Recent Guidance from FERC on the Sale of Renewable Energy Certificates

Posted by Latham & Watkins on May 03, 2012

By David E. Pettit

Since its decision in American Ref-Fuel Company in 2003, the Federal Energy Regulatory Commission (“FERC”) has taken the view that avoided cost power purchase agreements between a qualifying facility (“QF”) and a utility buyer under the Public Utility Regulatory Policies Act of 1978 (“PURPA”), often referred to as a “PURPA Put Contract,” do not also convey renewable energy certificates (“RECs”) to the utility buyer unless the contract expressly states otherwise.  RECs are state-created and state-issued instruments certifying that electric energy was generated pursuant to certain requirements, such as a renewable portfolio standard, which generally requires that a certain percentage of a load-serving utility’s energy mix comes from renewable energy resources.  RECs can either be bundled with the underlying renewable energy or unbundled and sold independently of the underlying renewable energy, and in two recent orders, FERC has provided further clarification and guidance regarding the ownership of RECs associated with PURPA Put Contracts and its ratemaking authority over REC sales unbundled from the sale of associated renewable energy and capacity under the Federal Power Act (“FPA”). 

In Morgantown Energy Associates, two owners of QFs petitioned FERC to enforce PURPA in response to an order issued by the Public Service Commission of West Virginia (“WV PSC”), which found that under West Virginia law a utility buyer owns the RECs associated with purchases of electric energy and capacity from a QF pursuant to a PURPA Put Contract  even if the contract  is silent as to REC ownership.  The WV PSC offered a number of reasons for its finding, including the justification that the avoided cost rate paid by a utility buyer under a PURPA Put Contract is sufficient compensation such that “no additional consideration is needed for the generation of RECs.”  The owners of the QFs then filed a petition with FERC alleging that the WV PSC order violated PURPA by incorrectly holding that the avoided cost rate is sufficient to transfer RECs to the utility buyer even when their PURPA Put Contracts were silent on the issue. 

While FERC declined to initiate an enforcement action under PURPA in Morgantown Energy Associates, it nonetheless found that the WV PSC’s reasoning regarding avoided cost rates under PURPA was “inconsistent with the requirements of PURPA.”  Referencing its 2003 order in American Ref-Fuel, FERC stated that a utility buyer under a PURPA Put Contract is not required to pay more than the avoided cost of generating the power itself or of purchasing the power from another source and that avoided cost rates are not intended to compensate a QF for more than capacity and energy.  In other words, a PURPA Put Contract that is silent as to REC ownership does automatically transfer RECs to the utility buyer as in a bundled sale of renewable energy and capacity and associated RECs—the QF may sell the RECs separately to the utility buyer or some other buyer on an unbundled basis.     

In another recent order regarding pro forma bilateral transactional agreements used to buy and sell bulk power in the western U.S., FERC also addressed the question of whether it has ratemaking jurisdiction under sections 201, 205 and 206 of the FPA.  With its submission of a new service schedule allowing for RECs to be sold on a bundled or unbundled basis, WSPP Inc., relying in part on American Ref-Fuel Company, also requested that FERC confirm that unbundled REC transactions are not subject to FERC’s ratemaking jurisdiction because such transactions do not include the wholesale sale or purchase of bulk power.”  FERC agreed, holding that unbundled REC transactions fall outside its ratemaking jurisdiction because they do not “affect wholesale electricity rates and the charge for the unbundled REC is not a charge in connection with a wholesale of electricity.”  At the same time, FERC stated that bundled REC transactions are jurisdictional because the sale of RECs are part of a jurisdictional sale of wholesale energy.  Moreover,  FERC made clear that parties cannot simply separate a bundled REC transaction into separate contracts for the sale of energy and the sale of RECs to avoid FERC’s jurisdiction, stating that “where multiple instruments, executed contemporaneously or at different times, pertain to the same transaction, they will be read together, even if they do not expressly refer to each other.”

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EPA Introduces Interactive Web-Based Geographic Information System

Posted by Latham & Watkins on May 03, 2012

By Taiga Takahashi

The U.S. EPA recently opened access to NEPAssist, an online Geographic Information System program that “facilitates the environmental review process and project planning in relation to environmental considerations” under the National Environmental Policy Act (NEPA) and other environmental assessment statutes. The program is available at the EPA website and is open to the public.

NEPAssist has the normal features of other publicly available web-based mapping services, such as nationwide street maps in two and three dimensions, in addition to aerial and satellite views.

Map overlays
NEPAssist draws environmental data from EPA and other government databases at the user’s request and provides an immediate overview of various environmental assessment indicators for a user-defined area of interest. These overlays include, for example:

  • EPA facilities, such as brownfields, Superfund sites, toxic release points, and hazardous waste sites;
  • Water monitoring stations;
  • Community points of interest, such as schools, churches, and hospitals;
  • Railroads and airports;
  • Water body features, such as impaired streams and water bodies under the Clean Water Act, aquifers, and watersheds;
  • Clean Air Act nonattainment areas for the ozone, lead, and annual and 24-hour particulate matter standards;
  • Borders of interest, such as zip codes, congressional districts, cities, towns, counties, states, federal lands, and EPA regions;
  • Demographic information;
  • Other important land-use information, such as wetlands areas, FEMA flood hazard designations, topographical overlays, and development and land cover overlays.

