By Robert S. Winner, Andrew L. Berg, and Ashley M. Hymel

Energy sources conseptSeyfarth Synopsis: In this edition of Seyfarth Shaw’s Energy Insights Newsletter, our Energy and Clean Technologies team covers important developments in Q1 2016 for the energy industry including 1) the fate of the Clean Power Plan and potential impact on U.S. compliance with the Paris Agreement, 2) the increased pressure by the DOL to wage and hour practices in the oil and gas industry, and 3) growing interest and use of EB-5 financing for renewable energy projects and proposed changes to the program.

Clean Power Plan Awaits Decision

In June 2014, Environmental Protection Agency (EPA) issued its proposed Clean Power Plan (CPP) to regulate CO2 emissions from existing power plants under section 111(d) of the Clean Air Act (CAA), which proposes to limit carbon emissions from existing fossil fuel-fired electric generating units, including steam generating, integrated gasification combined cycle, or stationary combustion turbines (in either simple cycle or combined cycle configuration) operating or under construction by January 8, 2014.  Specifically, the CPP requires states to reduce carbon dioxide emissions from existing power plants by 32 percent below 2005 levels by 2030.  States are required to submit compliance plans to reduce their emissions by 2022, with full compliance not required until 2030.  The Department of Energy (DoE) believes implementing the CPP will forestall hundreds of millions of tons of greenhouse-gas emissions from human activities, a key driver of climate change.

However, immediately following the release of these proposed regulations, two dozen states and numerous interested corporations and industry groups sued the administration claiming the EPA overstepped its constitutional authority and statutory authority under the CAA.  And on February 9, 2016, the U.S. Supreme Court granted a stay preventing the implementation of the CPP pending further review. Oral arguments are scheduled for June 2nd and even though it could take up to a year for a final ruling to be released, some experts believe the three judge panel will seek to render a decision by the end of summer 2016 since the judges’ clerks change at the end of August, a potential delay.

Many have argued that the stay could, and if the CPP is struck down entirely, would, impact the U.S.’s ability to meet the United Nations Framework Convention on Climate Change (UNFCCC) Paris Agreement goals of (1) reducing emissions “in the range” of 17 percent below 2005 levels by 2020 and (2) a “further emission reduction” up to 26-28 percent of total reductions below 2005 levels by 2025.

Interestingly, voting in favor of the stay was Justice Scalia’s last decision before passing away suddenly. A 4-4 decision would have upheld the lower court’s reversal and thus implementation of the CPP.

The Oil and Gas Industry’s Wage and Hour Practices Remain A High Priority for the Department of Labor

In 2012, the Department of Labor’s Wage and Hour Division (WHD) began an initiative to improve oil and gas industry compliance with the Fair Labor Standards Act (FLSA) and in particular, the federal law that requires overtime compensation for hours worked over 40 in a workweek. According to the WHD, this ongoing initiative was meant to “focus resources where data shows that violations are common and business models lend themselves to violations.”

Through 2015, the WHD has obtained several high-dollar settlements from oil and gas companies. Notable recent settlements include a $4.5 million settlement with an oil and gas exploration and production company for failure to compensate employees for pre-shift meetings and an $18.3 million settlement with an oilfield services company for misclassification of employees in 28 job positions.  These investigations, and their subsequent settlement, demonstrate both the depth and the breadth of the WHD’s expending reach.  Already in the first quarter of 2016, the WHD has touted settlements with six oil and gas companies for a total of almost $2 Million under similar wage hour theories. These companies’ services range from drilling to engineering to selling oil and gas equipment.  The WHD recently expressed its hope that industry executives will take the lead and serve as models for industry-wide compliance.

And, while the “industry” on the radar used to include only oil and gas exploration and production, or oilfield services, companies, the WHD has expanded its pursuit to include related businesses, such as water and stone haulers, trucking, lodging, water, and staffing companies.  One prime example of this expansion lies with a supply chain management company that settled with the WHD to the tune of over $146,000 in August of 2014 for failure to pay overtime at time and a half for hours worked over 40 in a week.

