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USEPA Concludes Reconsideration of 2009 NSR Project Aggregation Interpretation

Posted in Environment

On November 7, 2018, USEPA concluded its reconsideration (“2018 Reconsideration Action”) of a January 15, 2009 interpretation regarding NSR project aggregation (the “2009 NSR Aggregation Action”).  See 74 Fed.Reg. 2376 et seq.  The 2009 Aggregation Action never became effective in 2009, because the NRDC filed a petition for reconsideration that resulted in USEPA indefinitely staying the effectiveness of the 2009 Aggregation Action and USEPA accepting comments on the same.  USEPA received a number of comments, but did not take any action to either implement or revoke the 2009 Aggregation Action, which has remained stayed until now.  USEPA has now determined to retain “the interpretation set forth in the 2009 NSR Aggregation Action, while not adopting any changes to the relevant rule text.”  2018 Reconsideration Action at 1.

In the 2009 Aggregation Action, USEPA stated that “Activities at a source should be aggregated when they are substantially related. To be ‘‘substantially related,’’ there should be an apparent interconnection—either technically or economically—between the physical and/or operational changes, or a complementary relationship whereby a change at a plant may exist and operate independently, however its benefit is significantly reduced without the other activity.”  74 Fed.Reg. 2378.  USEPA went on to note that “When there is no technical or economic relationship between activities or where the relationship is not substantial, their emissions need not be aggregated for NSR purposes” and that “The test of a substantial relationship centers around the interrelationship and interdependence of the activities, such that substantially related activities are likely to be jointly planned (i.e., part of the same capital improvement project or engineering study), and occur close in time and at components that are functionally interconnected.”  Id.  That said, “timing, in and of itself, is not determinative in a decision to aggregate activities. We do not believe that timing alone should be a basis for aggregation because it is inconsistent with our policy discussed earlier in this notice that the appropriate basis for aggregation should be a substantial technical and economic relationship.”  Id. at 2379.

In addition to establishing the “substantially related” test, the 2009 Aggregation Action also established a rebuttable presumption that “if a previous physical or operational change has operated for a period of three or more years, permitting authorities may presume that a newly constructed change is not substantially related to the earlier change.”  74 Fed.Reg. 2380.  “In order to rebut the presumption of nonaggregation, there should be evidence that demonstrates a substantial relationship between the activities.”  Id.  Furthermore, “in applying this presumption, the time period separating physical or operational changes should be calculated based on time of approval (i.e., minor NSR permit issuance).”  74 Fed.Reg. 2381.  Although the 2009 Aggregation Action establishes a rebuttable presumption for non-aggregation, there is no presumption that activities separated by less than three years should be aggregated.  74 Fed.Reg. 2380 (“we are setting forth our view that activities separated by less than three years have no presumption.”)

Finally, both the 2009 Aggregation Action and the 2018 Reconsideration Action acknowledge that “Permitting authorities, as they have long done, will continue to exercise their best judgment in determining the technical and economic relationship of activities.”  74 Fed.Reg. 2379; 2018 Reconsideration Action at 33-34.

The 2018 Reconsideration Action, and through it, the 2009 Aggregation Action, will become effective when the 2018 Reconsideration Action is published in the Federal Register.  Petitions for judicial review of the 2018 Reconsideration Action can be filed with the D.C. Circuit Court of Appeals up to sixty days after its publication in the Federal Register.

U.S. EPA Proposes Amendments to Performance Standards for Oil and Natural Gas Sector

Posted in Energy, Environment

On October 15, 2018, USEPA proposed amendments to the new source performance standards (NSPS) for the oil and natural gas sector at 40 CFR Part 60, Subpart OOOOa (“Subpart OOOOa”). The proposed amendments to Subpart OOOOa are a result of USEPA’s reconsideration of certain aspects of Subpart OOOOa in 2017. Specifically, the proposed amendments address the Subpart OOOOa provisions governing fugitive emissions requirements, well site pneumatic standards, and professional engineer certification requirements.

With respect to the fugitive emissions requirements, EPA is proposing to revise the monitoring frequencies depending on the type of well site and to eliminate monitoring requirements when all major production and processing equipment is removed from a well site. Several amendments to definitions related to fugitive emissions are also proposed.

With respect to pneumatic pumps, EPA is proposing to expand the technical infeasibility provision to all well sites. EPA is also proposing to amend the certification requirements for closed vent system design and technical infeasibility for pneumatic pumps by allowing certification by either a professional engineer or an in-house engineer with relevant expertise.

Other proposed amendments are intended to clarify the requirements for requesting alternative means of emission limitation, the location of a separator during flowback operations, whether screenouts and coil tubing cleanouts are regulated as part of flowback operations. Finally, EPA proposed amendments to clarify several issues regarding the implementation of Subpart OOOOa including alternative work practice standards for reciprocating compressors, calculating potential emissions from storage vessels, exempting equipment at onshore processing plants that is used only during emergencies, and streamlining reporting and recordkeeping requirements.

