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 Kevin A. Fritz and Craig B. Simonsen

The Secretary of Energy Advisory Board (SEAB)’s FracFocus 2.0 database houses information collected from Federal and State regulatory agencies required as part of their regulatory requirements to disclose the composition and quantities of fracturing fluids that are injected into unconventional oil and gas wells.

In 2013, Secretary of Energy Moniz charged SEAB to review FracFocus 2.0.  What resulted is the FracFocus Task Force Report Final Draft, which provides findings and recommendations to the SEAB Task Force on FracFocus. As an additional component of President Obama’s “Blueprint for a Secure Energy Future,” the Draft Task Force Report builds on a 2011 SEAB Subcommittee report on the environmental impacts of unconventional gas production.

Notable in the Draft Report is its claim that a: “large fraction of reporting wells claim at least one trade secret exemption. The Task Force favors full disclosure of all known constituents added to fracturing fluid with few, if any exceptions.” The Report suggests:

A “systems approach” that reports the chemicals added separately from the additive names and product names that contain them, generally should provide adequate protection of trade secrets. The Task Force further calls for state and federal regulators to adopt standards for making a trade secret claim and establish an accompanying compliance process and a challenge mechanism.

Comments on the Draft Report are due by March 25, 2014, and are to be submitted by email to the SEAB.

By James L. Curtis and Craig B. Simonsen

The Bureau of Labor Statistics (BLS) recently released its preliminary “Census of Fatal Occupational Injuries.”  The findings show an increase of twenty-three percent in the oil and gas extraction industries, a fourteen percent increase in the mining sector, and a five percent increase in the construction industry.

The BLS Report indicates that 767 workers were killed as a result of violence and other injuries by persons or animals, including 463 homicides and 225 suicides. The total number of fatal work injuries after being struck by objects or equipment increased by seven percent.

As noted above, the number of fatal work injuries in the construction sector increased five percent in 2012. BLS says in its news release that “construction accounted for the highest number of fatal work injuries of any industry sector in 2012.”

Fatal work injuries in the mining sector increased fourteen percent from 2011. The number of fatal work injury cases in oil and gas extraction industries rose in 2012 by twenty-three percent — which represents a series high. This may be attributed to the increasing numbers of employees working in fracking operations. Fatal work injuries in support activities for mining increased nine percent.

In response to the BLS Report, Secretary of Labor Thomas E. Perez said in a press release that “[w]e can and must do better. Job gains in oil and gas and construction have come with more fatalities, and that is unacceptable…. Employers must take job hazards seriously and live up to their legal and moral obligation to send their workers home safe every single day. The Labor Department is committed to preventing these needless deaths, and we will continue to engage with employers to make sure that these fatality numbers go down further. “ Emphasis added.

Employers in these industries, oil and gas, construction, and mining, need to be mindful of OSHA’s and MSHA’s enhanced monitoring and inspection activities. Take steps to insure that your safety and health programs, policies, and training are up-to-date and are being rigorously implemented. Be sure to have a plan in-place for when an agency inspector does come calling, so that the company is protected and any citations and liabilities are minimized.

By Meagan Newman

While large and small companies across the globe have been addressing issues of corporate responsbility and sustainability for many years now, India has became the first country to pass a law that requires large companies to spend a percentage of their profits on corporate sustainability initiatives.  The law, which updates India’s Companies Act of 1956, applies to those companies with profits of over ~$80 million over the last 3 years and is intended to ensure equitable, sustainable growth in India.  The law allows some flexibility in determining which corporate responsibility efforts may satisfy the requirements.  Included among the nine “pillars” or categories outlined in the law are “ensuring environmental sustainabilty,” “eradicating extreme hung[e]r and poverty,” and “promoting gender equality and empowering women.” Companies must be audited each year and face penalties for non-compliance.  On the diversity and corporate governance front, the law requires that independent board members constitute a third of the board and there must be at least one female board member.  If companies shut down, the law requires that they pay employees two years of salary.

The law applies to foreign companies which are more than fifty percent owned “by one or more citizens of India or by one or more companies or bodies corporate incorporated in India, whether singly or in the aggregate.”

