Articles, Alerts & Perspectives

PIOGA Press

(By Kevin J. Garber)

On July 8, the Commonwealth Court enjoined the Department of Environmental Protection and the Environmental Quality Board from implementing the Regional Greenhouse Gas Regulations, which means the regulations are not effective as of the date of this article (August 5, 2022). DEP and EQB immediately appealed that decision to the Supreme Court where we await further developments from the high court.

As background, under the final RGGI regulations that EQB adopted in July 2021, regulated sources must acquire 50 percent of the necessary CO₂ allowances for 2022 emissions by March 1, 2023 and acquire 100 percent of their allowances for the compliance period by March 1, 2024. DEP set a partial-year emissions cap of approximately 40.7 million tons of CO₂ for the remainder of 2022 and approximately 75.5 million tons for 2023, which will gradually decline to approximately 58 million tons in 2030. The modeled allowance price was in the $3-4/ton range when DEP developed the regulations but has increased substantially to $13.90/ton at the last auction on June 1, 2022. The potential financial impact on businesses and consumers is now much greater than originally predicted. At auction prices of $13-14/ton, implementation of the RGGI program in Pennsylvania is expected to cost $700-800 million per year, or nearly $4 billion over five years at current auction prices.

A group of labor and industry petitioners and a group of elected officials (including the chairs of the House and Senate Environmental Resources and Energy committees) are challenging the regulations in Commonwealth Court. They contend the regulations are an unconstitutional tax and that the Air Pollution Control Act does not provide authority for DEP and EQB to promulgate them. …

Legal Intelligencer

(By Gary Steinbauer and Christina Puhnaty)

In June 2022, the U.S. Environmental Protection Agency proposed revisions to its greenhouse gas reporting program rule (GHGRP rule or rule). See 87 Fed. Reg. 36,920 (June 21, 2022). Established in 2009 following a Congressional mandate in the 2008 Consolidated Appropriations Act, the GHGRP rule requires large direct sources of greenhouse gas (GHG) emissions (e.g., with certain exceptions, sources emitting at least 25,000 metric tons of carbon dioxide equivalent), fuel and industrial gas suppliers, and carbon dioxide injection sites to report total annual GHG emissions and other information using specific calculation methodologies. See generally 40 C.F.R. Part 98. The rule requires reporting for over 40 different source categories, with more than 8,000 facilities reporting annually. According to EPA, the reported data cover covers 85% to 90% of the GHG emissions in the United States, and data collected under the program shows that Pennsylvania ranks among the top five states with the highest reported GHG emissions.

The proposed rule does not limit covered sources’ GHG emissions or require sources to take any steps to reduce their GHG emissions. It is strictly a reporting rule, creating a massive dataset that the EPA uses to assess trends and make other policy decisions. The EPA publishes summaries of annual GHG emissions data, including summaries of GHG emissions by sector and facility, geographic information on reported GHG emissions, and environmental justice-related information for each sector.

This GHG emissions data are taking on greater significance as more companies focus on environmental, social and governance (ESG) issues and roll out net zero target dates. In addition, the Securities and Exchange Commission’s recently proposed climate disclosure rule provides that registrants reporting under the SEC reporting regime would be able to rely on data reported under the EPA’s GHGRP rule to partially fulfill their SEC climate-related reporting obligations. …

The Foundation Mineral and Energy Law Newsletter

Pennsylvania – Mining

(By Joseph K. Reinhart, Sean M. McGovern, Gina N. Falaschi & Christina Puhnaty)

Preliminary Injunction Granted for RGGI Rule 

On July 8, 2022, the Commonwealth Court of Pennsylvania granted a preliminary injunction preventing the State from participating in the Regional Greenhouse Gas Initiative (RGGI) pending resolution of a case. As previously reported in Vol. 39, No. 2 (2022) of this Newsletter, the Pennsylvania Department of Environmental Protection’s (PADEP) CO2 Budget Trading Program rule, which links the commonwealth’s cap-and-trade program to RGGI, was published in the Pennsylvania Bulletin in April 2022. See 52 Pa. Bull. 2471 (Apr. 23, 2022). RGGI is the country’s first regional, market-based cap-and-trade program designed to reduce carbon dioxide (CO2) emissions from fossil fuel-fired electric power generators with a capacity of 25 megawatts or greater that send more than 10% of their annual gross generation to the electric grid.

On April 25, 2022, owners of coal-fired power plants and other stakeholders filed a petition for review and an application for special relief in the form of a temporary injunction, and a group of state lawmakers filed a challenge as well. See Bowfin KeyCon Holdings, LLC v. PADEP, No. 247 MD 2022 (Pa. Commw. Ct. filed Apr. 25, 2022). The commonwealth court held a hearing on May 10 and 11, 2022, on the application for special relief.

