U.S. House of Representatives Sends Broad-scoped Energy Bill to the Senate
American Clean Energy and Security Act of 2009 (passed U.S. House of Representatives on June 26, 2009 by a vote of 219-212)
H.R. 2454
Ross C. Lovely, Commercial & Financial Services, Energy, Environmental and Intellectual Property Practice Groups; (contributing to article: Dana Daughetee)
The American Clean Energy and Security Act of 2009 (‘the act”) is sweeping energy legislation of the type promised by President Obama and other Democrats during the campaigns leading up to the election in November of 2008. It is divided into four general sections: Clean Energy, Energy Efficiency, Reducing Global Warming, and Transitioning to a Clean Energy Economy.
Clean Energy
Mandates that retail electric suppliers — entities providing over 4 million MWh for use other than resale — produce a certain percentage of energy from renewable sources and electricity savings by a set date. The percentage required in 2012 is six percent (6%), rising gradually to 20% by 2020. One-quarter of the 20% by 2020 requirement may be achieved by electricity savings, though states may petition Federal Energy Regulatory Commission (“FERC”) to allow two-fifths of the 20% by 2020 requirement to come from electricity savings for retail suppliers within that state. Renewable energy includes: wood, qualifying biomass, geothermal, certain hydropower, marine and hydrokinetic, biogas and biofuels from qualifying biomass. Also, landfill gas, wastewater treatment gas, coal mine methane, and qualified waste-to-energy, while not renewable per se, qualify as renewable energy for purposes of the requirement. Moreover, requirements may be offset by existing hydropower, new nuclear, and fossil fuel plants that sequester carbon. Each year, retail suppliers are required to submit renewable energy savings and renewable energy credits equal to the percentage reduction required for that year multiplied by the supplier’s retail sales. One renewable energy credit is given for each MWh of electricity produced from a renewable resource, though three credits will be given for each MWh produced from projects like small wind and rooftop solar to encourage those projects. Compliance made through electricity savings must be adequately demonstrated. Alternatively, retail suppliers may comply by paying $25 per credit.
This title also clears the way for easier permitting and certification of carbon sequestration projects by amending the Clean Air Act (“CAA”) and the Safe Drinking Water Act to streamline the permitting and certification processes. The act would also amend CAA to establish new performance standards for new coal-fired power plants permitted in 2020 and after, while requiring eventual compliance (i.e. by 2025) for plants permitted from 2009-2020. Of significance is the permission to form a Carbon Storage Research Corporation, if approved by entities representing two-thirds (2/3) of the nation’s fossil-based delivered electricity. The act would allow such a corporation to assess fees against consumers of fossil-based energy totaling $1 billion in order to fund large-scale carbon capture and sequestration technologies.
There are many incentives for clean energy in the act, including, State Energy & Environmental Development Accounts (“SEEDs”), which are state-level repositories for managing and accounting for all emission allowances designated primarily for renewable energy and energy efficiency purposes. At least 12.5% of the allowances are distributed to local governments for these purposes. Moreover, the act provides support for the smart grid and transmission planning to bring new energies to market.
Energy Efficiency
The act amends the Energy Conservation and Production Act to support building codes that achieve 30% higher efficiency by 2010 and 50% higher efficiency by 2016. Such revised codes may be set by consensus but, if consensus cannot be reached, the codes shall be set without consensus. Funding and other provisions are made for retrofitting of old buildings.
The act directs that new standards be set for new heavy-duty vehicles and engines and non-road vehicles and engines, including, new marine vessels and locomotives, aircraft, and aircraft engines.
States must establish goals for greenhouse gas (“GHG”) reductions from the transportation sector and, if the population of a metropolitan area is over 200,000 people, then the plan must be submitted by Metropolitan Planning Organizations. Failure to submit goals or plans will be subject to sanctions. Importantly, the act creates a competitive grant program to develop and implement the plans.
Reducing Global Warming
A cap is placed on GHG at 17% below 2005 levels by 2020 and 83% below 2005 levels by 2050, whith defined increases per year in between. The banking of allowances is unlimited. Moreover, there is a two-year compliance period, meaning that borrowing from the entity’s self one-year ahead is also unlimited with limited self-borrowing allowed two to five (2-5) years ahead. The act also creates a Strategic Reserve of 2.5 billion metric tons of emission allowances by setting aside 1%-3% of allowances from each year. Releasing allowances from the reserve and replenishing the reserve are spelled out in the act. Each allowance equals one ton of GHG emission measured in carbon equivalents.