After four years, 1,100 investigations, and $40 million in settlements, the WHD is still on the hunt and it shows no signs of slowing down.  As the WHD stated in a recent press release, “employers must know and comply with the law.”  Employers in the oil and gas industry should continue to review their current wage and hour practices to ensure compliance.

Foreign Investors Going Green in Pursuit of Green Cards

For those who have heard of or read about “EB-5” financing, they may have only thought it was for certain categories of assets such as resorts, casinos, hotels, multi-family and mixed use office properties, which make up more than half the EB-5 funding distributed.  However, a smaller (3-5%), but growing segment of financing obtained from foreign investors participating in the employment-based, fifth-preference visa category (EB-5) has been within the renewable energy industry, and has significantly contributed toward the development of large-scale energy projects across the United States.  Not only has the percentage of EB-5 financing in the alternative energy space grown, so has the number and size of projects in the areas of utility scale solar power, alternative fuel production and lithium battery production, especially in California. As the nation’s preference for clean energy over traditional fossil fuels has gained momentum and states increasingly seek to implement aggressive renewable portfolio standards, marketing EB-5 projects to foreign investors has become much more common since it positively correlates with increased job creation.

By way of background, under the United States Citizenship and Immigration Services’ (USCIS) EB-5 Immigrant Investor Pilot Program (Program), foreign individuals who invest $1,000,000 (or $500,000 in targeted employment areas (TEA) in a new commercial enterprise are able to pursue permanent residency in the United States if they can prove that their investment created a minimum of ten full-time jobs.  The permitted $500,000 investment amount for projects located in areas of high unemployment or rural tracts of land is ideal for the alternative energy industry since the power plants, solar panel farms, and other energy-generating equipment installations require large amounts of land.

The Program was initially due to expire on September 30, 2015 and received a one-year extension. However, in connection with a potential further extension, some bad press and bad apples has caused lawmakers to draft new bills to provide additional protections for investors in EB-5 projects. For example, the Integrity Act, introduced by Senators Schumer, Flake and Cornyn on December 17, 2015, seeks to strengthen the Program by requiring greater government oversight of regional centers (entities that sponsor the EB-5 projects), including authority to assess fines for noncompliance, and requiring registration of all affiliated parties of regional centers. Other bills include increasing the required minimum investment amount in a TEA from $500,000 to $800,000, and from $1 million to $1.2 million for non-TEA investments. Further, the SEC has been carefully watching EB-5 financings and their compliance with securities laws. However, despite the new oversight, developers continue to move full-steam ahead and raise hundreds of millions of dollars in EB-5 funding to create jobs, including those in the renewable industry.

By Brent I. Clark, James L. Curtis, and Craig B. Simonsen

Safety at workThe U.S. Department of Justice (DOJ) and the Department of Labor (DOL) announced last week an expansion of its worker endangerment initiative to address worker safety violations through the use of enhanced criminal fines and penalties.

According to Deputy Attorney General Sally Quillian Yates, “on an average day in America, 13 workers die on the job, thousands are injured and 150 succumb to diseases they obtained from exposure to carcinogens and other toxic and hazardous substances while they worked.” “Given the troubling statistics on workplace deaths and injuries, the Department of Justice is redoubling its efforts to hold accountable those who unlawfully jeopardize workers’ health and safety.”  Department of Labor Deputy Secretary Chris Lu stated that “today’s announcement demonstrates a renewed commitment by both the Department of Labor and the Department of Justice to utilize criminal prosecution as an enforcement tool to protect the health and safety of workers.” DOJ News Release (December 17, 2015).