Because the commonwealth court had not granted the application for preliminary injunction by July 1, 2022, the date on which compliance was to begin under the rule, sources were obligated to begin tracking CO2 emissions for compliance purposes and planned to participate in the upcoming RGGI CO2 allowance action in September 2022. …

West Virginia Attorney Joseph Bunn has joined Babst Calland’s Charleston office as a shareholder and member of its Corporate and Commercial practice group.

Mr. Bunn focuses his practice in financial transactions, mergers, acquisitions, and divestitures. He also counsels clients in other strategic areas such as corporate governance issues and miscellaneous contracts. Over the course of his practice, Joe has negotiated and drafted numerous transactions for buyers and sellers ranging in size from approximately $10 million to $325 million.

“Joe Bunn is well-known in industry in West Virginia and across the country. We’re very pleased to have him as part our team,” said Don Bluedorn, Babst Calland’s Managing Shareholder. “His proven experience in working with clients in the energy industry is a great fit for our Firm, and most importantly for our clients.”

“I am excited to be joining a well-respected legal team in West Virginia representing such a wide range of clients in West Virginia and throughout the country,” said Bunn.

Mr. Bunn earned his J.D. from West Virginia University, and received his undergraduate degree from William & Mary. He is a member of the American Bar Association, and is the Chairman of the Coal Subcommittee of the West Virginia State Bar.

Prior to obtaining his law degree, he worked for a Fortune 500 company and a middle market company where he served numerous roles involving strategic planning, capital raises, and acquisitions and divestitures.

Smart Business

(By Sue Ostrowski featuring Michael Fink)

While a company can structure a financing round in many ways, there’s been increasing concern that convertible securities can result in out-of-line liquidity preferences for some investors.

“This concern, however, can be addressed via conversion to a shadow series of preferred stock, an increasingly common option,” says Michael Fink, shareholder at Babst Calland.

Smart Business spoke with Mr. Fink about how a shadow series works, when to use it, and the pros and cons of doing so.

How does a shadow series work?

It’s quite common for companies to fundraise using convertible notes (or other convertible securities) for early or bridge rounds, providing for interest and a discount on share price as a reward for the extra risks inherent in these investments. Noteholders, therefore, receive more shares on conversion than their investment would otherwise provide. For example, a 20 percent discount on conversion price implies a 25 percent increase in shares issued for the same purchase price.

Those additional shares are beneficial in terms of enhanced voting power, more dividends and potentially more participation rights. In this example, it also provides for an additional 25 percent liquidation preference over the amount invested. Is this too much of a good thing?

Noteholders took more risk by investing earlier, but over the past decade or so, founders and later investors have started questioning whether this ‘liquidation windfall’ is more of a benefit than that extra risk justifies.

A shadow series is a compromise approach to address this windfall — the notes convert to a ‘shadow series’ of the preferred stock purchased by later equity investors, identical in all ways but with a lower liquidation preference. …

Janet K. Meub recently joined Babst Calland as senior counsel in the Litigation and Employment and Labor groups. Ms. Meub has significant experience in the areas of employment and labor law, professional liability defense, insurance coverage and bad faith litigation, toxic tort litigation, nursing home negligence, and medical malpractice defense. She has a diversified practice that includes defending employers, healthcare providers, law enforcement and other professionals, and non-profits, at all levels of civil litigation through trial. She routinely counsels non-profit clients on employment matters including discrimination, wage and hour, FMLA and represents employers in PHRC/EEOC matters and at unemployment compensation hearings.

Prior to joining Babst Calland, Ms. Meub was a principal at Dickie, McCamey & Chilcote. She is a 2001 graduate of Duquesne University School of Law.

Legal Intelligencer

(By Gina N. Falaschi and Marley R. Kimelman)

On June 30, 2022, the United States Supreme Court issued its opinion in West Virginia v. EPA.  The Court held that the United States Environmental Protection Agency (EPA) exceeded its rulemaking authority under Section 111(d) of the Clean Air Act in promulgating the 2015 Clean Power Plan (CPP).  The majority found that the term “best system of emission reduction” does not include a regulatory scheme that requires shifting power generation from coal to natural gas and renewable or other zero-emitting sources.  While a narrow holding, this decision will impact the Biden administration’s coming regulations regarding power plants and many future rulemakings as well.

Background

Section 111 of the Clean Air Act directs EPA to list categories of stationary sources that it determines cause or contribute significantly to air pollution.  For each of these categories, the agency must promulgate standards of performance for new or modified sources under Section 111(b).  A standard of performance is defined as:

a standard for emissions of air pollutants which reflects the degree of emission limitation achievable through the application of the best system of emission reduction which (taking into account the cost of achieving such reduction and any non-air quality health and environmental impact and energy requirements) the [EPA] Administrator determines has been adequately demonstrated.

