May 17, 2021

Pennsylvania Trial Courts Hold that the Term “At the Wellhead” in Natural Gas Leases Allows Operators to Deduct Post-Production Costs

Energy Alert

(by Mark Dausch and Cary Snyder )

In two recent opinions in which Babst Calland represented oil and gas operators, Pennsylvania federal and state trial courts ruled that the term “at the wellhead” in natural gas leases must be interpreted to allow operators to deduct post-production costs when calculating royalty payments.  Coastal Forest Res. Co. v. Chevron U.S.A., Inc., et al., No. 2:20-cv-1119, 2021 WL 1894596 (W.D. Pa. May 11, 2021); Dressler Family, LP v. PennEnergy Res., LLC, A.D. No. 2017019357 (Butler Cty. C.P. Apr. 28, 2021).  In doing so, the trial courts held that the Pennsylvania Supreme Court’s interpretation of the term “at the wellhead” in Kilmer v. Elexco Land Servs., Inc., 990 A.2d 1147 (Pa. 2010) is not confined to issues of statutory interpretation, but also applies to leases.

In Kilmer, the Pennsylvania Supreme Court ruled that, among other things, the use of the net-back method to calculate royalties did not violate the Guaranteed Minimum Royalty Act (GMRA), 58 P.S. § 33,[1] which required leases to guarantee the lessor at least a one-eighth royalty of all gas recovered from the property.  When calculating royalties, the net-back method provides a mechanism for determining allowable deductions for post-production expenses associated with bringing the oil or gas from the “wellhead” to the market where it is sold.  In reaching its conclusion, the Court in Kilmer relied on a variety of sources specific to the oil and gas industry that stated a royalty is generally not payable from the operator’s gross profit, but from the net amount remaining after the deduction of post-production costs.  990 A.2d at 1157-58.

In the decade since Kilmer, disputes have arisen as to the scope of its holding.  …

May 12, 2021

U.S. Senate passes joint resolution disapproving Trump oil and gas methane rule

The PIOGA Press

(by Gary Steinbauer and Gina Falaschi)

On April 28, 2021, the U.S. Senate passed a joint resolution, known as S.J. Res. 14, retroactively revoking a Trump administration rule revising Obama-era Clean Air Act New Source Performance Standards for the Crude Oil and Natural Gas Industry at 40 C.F.R. Part 60, Subparts OOOO and OOOOa (NSPS) that were initially promulgated in 2012 and 2016. The joint resolution, if enacted into law, would reinstate Obama administration rules regulating the methane emissions from the oil and natural gas industrial sector, including the production, processing, transmission and storage segments.

The Trump administration’s Policy Amendments rule
The joint resolution takes aims at a specific Trump administration rule published in the Federal Register on September 14, 2020. Referred to as the “Policy Amendments,” the rule resulted in four key changes to these NSPS, which were promulgated in 2012 and 2016.

First, the Policy Amendments removed the transmission and storage segment, including transmission compressor stations, pneumatic controllers and underground storage vessels. In removing the transmission and storage segments from regulation under the NSPS, the U.S. Environmental Protection Agency (EPA) found that the segments were improperly regulated because the statutory-mandated finding that sources contribute significantly to air pollution was not made when the segments were added to the industrial sector and the NSPS in 2012 and 2016.

Second, the Policy Amendments rescinded the methane emission requirements for the production and processing segments of the sector, which include various emission sources at well sites, gathering and boosting compressor stations, and natural gas processing plants.

Third, by removing the methane limits on the production and processing segments, the Policy Amendments eliminated the Clean Air Act (CAA) requirement to regulate methane emissions from existing sources from within these segments. …

May 4, 2021

Has COVID-19 Escalated Disagreements Between Business Owners?

Closely-Held Business Perspective

(by Kevin Douglass)

Business owners faced with extraordinary operational and financial challenges caused by the COVID-19 pandemic may also be managing special demands and concerns posed by their owners. There is never a good time for an internal ownership squabble to bubble up to the surface, but owner conflicts or differences can be particularly troublesome when the business is already under duress.

