface owner’s contention that the law does not require a surface owner to search public records outside of the county where the land is located, the Court found that it was “per se unreasonable” for the appellee-surface owner not to extend his search to the public records of Washington County, Pennsylvania, as the Severance Deed gave him actual knowledge that the reserving parties resided there. Had he searched the public records of Washington County, Pennsylvania, he would have easily located Harry Fonzi II’s estate records which identified the appellants-holders. The fact that the reserving parties lived in another state “[did] not relieve the [appellee-surface owner] of the burden to conduct a reasonable, diligent search.” Based on the foregoing, the Court held that the appellee-surface owner failed to comply with the notice requirements of the 2006 DMA. It is also worth noting that the Court clarified an aspect of its earlier decision in Sharp v. Miller, stating that when determining the sufficiency of a surface owner’s diligence, the focus is on the “process employed” (i.e., the search itself) and not the end-result of the search (i.e., the discovery or non-discovery of heirs).

In addition to the issue of diligence required under the 2006 DMA, the Court also addressed a matter of first impression, namely, the level of evidence required to prove that a purported heir of a holder of a severed mineral interest is, in fact, an heir. The trial court held that the appellants-holders lacked standing to bring the initial action as they had not proved they are the successors-in-interest to the reserving parties. Here, the Court found that, based on Harry Fonzi II’s estate records and an heirship-related affidavit presented at the trial court level, the appellants-holders presented sufficient evidence to demonstrate that they are the successors-in-interest to the reserving parties.

U.S. Supreme Court Stays Injunction Barring Use of Nationwide Permit 12

Posted in Energy, Environment

On July 6, 2020, the U.S. Supreme Court issued an Order partially granting a motion to stay a Montana District Court’s injunction barring the use of the Army Corps’ streamlined Nationwide Permit 12 (NWP 12) governing pipeline and other utility construction activities that impact a water of the United States regulated under the Clean Water Act. The District Court held that the Army Corps failed to engage in programmatic consultation with federal wildlife agencies before issuing NWP 12 in 2017, as required under the Endangered Species Act. After initially ordering a complete vacatur of NWP 12, the District Court narrowed its order on May 11, 2020, to an injunction prohibiting the use of NWP 12 for new pipeline projects.

The Army Corps and industry appealed the District Court’s decision to the U.S. Court of Appeals for the Ninth Circuit. The Army Corps also filed an application to the U.S. Supreme Court requesting that the Court stay the District Court’s injunction pending the outcome of the appeal in the Ninth Circuit. The Supreme Court stayed the District Court’s order, except as it applies to the Keystone XL pipeline project.

A side note regarding the appeal in the Ninth Circuit: On May 15, 2020, a coalition of 18 states, including Ohio, filed an amicus brief with the Ninth Circuit in support of the Army Corps and industry-Appellants’ case. The States argue that the District Court’s decision is flawed and, if upheld, that needed infrastructure projects will be significantly more costly and time-consuming, and potentially unfeasible.

Ohio’s New Brownfield Regulatory Reform Legislation

Posted in Environment

On June 16, 2020, Governor DeWine signed House Bill 168 into law.  The bill is designed to encourage brownfield redevelopment and reinvestment in the State of Ohio by enhancing liability protection to brownfield purchasers.

Predominantly, the bill adopts from federal law an affirmative defense, the “Bona Fide Purchase Defense,” to purchasers who conduct appropriate environmental due diligence.  The standard for environmental due diligence adopted is the “All Appropriate Inquiries” (“AAI”) standard from the federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980.  The affirmative defense will be available retroactively to properties acquired after January 11, 2002 that followed the AAI standard.

In addition, the bill, which was unanimously passed out of the State Legislature in May 2020 on support of testimony by Vorys, Sater, Seymour and Pease LLP environmental partner Kristin Watt, strengthens Ohio EPA’s Voluntary Action Program (“VAP”).  Under the VAP, Ohio EPA can provide a “Covenant Not to Sue” (“CNS”) to volunteers who follow the criteria of the program.  The bill strengthens these covenants by eliminating the VAP’s “automatic CNS voidance” for the failure to strictly adhere to a CNS’s  covenants use restriction terms.  The bill prescribes that the voiding of a CNS may only come through an Order at the discretion of the Director of Ohio EPA.