Built-in data analysis
NEPAssist offers a variety of other useful data analysis and comparison features.

  • Source data access: for certain information, the original source data or report is available instantly. For example, highlighting an impaired water body gives access to the original TMDL source report.
  • Drawing features and customized reports: the user can draw project boundaries, and NEPAssist will produce reports that will show distances to important points of interest for environmental planning, including distances to wetlands, Superfund sites, etc. as described above. These reports include state-specific requirements, as well as requirements pertaining to federal law.
  • Environmental Justice reports: NEPAssist also provides Environmental Justice reports. These reports compare project-specific demographic characteristics to County and national averages.

Example NEPAssist Report

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Limitations
NEPAssist is still a work in progress, but EPA is planning to revise and update it according to user feedback. Some limitations and plans for further development include:

  • Saving data: each time a user leaves the website and returns, he/she will have to redraw the study area.
  • Not all federal environmental data has been incorporated into NEPAssist, but EPA plans to supplement current data and add new data in the future.
    • More complete data: For example, wetlands information is available through NEPAssist, but it is incomplete. EPA is in the process of fully incorporating wetlands data into NEPAssist.
    • New data: ESA-related data (for example, presence of listed species, critical habitat, etc.) is not (yet) available through NEPAssist. EPA stated a desire to add this information in the future.

While still in the development stage, NEPAssist offers relatively easy and consolidated access to federal government environmental data. Planners, decision-makers, and the public should find NEPAssist to be a valuable and convenient tool in the environmental review process. 

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Federal Court Rejects U.S. EPA's Decision to Invalidate Existing Clean Water Act Section 404 Permit

Posted by Latham & Watkins on April 16, 2012

By Mia Robertshaw

The U.S. District Court for the District of Columbia has removed a layer of uncertainty for Clean Water Act section 404 permits.  On March 23, 2012, the Court held that the U.S. Environmental Protection Agency (EPA) exceeded its authority by purporting to invalidate an existing section 404 dredge-and-fill permit.  Nearly three years after the permit was issued, in a move unprecedented in the history of the Clean Water Act, EPA purported to withdraw the specification of disposal sites, thereby invalidating the permit which authorized discharge of spoil at those sites.  In Mingo Logan Coal Company, Inc. v. U.S. EPA, the Court concluded that EPA’s asserted authority to unilaterally modify or revoke a duly issued permit is not conferred by the statute, and is contrary to the language, structure, and legislative history of section 404 as a whole.[1] 

Mingo Logan Coal Company, Inc. held a 404 permit issued by the U.S. Army Corps of Engineers (Corps) in January 2007, after environmental review of Mingo Logan’s project.  The permit authorized Mingo Logan to discharge fill material from its coal mine into local water courses.  During the project approval process, EPA expressed concerns about potential adverse impacts of the project, but established that EPA intended to work with the Corps to address these concerns. 

Almost two years after the Corps issued the permit, EPA requested that the Corps suspend, revoke, or modify the permit because of downstream water quality impacts that EPA asserted the permit did not adequately address.  The Corps rejected the request, finding no grounds to suspend, revoke, or modify the permit.  In January 2011, EPA issued a Final Determination (links to PDF) to withdraw the specification of certain water courses as a disposal site for dredged or fill material in connection with the project. 

Section 404 allows the Corps to issue permits for discharges into navigable waters only at “specified” sites.  EPA may prohibit or restrict the specification of an area as a disposal site if EPA determines that the discharge will have certain unacceptable adverse environmental impacts.[2] 

Before issuing its Final Determination in this matter, EPA had never vetoed a section 404 permit after a permit had been issued in any matter.  Mingo Logan challenged EPA’s purported withdrawal of the specification of disposal sites.  The Court granted summary judgment in Mingo Logan’s favor, vacating the Final Determination. 

EPA maintained that section 404(c) authorized EPA to prohibit the use of certain disposal sites at any time.  The Court found this interpretation illogical and impractical, and found that “[i]t is further unreasonable to sow a lack of certainty into a system that was expressly intended to provide finality.”[3]  Thus, while EPA may veto the use of certain disposal sites, it must do so before the Corps issues the permit.

In Mingo Logan Coal Co., the Court rejected what could have been a significant source of uncertainty for Clean Water Act section 404 permits.  It is possible EPA will appeal the ruling, as several environmental groups, including the Sierra Club, Earthjustice, and regional Appalachian groups, urge.

[1]  Mingo Logan Coal Co., Inc. v. U.S. EPA, 2012 U.S. Dist. LEXIS 39532. 
[2]  33 U.S.C. § 1344(c) (“The [EPA] Administrator is authorized to prohibit the specification (including withdrawal of specification) of any defined area as a disposal site, and he is authorized to deny or restrict the use of any defined area for specification (including the withdrawal of specification) as a disposal site, whenever he determines, after notice and opportunity for public hearing, that the discharge of such materials into such area will have an unacceptable adverse effect on municipal water supplies, shellfish beds and fishery areas . . . , wildlife, or recreational areas.  Before making such determination, the Administrator shall consult with the Secretary [of the Army]”).
[3]  Mingo Logan Coal Co., Inc. v. U.S. EPA, supra at 58-59.