Disruption Can Create Conflict

There is no question that the pandemic has impacted many businesses’ finances and strategy, as well as relationships between co-owners. The warning signs of an owner disagreement should never be ignored. If left unchecked, these misunderstandings can cause real damage to a company’s health and vitality including negative impacts on the bottom line, employee morale, and even relationships with creditors, customers and suppliers. A company can be particularly vulnerable at critical moments when its owners may already be dealing with the pandemic ramifications or other financial and operational challenges. Do not wait for the perfect time to deal with owner disagreements because that time will never come. The stability of a company’s day-to-day operations and future financial success are often dependent upon resolution of these multi-faceted disagreements between owners.

Click here for PDF. 

 

April 30, 2021

Second Circuit Holds New York’s Climate Tort Lawsuit in Federal Court is Pre-Empted by the Clean Air Act

Environmental Alert

(by Casey Snyder and Robert Stonestreet)

In a unanimous opinion, the federal Second Circuit Court of Appeals ruled that state law “climate tort” claims asserted by the City of New York (the “City”) against five oil companies are preempted by the federal Clean Air Act (CAA).  City of New York v. Chevron Corporation et al., No. 18-2188, 2021 WL 1216541 (2nd Cir. 2021).  In doing so, the Second Circuit became the first federal appellate court to address the merits of climate change tort suits asserted under state law and filed in federal court.

The City filed the lawsuit in 2018 in federal district court alleging state law claims of public nuisance, private nuisance, and trespass under New York law.  The City argued that the companies’ production, promotion, and sale of fossil fuels has caused, and will cause, the City to expend significant resources in response to climate change impacts, and the companies should bear these costs instead of the City’s taxpayers.

The district court granted the companies’ motions to dismiss the complaint.  In its opinion, the Second Circuit affirmed the dismissal for largely the same reasons as the district court:

  • federal common law, rather than New York law, applied to City’s claims;
  • the CAA displaced claims under federal common law;
  • the CAA regulates only domestic, not foreign, emissions; and
  • foreign policy precluded recognition of a federal common law cause of action targeting greenhouse gas emissions emanating from beyond country’s national borders.

Given the global nature of greenhouse gas emissions, the court determined that such claims were beyond the scope of state law, despite the City’s pleadings alleging only state law claims.  …

April 29, 2021

Aggressive goals aim to decrease emissions — but challenges await

Smart Business 

(by Sue Ostrowski featuring Jim Curry and Ashleigh Krick)

To remain competitive, businesses should stay on top of evolving state and federal policies on renewable energy. These changes present both opportunities and challenges, according to James Curry, managing shareholder in Babst Calland’s Washington, D.C. office, and Ashleigh Krick, an associate at Babst Calland. Commercial and industrial power consumers may be able to obtain benefits from sourcing renewable power, both financially and to answer growing shareholder and lender scrutiny.

At the same time, the increasing level of renewables coming online presents challenges related to grid reliability, underscoring the continued relevance for other more stable sources of electricity.

Smart Business spoke with Curry and Krick about the increase in state-level carbon reduction targets, the challenges associated with increased use of renewable energy and the role of traditional generation sources to maintain reliability.

What is the current state of affairs for renewables?

In Pennsylvania, bipartisan legislation has been introduced to increase the state’s Alternative Energy Portfolio Standards (AEPS), enacted in 2004 with the goal of increasing the state’s share of power from renewables. The AEPS requires that electric distribution companies and electric generation suppliers supply 18 percent of their electricity from certain alternative energy sources, such as solar, hydropower, geothermal, waste coal and distributed generation. The proposed legislation would increase that requirement by 10 percent.