42 U.S.C. §7411(a)(1) (emphasis added).  Under Section 111(d) of the Clean Air Act, when EPA has set new source performance standards addressing emissions of a particular pollutant from a particular type of new or modified stationary source under Section 111(b), it must address emissions of the same pollutant by existing sources, but only if that pollutant is not already regulated under the National Ambient Air Quality Standards or Hazardous Air Pollutant Program. …

The American Oil & Gas Reporter

(By Del Torkelson)

Ensuring energy security and addressing climate change are not mutually exclusive goals, insists Senator Joe Manchin, D-W.V., and it is imperative for the United States to pursue both.

The chairman of the U.S. Senate Energy and Natural Resources Committee offered his perspective on the outlook for the country’s energy policy during a “Message to the Industry” video conversation included in The 2022 Babst Calland Report–Legal & Regulatory Perspectives for the U.S. Energy Industry, which the law firm released in late June. Joining Manchin in the report’s introductory webinar recording were Babst Calland energy attorneys Joe Reinhart, Moore Capito and Jim Curry.

The firm says its 12th annual energy analysis also contains perspectives from energy attorneys on critical issues facing the industry, including:

• Regulatory developments and enduring concern about climate change;
• Cybersecurity risks and the steps companies can take to minimize them;
• The U.S. Securities and Exchange Commission’s environment, social and governance-oriented disclosure requirements, as well as federal and state efforts to promote environmental justice;
• The role hydrogen and carbon capture and sequestration can play, as well as the factors influencing how quickly both technologies can expand;
• Recent and pending regulations related to permitting and operating pipelines; and
• The challenges renewable energy companies must overcome as they secure land and permits.

During the half-hour discussion with Manchin, the senator emphasized that laudable environmental ambitions must be rooted in reality. “You cannot just be aspirational and think ‘This is my wish; I wish it would work that way,’” Manchin advised. “It’s not the real world that we live in–and I have seen the real world. …

PIOGA Press

(By Kevin Garber, Varun Shekhar, Gina Falaschi and Marley Kimelman)

This article is an excerpt of The 2022 Babst Calland Report, which represents the legal perspective of Babst Calland’s energy attorneys addressing the most current business and regulatory issues facing the energy industry. To view the full report, go to reports.babstcalland.com/energy2022-2.

On June 30, the United States Supreme Court held, in West Virginia v. EPA, that the U.S. Environmental Protection Agency may not force existing coal-fired power plants to shift their electricity generation to cleaner sources under Section 111(d) of the Clean Air Act, thereby narrowing EPA’s authority to regulate greenhouse gas emissions from power plants.

West Virginia and a coalition of states, power companies and coal interests petitioned the Supreme Court to review the D.C. Circuit’s 2021 invalidation of the Trump administration’s 2019 Affordable Clean Energy rule, which had replaced the Obama administration’s 2015 Clean Power Plan. Under the Clean Power Plan, EPA calculated rate-based (amount of carbon dioxide emitted per megawatt hour generated) and mass-based (total amount of carbon dioxide emitted per year) targets for each state through application of three “building blocks” that were deemed to constitute the “best system of emission reduction…adequately demonstrated” (BSER) under Section 111(d) of the Clean Air Act: (1) improvements to heat rates (a measure of heat input to power output efficiency) achieved at individual power generation facilities; (2) shifting power generation to natural gas-fired or combined cycle facilities; and (3) increased power generation from renewable and zero-emitting sources. The latter two “building blocks” constituted the Clean Power Plan’s designed “generation shifting.” EPA projected that this BSER would drive down electricity derived from coal-fired sources from 38 percent of the nation’s overall generation in 2014 to 27 percent by 2030. …

Babst Calland congratulates Attorney Tim Miller as the recipient of this year’s Energy & Mineral Law Foundation John L. McClaugherty Award, which recognizes outstanding contributions to the Foundation and the field of energy and mineral law.  Each year, EMLF recognizes leaders who have shaped EMLF, and who are recognized as industry and community leaders.

To view the EMLF award presentation, click here.

Smart Business

(By Sue Ostrowski featuring Marc Felezzola)

If you are building new commercial construction, or making improvements to your existing facility, it is critical before starting to take steps to protect yourself from potential mechanics’ liens. Failing to do so could result in making double payments, or potentially forfeiting your property to foreclosure, says Marc Felezzola, a shareholder in Babst Calland’s Construction, Environmental and Litigation groups.

For example, if a prime contractor — someone who contracts directly with the owner — fails to pay a subcontractor — anyone who supplies labor or materials to the prime contractor or its direct subcontractor — the subcontractor can file a mechanics’ lien against the property on which the project was built. And if the subcontractor is not paid the lien amount, it can foreclose on the lien, force a sheriff sale of the property and take its payment from the proceeds of that sale.