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The California Energy Commission Abruptly Suspends Eligibility of Biomethane Under California's Renewables Portfolio Standard

Posted by Latham & Watkins on April 04, 2012

By: Marc T. Campopiano

On March 28, 2012, the California Energy Commission voted unanimously to suspend the Renewable Portfolio Standard (RPS) eligibility guidelines for certification of power plants generating electricity using biomethane.   In 2011, California’s Legislature passed Senate Bill X1-2 that raised the RPS to 33% by 2020, one of the most aggressive renewable energy mandates in the country.  The Commission asserted its decision was necessary to provide it “additional time to evaluate the RPS eligibility of biomethane as a result of Senate Bill X1-2.”

The Commission voted for the suspension after only a 10-day notice period.  Numerous representatives of the biogas industry, public utilities and investor-owned utilities submitted written comments and voiced concerns during a March 28 hearing that a suspension could devastate the industry and jeopardize millions of dollars of RPS-compliant contracts between utilities and biomethane suppliers.  While the Commission approved several last-minute revisions to address some of these concerns, the Commission adopted the suspension without delay.

To support its decision, the Commission cited potential concerns that renewable biomethane may not advance the “preference” of Senate Bill X1-2 “for electricity generation that provides more environmental benefits to the state by displacing in-state fossil fuel consumption, reducing air pollution within the state, and helping the state meet its climate change goals by reducing emissions of greenhouse gases (GHGs) associated with electrical generation.”  The Commission did not explain how Senate Bill X1-2 created this preference.  The Commission’s notice of the suspension included a supporting letter from four members of the Legislature but did not include letters from a number of other Legislators who opposed the suspension.

Prior to the suspension, the Commission’s RPS Eligibility Guidebook (4th ed., December 15, 2010) recognized the potential RPS-eligibility of landfill and digester gas that could be delivered as biomethane to a power plant using the existing natural gas pipeline system.  The power plant received RPS credit for generation attributable to biomethane instead of natural gas, provided that the power plant was certified by the Commission and met the RPS Eligibility Guidebook’s tracking and monitoring requirements.  RPS-eligible electricity from biomethane can provide important benefits by supporting baseload and peaking generation—which supports grid stability and the integration of intermittent renewable resources such as wind and solar—without typically requiring significant new transmission or infrastructure development.

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U.S. Army Corps Reissues 48 Existing and Two New Nationwide Permits

Posted by Latham & Watkins on March 08, 2012

By Janice Schneider, Laura Godfrey, Buck Endemann, Josh Bledsoe, and Jennifer Roy

On February 21, 2012, the U.S. Army Corps of Engineers (Army Corps) reissued 48 of its 49 existing nationwide permits (NWP) and also announced two new NWPs applicable to land- and water-based renewable energy development projects.[1]  The Army Corps is issuing the NWPs pursuant to Section 404 of the Clean Water Act, which governs discharges into “waters of the United States,” including wetlands (jurisdictional waters).[2] 

The Army Corps requires a Section 404 permit when development activities discharge dredged or fill materials into jurisdictional waters, such as filling in a streambed to build an access road to a wind turbine.  The Army Corps has developed various NWPs designed to expedite approval of specific types of activities deemed to have minimal impacts.  To be eligible for a NWP authorization, a project must fit into a category for which a NWP already exists and typically impact less than one-quarter acre or one-half acre of jurisdictional waters (depending on the applicable NWP).

This month’s Army Corps announcement results in important changes that could impact already-approved projects or projects currently under review by federal and state agencies:

  • Grandfather provision: Activities that are authorized under existing NWPs that have commenced or are under contract to commence by March 18, 2012, will have until March 18, 2013, to complete the activity under the terms and conditions of the existing NWP.  Activities that will not be complete by March 18, 2013, must seek authorization under the new NWPs.
  • Definition of Single and Complete Project:  The Army Corps clarified what constitutes a single and complete project for purposes of calculating the relevant loss of waters of the United States.  For linear projects (projects constructed for the purpose of moving goods or services from A to B, such as transmission lines), the definition of a single and complete project has been clarified to mean the portion of the project that includes each crossing of a single waterbody at a specific location.  As such, there may be many “single and complete projects” along the length of a linear project.  In contrast, a single and complete non-linear project is generally defined as the entire project.[3]  For a portion of a non-linear project to be considered a separate single and complete project, it must have independent utility from other portions of the non-linear project.
  • General Condition 19:  The Army Corps included a new general condition, providing that a developer is responsible for applying and obtaining any appropriate permit from the U.S. Fish and Wildlife Service if any activities regulated by the Army Corps would result in the “take” of a migratory bird or bald or golden eagle.  Based on the Final Rule and comments, the general condition appears to only clarify that it is the responsibility of the permittee, not the Army Corps, to obtain the necessary permits. It does not appear to require such permits as a pre-requisite to the issuance of the authorization.  It will be important to monitor how this general condition is ultimately implemented.  Project developers should also be aware of Regional Conditions adopted by district engineers that can influence the applicability and operation of the NWPs.
  • New NWP 51:  NWP 51 applies to the construction, expansion, or modification of land-based renewable energy generation projects, including solar, wind, biomass, and geothermal projects.  Utility lines transporting renewable energy from the project may be separately authorized under NWP 12, and their maintenance may be authorized under NWP 3.
  • New NWP 52:  NWP 52 applies to water-based wind and hydrokinetic renewable energy pilot projects, which is defined as an experimental project where the renewable energy generation units will be monitored to collect information on their performance and environmental effects.  For each project, no more than ten generation units are authorized.  At the pilot project’s completion, all structures must be removed, unless they become authorized separately by the Army Corps.
  • Department of Defense Notification Requirements:  For any activity that involves the construction of a wind turbine, solar tower, or overhead transmission line, a copy of any required pre-construction notification[4] and NWP verification[5] will be provided by the Army Corps to the Department of Defense Siting Clearinghouse, which will evaluate potential effects on military activities.

