Slides and Audio from Reed Smith's January 10 Environmental and Energy Law Resource Teleseminar

On January 10, 2013 Reed Smith proided a repeat presentation and update on a Pennsylvania Federal Court’s recent allowance of Aggregation Claims against an established and DEP Permitted gas field.

Topics included:

  • Background regarding aggregation and recent DEP Guidance
  • Status of Aggregation Cases before the Pennsylvania Environmental Hearing Board
  • Summit Petroleum Corporation v. United States Environmental Protection Agency, et al. (United States Court of Appeals for the Sixth Circuit, August 7, 2012)
  • A surprise in Citizens for Pennsylvania's Future v. Ultra Resources, USDC for the Middle District of Pennsylvania, September 24, 2012
  • Updates since November 2012 presentation

The slides and audio are available for download.

Be sure that we will monitor and analyze these issues and many other environmental and energy issues through the year on our blog and in future teleseminars.
 

Slides and Audio from Reed Smith's November 6 Environmental and Energy Law Resource Teleseminar

On November 6, 2012 Reed Smith focused on aggregation in the Pennsylvania shale gas industry  during its quarterly teleseminar.

Topics included:

  • Background regarding aggregation and recent DEP Guidance
  • Status of Aggregation Cases before the Pennsylvania Environmental Hearing Board
  • Summit Petroleum Corporation v. United States Environmental Protection Agency, et al. (United States Court of Appeals for the Sixth Circuit, August 7, 2012) 
  • A surprise in Citizens for Pennsylvania's Future v. Ultra Resources, USDC for the Middle District of Pennsylvania, September 24, 2012

The slides and audio are available for download.

Be sure that we will monitor and analyze these issues and many other environmental and energy issues through the year on our blog and in future teleseminars.

Final Guidance on Oil and Gas Aggregation to Be Published in PA Bulletin October 6, 2012

This post was written by Nicolle R. Snyder Bagnell

The Pennsylvania Department of Environmental Protection will publish the final guidance on air quality permitting decisions for oil and gas operations in tomorrow’s Pennsylvania Bulletin

The guidance will apply to emission sources from the exploration, extraction and production of oil and gas and will discuss how the Department decides when to permit sources separately or in the aggregate. The agency published an “interim final” version of the air aggregation guidance for a 30-day public comment period last fall and began implementing it Oct. 21, 2011 which was the subject of two earlier blog posts:

U.S. Shale Gas in 2012: Top 10 Environmental Legal Issues to Watch

This post was written by David Wagner and Jennifer Smokelin.

This article was published in Rigzone on February 16, 2012.

In his State of the Union address in late January, President Obama offered his support to further develop natural gas as an energy source and stated that “my administration will take every possible action to safely develop this energy.” The president also underscored that this development requires environmental safeguards. He added: “I'm requiring all companies that drill for gas on public lands to disclose the chemicals they use. America will develop this resource without putting the health and safety of our citizens at risk.” In this context, what can we expect from environmental regulators this year? In our outlook for 2012, we identify 10 environmental legal issues to watch.

1. U.S. Environmental Protection Agency’s First Report on the Impact of Hydraulic Fracturing on Drinking Water Resources

The U.S. Environmental Protection Agency (EPA) is studying the impacts of hydraulic fracturing on drinking water resources primarily in shale formations. Look for EPA’s initial study results this year and an additional report based on long-term study projects in 2014.

The results will no doubt be an impetus for regulatory and policy changes that could have a significant impact on the shale gas industry. Hydraulic fracturing involves injecting water, sand and chemicals deep underground to break up shale rock formations that contain natural gas. Under the study, EPA researchers, in collaboration with outside experts from the public and private sector, will examine the impacts of: large volume water withdrawals from ground and surface waters; surface spills resulting from hydraulic fracturing fluids; the injection and fracturing process; surface spills of flowback and produced water; and wastewater treatment and waste disposal.

2. EPA’s Development of Hydraulic Fracturing Wastewater Standards

EPA is also developing national standards for wastewater discharges produced by natural gas extraction from underground coalbed and shale formations. The federal Clean Water Act (CWA) effluent guidelines program sets national standards for industrial wastewater discharges based on best available technologies that are economically achievable. Effluent guidelines for oil and gas extraction prohibit the on-site direct discharge of wastewater from shale gas extraction into waters of the United States. While some of the wastewater from shale gas extraction is reused or re-injected, the rest still requires disposal. Currently, the disposal of wastewater generated by shale gas production activities is regulated by the states. In some states, wastewater is injected into deep underground shafts, while in others, wastewater has been sent to sewage treatment plants.