By Ilana R. Morady and Meagan Newman

By now it seems most large employers have implemented or are developing some form of sustainability program.  In recent years these efforts have moved beyond “green” iniatives such as reducing waste, water consumption and energy use, cutting emissions, changing lightbulbs or going paperless.  Today, sustainabilty programs and goals set by employers often include supply chain, labor, community development, safety, and diversity issues and many others. Employers understand that sustainability efforts, when undertaken thoughtfully, improve the bottom line while also doing “good” for the environment and people.  There may also be benefits that companies have not yet fully explored.  A survey conducted earlier this year found a significant shift in employee attitude and career decisions relating to sustainability.  Bain & Company surveyed about 750 employees across industries in Brazil, China, India, Germany, the UK and the US. Roughly two-thirds of respondents said they care more about sustainability now than three years ago, with almost that many saying sustainable business is extremely important to them.  The survey showed that interest peaks among employees in their mid-30s to early 40s.

Acquiring and retaining talent is clearly important to employers.  Employers who engage and energize employees with iniatives that align with employees’ interests are more likely to retain top talent.   It seems that corporate sustainability efforts contribute to talent retention–so, consider adding this factor to your list when developing, and measuring the success, of your sustainability programs.  In addition, consider better integrating sustainability into internal communications in order to maximize the potential benefit.  Internal reputation management can be just as important as external.

By Philip L. Comella and William R. Schubert

Earlier this week, we blogged about the broad range of “reform options” for energy incentives that members of Congress are drafting, and the fast pace at which this area of public policy can move.

Now the John F. Kennedy School of Government at Harvard University has spotlighted an EPA alternate energy initiative as one of the Top 25 Innovations in American Government for the year 2012.

The EPA program, called the “RE-Powering America’s Land Initiative,” promotes alternate energy projects –  for example, those involving energy sources such as wind, sunlight, biomass, geothermal systems, and landfill gas – at contaminated properties, mine sites, and landfills.

According to EPA’s fact sheet, contaminated properties, mine sites, and landfills are “environmentally and economically beneficial for siting renewable energy facilities because they:

  • Offer thousands of acres of land with few site owners;
  • Often have critical infrastructure in place including electric transmission lines, roads and water on-site, and are adequately zoned for such development;
  • Provide an economically viable reuse for sites with significant cleanup costs or low real estate development demand;
  • Take the stress off undeveloped lands for construction of new energy facilities, preserving the land carbon sink; and
  • Provide job opportunities in urban and rural communities.

In connection with the Initiative, EPA has published an online summary tracking the progress of completed renewable energy projects on potentially contaminated lands, landfills, and mine sites.

Incentivizing the reuse of old contaminated sites has been a bright spot on EPA’s resume for some time.  EPA’s Brownfields Economic Redevelopment Initiative  was among 10 government programs that received grant money in connection with the Innovations in American Government Awards program in 2000.

By Philip L. Comella and William R. Schubert

Changes in regulation and investment incentives seem to happen at a frenetic pace in the energy sector.

For example, we have previously blogged about the last-minute extension of renewable energy credits and the year-to-year changes in EPA’s biofuel standards. As we pointed out in a recent one-minute memo about possible funding mechanisms for renewable energy projects, the energy sector needs reliable ground rules to attract better investment.  The stakeholders need to know what to expect with a safe degree of certainty.

To this end, piecemeal energy policies that affect players in the industry unevenly and are subject to unexpected change probably need an overhaul.

The Senate Finance Committee just released a paper, drafted by the Committee members’ staffs, which compiled tax reform options affecting infrastructure, energy and natural resources.  The paper stated that as a starting point, any tax provisions affecting energy and conservation should aim to fulfill these principles:

  • Provide businesses with greater certainty.
  • Consolidate and simplify such tax expenditures.
  • Make such tax expenditures fairer and more efficient.
  • Encourage energy independence through a comprehensive approach.
  • Carefully consider whether and how to address any positive or negative externalities.

Not surprisingly, this bipartisan staff effort listed sharply different recommendations about how to meet these goals.  It identified the following basic “reform options”:

  1. Eliminate all existing tax expenditures for the energy sector;
  2. Replace existing energy tax expenditures with technology-neutral tax expenditures;
  3. Modify and consolidate some incentives while eliminating others;
  4. Equalize tax treatment of master limited partnerships (MLPs) in the energy sector;
  5. Establish a carbon tax or cap and dividend approach while eliminating most or all other existing energy tax expenditures; and
  6. Modify conservation easements.