The new NWPs will become effective on March 19, 2012.

[1]  77 Fed. Reg. 10184 (Feb. 21, 2012).
[2]  33 U.S.C. § 1344. 
[3]  77 Fed. Reg. at 10290.
[4]  Pre-construction notification allows district engineers to review proposed NWP activities to ensure that they will result in minimal adverse impacts.  See 77 Fed. Reg. at 10188.  A project developer is required to give pre-construction notification under some NWPs.
[5]  NWP holders may, and in some cases must, request NWP verification, a confirmation from a district engineer that an activity complies with the terms and conditions of an NWP.  See 33 C.F.R. § 330.6.

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Congress Replaces Forest Service Appeals with Pre-Decisional Objection Process

Posted by Latham & Watkins on March 05, 2012

By Janice M. Schneider, Laura A. Godfrey and Taiga Takahashi

The 2012 Consolidated Appropriations Act (Appropriations Act), signed by President Obama on December 23, 2011, replaced the appeal process for most Forest Service actions with a pre-decisional objection process.  The Appropriations Act also gave the Chief of the Forest Service authorization to exempt Forest Service actions from this pre-decisional objection process in an “emergency situation”.[1] The new “pre-decisional objection process” applies to “proposed actions of the Forest Service concerning projects and activities implementing land and resource management plans developed under the Forest and Rangeland Renewable Resources Planning Act of 1974[2] and documented with a Record of Decision or Decision Notice, in lieu of . . . providing for an administrative appeal process.”

Previously, an administrative appeal process was available to challenge the Forest Service’s project-related decisions. Such appeals were to be filed within 45 days of the publication of the Forest Service’s notice of its decision on a project. Decisions on appeals were to be made within a 45-day appeal period. If no appeal decision was issued within this 45-day period, the agency decision became the final administrative action.[3]

The new process eliminates this appeal process and replaces it with a pre-decisional objection process as outlined in Section 105(a) of the Healthy Forests Restoration Act of 2003. The objection process will be the “sole means by which a person can seek administrative review regarding [the Forest Service’s decision regarding the applicable project] on Forest Service land.”[4] The objection process will begin after the completion of the environmental assessment (EA) or environmental impact statement (EIS) and will end, at the latest, when the Forest Service issues its Record of Decision or Decision Notice. In addition, to participate in the administrative review process and object to a project, an individual must submit specific written comments regarding the proposed action to the Forest Service during the scoping or public comment period for the draft environmental analysis for the project.

Federal regulations implementing Section 105(a)’s objection process,[5] which originally applied only to hazardous fuel reduction projects, may provide a preview of this new process. If these other regulations provide any indication, the time to file an objection could be reduced to 30 days following the publication of notice of the completion of the EA or EIS.[6] In addition, if no objection is filed, final decision may occur as early as 5 days after the end of the 30-day objection period.[7]

The new objection process is expected to decrease the time needed for the Forest Service’s review and decision regarding proposed actions as compared to the former appeal process, and it should provide more uniformity to Forest Service decision-making processes. Appeals available to project applicants under 36 C.F.R. pt. 251 and appeals of plan adoptions or amendments themselves under 36 C.F.R. pt. 219 appear to be unaffected.[8] This drive for efficiency in Forest Service process is also reflected in the Obama Administration’s recently proposed “Preferred Alternative for the Land Management Planning Rule”, which the Administration claims “will make land management on 175 national forests and grasslands cheaper, more efficient[,] and less vulnerable to lawsuits[.]”

The Forest Service is currently in the process of drafting new regulations to implement this new pre-decisional objection process. An interim final rule is currently expected to be published by this summer and a final rule by this fall.

 

[1] The statutory language is set out at Section 428 of the appropriations bill (Public Law 112-74, 125 Stat. 1046)
[2] 16 U.S.C. §§ 1600-14.
[3] See generally 36 C.F.R. § 215.15.
[4] See supra note 1.
[5] 36 C.F.R. pt. 218.
[6] See 36 C.F.R. § 218.10(a).
[7] See 36 C.F.R. § 218.12.
[8] Compare 2012 Consolidated Appropriations Act § 428, supra note 1 (applying to “proposed actions of the Forest Service concerning projects and activities implementing land and resource management plans developed under the Forest and Rangeland Renewable Resources Planning Act of 1974 (16 U.S.C. 1600 et seq.), and documented with a Record of Decision or Decision Notice, in lieu of subsections (c), (d), and (e) of section 322 of Public Law 102–381 (16 U.S.C. 1612 note), providing for an administrative appeal process”), with 36 C.F.R § 251.80 (applying to applicants “who hold or . . . apply for written authorizations to occupy and use National Forest System lands”) and 36 C.F.R. § 219.32 (applying to a “proposed amendment or revision” of a land and resource management plan, which is already subject to a pre-decisional objection process).