Although an early adopter of a renewable portfolio standard, neighboring states have jumped ahead of Pennsylvania in recent years. New Jersey and Maryland have set renewable energy targets of 50 percent by 2030, while New York has a goal of 70 percent. And, in April 2020, Virginia passed legislation requiring the state’s largest utility to provide 100 percent of its electricity from renewables by 2045. …

May 4, 2021

Environmental considerations for our region

Pittsburgh Business Times

(by Daniel Bates featuring Lisa Bruderly, Kevin Garber and Sean McGovern)

Even before he won the election, President Joe Biden had pledged to reverse Trump-era environmental policies designed to ease the regulatory burden on business. Since then, he already has proposed a sweeping $2 trillion-plus, infrastructure-improvement plan designed to shore up the nation’s roads, bridges, water pipes and other infrastructure, as well as create new jobs.

Such presidential plans for environmental reform are certain to require significant – and potentially expensive – shifts in business practices in the long term, according to leading attorneys from the Environmental Practice of Pittsburgh law firm Babst Calland. As a result, the region’s businesses can expect a climate of transition in the short term, mixed with potential new business opportunities, costly challenges, and delayed development.

“It was no surprise when, out of the gate, the Biden administration signaled that there were going to be a lot of regulatory changes that were significantly different from the regulatory environment of the Trump administration,” said Lisa Bruderly, chair of Babst Calland’s Environmental Practice. “One of his first executive orders was to task EPA and other federal agencies to look at the regulations and policies and directives of the Trump administration and determine whether any of those actions should be revoked, rescinded, or revised.

“So we are waiting to see what those actions may be,” she continued. “Many of those have important environmental implications that could affect future developments – how projects are permitted, for example.”

Bruderly was one of three attorney colleagues who participated recently in a discussion with the Pittsburgh Business Times on “Environmental Considerations for Our Region” as part of the law firm’s Business Insights video series. …

April 22, 2021

Commonwealth Court Holds Township Need Not Vacate the Road Less Traveled

The Legal Intelligencer

(by Anna Jewart and Blaine Lucas)

Dating as far back as 1735, when the commonwealth was a province controlled by the heirs of William Penn, Pennsylvania has recognized the importance of public roads and their role in preserving a landowner’s right to access his land. Since that time, it has become a foregone conclusion that the government, at all levels, will provide and maintain public roadways. However, because of the necessary impact on the rights of individual landowners, the creation of anything from a federal highway to a municipal alleyway involves complex legal considerations. While the legal implications involved in the creation of public roads through eminent domain or dedication are well known, the abandonment or “vacation” of public roads also has a significant impact on the property rights of individuals, governments and the public. Recently, the Commonwealth Court, in In Re Vacating of Old Route 322, No. 384 C.D. 2020 (Pa. Cmwlth. Mar. 3, 2021), considered what happens when adjacent landowners allege a public roadway has become so “useless, inconvenient or burdensome,” that the municipality is required to vacate it under the General Road Law, 36 P.S. Sections 1781-2293. Although the case is unreported and not precedential, it may be cited for persuasive value, and offers an opportunity to review of this understudied area of the law.

Local roads often are established by dedication, where a landowner offers land for public use, and the municipality accepts it on behalf of the public. Typically, when a municipality accepts a road dedication it holds that property in trust only for the use for which it was dedicated. This means the dedication of a public road does not invest the municipality with fee title to the land on which it rests but only the right to use, maintain, regulate and control that land as a road. …

April 21, 2021

Bank of America adds to its ESG financing goal – up to $1 trillion by 2030

Pittsburgh, PA

Renewables Law Blog

(By Bruce Rudoy)

Bank of America last week more than tripled its environmental financing goal, saying it wants to deploy more than $1 trillion by 2030 to accelerate the transition toward a low-carbon, sustainable future, according to a recent press release.

Since launching its environmental business initiative in 2007, the bank said, it has financed $200 billion in sustainable activities, including asset-based lending, tax equity investments and capital raising in the energy and transportation sectors, among others. It pledged to back $300 billion in low-carbon activities between 2019 and 2030.