In 2012, EPA plans to gather data, consult with stakeholders – including industry stakeholders – and solicit public comment on a proposed rule for wastewater discharges produced by natural gas extraction from coalbed methane in 2013, and a proposed rule for shale gas in 2014. The schedule for coalbed methane is shorter because EPA has already gathered data in this area. In particular, EPA will be looking at the potential for cost-effective steps for pretreatment of wastewater based on practices and technologies that are already available and being deployed or tested by industry to reduce pollutants in these discharges.

3. EPA’s Permitting Guidance on Underground Injection Control for Facilities that Use Diesel Fuels in Injection Fluids

The Safe Drinking Water Act’s (SDWA) Underground Injection Control (UIC) program establishes requirements for proper well siting, construction, and operation to minimize risks to underground sources of drinking water. Even though the Energy Policy Act of 2005 excluded hydraulic fracturing for oil and gas production from permitting under the UIC Program, the exclusion did not include fracturing using diesel fuel. Armed with the authority to regulate hydraulic fracturing using diesel fuel, EPA is developingpermitting guidance for fracturing activities that use diesel fuels in fracturing fluids. The permitting guidance is expected this year and EPA has indicated that it will include a broad definition of diesel fuel, e.g., a definition that includes substances with physical and chemical characteristics of diesel such as BTEX compounds (benzene, toluene, ethyl benzene and xylene).

4. EPA to Start Rulemaking Process on the Disclosure of Chemicals Used in Hydraulic Fracturing

In November 2011, EPA stated that it will begin a rulemaking procedure under the Toxic Substances Control Act (TSCA) to require companies to disclose information on the chemicals used in hydraulic fracturing. In a response to a petition filed by Earthjustice and 120 other organizations, EPA stated that it “believe[s] there is value in initiating a proposed rulemaking process using TSCA authorities to obtain data on chemical substances and mixtures used in hydraulic fracturing.” EPA has not stated what information will be subject to disclosure, but has limited disclosure to substances used in hydraulic fracturing. EPA said it will attempt to avoid duplication of “the well-by-well disclosure programs already being implemented in several states,” and its regulations will “focus on providing aggregate pictures of the chemical substances and mixtures used in hydraulic fracturing.” In 2012, EPA is expected to issue an advanced notice of proposed rulemaking followed by a stakeholder process and public comment period.

5. U.S. Department of the Interior’s Proposed Regulations Related to Hydraulic Fracturing on Public Lands

For shale gas production on public lands, the U.S. Department of the Interior is drafting a regulation on hydraulic fracturing disclosure requirements for companies drilling there. In late January, Interior Secretary Kenneth Salazar said that more information on the proposed rule would be forthcoming in the next several weeks. In addition to chemical disclosure provisions, the rules are expected to address wellbore integrity following hydraulic fracturing and the management of wastewater.

 

6. Increased Discussion and Proposed Legislation on a “Clean Energy Standard” that Includes Natural Gas

Despite the challenges of passing legislation in an election year, look for more discussion on a “clean energy standard” in the U.S. Congress and proposed legislation on the matter. Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-N.M.) has said he will introduce a clean energy standard (CES) early this year.

Under a national CES, all electricity supply companies would have to produce a certain percentage of their electricity from clean energy sources, purchase a like amount of credits, or a combination of both. In 2011, a proposal from the Obama administration included efficient natural gas (i.e., combined cycle) as a clean energy source and it was awarded “half credits” under the president’s proposal. In developing a CES, Sen. Bingaman has to address many design questions that require careful consideration. And the decisions made in the design of such a standard will necessarily favor certain priorities over others. As you might expect, discussion and debate on a clean energy standard will focus on, among other issues, effectiveness, fairness, and the likelihood of bipartisan support.

7. EPA Final Rule Related to Air Emissions from the Oil and Natural Gas Sector

Turning to air emissions, EPA is expected to promulgate final rules under the Clean Air Act on emissions from oil and natural gas exploration, production, transmission, and storage facilities by April 3, 2012. The rules will broaden EPA’s regulation of oil or gas production to reach most operations associated with production activities and address both new and existing sources. In particular, the rules are likely to include a New Source Performance Standard that will regulate volatile organic compound and sulfur dioxide emissions from non-combustion sources in the oil and gas industry, and in midstream natural gas industry. The rules are also expected to amend and expand two existing National Emissions Standards for Hazardous Air Pollutants that regulate emissions of air toxics from these industry sectors for both new and existing sources. As proposed, the new rules will regulate emissions from several types of emission sources that have never before been subject to federal standards, including hydraulic fracturing operations, gas-driven pneumatic devices, centrifugal and reciprocating compressors, condensate and crude oil storage tanks, and small glycol dehydrators.