According to the DOJ, last year it held meetings to explore a joint effort to increase the frequency and effectiveness of criminal prosecutions of worker endangerment violations. This culminated in a “decision to consolidate the authorities to pursue worker safety statutes within the Department of Justice’s Environment and Natural Resource Division’s Environmental Crimes Section.”  In a December 17, 2015 Memo, sent to all U.S. Attorneys across the country, Deputy Attorney General Yates urged federal prosecutors to work with the Environmental Crimes Section in pursuing criminal prosecutions for worker endangerment violations.

The worker safety statutes had generally provided for only misdemeanor penalties.  However, prosecutors have now been encouraged to consider utilizing Title 18 and environmental offenses, “which often occur in conjunction with worker safety crimes,” to enhance penalties and increase deterrence.  Specifically, the Memo indicates that prosecutors can “make enforcement meaningful” by charging other serious offenses that often occur in association with OSH Act violations. Examples offered include false statements, obstruction of justice, witness tampering, conspiracy, and environmental and endangerment crimes. To facilitate interagency cooperation in implementing this initiative, the DOJ and the DOL have also executed a Memorandum of Understanding on Criminal Prosecutions of Worker Safety Laws (December 17, 2015).

Employers should be leery of these now “added” enforcement authorities. With penalties ranging from five to twenty years of incarceration and significant money fines, criminal enforcement of workplace safety accidents are now significantly more serious.

By Andrew H. Perellis and Patrick D. Joyce

Supreme CourtIn a 5-4 ruling, the U.S. Supreme Court today ruled that the EPA acted unreasonably when it refused to consider the cost of implementing its Mercury and Air Toxics Standard (MATS).

The MATS rule, issued in 2012, established emissions limits from power plants for mercury, filterable particulate matter, and hydrogen chloride.  U.S. power plants were required to come into compliance with the MATS rule by April 16 of this year, but 170 coal-fired power plants received a one year extension to either install control technology or shut down.

EPA estimated that it would cost the power industry nearly $9.6 billion per year in compliance costs while providing a pollution reduction benefit of only $4 to $6 million per year.  However, EPA said that Section 112 of the Clean Air Act only required it to consider compliance costs when establishing an appropriate emission level but not when deciding whether to regulate in the first place.

Justice Scalia, writing for the majority, found that the words “appropriate and necessary” under Section 112 required EPA to consider the costs of the regulation at the initial stages and that “EPA must consider cost—including cost of compliance—before deciding whether regulation is appropriate and necessary.”  Justice Scalia further said “Against the backdrop of [] established administrative practice, it is unreasonable to read an instruction to an administrative agency to determine whether ‘regulation is appropriate and necessary’ as an invitation to ignore costs.” Slip opinion pp 7-8.

Justice Scalia wrote that Section 112 requires EPA to consider “all of the relevant factors” and that “agencies must operate within the bounds of reasonable interpretation. EPA strayed far beyond those bounds when it read §7412(n)(1) to mean that it could ignore cost when deciding whether to regulate power plants.”  Slip op. p. 6.

Writing for the minority, Justice Kagan said that Congress had allocated broad authority to EPA to determine whether to regulate an industry and that EPA had properly considered costs at a later stage in the regulation, something EPA has done in other rules.

By Jeryl L. Olson, Meagan Newman and Craig B. Simonsen

112rEnforcementThe U.S. Environmental Protection Agency has just released an Enforcement Alert on accidental releases of chemicals, including anhydrous ammonia at refrigeration facilities, under the Clean Air Act’s (CAA) Chemical Accident Prevention Program.

This Enforcement Alert comes in seeming coordination with the EPA’s recent news release about several anhydrous ammonia Emergency Planning and Community Right-to-Know Act (EPCRA) settlements where the alleged violators have “agreed to follow federal requirements when it comes to reporting the storage, handling, and accidental release of hazardous chemicals.”

The Agency noted in the Enforcement Alert that “recent” chemical releases stemming from CAA 112(r) violations at nine different refrigeration facilities have resulted in “property damage, numerous injuries and hospitalizations and several deaths.” As a result, EPA has imposed over $8.4 million in civil penalties and companies will spend approximately $10 million on supplemental environmental projects, including “purchasing equipment and providing training for emergency responders as well as converting refrigeration equipment to safer technologies.”

