FERC Assesses Penalties for Alleged No-Risk UTC Trading Against City Power and Its Founder

Posted in Energy, FERC

Earlier this month, the Federal Energy Regulatory Commission (FERC) issued an Order Assessing Civil Penalties against City Power Marketing, LLC (City Power) and its founder and sole owner, K. Stephen Tsingas[1] (collectively, Respondents)  for violating section 222 of the Federal Power Act (FPA) and section 1c.2 of the Commission’s regulations, which prohibit energy market manipulation.[2]

According to FERC, Respondents entered into fraudulent “no risk” Up-to-Congestion (UTC) trades in PJM’s market to earn excessive amounts of Marginal Loss Surplus Allocation (MLSA) payments made to transmission customers. The Commission also found that City Power and Mr. Tsingas, in writing and orally, denied the existence of relevant and material instant messages (IM) when responding to the Office of Enforcement (OE) Staff’s (Staff) investigation in violation of section 35.41(b) of the Commission’s regulations, which prohibits a seller, such as City Power, from submitting false or misleading information or omitting material information to the Commission and its Staff unless it exercises due diligence to prevent such occurrences.

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Horne and Environmental Law: The case of the taken raisins

Posted in California, Court Cases, Environment

Horne v. Department of Agriculture, No. 14-275 (U.S. June 22, 2015), is a takings case about the price support program for California raisins.  That may seem a little far afield for environmental lawyers, but the case bears some careful analysis.  Among other things, the Court draws a distinction between the analysis appropriate for a regulatory taking and a physical taking, even when — as in Horne – the physical taking is really part of a regulatory scheme.  My July column in the Pennsylvania Law Weekly looks at this case and its implications for our practice area.  Read ‘Horne’ and Environmental Law:  The Case of the Taken Raisins, 38 Pa. L. Weekly 664 (July 21, 2015), by clicking here.

Massachusetts Regulates Fertilizer Use to Reduce Nutrient Water Pollution

Posted in Environment, Massachusetts, Water, Water quality

Following a developing trend around the country, the Massachusetts Department of Agriculture (DAR) recently promulgated regulations restricting how fertilizers containing phosphorous, nitrogen or potassium may be applied.  The goal of these regulations is to reduce nutrient loading to waterbodies, which can lead to eutrophication and other negative water quality impacts.

The regulations, promulgated at 330 CMR 31.00, were authorized by Chapter 262 of the Acts of 2012 (An Act Relative to the Regulation of Plant Nutrients).  While restricting both, the regulations distinguish between agricultural and non-agricultural uses of fertilizers.  For non-agriculture fertilizer uses, fertilizers containing more than 0.67% phosphate by weight (excluding compost and organic fertilizers) are restricted in various ways, including: Continue Reading

FERC’s Reaction to CEQ’s Greenhouse Gas Guidance: For Now, Business as Usual

Posted in Energy, Environment, Federal Regulation, Greenhouse Gas

On June 23, 2015, the Federal Energy Regulatory Commission issued an Order Denying Rehearing of its earlier April 6, 2015 order, authorizing Sabine Pass Liquefaction, LLC to construct and operate natural gas liquefaction export facilities. The order is noteworthy for the Commission’s response to the arguments made by the Sierra Club that the Commission failed to follow the Council on Environmental Quality’s (CEQ) Revised Draft Guidance for Federal Departments and Agencies on Consideration of Greenhouse Gas Emissions and the Effects of Climate Change in National Environmental Policy Act (NEPA) Reviews, which was issued in December 2014 (Draft Guidance). In its earlier April 6 Order, the Commission noted that the Draft Guidance had not been issued at the time the Environmental Assessment (EA) was completed in that case. In the recent rehearing order, however, the Commission addressed the Draft Guidance on the merits despite the timing of the EA in the case, and even though the Draft Guidance has not yet been finalized. Thus, this Order provides a glimpse of how the Commission intends to address the Draft Guidance.

Perhaps the most controversial aspect of the Draft Guidance is its instruction that agencies’ NEPA analyses take into account GHG “emissions from activities that have a reasonably close causal relationship to the Federal action, such as those that may occur as a predicate for the agency action (often referred to as upstream emissions) and as a consequence of the agency action (often referred to as downstream emissions).” In the Sabine Pass Rehearing Order, the Commission continued to follow its prior findings that the impacts of future gas production are not sufficiently causally linked to the project under consideration. Therefore, consistent with its evaluation of other environmental impacts of gas production, the Commission found that the GHG impacts of such production (i.e., upstream emissions) are not reasonably foreseeable and do not require NEPA analysis. With respect to downstream emissions, the Commission declined to consider the effects of natural gas use in importing countries as part of a cumulative effects analysis. While the Commission identified climate change-related effects in the project region resulting from GHG emissions, it concluded that it could not be determined whether the project’s contribution to cumulative impacts on climate change would be significant. Importantly, the Commission cited to the Draft Guidance in support of its conclusion that its responsibility under NEPA focuses on local or regional environmental impacts attributable to the project. The Commission found that any net change in global emissions is dependent on the fuels being replaced with natural gas and that any such impacts are “distant” from the project.