Comments on the proposed amendments to Subpart OOOOa are due by December 17, 2018.

5th Circuit Holds Statute of Limitations Does Not Apply to Government’s Injunctive Relief Claim for Clean Air Act Preconstruction Permit Violation

Posted in Energy, Environment

On October 1, 2018, the 5th Circuit Court of Appeals upheld the dismissal of claims for civil penalties for violations of the Clean Air Act’s (“CAA”) major source Preconstruction permit requirement (CAA § 165(a); 42 U.S.C. § 7475(a)) because the claims were filed more than five years after the claim accrued, but held that the government’s claim for injunctive relief for the same violation is not subject to the applicable 5-year statute of limitation. The case involved two power plants that underwent multiple capital projects and operational changes, which resulted in significant amounts of SO2 and NOx emissions, without obtaining a preconstruction permit in accordance with CAA § 165. The capital projects and operational changes were implemented at various times between October 15, 2005 and April 1, 2009. The government filed suit on August 16, 2013 alleging that the defendant-power companies violated and continue to violate the preconstruction requirements under CAA § 165, and sought civil penalties and injunctive relief. The defendants moved to dismiss five of the six CAA § 165 violations as time barred – i.e. the alleged unpermitted construction occurred outside the 5-year statute of limitations.

Section 165(a) of the CAA requires any proposed major source of emissions (or a major modification to a major source) to obtain a permit before beginning construction. 28 U.S.C. § 2462 bars CAA claims for the enforcement of any civil fine, penalty, or forfeiture that accrued more than five years before suit was filed.

The 5th Circuit Court followed other Circuits holding that an action for civil penalties for violations of the major source preconstruction permit requirement under CAA § 165(a) must be brought within five years of the first day of the alleged construction period. Notably, the Court held that the language of CAA § 165(a) “can only be read one way: the Preconstruction requirements are terms and conditions with which the facility must comply in order for the facility to begin construction. They are not requirements that arise at a point in time after the facility has begun construction or resumed operation.” The court further clarified that “any claim asserted under § 7475(a) accrues at the moment unpermitted construction commences” and the violation does not extend into operation. The Court also noted that compliance with BACT requirements is a precondition for granting a preconstruction permit, not an obligation imposed on the continuing operation of the facility.

With respect to the claim for injunctive relief, however, the court held that the government, in its sovereign capacity, is not subject to any limitations period, unless Congress expresses its clear consent thereto. The Court explained that the applicable statute of limitations in this case (28 U.S.C. § 2462) makes no reference to injunctive relief. Accordingly, the court remanded the injunctive relief claims to the District Court for further consideration. The District Court must now decide what, if any, equitable relief is appropriate.

Ohio Supreme Court Continues to Address Community Bill of Rights Cases

Posted in Energy, Environment

On September 21, 2018, the Ohio Supreme Court held in State ex rel. Twitchell et al. v. Saferin et al., that the Lucas County Board of Elections (BOE) did not abuse its discretion in denying a writ of mandamus to place a proposed amendment to the Toledo City Charter on the November ballot.  Slip Opinion No. 2018-Ohio-3829.  An organization called Toledoans for Safe Water proposed the Lake Erie Bill of Rights (LEBOR) initiative to create legal rights for the Lake Erie ecosystem to “exist, flourish, and naturally evolve.” It also recognized the rights of the people of the City of Toledo to a clean and healthy environment.  Lake Erie Bill of Rights, Section 1(a).  The initiative would “prohibit activities and projects that would violate the bill of rights.”  Lake Erie Bill of Rights, Preamble.

The Supreme Court concluded it was proper for the Lucas County BOE to refuse to place the LEBOR on the November ballot because the LEBOR would have created a new cause of action to enforce the newly created rights. The decision in Twitchell echoed the Supreme Court’s holding in State ex rel. Bolzenius v. Preisse, decided on September 14, 2018.  As we previously noted in a blog post dated September 18, 2018, the Court found the Columbus Community Bill of Rights exceeded municipal authority because it, too, created a new cause of action.

The Relators in both the Twitchell and Bolzenius cases have filed a motion for reconsideration of the Supreme Court decisions in those cases.   In both motions, Relators argued that the Court should have analyzed the constitutionality of House Bill 463.  Additionally, the Relators in the Twitchell case pointed to a recent Southern District of Ohio ruling that pre-election content-based censorship of local initiatives by BOEs violate the First Amendment of the Constitution.  The BOEs and Amici/Intervening Respondents in both cases have filed memoranda in opposition, and the parties in both cases await final decisions by the Supreme Court.