 

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Federal Court Clips Criminal Liability Under the Migratory Bird Treaty Act

Posted by Latham & Watkins on February 09, 2012

By Buck Endemann and Taiga Takahashi

A district court in North Dakota is the latest tribunal to reflect the growing reluctance among federal courts to criminalize otherwise lawful acts that result in the unintentional killing of birds protected by the Migratory Bird Treaty Act (“MBTA”). In United States v. Brigham Oil & Gas, L.P. (D.N.D. Jan. 17, 2012),[1] the court dismissed several misdemeanor charges under the MBTA against three oil and gas companies that conducted drilling operations in North Dakota. The court concluded that the MBTA “prohibit[s] only conduct directed towards birds,” and does not “criminalize negligent acts or omissions that are not directed at birds, but which incidentally and proximately cause bird deaths.”[2] Although the district court’s order is still subject to appeal, Brigham Oil offers additional comfort to wind developers, oil and gas companies, and mining operators who, during the course of lawful facility operations, accidentally kill MBTA-protected birds.

In Brigham Oil, the Government alleged MBTA violations arising from circumstances where migratory birds mistook the oil and gas companies’ “reserve pits” for safe landing areas. These reserve pits contained liquid and sludge byproducts of drilling operations, and the birds died after they landed in the pits and could not escape.[3] Although the pits were not fenced or netted, the companies maintained the reserve pits in compliance with state law.[4]  After an inspection, the Government commenced prosecution under the MBTA, charging each company with a misdemeanor violation for each dead bird found in each company’s respective reserve pits.

Although the MBTA is written broadly to criminalize a range of conduct, including the pursuit, hunting, killing, and trading of protected migratory birds,[5] the court found it troubling that the MBTA could extend criminal liability to lawful commercial activity that incidentally injured migratory birds. According to Judge Hovland, the Government’s broad interpretation of the MBTA would “criminalize driving, construction, airplane flights, farming, electricity and wind turbines[]” and “many other everyday lawful activities.”[6] Such an interpretation stretched the MBTA “far beyond the bounds of reason and common sense.”[7] The Brigham Oil court—consistent with Eighth and Ninth Circuit law—adhered to a relatively narrow, but clear, rule that the MBTA only criminalizes conduct “directed against wildlife”,[8] such as conduct by hunters and poachers.

Brigham Oil reflects a trend where courts have been reluctant to impose criminal liability for truly unintentional acts that indirectly cause MBTA violations. Although the Brigham Oil decision provides comfort for companies in the energy industry, the Government still might appeal the ruling, and the law regarding this issue is still relatively unsettled. But there remains some divergence regarding the appropriate standard for evaluating criminal convictions under the MBTA.[9]  Although older decisions have imposed criminal liability for indirect violations from unintentional acts, some courts have either noted distinctive factual circumstances or imported some requirement of prior notice such as:

  • Highly Toxic Chemicals:  In United States v. FMC Corp., 572 F.2d 902, 908 (2d Cir. 1978), the court held the defendant strictly liable under the MBTA for the deaths of migratory birds. But the court limited its holding to the facts of the case, noting that the defendant “engaged in an activity involving the manufacture of a highly toxic chemical” and that “[i]mposing strict liability on [defendant] in this case does not dictate that every death of a bird will result in imposing strict criminal liability on some party.”[10]
  • Actual Notice:  In United States v. Apollo Energies, Inc., 611 F.3d 679, 691 (10th Cir. 2010), the court upheld a criminal conviction under the MBTA because the defendant had actual notice that its equipment was causing the deaths of migratory birds in violation of the MBTA.

In the Ninth Circuit, where a substantial number of logging and renewable energy projects are being sited, it remains the law that “unlawful ‘taking’ under the MBTA describes physical conduct of the sort engaged in by hunters and poachers.”[11] Still, one relatively recent outlier is United States v. Moon Lake Elec. Ass’n, Inc., 45 F. Supp. 2d 1070, 1077 (D. Colo. 1999), where the court expressly disagreed with a narrow reading, declaring that “[t]o the extent [Ninth Circuit law] may be read to say that the MBTA regulates only physical conduct normally associated with hunting or poaching, its interpretation of the MBTA is unpersuasive.” The court noted in its description of the factual background that that the defendant utility association was prosecuted for its “fail[ure] to install inexpensive equipment” in an area that was “home to several species of protected birds[.]”[12] Moon Lake is somewhat consistent with the Tenth Circuit’s recent decision in Apollo Energies, where a party may be criminally liable if it has actual notice that its operations are “taking” MBTA-protected species.  Nonetheless, Brigham Oil appears to be another step in the right direction.

[1]       No. 4:11-po-005, 2012 U.S. Dist. LEXIS 5774.