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New York State Formally Adopts Ban on Fracking: An Analysis of the New York State DEC’s SEQRA Findings Supporting Its HVHF Ban

Posted in Hydrofracking, New York

The New York State Department of Environmental Conservation (DEC) undertook its final official step in imposing a total ban on gas drilling using the method of high-volume hydraulic fracturing (HVHF) through its issuance this week of its “Findings Statement” pursuant to New York’s State Environmental Quality Review Act (“SEQRA”).  This week’s action was a fait accompli following the announcement at the New York Governor’s cabinet meeting in late 2014 that New York would ban HVHF and the subsequent release of DEC’s Final Generic Environmental Impact Statement (SGEIS). The Findings Statement breaks no new ground, continuing to base the total ban on somewhat vague assertions of unquantified public health risk and numerous statements of “possible” impacts.  In this article, we focus on DEC’s primary reasoning underlying the ban that could be subject to legal challenge.

The Findings Statement starts by quickly summarizing the numerous mitigation measures previously detailed in the SGEIS and then dismisses them summarily as inadequate to eliminate all potential for impacts due to accidental releases or human error.  Applying this stringent threshold to other activities that require permits would logically lead to the conclusion that no activity posing a risk of environmental harm should ever be permitted in New York State.  This virtually impossible-to-meet standard could be the subject of a legal challenge to DEC’s ban – assuming one is filed, with such challenge focused on the widespread use of HVHF throughout the rest of the country, and EPA’s recent study showing that HVHF does not pose systemic risks to water quality.

Another interesting aspect of the Findings Statement is DEC’s definition of HVHF as the “stimulation of a well using 300,000 or more gallons of water as the base fluid for hydraulic fracturing for all stages of well completion, regardless of whether the well is vertical or directional.”  As a threshold matter that would mean that a well stimulation method that does not use water would not be subject to the ban. Further, while the 300,000 gallon threshold is well below the current amount of water typically used in the HVHF process, the technology is always changing and there could come a time when much less water is required. In such a case again, the ban would not be applicable. Given this threshold, DEC’s must have premised the ban on HVHF primarily on impacts related to the amount of water used in the process and the associated  impacts on water supplies, and from fracking wastewater (treatment and storage), and truck trips to bring water to HVHF pads.  However, the agency attempted to broaden the scope of impacts beyond water usage in noting that HVHF well pads are larger than conventional well pads (though less numerous) and could bring drilling to areas that were not drilled conventionally.   That premise, however, does not necessarily hold up given that New York is a water rich state with estimated HVHF water usage projected to represent below 0.25 percent of water consumed in the state.  While DEC focuses on lack of disposal options, recycling waste water and out of state disposal remain available.  Thus, the attempted connection between the gallonage threshold and water impacts seems tenuous.

The Findings Statement otherwise takes a kitchen sink approach in concluding that HVHF would result or may result in unacceptable environmental impacts.  That scattershot approach broadens the rationale but also broadens the areas to be defended by DEC in any potential challenge.  For instance, the Findings Statement notes that, while HVHF would result in fewer well pads than conventional drilling, the impacts would be more “intense.”  However, the Findings Statement does not specify what that intensity is except for noting that the HVHF well pads are 50% larger.  DEC observes that HVHF would generate greater amounts of drill cuttings but again fails to specify how these additional cuttings would result in impacts that justify a blanket ban on the activity.  Further, the “intensity” of the activity is somewhat undercut in other portions of the Findings Statement concluding that the economic benefits of HVHF would not be as great as expected because the level of activity is expected to be modest in light of the earlier proposed restrictions.  It is hard to understand how the activity would be so intensive to industrialize upstate New York, yet also result in minimal economic development perspective, simultaneously.

One section of the Findings Statement that may have a more universal application is the section that focuses on potential impacts from accessory infrastructure, such as natural gas pipelines and compressor stations, which DEC found also could result in “potential” adverse impacts on wetlands, state-owned forests and animal habitat.  One can be sure that future opponents of projects related to such accessory infrastructure are sure to rely on these Findings to bolster their arguments, which could hinder attempts to increase the supply of natural gas to underserved parts of the state.