To assist regulated facilities in compliance, the Enforcement Alert highlights these relevant aspects of the Chemical Accident Prevention Program:

  • The Risk Management Program (RMP) Regulations, 40 CFR Part 68;
  • The General Duty Clause;
  • Industry Standards; and
  • Enforcement Focus on Accident Prevention.

The Enforcement Alert provides discussion and analyses on each on these highlighted aspects. Also provided is a “Lessons Learned” section.

Regulated facilities would do well to review company policies, systems, procedures, and training programs to assess their levels of compliance with the law in this area. You may be sure that if an EPA inspector arrives at your facility, she may be doing so as well.

By Andrew H. Perellis, Jeryl L. Olson, and Craig B. Simonsen

The Third Circuit concludes that the U. S. Environmental Protection Agency may not force former facility owners to obtain missing preconstruction permits or to install missing pollution controls on a plant that they no longer own or operate — as it did not cry foul until more than a decade after the changes, well after the owners had sold the plant. Commonwealth of Pennsylvania, et al., v. EME Homer City Generation, L.P., No. 11-4406, 11-4407, and 11-4408 (3rd Cir. August 21, 2013).

We recently blogged about a related Seventh Circuit case that asked how much change can occur without a permit. In USA v. Midwest Generation, LLC, et al., No 12-1026 (7th Cir. July 8, 2013), the Seventh Circuit found that once the statute of limitations expires, and absent a specific state statute obligating the use of best available control technology (BACT), a source is free to proceed as if it possessed all required construction permits. “[E]nduring consequences of acts that precede the statute of limitations are not independently wrongful.”  USA v. Midwest Generation, at -7-8.

In this case, the Court states emphatically that: “[t]he relief now sought would require us to distort plain statutory text to shore up what the EPA views as an incomplete remedial scheme. That we cannot do ….”

Factually the facility had allegedly made various changes to its boilers that increased net emissions of sulfur dioxide and particulate matter. The changes were allegedly “major modifications” triggering the Prevention of Significant Deterioration (PSD) permitting requirements and required BACT. At the time of the modifications, though, the operator believed that the changes were “routine maintenance,” and so was exempted from the PSD program.

 Consequently, in 2004, the Pennsylvania Department of Environmental Protection approved the facility Title V permit application and issued the Title V permit. However, because there was no PSD permit, the issued Title V permit did not include any PSD or BACT requirements.

In 2008, the EPA notified the current and former owners of the facility of the alleged violations, and in January 2011 sued in the Western District of Pennsylvania. EPA alleged the facility had violated the PSD program by modifying the facility without a PSD permit and without installing BACT-based emissions controls before modifying the facility, and had violated Title V by submitting an incomplete operating-permit application that omitted the facility’s modifications and proposed BACT controls.

The District Court had held that the five-year statute of limitations had expired on the civil-penalty PSD claims against the current owners because the PSD program imposed only prerequisites to construction and modification, not ongoing conditions of operation. Also, as the current owners were not the ones to modify the Plant, they could not be liable for violating the PSD requirements and thus injunctive relief was also unavailable against them. The District Court also declined to enjoin the former owners because they no longer owned or operated the Plant and thus posed no risk of violating the PSD program in the future.

As for the Title V operating permit claims, the current owners could not be liable because Title V does not transform the PSD requirements into operating duties and does not permit a collateral attack on a facility’s valid permit. In addition, the former owners could not be held liable because Title V prohibits an operating a source to be out of compliance with the operating permit. The former owners never owned or operated the facility after the Title V permit was issued.