[2]       Id. at *23.

[3]       Id. at *5.

[4]       Brigham Oil, No. 4:11-po-005, 2012 U.S. Dist. LEXIS 5774, at *5-6.

[5]       16 U.S.C. §§ 703(a), 707.

[6]       Id. at *31.

[7]       Id. at *33.

[8]       Id. at *28.

[9]       Several other courts have previously held that lawful commercial activity unrelated to active conduct like hunting does not violate the MBTA, and Brigham Oil’s holding is not unprecedented. See City of Sausalito v. O’Neill, 386 F.3d 1186, 1225 (9th Cir. 2004) (logging); Newton Cnty. Wildlife Ass’n v. U. S. Forest Serv., 113 F.3d 110 (8th Cir. 1997) (timber sale); Seattle Audubon Soc’y v. Evans, 952 F.2d 297 (9th Cir. 1991) (habitat destruction from timber sale); Citizens Interested in Bull Run, Inc. v. Edington, 781 F. Supp. 1502 (D. Or. 1991) (timber sale); Mahler v. U.S. Forest Serv. 927 F. Supp. 1559 (S.D. Ind. 1996) (logging operations); Curry v. U.S. Forest Serv., 988 F. Supp. 541 (W.D. Pa. 1997) (timber sale and logging operations); United States v. Ray Westall Operating, Inc., No. CR 05-1516-MV, 2009 U.S. Dist. LEXIS 130674 (D.N.M. Feb. 25, 2009) (evaporation pits); United States v. Chevron USA, Inc., No. 09-CR-0132, 2009 WL 3645170 (W.D. La. Oct. 30, 2009) (offshore oil well caisson).

[10]     572 F.2d at 908; see also United States v. Corbin Farm Serv., 444 F. Supp. 510, 536 (E.D. Cal. 1978) (“When dealing with pesticides, the public is put on notice that it should exercise care to prevent injury to the environment and to other persons[.]”).

[11]     City of Sausalito v. O’Neill, 386 F.3d 1186, 1225 (9th Cir. 2004) (second set of internal quotations omitted).

[12]     Moon Lake, 45 F. Supp. 2d at 1071.

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Court of Appeal in San Francisco Affirms Rule for CEQA Baseline Analysis, Allowing Marine Terminal Operations to Continue

Posted by Latham & Watkins on January 24, 2012

By Taiga Takahashi

On December 30, 2011, the Court of Appeal for the First Appellate District affirmed the Alameda County Superior Court’s rejection of petition for a writ of mandate based on California Environmental Quality Act (CEQA) and public trust doctrine claims. This case, Citizens for East Shore Parks v. Cal. State Lands Comm. (Cal.App., Dec. 30, 2011, No. A129896 [2011 Cal.App.LEXIS 1645]), involved the California State Lands Commission’s 2009 renewal of Chevron U.S.A. Inc.’s operating lease for a marine terminal in San Francisco Bay waters.

The marine terminal at issue was the Long Wharf Marine Terminal in Richmond, California, near Chevron’s Richmond-based refinery. Both the refinery and marine terminal have been operating since the early 1900s. Chevron acquired the refinery from Standard Oil in the mid-1970s. At that time, Chevron assumed the remainder of Standard Oil’s lease for the terminal. Because the terminal’s operation began nearly 70 years before CEQA existed, CEQA review of the terminal’s construction or operation did not occur. When Chevron’s lease expired in 1997, the State Lands Commission issued a Final Environmental Impact Report (EIR) and renewed the lease in early 2009.

The State Lands Commission used the current, operational condition of the marine terminal as the baseline in the Final EIR. Project opponents petitioned the Superior Court to force the State Lands Commission to re-open the CEQA record and reconsider the lease renewal. They argued that the baseline should have included only the existence of the terminal, not its operation. Because the action was a lease renewal, the project opponents argued that the baseline should assume a state of affairs in which the lease was rejected, even though their proposed baseline would have “reflect[ed] conditions that have not existed at the locale for more than a century.”[1]

The Court of Appeal confirmed that the proper baseline for CEQA analysis and evaluation of environmental impacts is “what [is] actually happening”, not what might happen or what should be happening.[2] This holding is consistent with a growing body of case law, including:

In sum, Citizens continues the growing trend in the case law indicating that the proper baseline for CEQA analysis must reflect current, operative conditions, not a hypothetical scenario based on projections into the future or normative ideas of what should be occurring.

 

 

[1] Citizens, supra, No. A129896, slip op. at p. 10.

[2] Id. at pp. 8-9.

[3] Internal citations, quotations, and emphasis omitted.

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New Brookings Report Puts Spotlight on State Clean Energy Funds as Future Source for Clean Energy Finance and Economic Development

Posted by Latham & Watkins on January 17, 2012

By Daniel Scripps

A new report (pdf) from the Brookings Institution discusses the nearly two dozen  state-level clean energy funds (CEFs) that have invested in clean energy projects and concludes that CEFs hold out great promise for the continued design and implementation of “bottom up,” decentralized clean energy finance solutions and economic development.  The report also anticipates that CEFs will need to play a critical role given the decline in federal financing support for clean energy.