8. Aggregation of Air Emissions

At least five pending litigation actions address the scope and application of aggregation. Aggregation is the process of determining whether emissions from multiple operations should be combined (or aggregated) into a single source for air permitting purposes. If emissions from individual operations such as wells, processing plants and compressor stations are combined, they could constitute a “major stationary source” or a “major facility” for purposes of the Prevention of Significant Deterioration, New Source Review and Title V permitting programs under the Clean Air Act. The aggregation concept derives in part from EPA’s definition of “stationary source,” which means any building, structure, facility, or installation that emits or may emit a regulated pollutant.” Moreover, a “building,” “structure,” “facility,” or “installation” is defined as all the pollutant-emitting activities that: (1) belong to the same industrial grouping; (2) are located on one or more contiguous or adjacent properties; and (3) are under the control of the same person. Typically, the “adjacent” analysis is at the core of an aggregation determination.

This definition, especially as it relates to “adjacent,” is likely to be applied differently in some of the litigation cases, and the case outcomes should be looked at closely in 2012. For example, two of the cases are in Pennsylvania (which is in EPA’s Region 3): Clean Air Council v. DEP (EHB Docket No 2011-072-R), pending before the state’s Environmental Hearing Board; and Citizens for the Future of Pennsylvania v. Ultra Resources, 4:11-cv-01360-JEJ, pending in the U.S. District Court for the Middle District of Pennsylvania. These two cases will presumably be decided under the Pennsylvania Department of Environmental Protection’s new “Guidance for Performing Single Source Determination for Oil and Gas Industry,” which was effective October 12, 2011. In the guidance, the state regulators indicated that, when considering the “adjacent” analysis, they will not consider the interrelatedness of operations. This interpretation contrasts with the interpretation supported by EPA in Summit Petroleum Corporation v. EPA (Case No. 09-4348). In the Summit Petroleum case, pending before the federal Sixth Circuit Court of Appeals (and in EPA’s Region 5), EPA has argued that, in considering the “adjacent” analysis, the test for operations should be “functional interdependence.”

With cases in different EPA regions and the potential for different interpretations, it is likely that, following any court decision, EPA will attempt to resolve conflicting standards.

9. Private Lawsuits Alleging Personal Injury and Property Damage from Hydraulic Fracturing

Environmental tort liability under federal and state laws provides legal rights including nuisance, trespass, negligence, strict liability, restitution and waste. Compensation may be available for property damage, bodily injury, emotional distress, medical expenses, loss of profits, and punitive and injunctive relief. In 2012, these legal theories will be tested as to their applicability to damages alleged from hydraulic fracturing. On this issue, plaintiffs’ lawyers are already investigating property damage claims and trying to connect the proximity of residents to drilling operations with increased disease diagnosis (e.g., leukemia). Look for more filings of these types of cases.

While private litigation increases liability exposure for drillers, there are possible ways to mitigate the risk. For example, one type of potential action relates to strict liability (or near strict liability) provisions. In Pennsylvania, the state’s Oil and Gas Act establishes baseline protections against the contamination of public and private water supplies. Under the law, a well operator is presumed “to be responsible for the pollution of a water supply that is within 1,000 feet of the oil or gas well, where the pollution occurred within six months after the completion of the drilling or alteration of such well.” This law shifts the burden of proof to the well operator to show that the pollution was pre-existing, from a source other than drilling operations, or outside of the time and distance parameters in the statute. If the landowner or water rights owner believes that it has suffered contamination, it could file a complaint with the state. If a subsequent state investigation indicates the well operator has polluted the water supply, the well operator must restore or replace the water supply. To reduce liability exposure and preserve the pre-existing pollution defense, well operators should conduct a pre-drilling survey of the water assessment against EPA water quality criteria.

10. State Efforts to Impose Moratoriums

Although moratoriums on hydraulic fracturing are frequently discussed in the press, the hoopla seems to grow out of the threat of a moratorium. Only one state, New York, has actuallypassed a moratorium, and it is a temporary ban pending review of regulations. New York placed a moratorium on drilling permits in 2008 and has spent the past three years reviewing its regulations. Most recently, a public comment period on the review of impacts from fracturing and proposed regulations closed January 11, 2012.