An Offsets Integrity Advisory Board, composed of scientists and others with relevant expertise, is established to provide recommendations on offset projects. Generally, there are up to two (2) billion tons of emissions eligible to be offset by approved domestic and international offset credits, which shall be divided pro rata among all covered entities. If the number of offsets available is deemed insufficient, they may be increased up to 1.5 billion metric tons. Starting in 2017, five (5) tons of international offset credits must be submitted for every four (4) tons of emissions being offset. Additional criteria are established to guarantee compliance with international offset credits. Domestic and international offset projects will be continuously monitored.
Supplemental reductions are achieved from reduced deforestation with EPA working with USAID to decrease international deforestation. Allowances allocated to efforts to reduce deforestation decrease gradually on a set schedule between 2012 to 2050.
Varying percentages of allowances are provided to various sectors. For instance, 30% of allowances are provided to local electric distribution companies, whose rates are regulated by states; 5% of allowances for merchant coal generators and certain generators with long-term power purchase agreements; 9% of allowances to local natural gas distribution companies whose rates are regulated by states; and 1.5% of allowances to states for programs to benefit users of home heating oil and propane. Allowances are phased on between 2026 and 2030. Beginning in 2026, any unallocated allowances will be auctioned with proceeds going to consumers of a per capita basis as a climate change rebate.
The act also sets a separate limit and method of reduction for other harmful species. First, hydrofluorocarbons (“HFC”) allowances will be distributed through auctions and other sales at auction price. 15% of the baseline will be achieved by 2032. Offset credits can be achieved by destruction of chlorofluorocarbons (“CFC”). Second, further efforts to reduce black carbon is directed and directs the EPA to report on existing efforts to make such reductions.
Transitioning to a Clean Energy Economy
The act establishes a framework for compensation of particularly hard-hit industries for cost incurred in complying with the act. The framework is based, primarily, on rebates and incentives.
Also, emission allowances are distributed to states for implementation of projects geared at the adaptation to climate change contingent upon the completion of a state adaptation plan.
Who’s Gas Is It Anyway? Kansas District Court Grants Natural Gas Utility’s Motion To Allow It To Test Four Gas Wells On “Adjoining Property.”
Northern Natural Gas Company v. L.D. Drilling Inc, Val Energy, Inc., and Nash Oil & Gas Inc.
No. 08-1405-WEB (U.S. District Court, D. Kansas May 12, 2009)
Britt Freund, Energy Practice Group
In a recent case before the United States District Court of Kansas, the court granted Northern Natural Gas Company’s (“Northern”) motion for a preliminary injunction and held that Nash Oil and Gas Inc.’s (“Nash”) gas wells were located on “adjoining property” within the meaning of K.S.A. § 55-1210(c)(2), which grants an injector a right to conduct well tests to determine if its storage gas has migrated to wells located next to its storage areas.
The material facts related to Northern’s motion were undisputed. The certified boundaries of Northern’s storage field do not currently touch or adjoin the land containing Nash’s wells. All four wells are located between one and two miles away from the nearest portion of Northern’s certificated storage field boundary. Additionally, though, the parties stipulated that Northern does have extensive storage lease rights for most of the land “in-between” its certified storage field and the land containing Nash’s wells. The two closest wells that Northern desires to test being located within a half mile of where Northern has storage lease rights.
Northern asserted that Nash and the other defendants have been producing gas which is migrating from Northern’s storage fields, and that the defendants are creating “pressure sinks” which cause Northern’s storage gas to migrate to their wells. In 2008, FERC issued a ruling to expand Northern’s certified boundary on the Cunningham field. The extension according to Northern, however, was not sufficient to prevent migration of its storage gas. On rehearing of its order, FERC stated that Northern had presented no evidence that gas was migrating north of the boundary and that “[i]f Northern collects additional data showing more conclusively migration of storage outside the expansion area granted . . . the Commission will reevaluate the boundary expansion request.” Northern Natural Gas Co., 127 FERC P 61038 (April 14, 2009).