The report, which was issued on January 11, notes that current funding for CEFs totals approximately $500 million per year (based largely on public-benefit charges included in utility rates), and that over the last decade state clean energy funds have invested over $2.7 billion state dollars while leveraging an additional $9.7 billion in federal and private sector investment, for a total of more than $12 billion in investment in over 72,000 clean energy projects nationwide.  In addition, state-based energy efficiency funding has increased from $1.7 billion in 2004 to $4.4 billion in 2009.

Even with these totals, however, the report argues that the current model whereby CEF funds are  predominantly used to  provide direct incentives in the form of grants and rebates to promote deployment of clean energy projects is not sufficient on its own to foster broader clean energy-based economic development in the respective states.  Instead, the report calls for three additional measures states can take to increase the effectiveness of CEFs:

  • Reorient a significant portion of CEF funding (at least 10 percent of the total portfolio) toward clean energy-related economic development;
  • Develop detailed state-specific clean energy market data (e.g., critical industry clusters and gaps in their supply chains); and
  • Link CEFs with economic development entities community development finance institutions (CDFIs), development finance organizations and other stakeholders in the emerging clean energy industry 

While acknowledging that some of this activity is already taking place in individual states (notably, California, Massachusetts, and New York), the report asserts that more widespread utilization of these best practice recommendations can move CEFs from supporting specific projects to serving as catalysts for the growth of the clean energy sector as a whole.

Finally, the report recommends that the federal government needs to take various steps to recognize and partner with CEFs:

  • Consider redirecting a portion of federal funds (e.g., from technology support programs administered by the U.S. Department of Energy) to provide joint funding of clean energy economic development efforts through matching dollars to state funding efforts
  • Create joint technology partnerships with states to advance each state’s targeted clean energy industries, by matching federal deployment funding with state funding; and
  • Working with states to “decentralize” financing decisions to local entities and rely on more “development finance” authorities that have financially supported traditional infrastructure and could finance new clean energy projects and programs

The report stems from continued analysis from Brookings of state clean energy funding mechanisms, including coverage of the new Connecticut Clean Energy Finance and Investment Authority, as well as a conference on state green banks co-hosted by Brookings and the Coalition for Green Capital.

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California Supreme Court Decision Terminating Redevelopment Agencies Leaves Many Questions and Challenges

Posted by Latham & Watkins on January 10, 2012

By Ursula Hyman and Daniel Van Fleet

On December 29, 2011, in California Redevelopment Association v. Matosantos, the California Supreme Court (“Court”) upheld the constitutionality of AB 1X 26, a statute ending redevelopment agencies in the state.  In the same decision, the Court rejected AB 1X 27, which would have allowed a carve out for redevelopment agencies to continue to exist if certain requirements were met.  This decision will have significant ramifications on existing development projects involving redevelopment agencies in the state. 

The statute that was upheld, AB 1X 26, adds two major parts to Health and Safety Code, Division 24.  Part 1.8 is what the Court dubbed the “freeze” component and bars redevelopment agencies from incurring new or expanding existing monetary or legal obligations.  Part 1.85, the “dissolution” component, terminates the existence of redevelopment agencies in the state.

From the outset, the statute and the Matosantos decision have left questions unanswered and have caused general confusion.  This article highlights some of these issues, as well as some key dates and deadlines under the statute as modified by the Court decision.

Activities of Redevelopment Agencies Have Been Halted Since June 2011

The Matosantos decision explains how deadlines for the dissolution component arising before May 1, 2012, generally have been delayed by four months.  However, the decision itself does not make clear the timing of the freeze component.  Though the dissolution component of AB 1X 26 was “stayed” (temporarily suspended) and affected by the Matosantos litigation, the freeze component went into effect in June 2011 and has been unaffected by the litigation.  The Court issued a stay order on August 11, 2011.  As part of that order, the Court temporarily suspended AB 1X 26, except for Part 1.8.  Thus, the freeze component was not subject to the stay, while the rest of AB 1X 26, including the dissolution component, was temporarily suspended.  All of the provisions of Part 1.8 took effect and were operative on the effective date of AB 1X 26. 

As a budget related bill, AB 1X 26 took effect immediately after the governor signed it on June 28, 2011.  While the dissolution section of the bill was temporarily halted while the Court reviewed it, the provisions freezing redevelopment powers took effect immediately upon the governor’s signature.  Consequently, the freeze component of AB 1X 26 has been in place since June 2011.

Municipalities Scramble to Establish Successor Agencies and Oversight Boards

The dissolution component of AB 1X 26 involves the creation of “successor agencies” (usually the underlying city or county that created the redevelopment agency) to replace redevelopment agencies during the dissolution process.  Cities and counties across the state must determine whether to serve as successor agencies by January 13, 2012; if they choose not to, the Governor will appoint three members from the relevant county to serve on the governing board of a “designated local authority” which will act as a successor agency. 

Further, each successor agency must have a seven-member oversight board that will approve and direct certain actions of the successor agency.  Two members of the oversight board will be appointed by the county board of supervisors, one member representing the employees of the former redevelopment agency will be appointed by the mayor or the chair of the board of supervisors, and one member will be appointed by each of the following:  mayor, largest special district by property tax share within the territorial jurisdiction of the former redevelopment agency, county superintendent of education, Chancellor of the California Community Colleges.  As modified by the Court, the names of members of the oversight boards must be submitted to the Department of Finance by May 1, 2012.