By Andrew H. Perellis and Craig B. Simonsen

The Third Circuit Court of Appeals yesterday resuscitated a proposed class action alleging the release of toxic emissions from a coal-fired power plant, finding that the Clean Air Act does not preempt certain state law claims brought by property owners. Bell, et al., v. Cheswick Generating Station, No. 12-4216 (3rd Cir. August 20, 2013).

The putative class was made up of individuals who owned or inhabited residential property within one mile of a coal-fired electrical generation facility in Springdale, Pennsylvania. The plaintiff had alleged that the coal-fired power plant operation, maintenance, control and use of the generating station had caused property damage, the inhalation of odors, and the deposit of coal dust. Procedurally, the case was removed to the federal District Court, which then found that the CAA preempted the property owners state law claims.

The Third Circuit ruled on this as a matter of first impression: “whether the Clean Air Act preempts state law tort claims brought by private property owners against a source of pollution located within the state.” The Court concluded that based on the plain language of the CAA and controlling Supreme Court precedent, such source state common law actions are not preempted.

The Court in its decision reviewed the preemption question under the CAA in reference to the Supreme Court’s 1987 decision in International Paper Co. v. Ouellette, 479 U.S. 481 (1987). International Paper had dealt with the Clean Water Act. In that case, the Supreme Court found that “nothing in the [Clean Water Act] bars aggrieved individuals from bringing a nuisance claim pursuant to the laws of the source State.”

The Court concluded that “[w]e see nothing in the Clean Air Act to indicate that Congress intended to preempt source state common law tort claims.”

By Andrew H. Perellis and Jeryl L. Olson

How much change can occur without a permit is a contentious and difficult question.

A Clean Air Act major source undergoing construction or modification needs to obtain a construction permit under 42 U.S.C. §7475(a) that would then obligate it to install best available control technology (BACT). However, mere repairs to an existing facility do not trigger the need for a permit and the accompanying obligation to install BACT.

Commonwealth Edison made changes to five coal-fired plants between 1994 and 1994 based on its position that permits were not required. EPA brought suit more than five years later claiming that a construction permit was needed and that the failure to obtain it — and the failure to install BACT — were continuing violations. Midwest Generation which had purchased the plants, claimed that the need to obtain a permit and install BACT was a one-time violation and as such that suit was time-barred under the applicable five-year statute of limitations. See 28 U.S.C. §2462. The Seventh Circuit agreed, USA v. Midwest Generation, LLC, et al., No 12-1026 (7th Cir. July 8, 2013), upholding the district court’s opinions.  694 F. Supp. 2d 999 (N.D. Ill. 2010).

The Court cited the recent Supreme Court decision in Gabelli v. Securities Exchange Commission, ___ US ___, No. 11-1274 (February 27, 2013) (see our recent Client Alert on this decision), to reiterate that the discovery rule has no application, and that the statute of limitations begins when the  violation occurs. The holding of the Seventh Circuit is in accord with rulings by the Eighth and Eleventh Circuits, as noted in the opinion. Sierra Club v. Otter Tail Power Co., 615 F.3d 1008 (8th Cir. 2010); and National Parks and Conservation Association Inc. v. Tennessee Valley Authority, 502 F.3d 1316 (11th Cir. 2007).

The Court distinguished the decision of the Sixth Circuit, National Parks and Conservation Association Inc. v. Tennessee Valley Authority, 480 F.3d 410, (6th Cir. 2007), where certain state statutes that are part of that State’s State Implementation Plan require a source to use BACT. Even so, the Court rejected the contention that Section 9.1(d)(2) of the Illinois Environmental Protection Act created such an obligation.

This case is significant to any source that has made repairs and that is potentially subject to an assertion by EPA that the change triggered BACT requirements. Once the statute of limitations expires, and absent a specific state statute obligating the use of BACT, a source is free to proceed as if it possessed all required construction permits. ‘[E]nduring consequences of acts that precede the statute of limitations are not independently wrongful.”  Opinion at -7-8.