Some of the proposed moratoriums in other states include:

  • Vermont, where a bill imposing a three-year moratorium on hydraulic fracturing is working its way through the legislature
  • Ohio, where proposed legislation would establish a moratorium on horizontal stimulation of oil and gas wells until EPA publishes a report containing the results of a study of the relationship of hydraulic fracturing to drinking water resources, and the state issues a related report
  • Michigan, where several bills would impose a two-year moratorium on the issuance of any new permits for hydraulic fracturing until EPA and the state are able to study its effects

This year, we can expect to see more political discussion on these issues, which may result in delaying some drilling efforts. However, for a few reasons, a permanent moratorium in any state is unlikely. EPA has assured states it will not issue a moratorium on hydraulic fracturing. Also, keep in mind that legislatures (and, based on the State of the Union address, the Obama administration) are not opposed to developing these energy resources. Rather, as the president said, the issue is developing “this resource without putting the health and safety of our citizens at risk.” Stay tuned.

Upcoming in 2012: 10 Environmental and Energy Issues to Watch in the United States

This post was written by Lawrence Demase, Douglas Everette, Robert Frank, Arnold Grant, Todd Maiden, Jennifer Smokelin, Robert Vilter and David Wagner.

As we look forward to 2012, the environmental and energy attorneys at Reed Smith will be on top of a range of issues, and offer the following analysis of what we view, in no particular order, to be 10 key issues likely to affect you and your business in 2012. This post is based on input and analysis from Reed Smith attorneys across the United States. The 10 issues to watch are:

  1. Offshore wind power generation
  2. Renewable energy incentive programs
  3. Hydraulic fracturing regulation
  4. Aggregation
  5. Greenhouse gas litigation
  6. California's cap-and-trade program
  7. California's Green Chemistry program
  8. New mercury standards for coal and oil-burning power plants
  9. Fallout from CERCLA decision in Burlington Northern and Santa Fe Railway Co. v. U.S.
  10. Conflict minerals and disclosure requirements

Please return to blog regularly and participate in our quarterly teleseminar to get updates and analysis on these and many other environmental and energy issues.

1. Offshore Wind Power Generation (Robert Vilter, New York)

The Obama Administration is pursuing the development of 10 gigawatts of offshore wind-generating capacity by 2020, and 54 gigawatts by 2030. This would produce enough energy to power 2.8 million and 15.2 million homes, respectively. However, because of complicated and overlapping federal and state regulations, it takes anywhere from seven to 10 years to receive approvals and to fully permit an offshore wind project – more than double the amount of time it takes to permit an offshore oil or natural gas platform. The U.S. Department of the Interior has announced a “Smart from the Start” wind energy initiative to facilitate siting, leasing and construction of new projects in an effort to shorten this time line. Keep in mind that offshore wind farms, such as Cape Wind, also face local hurdles to development, oftentimes in the form of opposition by well-funded citizen groups.

2. Renewable Energy Incentive Programs (Arnold Grant, Chicago)

The cash grant program enacted under Section 1603 of American Recovery and Reinvestment Act in order to help renewable energy developers has expired except for projects that (i) began construction before January 1, 2012, and (ii) are placed in service before a specified date. The date varies depending on the type of project. The major remaining federal tax benefits are the energy tax credit under IRC Section 48, the production tax credit under IRC Section 45, and accelerated tax depreciation under IRC Section 168. Various structures are available to help renewable energy developers monetize these incentives.

3. Hydraulic Fracturing Regulation (Larry Demase, Pittsburgh)

Hydraulic fracturing or “fracking” is a practice of stimulating and maximizing production of natural gas in shale formations that has been in use in the United States for more than 50 years, but which has recently gained public attention. It involves pumping, under high pressure, a mixture of very large quantities of water and very small quantities of chemicals and proppants to create fissures in the shale and to hold fissures open so that gas will flow in greater quantities to the well bore. The controversy over its use concerns the amount of water being withdrawn from ground and surface resources, alleged contamination of drinking water from the fracking fluid and the disposal and treatment of waste water. In 2011 the U.S. Environmental Protection Agency (EPA) announced it will study the impacts of hydraulic fracturing on drinking water resources. The results of EPA’s study are intended to provide decision makers with some answers to fundamental questions about the effect of fracking on drinking water. The results will also no doubt be the impetus for regulatory and policy changes that could have a significant impact on the shale gas industry. A panel of experts will analyze the effect of fracking using reported cases of alleged groundwater contamination, laboratory studies, toxicological assessments of chemicals used in hydraulic fracturing, their degradation and/or reaction products, and naturally occurring substances that may be released or mobilized as a result of fracking.