DEC’s SEQRA Findings unsurprisingly build upon the case made in its SGFEIS that HVHF is an unproven and risky technology that is likely to result in significant adverse impacts that outweigh its benefits.  Like the FEIS, the Findings rely heavily on “possible” risks and a concern that mitigation measures “may” not adequately address those impacts.  It remains to be said whether the mere risk of potential impact and application of a very stringent standard for deeming mitigation measures sufficient would be deemed enough to support New York’s ban on HVHF should industry choose to challenge the States’ action.

Update On Challenging Wetlands Permitting Decisions

Posted in Court Cases, Permitting, Wetlands

Two recent federal appeals court decisions show that landowners can obtain relief for adverse wetlands permitting actions by the U.S. Corps of Engineers – both at the beginning of the permit process and after it concluded.

In Hawkes., Inc. v. U.S. Army Corps of Engineers, 782 F.3d 994, the Eight Circuit held that a landowner can obtain immediate judicial review of a “jurisdictional determination” (JD) by the Corps.  JD’s establish the boundary of wetlands that are subject to Clean Water Act (CWA) jurisdiction and thus require a permit to develop.  Once a JD is issued that declares wetlands jurisdictional, they cannot be developed until the property owner applies for and obtains a permit under § 404 of the CWA.  The Eighth Circuit in Hawkes found that restriction on the right to develop sufficient to qualify a JD as “final agency action” subject to legal challenge under the Administrative Procedure Act.  In so holding, the court expressly disagreed with a 2014 Fifth Circuit decision, in Bell Company, L.L.C. v. U.S. Army Corps of Engineers, 761 F.3d 383, which held that JD’s are not final agency action and can only be challenged if and when a subsequent § 404 permit to develop the wetlands is denied.  The government has petitioned the full Eight Circuit, “en banc,” to rehear the Hawkes decision, but the decision appears sound and appropriately provides landowners the ability to challenge wetland designations made by the Corps in JDs before having to go through the costly and time consuming process of obtaining a § 404 permit.

In another recent decision, Lost Tree Village Corp. v. United States, 707 F.3d 1286, the Federal Circuit affirmed the right of landowners to obtain relief after the conclusion of the § 404 permitting process, if the Corps denies a permit to develop property containing wetlands and the result of the denial is that no valuable use of the property remains.  That is exactly what occurred in Lost Tree, and led the court to affirm a multi-million dollar award of just compensation for a taking when a property parcel was left with no economic use after the Corps denied a § 404 permit that was necessary to develop the parcel.  The court in Lost Tree rejected the government’s argument that no taking had occurred because the property retained a nominal monetary value – $25,000, or 0.6% of its fully developed value of $4.2 million.  The Federal Circuit decision entitles the landowner to receive $4.2 million plus interest since the date of the permit denial in 2004 and attorneys’ fees incurred in the litigation.  In a prior decision in the same case, the Federal Circuit held that only one discrete parcel was relevant to the takings issue, even though that parcel lies within a residential community containing hundreds of other fully-developed parcels.

Although the Corps has significant discretionary authority over wetlands permitting, the decisions in Hawkes and Lost Tree show that legal challenges can succeed when properly targeted to actions by the Corps that unduly limit, or eliminate, development opportunities.

U.S. Supreme Court Reverses and Remands MATS to D.C. Circuit for EPA Failure to Consider Costs

Posted in Air, Climate Change, Court Cases, Energy, Environment, EPA, Greenhouse Gas

In a 5 to 4 split decision, the U.S. Supreme Court ruled on Monday, June 29th, that the U.S. Environmental Protection Agency (“EPA”) unreasonably interpreted the federal Clean Air Act (“CAA”) when EPA decided deemed that costs were irrelevant in deciding whether to regulate hazardous air emissions from electric utility sources under section 112 of the CAA.  Michigan v. EPA, No. 14-46 (U.S. June 29, 2015): SCOTUS MATS Decision The majority opinion was authored by Justice Scalia and was joined by the Chief Justice and Justices Thomas, Kennedy, and Alito.  Specifically at issue was whether the EPA was required by section 112(n)(1), 42 U.S.C. § 7412(n)(1), to consider compliance costs in determining that it was “appropriate and necessary” to regulate toxic air emissions from fossil fuel-fired utilities. (See section 112 here.) Due to issues such as grid reliability, Congress did not initially list electric utilities as a source category to be regulated under the air toxics provisions of the 1990 CAA amendments.  Instead, Congress ordered EPA to study the hazards to public health that could reasonably anticipated to occur as a result of such emissions and then to regulate electric utilities if it found that regulation was “appropriate and necessary” after performing the study.