Ohio Supreme Court Denies Compensation to Landman

Posted in Energy

Yesterday, September 25, 2018, the Supreme Court of Ohio issued the decision of Dundics v. Eric Petroleum Corporation, 2018-Ohio-3826, which could have broad implications for third-party landmen, land companies and oil and gas producers in Ohio.  In that decision, the Court held that the Ohio Real Estate Brokers’ statute, R.C. Chapter 4735, applies to transactions involving oil and gas.  Specifically, the Court held that an outside landman must be a licensed real estate broker in order to seek compensation for work performed in obtaining an oil and gas lease on behalf of a producer.

In Dundics, an outside landman sued a producer for breach of contract, claiming that the producer failed to make promised payments for work performed by the landman in obtaining oil and gas leases.  The producer moved to dismiss the lawsuit, arguing that because the landman was not a licensed real estate broker, the landman was not entitled to enforce his agreement with the producer.  The trial court granted the motion to dismiss and the court of appeals affirmed.

The Supreme Court affirmed the dismissal of the lawsuit.  The Court found that because oil and gas interests are included within the broad definition of “real estate” under R.C. 4735.01(B) and because there was no exception for oil and gas leases or landmen, the statute applied, and the landman was unable to seek compensation for his work because he was not a licensed broker.

Sixth Circuit Rejects Groundwater Hydrological Connection Theory for CWA Jurisdiction

Posted in Environment

On September 24, 2018, the Sixth Circuit held that the Clean Water Act (CWA) does not apply to pollutants that travel through groundwater before entering navigable waters in Tennessee Clean Water Network, et al. v. Tennessee Valley Authority, Case No. 17-6155.

The defendant in this case, Tennessee Valley Authority (TVA), operates a coal-fired power plant that produces coal ash as a waste product.  TVA disposes of the coal ash (which is mixed with water) in ponds adjacent to the Cumberland River. While some of this coal ash wastewater is permitted to be discharged through a pipe to the Cumberland River, some wastewater is alleged to leak through the coal ash ponds into groundwater, which then traveled to the Cumberland River.  The TVA’s permit covered the direct discharge from the pipe to the Cumberland River; it did not cover the indirect discharge to the Cumberland River (i.e. the discharge from the ash ponds to groundwater, and then groundwater to the Cumberland River).

The district court found that because the groundwater was “hydrologically connected” to the Cumberland River, and TVA did not have a permit to discharge wastewater from its coal ash ponds, it violated the CWA.  As a matter of law, the district court determined that discharging without a permit from a point source through hydrologically connected groundwater to navigable waters is a CWA violation when the hydrological connection is “direct, immediate, and can generally be traced.”

In the recent decision, the Sixth Circuit disagreed with the “hydrological connection theory” and reversed the district court decision, holding that the CWA only applies to discharges made directly to a navigable water.  The court adopted reasoning from the companion case, Kentucky Waterways Alliance, v. Kentucky Utilities Co., Case. No. 18-5115, issued the same day, that the basis of the CWA’s regulatory power creates a requirement that discharges be directly into navigable waters.  The CWA regulates “effluent limitations,” which are defined as restrictions on pollutants that may be “discharged from point sources into navigable waters.”  The court reasoned that the use of the word “into” indicates directness and a point of entry and therefore the CWA can only apply when pollutants are added directly to navigable waters.

The two Sixth Circuit decisions create a circuit split, as the Fourth and Ninth Circuits have applied the hydrologically connected theory and determined that the fact that a pollutant traveled through groundwater before reaching a navigable water did not preclude CWA liability. The split among the Circuit Courts makes the groundwater hydrological connection theory ripe for Supreme Court review.

Recent oil and gas verdict highlights the importance of FLSA compliance

Posted in Energy

Under the federal Fair Labor Standards Act, employees who are covered by the Act’s overtime provisions must receive overtime pay for hours worked over 40 in a workweek at a rate of not less than time and one-half their regular rate of pay. An employee who prevails in his or her lawsuit for unpaid overtime compensation is also entitled to an award of reasonable attorney’s fees and litigation costs. A recent case from the United States District Court for the Western District of Pennsylvania highlights how expensive an FLSA case can be.

In 2015, in Sammy Mozingo v. Oil States Energy Services L.L.C., oil field workers in Texas filed a class action alleging that their employer Oil States had misclassified them as exempt from overtime laws. Twenty-nine frac hands, grease hands, and crane operators opted out of that class action and, instead, filed their own suit under the FLSA in federal district court in the Western District of Pennsylvania. Multiple employees thereafter settled their claims with Oil State until eight employees remained. Both the employees and Oil State cross-moved for summary judgment, which the Court denied. The case then proceeded to trial in 2018.