There will be two reports resulting from EPA’s study with the first to be completed in 2012. An additional report based on long term study projects is to be issued in 2014. In the meantime, look for states to address these issues in various ways.

4. Aggregation (Larry Demase, Pittsburgh)

As we’ve discussed in previous posts, aggregation is the process of determining whether emissions from multiple operations should be aggregated into a single source for air permitting purposes. A significant issue related to oil and gas operations is whether emissions from individual operations, such as wells, processing plants and compressor stations, should be combined so that they become major sources for permitting purposes, subject to Title V requirements and New Source Review.

In 2011, a number of public interest groups challenged air permits issued by the Pennsylvania Department of Environmental Protection (DEP) on the grounds that DEP should have included multiple sources of emissions in those permits so that they would be considered “major” permits. The Clean Air Council, Group Against Smog and Pollution, and Citizens for Pennsylvania’s Future have asserted before the Pennsylvania Environmental Hearing Board and the United States District Court for the Middle District of Pennsylvania, that DEP failed to properly apply the three-part test for deciding whether sources should be “aggregated” together for permitting purposes. One case asserts that the permittee should be penalized for failing to submit an “aggregated” permit application. Decisions in these cases could result in precedents that will impact development of the shale gas industry in Pennsylvania.

Initial decisions in all three cases are expected in 2012, but final results could be extended if the losing parties seek appeals.

5. Greenhouse Gas Litigation (Jennifer Smokelin, Pittsburgh)

Regarding greenhouse gas (GHG) litigation, there are two main areas to watch in 2012: (i) the United States Supreme Court (and the Ninth Circuit) in the aftermath of American Electric Power v. Connecticut (AEP), and (ii) four consolidated cases in the D.C. Circuit challenging the endangerment finding slated for argument at the end of February.

Before the Supreme Court ruled in Massachusetts v. EPA, certain states sued the nation’s five largest coal-fired electric power corporations in the Southern District of New York under federal and state common law, charging AEP and other defendants with contributing to the public nuisance of global warming and seeking an injunction to cap and reduce their carbon dioxide emissions. The AEP Court voted unanimously that federal common law had been “displaced” by the Clean Air Act (and the Obama Administration’s efforts to regulate emissions), and thus states cannot use federal common law to restrict greenhouse gas emissions. The AEP ruling leaves open the question of (i) whether states can sue under state law, and (ii) whether climate change victims can seek damages through the courts. The issues are likely to be litigated in 2012 in a case, Kivalina v. Exxon Mobil.

Following the decision in Massachusetts v. EPA, but before AEP was decided in the U.S. Supreme Court: (i) EPA published two endangerment findings under the Clean Air Act, triggering a mandatory duty for EPA to adopt regulations to control emissions from power plants, industries, motor vehicles, and other sources; (ii) EPA issued tailpipe emission standards for new cars and trucks under the Clean Air Act; and (iii) EPA issued Best Available Control Technology (BACT) guidance for new sources and New Source Performance Standards (NSPS) for existing sources of GHG emissions under the Clean Air Act. Four cases are consolidated in the D.C. Circuit that challenge EPA’s Endangerment Findings. The cases are Coalition for Responsible Regulation Inc., et al. v. EPA, case numbers 09-1322, 10-1092 and 10-1073; and American Chemistry Council v. EPA, case number 10-1167, in the U.S. Court of Appeals for the District of Columbia Circuit. Argument will take place February 28 and 29, 2012. This is a very complex series of cases that will affect not only utilities but many other industries as well, since the fundamental underpinning to all GHG regulation under the Clean Air Act is essentially up for review.

6. California’s Cap-and-Trade Program (Todd Maiden, San Francisco)

In October 2011, the California Air Resources Board approved final regulations implementing a “cap-and-trade” program under the state’s climate law (more commonly referred to by its legislative bill number, “AB 32”). These regulations became effective January 1, 2012, and many consider California a possible test case for similar programs in other parts of the country. Regulated entities under the first phase of this program include utilities and large industrial facilities (i.e., emitters of greater than 25,000 metric tons of CO2 equivalent per year). The regulations trigger two 2012 auctions for buying and selling rights to emit, and requires entities to comply with a series of progressively stringent emission caps beginning January 2013.