With practically every option on the table, it remains to be seen how quickly Congress will advance a meaningful, comprehensive reform package on energy incentives.

Seyfarth Shaw’s Rob Winner, Corporate Partner in the Chicago Office and Chair of the firm’s Energy and Clean Technologies Specialty Team, will serve as a judge in the Clean Energy Challenge to be held in Chicago on April 4th.  

The Clean Energy Challenge is a two-level competition that allows clean energy entrepreneurs with companies in different points of development to compete for funding opportunities.  Seyfarth is a sponsor of the event.

By Jeryl L. Olson and William R. Schubert

The U.S. Environmental Protection Agency has proposed its renewable fuel standards for the year 2013.  The proposed rule would require producers, importers, and distributors of gasoline and diesel to add greater proportions of renewable fuels to their products.

The 2013 proposed rule includes a standard for the nationwide volume of “cellulosic biofuel” in the amount of 14 million ethanol-equivalent gallons, based on the EPA’s market projection. That is considerably higher than last year’s projection-based standard (10.45 million ethanol-equivalent gallons), which the U.S. Court of Appeals for the D.C. Circuit struck down just days ago in American Petroleum Institute v. EPA (No. 12-1139, Jan. 25, 2013).  The opinion, in which the D.C. Circuit ruled that the EPA exceeded the scope of its authority (see 42 U.S.C. § 7545(o)), stated that the EPA had employed “a methodology in which the risk of overestimation is set deliberately to outweigh the risk of underestimation” in order to promote the growth of a nascent biofuel industry  (see slip op. at 6, 10).  The opinion pointed out that the EPA had overestimated its projections in both 2010 and 2011, while the actual production of “cellulosic biofuel” for both of these years remained at zero (see slip op. at 5, 8).

The proposed rule nonetheless predicts that this year will buck the trend.  It states that 2013 “is expected to be a year of transition for the cellulosic biofuel industry, as many companies are shifting their focus from technology development to commercialization.” Further, it states that:

“[a]s cellulosic biofuel producers gain experience and continue to progress towards commercial-scale biofuel production, it is reasonable to expect that the production costs and capital costs will continue to decline.”

The 2013 proposed standards adopt the 2013 statutory target volume for “advanced biofuel” (2.75 billion ethanol-equivalent gallons), and “total renewable fuel” (16.55 billion ethanol-equivalent gallons).  As proposed, the EPA’s rule would not relax these volume requirements, although the Clean Air Act would potentially allow a reduction of up to 986 million ethanol-equivalent gallons (equal to the difference between the 2013 projected volume of “cellulosic biofuel” and the statutory target of 1 billion ethanol-equivalent gallons) for each of these categories.

The EPA’s proposed “advanced biofuel” volume of 2.75 billion ethanol-equivalent gallons depends heavily on the availability of imports.  Specifically, it assumes that the U.S. market will have access to a substantial quantity of sugarcane ethanol produced in Brazil.  The proposed rule acknowledges, however, that public policy decisions (such as the recent biodiesel tax credit extension in the U.S. or a possible increase in blending requirements for biodiesel in Brazil) could undermine this assumption.

Another key issue that the EPA is seeking comments on is whether it should extend the renewable fuel standards exemption for “small refineries.”

The proposed 2013 renewable fuel standards rule (docket no: EPA-HQ-OAR-2012-0546) has not yet been officially published as of the time of this writing.  As soon as it is published in the Federal Register,  the public will have 45 days to submit comments, and 15 days to request a hearing.  Comments can be submitted either directly to the EPA or through www.regulations.gov.

By Roy Meilman and Michael Rosenthal

After many months of discussion and opposition, the American Taxpayer Relief Act of 2012 (the Act), signed into law by President Obama on January 2, 2013, to avert the fiscal cliff, extended and modified the laws surrounding renewable energy credits through January 1, 2014, some of which were set to expire December 31, 2012.

Read the full text of Roy Meilman and Michael Rosenthal’s One Minute Memo, Last Minute Extension and Modification Finally Comes for Renewable Energy Tax Credits, for the complete article.