By Jeryl L. Olson, Eric E. Boyd, and Craig B. Simonsen

The U.S. Environmental Protection Agency (EPA) has, in an impressive almost 800 page publication, finalized its fine particulate matter rule to strengthen the National Ambient Air Quality Standard (NAAQS) for fine particles (PM2.5) to 12.0 micrograms per cubic meter (µg/m3). 78 Fed. Reg. 3086 (January 15, 2013). The EPA also has retained the existing standards for coarse particles (PM10). The NAAQS are standards that apply to all outside air in the U.S. The states will now need to adopt rules so that the air in each state attains and maintains compliance with the standards.

According to EPA Administrator Lisa P. Jackson, the rule, which was proposed in June 2012, “is based on an extensive body of scientific evidence that includes thousands of studies – including many large studies which show negative health impacts at lower levels than previously understood. It also follows extensive consultation with stakeholders, including the public, health organizations, and industry, and after considering more than 230,000 public comments.”

EPA concurrently published this map which illustrates states and counties that currently do not meet the 12.0 µg/m3 standard.

2009-2011 Map.jpg

In response to this massive new rule, the National Association of Manufacturers released a statement: “the EPA’s actions today will only further dampen manufacturers’ already dismal outlook for 2013. Manufacturers’ optimism has plummeted since the beginning of the year due to the poor business environment, according to the latest National Association of Manufacturers/IndustryWeek Survey of Manufacturers. It is time that the EPA works with manufacturers on sensible regulations.”

By Craig B. Simonsen

We had previously blogged about the U.S. Environmental Protection Agency’s  (EPA’s) Greenhouse Gas (GHG) “tailoring rules” for Prevention of Significant Deterioration (PSD) and Title V permitting, and about its GHG “Endangerment Finding“. Yesterday the D.C. Circuit Court of Appeals has ruled concerning both of these rulemakings. Coalition for Responsible Regulation, Et al. v. EPA, — F.3d —-, 2012 WL 2381955 (D.C. Cir., June 26, 2012).

In that case, the Petitioners were various states and industry groups, who argued that the rules were based on improper constructions of the Clean Air Act (CAA) and were otherwise arbitrary and capricious. The Court concluded that the Endangerment Finding was neither arbitrary nor capricious; that the EPA’s interpretation of the governing CAA provisions was unambiguously correct; and that no petitioner had standing to challenge the tailoring rules. All of the petitions for review of the tailoring rules were dismissed for lack of jurisdiction, and the remainder of the petitions were denied. “We decline Industry Petitioners’ invitation to rule on the merits of cases which are properly before different panels.”

The Court concluded by noting that “Industry Petitioners were regulated and State Petitioners required to issue permits not because of anything EPA did in the Timing and Tailoring Rules, but by automatic operation of the statute. Given this, neither the Timing nor Tailoring Rules caused the injury Petitioners allege: having to comply with PSD and Title V for greenhouse gases.” As the Court pointed out, the tailoring rules may have actually mitigated the Petitioners’ alleged injuries. Without the tailoring rule, an even larger number of industry and state-owned sources would potentially have been subject to PSD and Title V permitting, and state authorities might have correspondingly been overwhelmed with millions of additional permit applications.

Among other impacts, this ruling is expected to limit the construction of new coal plants as energy providers move toward cleaner fuels, such as natural gas.

By Jeryl L. Olson, Eric E. Boyd, and Craig B. Simonsen

In a not unexpected final rule issued today by the U.S. Environmental Protection Agency (EPA) it has listed the “Chicago-Naperville, IL-IN-WI Nonattainment Area” as marginal nonattainment. 77 Fed. Reg. 34221 (June 11, 2012). The rulemaking promulgates the initial air quality designations for twelve counties in Illinois, Indiana, and Wisconsin for the 2008 primary and secondary National Ambient Air Quality Standards (NAAQS) for ozone, in accordance with the requirements of Clean Air Act (CAA) section 107(d). State areas designated as nonattainment are subject to planning and emission reduction requirements in the CAA.