7. California's Green Chemistry Initiative (Todd Maiden, San Francisco)

In October 2011, California’s Department of Toxic Substances Control (DTSC ) released revised “informal” draft regulations of its Green Chemistry initiative titled the “Safer Consumer Products Regulation.” DTSC’s new informal draft makes substantial changes, specifically in the areas of timeframes, the prioritization of chemicals and products, alternative assessment compliance, and exemptions. The informal draft also significantly broadens the chemicals that will initially be regulated to include an estimated 3,000 Chemicals of Concern without limits on which product categories may initially be considered. These draft regulations are highly controversial, yet DTSC is projecting that it will likely finalize these regulations – or something close to them – in spring 2012.

In a related development, California’s Office of Environmental Health Hazard Assessment recently finalized separate regulations that regulate the hazard traits in chemicals of concern. While finalized, these regulations remain controversial within the regulated community, and we anticipate administrative or litigation challenges to these regulations as well.

8. New Mercury Standards for Coal and Oil-Burning Power Plants (Douglas Everette, Washington, D.C.)

The final version of EPA's Mercury and Air Toxics Standards, or MATS rule, was signed December 21, 2011. For the first time in history, power plants will have to reduce all of their air toxic emissions, not just mercury, arsenic and lead – but a wide range of toxic chemicals. For coal-fired generators, the MATS rule sets emissions limits for mercury, particulate matter (a surrogate for toxic metals), and hydrogen chloride (a surrogate for acid gases). For oil-fired units, limits are set for particulate matter, hydrogen chloride and hydrogen fluoride. Also revised are new source performance standards for power plants to address emissions of particulate matter, sulfur dioxide and nitrogen oxides. According to EPA, approximately 1,400 existing coal and oil-fired units are affected. Existing sources are required to comply within three years of the effective date of the MATS rule, with case-by-case extensions up to five years beyond the effective date for documented electric reliability issues. These extensions are not offered to new or reconstructed sources. Vigorous debate centers on the practical implementation of the MATS rule deadlines and whether the electric grid will have enough capacity to avoid outages stemming from coal power plant retirements.

9. Fallout from Burlington Northern and Santa Fe Railway Co. v. U.S. (Robert Frank, Philadelphia)

In Burlington Northern and Santa Fe Railway Co. v. United States (BNSF), 556 U.S. 599 (2009), the U.S Supreme Court decided two key issues for parties facing Superfund liability: the standard for establishing “arranger” liability and the standard for establishing divisibility of liability. Since then, more than 100 courts have cited the decision. On arranger liability, including two at the federal appellate level, the cases illustrate that courts are following the Supreme Court’s directive to conduct a fact-intensive inquiry into a defendant’s purported “intent” to dispose of a hazardous substance. It’s fair to say that courts have been more reluctant to establish liability under an arranger theory than in the era preceding BNSF and look for that trend to continue in 2012.

For example, last year, the Ninth Circuit issued its first “arranger” liability decision under CERCLA since being reversed by the Supreme Court in the 2009 Burlington Northern decision.

In Team Enterprises, LLC v. Western Investment Real Estate Trust, 647 F.3d 901 (9th Cir. 2011), plaintiff argued that the requisite "intent to dispose" element necessary to trigger CERCLA arranger liability could be inferred from the fact that the dry cleaning machine was designed in a way that made disposal inevitable. Plaintiff also argued that the fact that the manufacturer exercised control over the disposal process provided a sufficient basis to infer the requisite intent necessary to trigger CERCLA arranger liability. The Ninth Circuit held that a manufacturer of equipment used to recycle wastewater from dry cleaning machines, as a matter of law, had neither the intent nor the control necessary to be held liable as an arranger. The court held that, to sustain an arranger claim against a “company selling a product that uses and/or generates a hazardous substance as part of its operation,” the plaintiff must prove “that the company entered into the relevant transaction with the specific purpose of disposing of a hazardous substance.” The holding underscores the high bar plaintiffs must meet in order to establish CERCLA arranger liability following the BNSF decision.

Regarding divisibility, there have been fewer cases applying the Supreme Court’s divisibility holding in BNSF. Generally, the courts looking at whether a “reasonable basis” for apportionment exists have reviewed the evidence that defendants have submitted to determine whether they have met their burden of proof. These cases have been very fact-intensive and, so far, it is difficult to identify a trend.

