On May 25, 2023, the Supreme Court of the United States (“SCOTUS”) issued a decision, Sackett v. EPA, which dramatically curtailed the Environmental Protection Agency’s (“EPA”) authority to regulate certain wetlands under the Clean Waters Act (“CWA” or the “Act”).
The CWA, enacted in 1972, has been the primary federal law regulating water pollution in the United States for over half a century. The Act is generally enforced by the EPA and the Army Corps of Engineers and has indisputably been effective in regulating water pollution in the United States.
The Act prohibits the discharge of pollutants into “navigable waters,” which it defines as “the waters of the United States, including the territorial seas.” 33 U.S.C. §§ 1311(a), 1362(7), (12)(A) (2018 ed.). However, since the Act’s inception, the meaning of this definition has been ambiguous and constantly evolving. Moreover, the Act broadly defines “pollutants” to include not only traditional notions of pollutants, but also more mundane materials like rock, sand, and dirt. 33 U.S.C. § 1362(6). The penalties for violating the CWA, negligently or knowingly, are often very severe, and include criminal charges or civil fines of over $60,000 per day for each violation.
The international dialogue about climate change and the “net zero” world now includes a focus on hydrogen as an abundant source of energy useful in myriad ways (refining, fertilizer production, motive power, etc.) with potentially zero climate-harmful emissions. For those of us who took Chemistry 101 in high school, we know that hydrogen is by far the most abundant element in the Universe, representing an estimated 70 to 75 percent of all known matter. While that is an awesome number (giving rise to the common student question “How do we know that?”), the fact is that, here on Earth, hydrogen does not exist as a “free” gas—it is present here only in combination with other elements, notably oxygen, carbon, and nitrogen. Thus, to capture hydrogen for use in multiple applications, it must be separated from the paired substances (most commonly water (H2O) and natural gas (CH4)).
In the discourse around capturing hydrogen as a free gas, a color-coding terminology has emerged that rivals a paint store. I call it the “hydrogen color wheel” and it is the source of much confusion. While each of the color “codes” involves a somewhat detailed explanation, my goal in this post is to keep the detail short and within understandable limits.
A leader in stringent auto emission regulations, the State of California recently took additional steps in its effort to further protect the environment. On August 25, 2022, the California Air Resources Board (“CARB”) voted to require all new cars and light trucks sold in the state to be “zero-emission” by 2035. The plan, officially known as the CARB Advanced Clean Cars II rule, was originally introduced via executive order by Gov. Gavin Newsom nearly two years ago.
The plan mandates that “[i]t shall be a goal of the State that 100 percent of in-state sales of new passenger cars and trucks will be zero-emission by 2035. It shall be a further goal of the State that 100 percent of medium- and heavy-duty vehicles in the State be zero-emission by 2045 for all operations where feasible and by 2035 for drayage trucks. It shall be further a goal of the State to transition to 100 percent zero-emission off-road vehicles and equipment by 2035 where feasible.”
The Federal Energy Regulatory Commission (“FERC” or “Commission”) recently issued a Notice of Proposed Rulemaking (“NOPR”) to address industry concerns that FERC’s current Uniform System of Accounts (“USofA”) does not adequately account for renewable energy assets. The NOPR, which was released during the last Commission open meeting, proposes the following four categories of amendments to the USofA, as well as conforming revisions to FERC’s accounting reports:
Creating new production accounts specifically dedicated for wind, solar, and other non-hydro renewable assets;
Creating a single dedicated functional class for energy storage accounts;
Specifying the accounting treatment of renewable energy credits (“RECs”) and similar instruments by codifying prior Commission guidance; and
Adding new dedicated accounts for hardware, software, and communication equipment within existing functions in the USofA.
Additionally, the NOPR requests feedback on whether the FERC Chief Accountant should issue accounting guidance related to hydrogen.
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On July 28, 2022, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) issued a Notice of Proposed Rulemaking (the “Notice”) in Docket No. RM22-20-000 to expand the scope of the duty of candor to all entities making communications on matters subject to the jurisdiction of the Commission.
Through the Notice, the Commission explains that it intends to fill in a “patchwork” of existing rules and regulations concerning a regulated entity’s obligation to provide accurate and truthful information to the Commission. For example, the Commission’s current rules require that a variety of submissions to FERC, such as periodic or annual reports, written statements in investigations, filings, and testimony and evidence, be submitted under oath. Similarly, Commission precedent imposes a requirement on pipeline applicants seeking certificates of public convenience and necessity under Section 7 of the Natural Gas Act (“NGA”) to disclose “fully and forthrightly . . . all information relevant to the application.” In addition, in any filing with the Commission, the signature required for each filing constitutes a certification that “[t]he contents are true as stated, to the best knowledge and belief of the signer.”
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* The views expressed in this publication are those of the authors only and do not necessarily reflect the views of the law firm of Blank Rome LLP or any entity represented by the firm.
After seven years, three presidential administrations, and two appearances before the Supreme Court, the Obama Administration’s “Clean Power Plan” (“CPP”)—a Clean Air Act regulation designed to limit carbon emissions from existing coal-fired power plants (and later revised by the Trump-era “Affordable Clean Energy” (“ACE”) rule)—was struck down by the Supreme Court on June 30, 2022. SeeWest Virginia et al. v. Environmental Protection Agency et al., No. 20-1530.