In the instant case, Northern argued that it would suffer irreparable injury if its injunction was not granted. Northern asserted that the Kansas statute provides for the testing of wells on “adjoining property.” Nash argued that because its four wells are not in a section adjacent to or touching the boundaries of Northern’s certified storage field, its wells are not on “adjoining property” within the meaning of the statute.
The district court, citing K.S.A. § 55-1210(a), held that “[t]he obvious purpose of Section 55-1210 was to change the “rule of capture” and to protect an injector’s title to any natural gas that was reduced to possession and was “injected into underground storage fields, sands, reservoirs and facilities . . . .” Further the court noted that “[n]othing in this subsection expressly limits its application only to areas that are approved or certified as storage fields.” Finding that FERC earlier, in 1978, had determined that Northern’s storage gas was migrating beyond the underground structure originally expected to serve as a barrier to gas migration and that the migration is currently in the general direction of Nash’s wells, the court granted Northern’s motion under the Kansas statute.
Sixth Circuit Holds Kentucky Oil and Gas Lease Not Expired Despite Lack of Production for Nearly 40 Year
Northrup Properties, Inc. v. Chesapeake Appalachia, L.L.C.
Case No. 08-5718 (U.S. Court of Appeals for the Sixth Circuit June 8, 2009)
Britt Freund, Energy Practice Group
Chesapeake Appalachia, L.L.C. (“Chesapeake”) lessee to an oil and gas lease concerning 4,327 acres in Kentucky, executed by its predecessor United Fuel and Gas Company, had its lease challenged by lessor, Northrup Properties, Inc. (“Northrup”). Northrup originally brought its suit to set aside the lease in Kentucky state court and Chesapeake removed to federal court under diversity jurisdiction. The Sixth Circuit affirmed a federal district court’s holding that the lease remains valid despite the lessee’s failure to market oil or gas from the property for nearly 40 years and that the payment of delay rentals has kept the lease alive.
On appeal Northrup insisted that the lease had expired after the primary term of ten years and that Chesapeake’s payment of “nominal” delay rentals ($1 per acre) could not force the lease to be extended. The circuit court held that the lease did not contain the typical habendum clause that sets forth a secondary term holding the lease “as long as” or “so long as,” oil or gas is produced, but rather expressly allowed for delay rental payments to extend the lease through a secondary term. The court opined that typical leases which include a habendum clause dictating that the lease term turns on production are “inapposite” to the following provision from the lease at issue:
It is agreed that this lease shall remain in force for the term of ten (10) years from this date and as long thereafter as the said land is operated by the Lessee in the search for or production of oil or gas, with an extended term by payment of rentals as hereinafter set forth. . . . In the event that lessee does not market the gas from said premises, Lessee is to pay delay rental until such time as the gas is marketed.
Northrup also argued that the lease was both void as contrary to public policy and lacked mutuality of obligation. Northrup asserted that Kentucky has a public policy to encourage the discovery and maximum development of minerals. This argument was rejected on the grounds that that the cited policy focuses on the “importance of the conservation of all mineral resources . . . and not long-standing contractual relationships between lessors and lessees.” Finally, the court dismissed Northrup’s argument that the lease lacked mutuality of obligation because Northup offered its “continuing consent” to the lease remaining open by accepting delay-rental payments for decades in lieu of receiving royalty on production.
In a concurring opinion, Judge White reasoned that the lease language was ambiguous and could be interpreted in favor of Northrop. Judge White agreed with the majority that the lease remained open however citing Kentucky’s doctrine of “contemporaneous construction,” which she explained requires the court to construe ambiguous contractual language in light of the parties’ conduct — which here was based on approximately thirty-years of delay rental payments and no production
A Balancing of the Equities was Not Required Before A Gas Company was Ordered to Remove A Pipeline
J.D. and Vicki Friess, Trustees v. Quest Cherokee, L.L.C., Explorer Resources, Inc., Bluestem Pipeline, L.L.C., and Quest Midstream Partners, L.P.
2009 WL 1563365 (Kan.App. June 5, 2009)
Robert E. Akers, Energy and Real Estate Practice Groups and U.S. Patent Attorney
The Court of Appeals of Kansas upheld a state district court ruling which granted a mandatory injunction requiring the removal of a pipeline.