10. Final Rules for Conflict Minerals (David Wagner, Pittsburgh)

Section 1502 of the Dodd-Frank Act requires the Securities and Exchange Commission (SEC) to issue disclosure and reporting regulations regarding manufacturers’ use of conflict minerals from the Democratic Republic of Congo (DRC) and adjoining countries. The SEC was required to issue its conflicts minerals rules last year but missed the deadline. Look for the final rules – and plenty of implementation concerns – sometime in 2012. The legislation for conflict minerals is part of a broader multilateral effort to require manufacturers and other users of certain minerals to closely track and publicly disclose where their raw materials originate. It is designed to suppress end-use demand for minerals produced in certain high-risk areas where minerals operations and revenues have been linked to violent and repressive rebel groups.

The law focuses on forcing supply chain transparency for users of certain minerals (which are used primarily in electronic components, engine components, aerospace equipment, jewelry and other industries). It does not directly impose restrictions on mining or metals companies, or create any sort of embargo on the DRC.

Slides and Audio from Reed Smith's January 25 Environmental and Energy Law Resource Teleseminar

On Wednesday, Reed Smith held its quarterly environmental and energy law resource teleseminar and the slides and audio are available for download. We were ambitious and discussed 10 key issues likely to affect you and your business in 2012. Our high level discussion was on the following:

  1. Offshore wind power generation
  2. Renewable energy incentive programs
  3. Hydraulic fracturing regulation
  4. Aggregation
  5. Greenhouse gas litigation
  6. California's cap-and-trade program
  7. California's Green Chemistry program
  8. New mercury standards for coal and oil-burning power plants
  9. Fallout from CERCLA decision in Burlington Northern and Santa Fe Railway Co. v. U.S.
  10. Conflict minerals and disclosure requirements

Be sure that we will monitor and analyze these issues and many other environmental and energy issues through the year on our blog and in future teleseminars.

USEPA Comments on Pennsylvania's Draft Aggregation Policy

This post was written by Luke Liben and Nicolle Bagnell.

As we've discussed, the Pennsylvania Department of Environmental Protection (PADEP) issued a draft policy regarding limitations on aggregating emissions from Marcellus shale gas facilities on October 12, 2011. The draft policy utilizes a distance of 1/4 mile as the main criteria for determining if plants in proximity to one another should be viewed as individual minor sources of emissions, or one major source of emissions. In a letter dated November 21, 2011, Diana Esher of the Environmental Protection Agency (EPA), Region III Air Protection Division, reportedly said the new draft policy “appears to alter the conventional way in which aggregation determinations have been made federally and by PADEP.” Ms. Esher also reportedly indicated that the draft policy could be interpreted to allow emissions sources to escape otherwise strict emission standards by shaking the designation of a “major” source. However, as noted by Kathryn Klaber, head of the Marcellus Shale Coalition, the bright line 1/4 mile test provides an easy to understand, easy to enforce, and predictable rule. The public comment period for PADEP’s draft policy closed on November 21, 2011.

Analysis of Pennsylvania's Proposed Aggregation Guidance

This post was written by Larry Demase, Lou Naugle and Jennifer Smokelin.

Yesterday, we reported on the Pennsylvania Department of Environmental Protection’s (DEP) announcement of a proposed technical guidance for single stationary source determinations for oil and gas operations (the Single Source Guidance). Here’s our analysis of the proposal, including some background information, a discussion of the guidance and our thoughts on its potential impact.

Background

First, you should know that aggregation is the process of determining whether emissions from multiple operations should be aggregated into a single source for air permitting purposes. A significant issue related to oil and gas operations is whether emissions from individual operations such as wells, processing plants and compressor stations should be combined so that they become major sources for permitting purposes, subject to Title V requirements and New Source Review. When aggregation is at issue, individually the operations are not considered “major” for any contaminant.

The aggregation concept derives from the U.S. Environmental Protection Agency’s (EPA’s) original definition of a “source” in its Prevention of Significant Deterioration (PSD) regulations, a subsequent court decision (Alabama Power v. Castle, 636 F.2d 323 (D.C. Cir. 1979) and EPA’s current definition of stationary source (found at 40 CFR 52.21(b)(5)). EPA’s definition of “stationary source” under the PSD regulations is “a building, structure, facility or installation which emits or may emit a regulated pollutant.” A building, structure, facility or installation must meet three criteria:

i. under common control of the same person (or persons under common control);

ii. belong to same industrial grouping (activities will be considered as part of the same industrial grouping if they use the same two-digit major or Standard Industrial Classification (SIC) code identification); and

iii. located on one or more contiguous or adjacent properties.

