Latham's Clean Energy Law Report

Proposed Rule from US Department of the Interior Increases Pressure on Coal Mining Industry

Posted in Energy regulatory

By Paul Singarella, Claudia O’Brien, Marc Campopiano Daniel Brunton, Joshua Bledsoe, Lucas Quass, John Heintz, Joshua Marnitz and John Morris

On July 27, 2015, the US Department of the Interior, through its Office of Surface Mining Reclamation and Enforcement (OSMRE), proposed to revise regulations adopted under the Surface Mining Control and Reclamation Act of 1977 (SMCRA) that govern surface coal mining and reclamation operations near surface streams (the Proposed Rule). According to the OSMRE, “[t]he primary purpose of this proposed rule is to reinforce the need to minimize the adverse impacts of surface coal mining operations on surface water, groundwater, fish, wildlife, and related environmental values, with particular emphasis on protecting or restoring streams and aquatic ecosystems.” OSMRE asserts widespread impacts including loss of headwater streams, long-term degradation of surface water quality downstream from mines, displacement of native species, compaction of postmining soils and watershed hydrology impacts. SMCRA requires OSMRE regulations to respect coal’s important place in the country’s energy portfolio. Whether this draft rule strikes a reasonable balance under SMCRA will be the subject of intense debate as this rulemaking proceeds.

The Proposed Rule would significantly alter OSMRE’s decades-old “Stream Buffer Zone” regulations, which nominally require a 100-foot buffer for mining operations along streams,[1] and would expand regulatory oversight in the coal industry. Along with the Proposed Rule, OSMRE has published a draft Environmental Impact Statement (EIS) and a Regulatory Impact Analysis (RIA).

The Rule Reaches Broadly

The Proposed Rule would impose a suite of new requirements on the operators of coal mines. OSMRE has highlighted seven key components of the Proposed Rule as follows:

  1. Establish in each permit the point at which adverse mining-related off-site impacts on groundwater and surface water reach an unacceptable level (i.e., the point at which adverse impacts from mining would cause “material damage to the hydrologic balance outside the permit area”)
  2. Require collection of adequate pre-mining data about the site of a proposed mining operation and adjacent areas and establish a comprehensive baseline against which the impacts of mining can be compared
  3. Require effective, comprehensive monitoring of groundwater, surface water, and the biological condition of streams during and after mining and reclamation activities
  4. Protect or restore perennial and intermittent streams and related resources (including fish and wildlife)
  5. Ensure the use of advances in information, technology, science, and methodologies related to surface and groundwater hydrology, surface-runoff management, stream restoration, soils and revegetation
  6. Ensure that land disturbed by surface coal mining operations is restored to a condition capable of supporting the uses supported before mining
  7. Protect threatened and endangered species and designated critical habitat under the Endangered Species Act of 1973 (ESA), and implement SMCRA to protect fish and wildlife

Proposed Rule May Require Additional Watershed Analysis

Surface coal mining operations require either a federal surface coal mining and reclamation permit or a state permit issued pursuant to an approved state program under SMCRA. Among other conditions, Section 510(b)(3) of SMCRA provides that the regulatory authority may not approve a permit unless the application affirmatively demonstrates and the regulatory authority finds in writing that the proposed operation “has been designed to prevent material damage to the hydrologic balance outside the permit area.” The Proposed Rule would define “material damage to the hydrologic balance outside the permit area” (Off-site Hydrologic Damage) for the first time.

Under the proposal, Off-site Hydrologic Damage would include any adverse impact from mining operations “on the quantity or quality of surface water or groundwater, or on the biological condition of a perennial or intermittent stream, that would preclude any designated surface water use under sections 101(a) and 303(c)) of the [CWA] or any existing or reasonably foreseeable use of surface water or groundwater outside the permit area.” This sweeping and arguably stringent definition presents the potential specter of open-ended regulatory inquiry on complex scientific “material damage” and “hydrologic balance” issues, and debate on criteria to determine harm.

The Proposed Rule Reinforces Restoration Requirements

To obtain a permit, an applicant must submit a reclamation plan to the regulatory authority showing how the applicant would comply with applicable reclamation requirements, as well as post a performance bond to secure post-mining restoration.[2] Under the Proposed Rule, bond release would not occur until all monitoring data show no adverse trends in stream flow, surface-water and groundwater water-quality data and hydrologic balance. The Proposed Rule would require the reclamation plan to provide significant additional information including a detailed reclamation timetable projecting such “major step[s] in the reclamation plan” as perennial and intermittent stream restoration, soil redistribution, revegetation, and restoration of the ecological function of all reconstructed perennial and intermittent stream segments.

SMCRA Section 515(b)(2) requires successful permit applicants to restore land affected by surface coal mining and reclamation operations “to a condition capable of supporting the uses which it was capable of supporting prior to mining,” or to a condition supporting “higher and better use[s].” The Proposed Rule notes, however, that “[e]xisting rules and permitting practices have focused primarily on the land’s suitability for a single approved postmining land use” that have “not always been applied in a manner that results in the construction of postmining soils that provide a growth medium suitable for restoration of premining site productivity.” The Proposed Rule would bring renewed focus on SMCRA’s restoration requirement.