The Steven B. Friess Irrevocable Trust (Friess Trust) has powers of management and control over a parcel of farm land in Labette County, Kansas. Steven B. Friess (Steven), the son of the Trustees of Friess Trust, has control of all day-to-day farming operations on the parcel of land. Quest Cherokee, L.L.C., et al. (Quest) installed a pipeline on the parcel of land sometime between December 2004 and January 2005. Despite negotiations between the parties, Quest failed to acquire a written easement from Friess Trust before the pipeline installation. Quest argued that its agent had reached a verbal agreement with Steven to proceed with the construction. Quest had mailed a check to Friess Trust for $3200. However, this check was never negotiated by Friess Trust. The pipeline was discovered in the spring of 2005, and Friess Trust brought suit for injunctive relief in November 2006.
After a bench trial, the state district court ruled that the construction of the pipeline was a trespass on Friess Trust’s land. The court found that Steven had no authority to consent to an easement and that no writing was created supporting Quest’s assertion of its easement rights. The court granted a mandatory injunction requiring Quest to remove the pipeline but declined to award punitive damages.
In making the ruling, the district court relied on an exception to the traditional balancing test element for injunctive relief. The exception is that a district court may forego the balancing of the equities between opposing parties when the party seeking the injunction has well defined rights that are recognized and protected under the law and otherwise satisfies all the other requirements for injunctive relief. Mid-America Pipeline Co. v. Wietharn, 246 Kan. 238 (1990). The district court expressed concern that allowing monetary damages in the case would have created a private condemnation and taking of the easement. Quest appealed.
The appellate court agreed that the exception to the normal balancing test rule applied to the situation. The appellate court reasoned that the balancing test element was necessary to protect innocent defendants who encroached upon another’s rights without warning or knowledge of the encroachment. The appellate court found that Quest had full knowledge of the situation and proceeded to construct the pipeline without securing a written easement from the proper parties. The district court and the appellate court, using words such as “foolish” and “negligent,” refused to allow a balancing test to become a method of escape for Quest from its trespass.
Fourth Circuit Affirms “Partially Prevailing” Environmental Organization’s Eligibility for Attorney’s Fees Award Under SMCRA Fee-Shifting Scheme
West Virginia Highlands Conservancy, Inc. v. Kempthorne
2009 WL 1609360 (4th Cir. 2009)
Jeremy D. Bragg, Energy Practice Group
Affirming summary judgment order in favor of the West Virginia Highlands Conservancy (WVHC), the Fourth Circuit Court of Appeals held that “a party who obtains a remand order requiring an administrative agency to properly perform its regulatory duties has achieved some degree of success on the merits[,]” rendering it eligible for an award of costs and expenses, including attorneys’ fees, under the fee-shifting provision of the Surface Mining Control and Reclamation Act (SMCRA).
In 1994, the WVHC filed a citizen complaint with the Office of Surface Mining Reclamation and Enforcement (OSM) alleging acid mine drainage violations at a reclaimed surface mining site. OSM notified the West Virginia Department of Environmental Protection (DEP), which declined action based on its determination that its jurisdiction terminated when it released the reclamation bond in 1983. OSM, under the belief that its jurisdiction did not terminate with the release of the reclamation bond, conducted its own investigation, but declined to take any further action on WVHC’s complaint, citing the need for “policy review and outreach.”
WVHC appealed OSM’s basis for delaying action to the Interior Board of Land Appeals (Board). The Board, however, focused on OSM’s exercise of jurisdiction, holding that “West Virginia’s written finding in a bond release” of compliance with reclamation requirements “terminates both the state’s jurisdiction and OSM’s oversight jurisdiction.” The Board noted one important exception to this rule: “OSM must exercise jurisdiction if it finds ‘that the written determination was based on fraud, collusion, or misrepresentation of material fact.”
The exception applied in this instance because the DEP failed to provide OSM with: a written determination that reclamation requirements had been met; and “evidence of pre-mining water quality to support [the DEP’s] claim that there was no significant difference in pre- and post-mining water qualities.” As this information would be relevant to OSM’s determination of whether West Virginia’s termination of jurisdiction was based on a “misrepresentation of a material fact[,]” the Board remanded for OSM to properly determine whether it had any basis to reassert jurisdiction. The Board denied WVHC’s petition for fees, reasoning WVHC could not claim any measure of success since its appeal was based on the rejected assumption that OSM had jurisdiction over the reclamation site.