See 40 C.F.R. § 52.21(b)(6).

Pennsylvania DEP’s Proposed Single Source Guidance

The DEP announced yesterday an interim technical Guidance for Performing Single Stationary Source Determinations for Oil and Gas Industries, (the 'Single Source Guidance") effective October 12, 2011. The Single Source Guidance addresses all three prongs of the definition of stationary source mentioned above, as follows:

Sources under the Common Control of the Same Person

Under the Single Source Guidance, common control is established when both facilities are owned by the same parent company or a subsidiary of the parent company. Further, the Single Source Guidance clarifies that common control may also be established if an entity has decision-making authority over the operation of a second entity through a contractual agreement or voting interest.

Same Industrial Groupings

Under the PSD and Title V permitting programs, pollutant-emitting activities are considered to be part of the same industrial grouping if they have the same first two-digit SIC code. The Single Source Guidance clarifies that, in addition, a support facility is considered to be part of the same industrial grouping as that of the primary facility it supports even if the support facility has a different two digit SIC code, as defined in 40 CFR Part 52.21(b)(6). Support facilities under the Single Source Guidance are typically those that “convey, store or otherwise assist in the production of the principal product."

In addition to PSD permits, the Single Source Guidance would also apply to Non-Attainment New Source Review (NSR) permits. For Non-Attainment NSR permits, the SIC code requirement would not apply.

Contiguous or Adjacent Properties

The Single Source Guidance makes it clear that “contiguous” or “adjacent” means the distance or spatial relationship between locations. The DEP guidance states that spatial distance, not interdependence, is the overarching factor in determining whether sources shall be aggregated. This concept is true to EPA regulations and rejects certain EPA letters and informal opinions that have impermissibly transformed the concept of “contiguous” and “adjacent” to mean “interdependent.”

The Single Source Guidance takes the extra and necessary step by adding a “rule of thumb” to this “spatial” notion that properties located a quarter mile or less apart “are considered” contiguous or adjacent properties for PSD, nonattainment NSR and Title V applicability determinations. Single source determinations for properties located beyond this quarter-mile range will be considered on a case-by-case basis.

Potential Impact of DEP’s Proposed Single Source Guidance

Because the Single Source Guidance is a policy and not a regulation, even when finalized its effect will only be to assist DEP permit writers in conducting their case-by-case aggregation analysis, but it will not be a formal mandate. Existing appeals pending before the Environmental Hearing Board, including Group Against Smog and Pollution v. DEP and Laurel Mountain Midstream Operations LLC (EHB Docket No. 2011-065-R) and Clean Air Council v DEP and MarkWest Liberty Midstream and Resources (EHB Docket No. 2011-072-R) will likely have to include an evaluation of whether the challenged DEP determination would have been different if the proposed policy were used as guidance.

DEP will accept public comment on this guidance until November 21, 2011. 

Pennsylvania Submits New Air Aggregation Guidance for Public Comment

This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

The Pennsylvania Department of Environmental Protection announced today that it has submitted its technical guidance for single source determinations for oil and gas operations to the Pennsylvania Bulletin for public comment. The Department's guidance deals with the determination of whether two or more stationary sources should be aggregated together and treated as a single source of air emissions for the purposes of air permitting requirements. Specifically, the guidance involves three sets of regulations: the federal Prevention of Significant Deterioration, or PSD, regulations; the Pennsylvania nonattainment New Source Review regulations; and the Title V program. Click here for the full text of the technical guidance.

The public may comment on the air aggregation determination guidance until November 21, 2011.

What to Know about Aggregation in Marcellus Shale

This post was written by David Wagner.

Aggregation is the process of determining whether emissions from multiple locations should be aggregated into a single source for air permitting purposs. In the Marcellus Shale play, it's a big environmental issue and Reed Smith environmental attorneys are focused on it in a few ways. Reed Smith represents a defendant in an aggregation case and we also examined aggregation issues in a teleseminar yesterday. The teleseminar, presented with AECOM, discussed U.S. Environmental Protecton Agency guidance, federal aggregation cases, state aggregation cases and some of the pitfalls of aggregation. Feel free to review the slides and the audio from the event.