Successor Agencies and Oversight Boards Are to Dispose of Assets and Properties “Expeditiously”

It is unclear how soon redevelopment agency assets and property must be liquidated.  One of the responsibilities of each oversight board is to direct the successor agency to “[d]ispose of all assets and properties of the former redevelopment agency that were funded by tax increment revenues of the dissolved redevelopment agency.”  (Assets that were constructed and used for a “governmental purpose” may alternatively be transferred to an appropriate government entity.)  The legislation and the decision do not provide a timeline or deadlines for disposing the assets and properties; rather, AB 1X 26 vaguely states that the disposal is to be done “expeditiously and in a manner aimed at maximizing value.”  It is unclear what timeframe would be appropriately “expeditious.”

Additional questions underlie how the value-maximizing requirement will interplay with the expeditious requirement.  For instance, redevelopment agencies currently control significant amounts of land throughout the state.  If these assets enter the market simultaneously, simple economics dictate that prices might be negatively affected.  Consequently, if a successor agency’s expeditious disposal of redevelopment agency assets and property coincides with the disposal of other redevelopment agencies’ assets and property, such disposal would likely not be accomplished “in a manner aimed at maximizing value.”

AB 1X 26 and Matosantos also fail to explain the legal means by which redevelopment agency assets and properties can be disposed of under California law.  It is unclear whether local laws of the city or county, redevelopment agency law or other state laws should govern the disposal process.

Further, all of the requirements of successor agencies and oversight boards, including the disposal process, will result in considerable administrative costs.  Again, AB 1X 26 and Matosantos do not specify the means for paying these costs.  Whether the successor agencies can use revenue from the asset sales to cover these costs or whether the successor agencies will have to absorb these costs through other revenue sources may lead to significant battles between state and local entities.

Underlying Lack of Guidance Regarding Non-Payment Obligations

As a constitutional matter, AB 1X 26 cannot impair existing contracts.  The statute itself cursorily states that redevelopment agencies cannot impair “enforceable obligations” of existing contracts.  However, AB 1X 26 tends to only focus on explaining how payment-related obligations must be honored; it is unclear how redevelopment agencies must address non-payment obligations, especially when such obligations are contrary to other mandates of AB 1X 26.

Redevelopment projects throughout the state are currently in varying stages of planning, construction and development.  Many valid agreements entered into before the freeze contain conditions precedent that must be satisfied before subsequent stages of development can be triggered.  AB 1X 26 does not contemplate how to handle conditions precedent that redevelopment agencies are in the middle of performing.  For instance, it is common for a redevelopment agency to contractually agree to sell or otherwise transfer property to a developer at a future date as a step to securing financing.  On one hand, under AB 1X 26 (and the California Constitution), contractual obligations such as this must not be impaired; on the other hand, AB 1X 26 requires successor agencies to dispose of redevelopment agency assets expeditiously.

AB 1X 26 does state that oversight boards can negotiate settlements for breaching contracts.  However, the legislation offers no guidance regarding how such settlements are to be negotiated.  This is particularly troublesome for non-payment contractual obligations, where calculating damages may be difficult.  Further, AB 1X 26 does not specify which fund(s) may be used to pay damages.

Selected Key Dates and Deadlines

Though the freeze component has been unaffected by litigation, the dissolution component—Part 1.85—was temporarily suspended during litigation.  Generally, any deadlines arising before May 1, 2012, have been delayed by four months under Matosantos.  Some key dates and deadlines include:

  • January 13, 2012:  city or county that created redevelopment agency to determine whether to serve as successor agency
  • January 31, 2012:  redevelopment agency’s preliminary draft of Recognized Obligation Payment Schedule due to successor agency
  • February 1, 2012:  redevelopment agencies dissolve; assets transferred to successor agency
  • March 1, 2012:  successor agency’s draft Recognized Obligation Payment Schedule for enforceable obligations due to oversight board
  • April 15, 2012:  successor agency’s first Recognized Obligation Payment Schedule due to State Controller and Department of Finance
  • May 1, 2012:  names of members of oversight board to be reported to Department of Finance
  • July 1, 2012:  county auditor-controller completes audit of each former redevelopment agency in the county
  • January 1, 2013:  California Law Revision Commission to draft a cleanup bill for consideration by the Legislature
  • July 1, 2016:  oversight boards within each county consolidated to single oversight board

The issues highlighted in this article are examples of the confusion and challenges resulting from AB 1X 26 and the Matosantos case.  For more information regarding potential problems associated with the dissolution of California redevelopment agencies, please contact Ursula Hyman, Cindy Starrett, James Arnone, or Daniel Van Fleet of Latham & Watkins at +1 213-891-1234.

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The purpose of this communication is to foster an open dialogue and not to establish firm policies or best practices. Needless to say, this is not a substitute for legal advice or reading the rules and regulations we have summarized. In any particular case, you should consult with lawyers at the firm with the most experience on the topic. Depending on your specific situation, answers other than those outlined in this blog may be appropriate.