The $1 trillion pledge is in addition to $500 billion the bank aims to put toward socially inclusive development, including affordable housing, community development, healthcare, education, and racial and gender equality. Karen Fang, Bank of America’s head of global sustainable finance, said the commitment “demonstrates our belief that there is opportunity for exponential market growth in [environmental, social and governance]-themed products and services as well as market share growth.” Bank of America has helped more than 225 clients support their sustainable business needs by raising upward of $300 billion through more than 400 ESG-themed bond offerings. BofA’s commitment is consistent with the United Nations Sustainable Development Goals, to spur transformative change nationally and around the world. Beyond the $1 trillion climate-related finance, the balance of the sustainable finance goal is focused on social inclusive development, scaling capital to advance community development, affordable housing, healthcare, and education, in addition to racial and gender equality.

Banks have markedly ramped up their sustainability goals over the past two years. Between September and March, each of the six largest U.S.-based banks has pledged to achieve net-zero greenhouse-gas emissions in financing activities by 2050. …

April 14, 2021

West Virginia Legislature Enacts Renewable Energy Site Reclamation Law

(by Christopher (“Kip”) Power)

In an effort to ensure that owners of solar and wind energy facilities (“renewable energy facilities”) do not decommission production facilities without completing proper reclamation, on April 10, 2021, the West Virginia Legislature enacted Senate Bill 492, creating the West Virginia Wind and Solar Energy Facility Reclamation Act (as new Article 32 of Chapter 22 of the West Virginia Code (“Reclamation Act”)). The Reclamation Act (effective July 9, 2021) generally requires that an owner of a wind generation facility or a solar generation facility submit certain information to the West Virginia Department of Environmental Protection (“DEP”), including the date the facility commenced operation; a proposed decommissioning plan (prepared by a “qualified independent licensed professional engineer”); and a cost estimate for execution of that plan. The DEP will use that and other relevant information in preparing (or approving) a decommissioning plan for the site and in determining an appropriate reclamation bond amount for the facility.

Renewable energy facilities with a nameplate capacity of less than 1.0 megawatts are excluded from coverage. In addition to that limitation, the following are exempt from the application and bonding requirements of the statute: (1) those facilities owned by entities that are “regulated public utilities” who can convince the Public Service Commission (“PSC”) and DEP that they have sufficient “financial integrity and long-term viability” to obviate the need for a reclamation bond; (2) facilities whose owners are legally bound by a decommissioning agreement “based upon a qualified independent party” executed prior to July 9, 2021; and (3) facilities that are subject to a siting certificate or other authorization from the PSC that was conditioned on execution of a decommissioning agreement prior to July 9, 2021 (as long as the owner is in compliance with the agreement, the facility has not been sold to a successor who is not bound by the agreement, and the facility has not been “substantially expanded” in terms of disturbed acreage). …

April 14, 2021

West Virginia Legislature Enacts Renewable Energy Site Reclamation Law

Charleston, WV

Renewables Law Blog

(By Christopher (Kip) Power)

In an effort to ensure that owners of solar and wind energy facilities (“renewable energy facilities”) do not decommission production facilities without completing proper reclamation, on April 10, 2021, the West Virginia Legislature enacted Senate Bill 492, creating the West Virginia Wind and Solar Energy Facility Reclamation Act (as new Article 32 of Chapter 22 of the West Virginia Code (“Reclamation Act”)). The Reclamation Act (effective July 9, 2021) generally requires that an owner of a wind generation facility or a solar generation facility submit certain information to the West Virginia Department of Environmental Protection (“DEP”), including the date the facility commenced operation; a proposed decommissioning plan (prepared by a “qualified independent licensed professional engineer”); and a cost estimate for execution of that plan. The DEP will use that and other relevant information in preparing (or approving) a decommissioning plan for the site and in determining an appropriate reclamation bond amount for the facility.

Click here to read full article.

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April 13, 2021

Water law update: Five topics to watch in 2021

The PIOGA Press

(by Lisa Bruderly)

State and federal water law permitting can pose significant obstacles for natural gas construction projects that impact waterbodies (e.g., wells pads, access roads and pipelines). The following five new and proposed regulatory changes are likely to significantly affect project design and construction in Pennsylvania.