This is true even if the owner has paid the contractor for the subcontractor’s work, meaning the owner could be subject to the double jeopardy of having to pay for subcontractor labor and materials twice.

“When you improve real property with construction, contractors and subcontractors confer a benefit that increases the property’s value,” Felezzola says. “The law allows for a lien against the property to secure payment for the benefit someone has contributed to increasing that value. As an owner, protecting yourself requires forethought before construction starts, to set the project up for transparency about potential lienholders and limit the scope of that potential to those with whom the owner directly contracts.”

Smart Business spoke with Felezzola about three ways to protect yourself before beginning a construction project. …

GO-WV

(By Robert Stonestreet)

What does the West Virginia oil and gas industry have in common with freshwater mussels, how the federal government chooses to define the term “habitat,” and drilling activity on federal lands in the west?  Quite a bit, actually.  As explained below, recent developments on each of these topics intersect with the regulatory programs that govern oil and gas operations in West Virginia.

WVDNR Mussel Guidance

On June 23, 2022, the West Virginia Division of Natural Resources (WVDNR) published final guidance reflecting the agency’s recommendations for other state and federal government agencies to consider when issuing environmental permits authorizing activities that may impact freshwater mussels.  Why does this matter to the West Virginia oil and gas industry?  Because the guidance hopefully resolves a long running effort to address what some viewed as improper efforts by the WVDNR to directly regulate oil and gas operations.

In addition to various permits required by the West Virginia Department of Environmental Protection (WVDEP) and the United States Army Corps of Engineers (Corps) for activities that impact certain streams, operators are required to obtain a “right of entry” permit from the WVDNR before any disturbance may take place in or under certain size streams.  This permit stems from the State of West Virginia’s claim to own the stream bed of certain waterways.  Activities requiring a “right of entry” permit include installation of equipment to withdraw water for use in well completion or other activities.

Several years ago, WVDNR began attempting to impose conditions in “right of entry” permits that would regulate the design of certain stream crossings and impose restrictions on when and how much water could be withdrawn from a stream.  …

Melissa M. Rounds recently joined Babst Calland as senior counsel in the Energy and Natural Resources Group. Mrs. Rounds has represented clients in the oil and gas industry for more than 15 years and has assisted producers in a variety of transactional matters, including real estate closings, preparation of documents for leasing purposes and examining and certifying title. Her work includes resolving complex title defects, coordinating urgent title projects, working in-house with major energy producers to provide comprehensive lease analysis and assistance with mineral purchases, and providing legal analysis for changes in statutory and case law.

Mrs. Rounds’ work on behalf of the oil and gas community is primarily focused in Morgantown, West Virginia. Her representation in the Morgantown area includes working with operators to reach drilling commitments, and interactions with county officials in major producing counties in northcentral West Virginia.

Prior to joining Babst Calland, Mrs. Rounds was the owner and attorney for Melissa Rounds Law. She is a 2006 graduate of West Virginia University College of Law.

The Foundation Mineral and Energy Law Newsletter

Pennsylvania- Mining

(By Joseph K. Reinhart, Sean M. McGovern, Gina N. Falaschi and Christina Puhnaty)

After a lengthy rulemaking process, the Pennsylvania Department of Environmental Protection’s (PADEP) CO2 Budget Trading Program rule was published in the Pennsylvania Bulletin. See 52 Pa. Bull. 2471 (Apr. 23, 2022). As previously reported in Vol. XXXVI, No. 4 (2019) of this Newsletter, on October 3, 2019, Governor Tom Wolf signed Executive Order No. 2019-07, “Commonwealth Leadership in Addressing Climate Change Through Electric Sector Emissions Reductions,” directing PADEP to initiate a rulemaking to join the Regional Greenhouse Gas Initiative (RGGI). RGGI is the country’s first regional, market-based cap-and-trade program designed to reduce carbon dioxide (CO2) emissions from fossil fuel-fired electric power generators with a capacity of 25 megawatts or greater that send more than 10% of their annual gross generation to the electric grid. The CO2 Budget Trading Program links Pennsylvania’s program to RGGI.

Following approval of the rule by the Environmental Quality Board (EQB) in July 2021 and approval by the Pennsylvania Independent Regulatory Review Commission in September 2021, the final form rulemaking was submitted to the Pennsylvania House and Senate Environmental Resources and Energy standing committees. Both houses of the legislature passed Senate Concurrent Regulatory Review Resolution 1 (S.C.R.R.R.1), which disapproved of the rulemaking, and Governor Wolf vetoed the resolution on January 10, 2022. See Vol. 39, No. 1 (2022) of this Newsletter. The Governor’s veto sent the resolution back to the legislature, where each chamber had 30 calendar days or 10 legislative days, whichever was longer, to attempt a veto override. …