The law will become effective on September 14, 2020.  Please contact David Edelstein at dmedelstein@vorys.com or Kristin Watt at klwatt@vorys.com about this bill.

U.S. EPA Proposes Rule Governing Cost Benefit Analysis for Significant CAA Regulations

Posted in Energy, Environment

On June 4, 2020, U.S. EPA proposed a rule to improve the consistency and transparency of benefit cost analyses (BCAs) for all “significant” proposed and final regulations under the Clean Air Act (CAA). The proposed rule, developed in response to comments on U.S. EPA’s June 12, 2018 Advance Notice of Proposed Rulemaking and Administrator Wheeler’s May 13, 2019 memorandum outlining certain principles for increasing consistency and transparency in U.S. EPA’s consideration of benefits and costs in the rulemaking process, would codify the procedural requirements governing the development of BCA, including risk assessments used as inputs to the BCA, for significant rulemakings conducted under the CAA, and would establish additional procedural requirements to increase transparency in the presentation of the benefits resulting from significant CAA regulations.

U.S. EPA’s proposal consists of three key elements:

1. U.S. EPA will prepare a BCA for all future “significant” proposed and final regulations under the CAA. The proposal defines a “significant regulation” as a proposed or final regulation that is determined to be a “significant regulatory action” pursuant to E.O. 12866 Section 3(f) or is otherwise designated as significant by U.S. EPA. In its proposal, U.S. EPA notes that such regulations are generally those having the largest annual impact on the economy (i.e. greater than $100 million).

2. The BCA will be developed using the best available scientific information and in accordance with best practices from the economic, engineering, physical, and biological sciences. Under U.S. EPA’s proposal, the key elements of a regulatory BCA include: 1) a statement of need; 2) an examination of regulatory options; and 3) to the extent feasible, an assessment of all benefits and costs of these regulatory options relative to the baseline (no action) scenario.

3. Procedural requirements will be followed to increase transparency in the presentation of the BCA results, while maintaining the standard practices of measuring net benefits consistent with E.O. 12866. Specifically, U.S. EPA proposes that BCA of significant CAA regulations include, at a minimum, a detailed explanation of the overall results of the BCA, how the benefits and costs were estimated, all non-monetized and non-quantified benefits and costs of the action, and the primary sources and potential effects of uncertainty. U.S. EPA also proposes to make the information that was used in the development of the BCA, including data and models, publicly available (to the extent permitted by law).

A pre-publication version of U.S. EPA’s proposed BCA rule for significant CAA regulations (40 CFR Part 83) can be viewed here. Comments must be submitted within 45 days after the proposed rule is published in the Federal Register.

U.S. EPA Finalizes Amendments to Rules Governing CWA 401 Water Quality Certification Process

Posted in Energy, Environment

On June 1, 2020, U.S. EPA finalized amendments to the rules governing the Clean Water Act (CWA) Section 401 water quality certification (WQC) process, which had not been updated since 1971. The final amendments establish a more robust framework for the WQC process which is intended, in large part, to ensure that certifying agencies take action on a certification request “within a reasonable period of time…which shall not exceed 1 year from receipt” of the request, as required under the CWA. The final amendments have implications for any project triggering the WQC requirement (e.g. construction projects requiring a CWA 404 wetland permit).

Ambiguities in the previous WQC rules often caused significant delays in the certification process. In an effort to remedy those ambiguities and provide more regulatory certainty, U.S EPA’s amendments create several new provisions in the WQC rules (40 CFR Part 121), including rules that specify when a certification is required; require a project proponent to request a pre-filing meeting with the certifying agency at least 30 days prior to submitting the certification request; enumerate specific project details and other information that must be included in a certification request; define the scope of and time frame for the certifying agency’s review of a certification request; and clarify other procedural aspects of the WQC process. The final amendments also define new terms including, “certification request,” “discharge,” “reasonable period of time,” “receipt” (of a certification request), and “water quality requirements.”

A pre-publication version of the final amendments to the CWA 401 WQC rules is available here. The amendments become effective 60 days after publication in the Federal Register.

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.