1. Waters of the United States (WOTUS)

The definition of WOTUS identifies which waters are federally regulated under the Clean Water Act (CWA) and therefore determines when a federal permit is required for projects that involve dredging or filling of a waterbody (i.e., a Section 404 permit). The current WOTUS definition was promulgated in 2020 under the Trump administration. It has been criticized by environmental groups as federally regulating fewer types of waterbodies than the WOTUS definition promulgated under the Obama administration. For example, ephemeral streams are not regulated under the current WOTUS definition.
President Biden has already signaled he intends to change the current WOTUS definition. In his first week in office, he asked the U.S. Army Corps of Engineers and the U. S. Environmental Protection Agency (EPA) to consider revising or rescinding the current definition. He has also asked courts to stay judicial challenges to the current WOTUS definition while his administration reconsiders the issue.

The Biden administration is expected to eventually propose its own definition of WOTUS, which will undoubtedly be more expansive than the current definition and require more projects to obtain federal CWA permitting. Among other things, the Biden administration’s definition of WOTUS is likely to regulate waters (including ephemeral streams) that are considered to have a “significant nexus” with traditionally navigable waters. This definitional change is expected to extend the time and increase cost of permitting for many natural gas projects. …

April 13, 2021

WV smooths the path for on-site solar energy facilities

Charleston, WV

Renewables Law Blog

(By Moore Capito and Robert Stonestreet)

The West Virginia Legislature has passed a bill that will make it easier for retail electric customers to establish on-site solar energy facilities.  Sponsored by Babst Calland Shareholder and House Judiciary Chairman Moore Capito, House Bill 3310 states that solar energy facilities designed to power only the premises where they are located are exempt from the jurisdiction of the West Virginia Public Service Commission under certain conditions.  This means that the PSC is not involved in regulating the rates and other aspects of qualifying solar facilities.  To be exempt, power generated from such a facility must be subject to a “power purchase agreement” with the retail electric customer.  A PPA generally governs the design, permitting, financing, and installation of a solar facility at a retail electric customer’s location by a solar energy developer.  Under a PPA, a retail customer purchases the power generated by the facility at an agreed upon rate.  In addition to receiving revenue generated from the energy produced, the developer is also eligible for renewable energy tax credits.  The bill is intended to promote solar installations at residences, small businesses, and industrial sites by allowing third-party developers to design and finance the installation of solar panels and then sell the electricity generated to the consumer.

To be exempt from PSC jurisdiction, an on-site solar facility must be “located on and designed to meet only the electrical needs of the premises of a retail electric customer” and be designed not to exceed certain generation limits: 25 kilowatts for residential customers; 500 kilowatts for commercial customers; and 2,000 kilowatts for industrial customers.  The legislation also establishes a cap on the aggregate amount of exempt on-site solar energy generation within West Virginia.  …

April 8, 2021

Winds of Change: Biden’s Impact on Superfund

The Legal Intelligencer

(by Alana Fortna)

Introduction

The great Bob Dylan sang, “may you have a strong foundation when the winds of changes shift.” His song may have been released nearly 50 years ago, but his lyrics ring true today in many facets of life, even environmental law and policy. President Joe Biden stayed true to his word on combatting climate change when he signed an executive order before the dust settled on his luggage in the White House. In this article, I discuss these policy changes and my opinions on what this could mean for Superfund sites.

Executive Order on Tackling the Climate Crisis at Home and Abroad

On Jan. 27, Biden signed an executive order regarding climate change and related environmental justice concerns. The executive order speaks to taking a “governmentwide” approach to the climate crisis.

Section 202 establishes the White House Office of Domestic Climate Policy headed by a National Climate Advisor with a National Climate Task Force consisting of Executive Branch agency heads. Pursuant to Section 211, within 120 days of the order, each federal agency must submit a draft action plan to the task force describing efforts to bolster adaption and increase resilience to climate change. To ensure follow-through, agencies must submit annual progress reports on their implementation efforts.