In addressing the question of whether regulation was appropriate and necessary, EPA focused only on health impacts and did not consider compliance costs.  The agency found that regulation was appropriate because the power plants’ emissions of mercury and other hazardous air pollutants posed risks to human health and the environment, and that controls were available to reduce these emissions.  In 2012, the EPA issued its final electric utility mercury and air toxics standards (“MATS”) rule.   A history of that rulemaking may be found here. EPA noted that during the rulemaking it did consider costs in deciding what level of emissions reduction should be achieved by the affected sources. Thus, EPA asserted that it had taken costs into account consistent with the statute’s requirements. Continue Reading

NYSDEC Issues Draft Brownfield Regulations Defining “Underutilized” and “Affordable Housing Project”

Posted in Brownfields, New York

As described in our previous blog post, this spring New York enacted amendments to its Brownfield Cleanup Program (BCP) to, among other things, make eligibility for the lucrative tangible property tax credit more stringent for properties located in New York City.[1] Under the amended law, New York City-based developments will no longer be eligible for such credit unless the applicant meets at least one of the following eligibility requirements:

  • at least 50% of the project site is located in an impoverished area known as an “Environmental Zone”;
  • the site is “upside down”; i.e., it costs more to remediate than it would be worth as clean;
  • the site is an “affordable housing project”; or
  • the site is “underutilized.” The amendments made clear that the new eligibility criteria would take effect on the later of July 1, 2015 or the date on which the New York State Department of Environmental Conservation (NYSDEC) issues proposed regulations defining the terms “affordable housing project” and “underutilized.” Well, that date is now known because NYSDEC issued proposed regulations in early June, meaning that the new criteria will take effect on July 1st. As discussed below, NYSDEC has proposed to define “affordable housing project” mostly in terms of existing programs that will likely make this eligibility criterion easy to apply. By contrast, the agency has defined “underutilized” in such manner that will make it virtually impossible for any properties located in New York City eligible for the tangible property tax credit.

Affordable Housing Project

Under NYSDEC’s proposed regulations, the term “affordable housing project” is defined broadly to mean a residential use or mixed residential use project that must include “affordable residential units and/or affordable home ownership units.” To qualify as an “affordable” rental project or home ownership project the proposed development “must be subject to a federal, state or local government housing agency’s affordable housing program” or a legally binding agreement that defines a percentage of rental units to be dedicated to tenants “at a defined maximum percentage of the area median income.” “Area median income” is defined as the area median income for the primary metropolitan statistical area, as determined by U.S. Department of Housing and Urban Development (HUD). Thus, any proposed development project that includes a component of any government affordable housing program administered by HUD, the New York State Department of Housing and Community Renewal, or the New York City Department of Housing Preservation and Development would qualify as an “affordable housing project,” including market rate developments that participate in the so-called “80/20 program. Of note, although the proposed definition does not include a requirement related to the minimum number of units or square footage percentage dedicated to affordability, many of the incorporated programs, such as 80/20 mentioned above, do have such minimum requirements.

Underutilized Site

By contrast to its proposed “affordable housing project” definition, NYSDEC proposed an extremely restrictive definition of “underutilized” that would make eligibility under this criterion highly unlikely. Reflecting what can only be viewed as disagreement with the existence of any underutilized properties in New York City, the agency would limit eligibility to a proposed development that meets all of the following criteria: (1) the applicant must receive a certification from the City of New York that the development includes a building or buildings that , for at least five years prior to submission of the BCP application, used no more than fifty percent of the permissible zoning floor area for that site; (2) the proposed “sole” use of the Brownfield site must be something other than residential; (3) the applicant must receive a certification from the municipality that the site could not be developed without “substantial government assistance”; and (4) the applicant must receive a certification from the municipality that either tax payments have been in arrears for at least five years, that a building at the site is presently condemned or presents a public health or safety hazard, and/or the proposed use is in whole or in substantial part for industrial use. The proposed regulations go on to define “substantial government assistance” to mean a substantial loan, grant or land purchase cost exemption or subsidy; or for industrial properties, a low cost loan.