After two week-long trials for four employees each, the juries returned verdicts in favor of each of the eight employees. The juries awarded damages to the employees ranging from $54,292 to $178,388 – the total amounted to $1,003,154. The Court then awarded the plaintiffs’ lawyers their reasonable attorney’s fees of $2,263,904 and reasonable costs of litigation of $118,826. Combined, Oil States paid damages, fees, and costs totaling $3,385,884 for just these eight employees. Of course, this amount does not include the amount Oil States had to pay its own attorneys, nor does it account for the costs and distraction associated with years-long litigation culminating in two weeks of trial.

The Mozingo case is notable for several reasons. First, the case is unusual in that it went to trial, as many such case typically settle. Second, the case highlights how expensive FLSA litigation can be when employees are found to be misclassified and so not properly paid overtime. Third, the amount of attorney’s fees and costs awarded to prevailing employees can be substantial and may even exceed the amounts the employees recover. Finally, the case underscores the importance of wage-hour compliance. Contact your Vorys lawyer if you have questions about the Fair Labor Standards Act, similar state laws, and best practices for ensuring compliance.

Authors: Thomas H. Fusonie and Michael C. Griffaton.

Columbus’ Proposed Community Bill of Rights Exceeds the City’s Legislative Power

Posted in Energy

The Supreme Court of Ohio held last week that a proposed voter initiative creating a Community Bill of Rights for the City of Columbus was properly excluded from the upcoming November 2018 ballot. State ex rel. Bolzenius v. Preisse, Slip Opinion No. 2018-Ohio-3708. The initiative, had it been included on the ballot and enacted into law, would have “prohibit[ed] most hydrocarbon-extraction activities within the city and impose[d] strict liability on any government or corporation that violate[d] its terms.” Further, the initiative would have authorized any resident of the City to enforce its rights and prohibitions by bringing an action in court. Because the initiative created a new cause of action—something municipalities lack the power to do—the voter initiative exceeded the City’s legislative power. Thus, the Court found the Franklin County Board of Elections’ decision to exclude the voter initiative from the ballot was proper.

WOTUS Litigation Continues to Ebb and Flow

Posted in Environment

On August 16, 2018, a federal district court judge in South Carolina issued a nationwide injunction which halts the effectiveness of USEPA’s “Delay Rule.”  83 Fed.Reg. 5200 et seq.  The Delay Rule purported to delay the effectiveness of the Obama WOTUS Rule until February 2020.  Because of this new ruling, the Obama WOTUS Rule is now in effect in 26 states, including Ohio, Pennsylvania, and Texas.  Other states in which the Obama WOTUS Rule is now in effect are: California, Connecticut, Delaware, Florida, Hawaii, Illinois, Iowa, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New York, Oklahoma, Oregon, Rhode Island, Tennessee, Vermont, Virginia and Washington.

Despite the South Carolina Court’s nationwide injunction of the Delay Rule, the Obama WOTUS Rule is still not effective in the other 24 states, including, bizarrely enough, South Carolina.  This is due to two other federal district court judges (in North Dakota and Georgia) previously issuing injunctions halting the effectiveness of the Obama WOTUS Rule itself, but only in certain states that were parties to those cases.  The Georgia decision is currently under appeal to the 11th Circuit Court of Appeals.  The South Carolina decision itself is likely to be appealed, and litigation also continues against both the Delay Rule and the Obama WOTUS Rule in other district courts across the nation.

As a backdrop to all of this litigation, USEPA continues to move forward with a regulatory process to repeal the Obama WOTUS Rule and replace it with a definition of Waters of the United States more in keeping with the late Justice Scalia’s opinion in the Rapanos case, which should represent a more limited view of federal authority.  A public comment period on the “repeal” portion of USEPA’s rulemaking efforts closed on August 13, 2018.  USEPA has yet to finalize the repeal, or propose a different definition.

The morass of injunctions, appeals, rulemakings, and other assorted legal and regulatory actions surrounding the Obama WOTUS Rule and the various USEPA efforts to delay, repeal, and replace the Obama WOTUS Rule shows no signs of abating anytime soon.  We will continue to provide updates as the status of the applicability of the Obama WOTUS Rule continues to shift.

Wyoming Court Upholds Oil and Gas Royalty Rule

Posted in Energy

On August 6, 2018, the U.S. District Court in Wyoming upheld the vast majority of a Obama-era rule issued by the Department of Interior’s Office of Natural Resources Revenue against a challenge by the American Petroleum Institute (API).  The Rule related to enforcement of noncompliance and civil penalties for parties that are subject to the Federal Oil and Gas Royalty Management Act.  API challenged the Rule, arguing that it is arbitrary and capricious and exceeded the agency’s authority under law.

The Court disagreed, upholding the entirety of the Rule with the exception of provisions related to the agency’s ability to seek penalties for a time period during which an administrative law judge had granted a stay of a penalty pending an administrative hearing.

The case is American Petroleum Institute v. U.S. Department of the Interior et al., case number 17-CV-083-F in the U.S. District Court for the District of Wyoming.