Section 216 provides that within 90 days of the order, the Secretary of the Interior must submit a report to the task force recommending steps to take, working with state, local, Tribal, and territorial governments, agricultural and forest landowners, fishermen, and other stakeholders, to conserve at least 30% of our lands and waters by 2030. The executive order also calls for the Secretary of Commerce to “collect input from fishermen, regional ocean councils, fishery management councils, scientists, and other stakeholders on how to make fisheries and protected resources more resilient to climate change, including changes in management and conservation measures …” This 30% conservation goal could hasten the EPA’s expectations for remedial action at Superfund sites situated in and around stakeholder communities, such as Tribal lands that rely on fish and wildlife for sustenance. …

April 1, 2021

How alternative legal service providers can add efficiencies, create value

Smart Business 

(by Sue Ostrowski featuring Chris Farmakis)

With companies consistently scoring law firms an average of just 2 to 3 (on a scale of 10) on the value they receive for legal services, businesses and firms alike are increasingly employing the value-added services of alternative legal service providers (ALSPs).

“Alternative legal service providers are a legitimate avenue to unlock enhanced value and services for clients, and the use of this model is increasing,” says Christian Farmakis, shareholder and chairman of the board at Babst Calland, and president of its affiliated ALSP, Solvaire. “The intersection of the rise in ALSPs, coupled with the use of technology, allows ALSPs to increase efficiencies and reduce legal costs.”

Smart Business spoke with Farmakis about how ALSPs can help businesses get more value from their legal providers.

Why is the use of ALSPs on the rise?

Businesses are continuing to face unprecedented financial and legal challenges. As a result, companies are placing constant demands and pressure on all vendors, including their legal firms, to deliver more value. Well-run ALSPs allow in-house counsel and law firms to work more efficiently and focus on higher-priority work.

The traditional law firm model is based on billable hours. And while businesses generally like the quality of service they receive, they don’t believe they are always getting value based on the type of legal work being performed. While it makes sense to assign complex and specialized legal work to seasoned associates or law firm partners, other services, such as discovery, diligence and technology-enabled tasks should be delegated to others with specific skills and defined pricing models. This is where ALSPs come in. …

April 1, 2021

Pennsylvania Governor Announces PULSE Project to Provide 50% of Commonwealth Government’s Electricity Consumption

Washington, DC

Renewables Law Blog

(By Varun Shekhar)

On March 21, 2021, Pennsylvania Governor Tom Wolf announced the Pennsylvania “Project to Utilize Light and Solar Energy” (“PULSE”), a renewable energy project consisting of seven new solar farms totaling 191 MW in capacity to be constructed in various counties across the Commonwealth by 2023. Upon completion, the PULSE Project is expected to provide upwards of 360,000 MWh of electricity each year, estimated to be enough to supply nearly half of the state government’s annual electricity consumption. Billed as the largest solar commitment by any government in the US, 16 Commonwealth agencies are expected to use electricity generated from the PULSE Project, including, among others, the Pennsylvania Departments of Environmental Protection, Conservation and Natural Resources, Transportation, and Health, as well as the Game and Fish & Boat Commissions.

Part of Governor Wolf’s “GreenGov” initiative, the PULSE Project is a public-private partnership between the Commonwealth, Lightsource BP, and Constellation. Under the project, Lightsource BP will finance, construct, own and operate the solar farms, which will be built in Columbia, Juniata, Montour, Northumberland, Snyder, and York Counties.  Pursuant to a Power Purchase Agreement, Constellation, an electricity supplier, will purchase electricity generated from the solar farms and distribute it to the Commonwealth’s participating agencies under a 15-year fixed-price supply agreement.  Expected benefits of the PULSE Project include an estimated reduction of 157,000 metric tons of carbon dioxide emissions each year and creation of over 400 jobs.

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