The proposed definition of “underutilized” is virtually unworkable for New York City-based developments. Under the plain language of the regulation, no residential or mixed-use developments would be eligible for the tangible property tax credit because the “sole” use must be non-residential. There are very few developments in New York City that are strictly commercial, and even fewer that could be developed as industrial. Indeed, the fourth criterion – requiring that the site be in tax arrears, present a public health or safety hazard, or propose a use that is substantially industrial – would appear aimed at ensuring that hotel and retail projects have trouble qualifying. To make matters worse, the proposed regulation does not offer any definition of what uses would be deemed “industrial” by reference to zoning categories or otherwise. Thus, not only is the definition of “underutilized” extremely limited, it creates uncertainly with respect to what appears to be the only available development category. Even if a developer believes it can meet the criteria for “underutilized,” the regulations assume a municipal process to “certify” the requisite conditions, and no such process exists at present in New York City for an applicant to obtain such certifications in New York City. Possible candidates for a certifying agency would be the Department of City Planning of the New York City Economic Development Corporation. Thus, not only would the criteria be virtually impossible to meet, the regulations envision an additional bureaucratic process that is likely to act as a further disincentive to developers.

At the very least, NYSDEC’s definition of “underutilized” appears to be contrary to the intent of the Legislature. Because the recent amendments do not define the term, a court would very likely examine its plain meaning by reference to its dictionary definition. For example, the term “underutilize” is defined under the Merrium-Webster Dictionary to mean “to utilize less than fully or below the potential use.” In other words, the concept of “underutilized” when used in the context of a development project is focused on a site’s “potential use,” which is typically determined by applicable zoning requirements. However, NYSDEC’s definition of “underutilized” bears no relationship to a site’s potential use in this regard. Instead, the agency has proposed to define the term with specific end uses in mind (mostly industrial) and would preclude mixed use developments, irrespective of applicable zoning requirements. In any event, if these regulations are adopted as written, and survive legal challenge, it is our view that there will be few, if any, projects that qualify as “underutilized” and thus eligible for tangible property credits in New York City.

[1] The amended law otherwise left unchanged the calculation of the tangible property tax credit, which equals the lesser of (i) 10% of development costs up to a ceiling of $35 million for residential projects ($45 million for industrial), or (ii) three times the cost of site preparation and environmental remediation.

Performance Enhancement: FERC Approves Significant Restructuring of PJM’s Capacity Market

Posted in Energy

On June 9, 2015, theFederal Energy Regulatory Commission (FERC) conditionally approved significant reforms to PJM’s capacity market, implementing the Capacity Performance Resource product, with PJM’s compliance filing due within 30 days. [1]   FERC found such reforms were necessary to address “the confluence of changes in the PJM markets, including both recent performance issues…impacted by inadequate incentives and penalties for resource performance under its current construct and ongoing changes in PJM’s resource mix that are projected to accelerate.” PJM’s resource performance fell well below expected levels during the extreme weather events of January 2014 (i.e., during the Polar Vortex) when PJM’s 22 percent forced outage rate far exceeded its 7 percent historical average.

FERC found that PJM’s Capacity Performance proposal is intended to ensure performance and the reliability of the PJM system during extreme weather events. As approved, capacity resources necessary to perform during these events can recover their costs of doing so while facing new and substantial penalties for non-performance. [2]   Specifically, FERC noted that PJM’s currently effective offer cap for existing generators does not allow sellers to include in their offers the costs attributable to natural gas firm transportation contracts.

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[1]PJM Interconnection, L.L.C., 151 FERC ¶ 61,224 (2015). up
[2]FERC noted that although its approval was not based solely on the recent degradation of resource performance in PJM in times of system stress, “this poor performance has led to significant and expensive price spikes.” up

Performance Enhancement: FERC Approves Significant Restructuring of PJM’s Capacity Market

Posted in Energy, Environment, Federal Regulation

On June 9, 2015, the Federal Energy Regulatory Commission (FERC) conditionally approved significant reforms to PJM’s capacity market, implementing the Capacity Performance Resource product, with PJM’s compliance filing due within 30 days.1 FERC found such reforms were necessary to address “the confluence of changes in the PJM markets, including both recent performance issues…impacted by inadequate incentives and penalties for resource performance under its current construct and ongoing changes in PJM’s resource mix that are projected to accelerate.” PJM’s resource performance fell well below expected levels during the extreme weather events of January 2014 (i.e., during the Polar Vortex) when PJM’s 22 percent forced outage rate far exceeded its 7 percent historical average.

FERC found that PJM’s Capacity Performance proposal is intended to ensure performance and the reliability of the PJM system during extreme weather events. As approved, capacity resources necessary to perform during these events can recover their costs of doing so while facing new and substantial penalties for non-performance.2 Specifically, FERC noted that PJM’s currently effective offer cap for existing generators does not allow sellers to include in their offers the costs attributable to natural gas firm transportation contracts.

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