Relying on Section 111(d) of the Clean Air Act (“CAA”), the Environmental Protection Agency’s (“EPA’s”) CPP set a carbon emission limit that was essentially unattainable for existing coal-fired power plants. Consequently, EPA determined that the “best system of emission reduction” for carbon from these plants was to cause a “generation shift” from higher carbon emitting coal-fired sources to lower-emitting sources, such as natural gas plants or wind or solar energy facilities. Compliance with the CPP would have required a plant operator to: (1) reduce the amount of electricity the plant generated to reduce the plant’s carbon emissions; (2) build a new natural gas plant, wind farm, or solar installation, or invest in someone else’s existing facility and increase generation there; or (3) purchase emission allowances as part of a cap-and-trade regime. SeeWest Virginia at 8.
On July 2, 2021, the Department of Energy’s Office of Fossil Energy (“DOE/FE”) issued a Notice of Intent (“Notice”) to Prepare a Supplemental Environmental Impact Statement (“SEIS”) for the Alaska LNG Project (“Project”). DOE/FE will evaluate potential environmental impacts of upstream natural gas production on the North Slope of Alaska, and will conduct a life cycle analysis to calculate greenhouse gas (“GHG”) emissions for liquefied natural gas (“LNG”) exported from the Project.
The $38.7 billion Project includes a proposed gas treatment plant on the North Slope of Alaska, 800-mile pipeline, and a liquefaction facility with a planned liquefaction capacity of 20 million metric tons per year. The Federal Energy Regulatory Commission (“FERC”) has issued an order approving the construction and operation of the Project. On August 20, 2020, DOE/FE authorized Alaska LNG Project LLC’s (“Alaska LNG”) request to export LNG to any country with which the United States has not entered into a free trade agreement (“FTA”) requiring national treatment for trade in natural gas (“Non-FTA countries”) in a volume equal to the Project’s planned liquefaction capacity (equivalent to roughly 929 Bcf per year or 2.55 Bcf per day).
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On February 19, 2021, the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) upheld a decision by the Federal Energy Regulatory Commission (“FERC” or the “Commission”) cutting transmission incentives previously granted to three electric transmission companies.
The Energy Policy Act of 2005 amended the Federal Power Act to require FERC to promulgate a rule creating incentive-based rate treatment for electric transmission. The rule was intended to “promote reliable and economically efficient transmission and generation of electricity by promoting capital investment in the enlargement, improvement, maintenance, and operation of all [transmission] facilities, . . . provide a return on equity that attracts new investment in transmission facilities, . . . [and] encourage deployment of transmission technologies and other measures to increase the capacity and efficiency of existing transmission facilities and improve the operation of the facilities . . . .” FERC promulgated such a rule, which is codified in the Commission’s regulations. One incentive available to a stand-alone transmission company (a “Transco”) is “[a] return on equity [“ROE”] that both encourages Transco formation and is sufficient to attract investment.”
Because FERC has traditionally viewed independence as a hallmark of a Transco, it considers the ownership and business structure of the Transco to ensure that the Transco operates independently of other market participants when deciding whether to grant such incentives. FERC has declined to establish a particular methodology for reflecting the degree of a Transco’s independence or specific incentive levels. However, the Commission has made clear that it “will consider the level of independence of a Transco as part of our analysis when we determine the proper ROE for the Transco, and evaluate the specific attributes of a particular proposal, including the level of independence, to determine appropriate incentives.”Continue reading “D.C. Circuit Upholds Cutting of Transmission Incentives by FERC”
The energy industry has been at the forefront of the 2020 election, and energy development is an issue that polarizes Americans and our businesses and political leaders in choosing the path for the future. Energy developments are inextricably linked to our economy and national security, and the decisions and policies that will be implemented over the next four years are critical to the nation and our participation and role in world affairs.
On September 10, 2020, the Commodity Futures Trading Commission’s (“CFTC” or “the Commission”) Division of Enforcement (“the Division”) issued guidance for CFTC staff on the factors to be considered when evaluating compliance programs in connection with enforcement matters. The guidance will be inserted in the CFTC Enforcement Manual. Although not binding on the Commission or any other Division of the CFTC, the Compliance Guidance is binding on Enforcement staff.
In recent years, the Division has taken several steps to increase transparency regarding the performance of its enforcement functions. First, the Division published its Enforcement Manual, which is updated periodically and publicly available on the CFTC’s website. On May 20, 2020, the Division issued guidance to staff regarding factors to be considered in recommending a civil monetary penalty in an enforcement action. Those factors include the existence and effectiveness of an existing compliance program, as well as efforts to improve that compliance program following detection of a violation. The recently issued Compliance Guidance provides factors to be used in evaluating such compliance programs.
The Compliance Guidance focuses on whether the compliance program was reasonably designed and implemented to achieve prevention, detection, and remediation of the misconduct at issue. The Compliance Guidance acknowledges that this assessment depends upon the specific facts and circumstances involved and further states that “[a]t all points, the Division will conduct a risk-based analysis, taking into consideration a variety of factors such as the specific entity involved, the entity’s role in the market, and the potential market or customer impact of the underlying misconduct.”
The Compliance Guidance provides a number of factors for staff to consider in determining whether a compliance program was reasonably designed and implemented to achieve the three goals identified above.