WVHC sought review of the Board’s decision from the District Court for the Northern District of West Virginia, which held that WVHC had “partially prevailed . . . because the remand . . . served a key purpose of the citizen suit provision, which is to ensure that the agencies meet their regulatory obligations under SMCRA.” Finding WVHC eligible for costs and expenses, including attorneys’ fees, the District Court remanded to the Board to consider whether WVHC has made a “substantial contribution to a full and fair determination of the issues” which would entitle it to such an award.
On appeal, the Fourth Circuit Court of Appeals affirmed, holding: that remand was appropriate because OSM must “develop an adequate record to support its jurisdictional determinations”; and that WVHC was eligible for a fee award because it achieved “some degree of success” even though the Board’s “remand order was grounded on an issue that WVHC did not directly press before the Board.”
MSHA UPDATE: Use Of Digital Cameras Regarding MSHA Inspections Changes Post Inspection and Investigation Process
Per Procedure Instruction Letter (“PIL”) JUNE 5, 2009
Rebecca J. Oblak, Mine Safety & Health, Energy, Litigation, Workers Compensation Practice Groups
Kevin G. Stricklin, MSHA Administrator for Coal Mine Safety and Health has issued a PIL to MSHA personnel who use digital cameras during their inspections and investigations which will obviously change the post inspection and investigation process regarding MSHA alleged violations issued. Although many prudent mine operators presently utilize “permissible” digital cameras and videos to depict alleged conditions, operators should strongly consider utilization of “permissible” digital equipment especially when MSHA inspectors arrive on the property with such equipment; digital images and or videos should depict proper identification of the alleged condition/violation with accurate time, date, location and other pertinent information.
Mr. Stricklin establishes in the PIL that, “. . . digital images and/or video can significantly contribute to resolving differences of opinion between mine operators and MSHA personnel. The digital images and/or videos should accurately and effectively depict conditions or objects present during the investigation or inspection and subsequent abatement. This information can be invaluable during informal discussions and safety and health conferences. Such images may also expedite judicial proceedings by providing a pictorial illustration of a violation and its abatement/termination or an accident scene. Accordingly, the use of digital cameras is encouraged, and cameras should be used whenever practical subject to the following restrictions:
1. Underground coal mines and gassy underground metal and non metal mines where permissible equipment is required. Only camera approved
By MSH’s Approval and Certification Center (A&CC), when available, shall be used. Until then, the use of cameras inby the last open crosscut, in return entries or in bleeder entries is prohibited.
2. Gilsonite mines. The use of cameras is prohibited.
3. Explosive storage magazines, loaded explosives vehicles, and explosives Loading areas. The use of cameras is prohibited within 25 feet.
Note – This prohibition does not include facilities, magazines, or vehicles storing Ammonium Nitrate Fuel Oil (ANFO).
4. Flammable material storage or use areas of coal handling facilities which are Class I or Class II Hazardous Locations (explosive dusts or gasses) and outlines in the National Electrical Code. The use of cameras is prohibited…”
The PIL establishes the taking of digital photographs and images and appropriate guidelines as well properly preserving digital photographs and images to a CD or DVD. For complete PIL information regarding this topic please see visit: www.MSHA.gov and click on “Current Rulemaking” (right column); under “Compliance Assistance Information” click onto Procedure Instruction Letter (PIL).
MSHA UPDATE: President Obama Announces Nomination for Assistant Secretary
Rebecca J. Oblak, Mine Safety & Health, Energy, Litigation, Workers Compensation Practice Groups
On July 6 President Obama announced his intention to nominate Joe Main to serve as Assistant Secretary of the United States Department of Labor, Mine Safety and Health Administration. Mr. Main began his career in the mining industry in 1967 as a general inside laborer and later served as a union safety committeeman.
Joe Main joined the United Mine Workers of America (UMWA) in 1974 as served as a safety inspector, administrative assistant and deputy director; from 1982 to 2004 he was appointed Administrator of the UMWA Occupational Health and Safety Department and is currently self employed as a mine safety and health consultant.