The Proposed Rule Imposes New ESA-related Requirements

The Proposed Rule could potentially affect even mining operations that are not near streams, as it imposes new requirements to implement the Endangered Species Act (ESA). For example, the Proposed Rule would define Material Damage to include impacts to protected species or habitat outside the permit area, and Off-site Hydrologic Damage to include impacts from coal mining activities on streams “that would impact threatened or endangered species, or have an adverse effect on designated critical habitat, outside the permit area in violation of [ESA].” OSMRE also is considering alternative language to the Off-site Hydrologic Damage definition that would cover coal mining activities “that would jeopardize the continued existence of threatened or endangered species, or result in the destruction or adverse modification of designated critical habitat, outside the permit area in violation of [ESA].”

Section 515 of SMCRA requires surface coal mining operations to “minimize disturbances and adverse impacts” on fish, wildlife, and related environmental values “to the extent possible using the best technology currently available.”[3] Surface mining permit applicants must include information regarding fish and wildlife resources for a proposed permit and adjacent areas in a Protection and Enhancement Plan (PEP).[4] The Proposed Rule would add a provision expressly requiring the PEP to include any species-specific protection and enhancement plans developed in accordance with the ESA and any biological opinions implementing that law.

Proposed Rule Would Impose Material New Costs on the Coal Industry Despite Acknowledging Demand

The Proposed Rule would impose sweeping new regulatory requirements on the coal mining industry. SMCRA’s Statement of Purpose outlined in Section 102 balances environmental protection with economic demand for coal as an essential source of energy, assuring the coal supply essential to the nation’s energy requirements, and supporting the nation’s economic and social well-being. While the Proposed Rule purports to strike this balance, costs to comply will be material, and are expected to reduce coal-mining activity, rendering some portion of it uneconomic. Also, the proposal represents yet another hurdle for a domestic coal industry that faces significant challenges.

The economic analysis developed in connection with the Proposed Rule asserts that compliance would be economically achievable, costing US$52 million industry-wide on an annualized basis, or about 0.1 percent of current industry-wide revenues. According to the RIA of the Stream Protection Rule, the proposed rule is anticipated to decrease coal production and consumption patterns across the US by increasing the cost of coal production. Those economic impacts are not spread uniformly across the nation; rather, they are likely to be felt disproportionately by certain coal-producing regions, such as Appalachia, which are predicted to experience both job losses and the loss of state tax revenues. Further, OSMRE admits that the rule would likely have an annual negative effect on the economy of US$100 million or more.

Even if the above estimates prove to be reasonable (an assumption we do not make), the Proposed Rule is only the latest in a series of rulemakings targeting the coal industry. Since 2009, the EPA and other agencies have proposed a number of major rules that will significantly impact coal‐fired power, including the Cross‐State Air Pollution Rule (which the D.C. Circuit remanded in part to EPA on July 28, 2015), the Coal Combustion Residuals Rule, the Cooling Water Intake Structures Rule, and the Mercury and Air Toxics Standards (which the U.S. Supreme Court overturned on June 29, 2015). In addition, EPA is expected to release the final Clean Power Plan during the first week of August. Each of these rules individually was predicted to cost US$100 million or more, and taken together, the costs imposed on coal mining and coal-fired power generation exceed many billions of dollars. Not surprisingly, then, the coal mining industry has experienced significant challenges in recent years – challenges which the Proposed Rule will exacerbate

Comments on the Proposed Rule are due by September 25, 2015

The Draft EIS for the Proposed Rule was published in the Federal Register on July 17, 2015, for a 60-day comment period ending on September 25, 2015. Both the Proposed Rule and the RIA also will be subject to a 60-day comment period, ending September 25, 2015, though an extension could be granted. Likely the OSMRE would attempt to produce a final rule by the end of 2016. Given the magnitude of the Proposed Rule, OSMRE may face difficulty in responding to all comments to produce a carefully crafted final rule that would not raise future vulnerabilities for OSMRE.

[1] OSMRE issued and revised three versions of the Buffer Zone rule from 1977 to 1983. OSMRE implemented revisions in 2008 to permit excess mining spoil to be placed in streams and impose additional requirements to reduce environmental impacts. However, the US District Court for the District of Columbia vacated the 2008 rule when environmental groups successfully alleged that OSMRE failed to consult FWS concerning impacts of the 2008 rule to endangered species. The District Court reinstated the 1983 version of the Buffer Zone Rule, which triggered OSMRE to begin the process to develop and implement the Proposed Rule.

[2] SMCRA § 506(d), 507-08.

[3] 30 U.S.C. § 1265(b)(24).

[4] 30 CFR 780.16(a), (b)).

CAISO Takes Step to Allow Distributed Energy Resources to Compete in Wholesale Energy Markets

Posted in Emerging companies, Energy regulatory, Finance and project development

By Joshua T. Bledsoe and Douglas K. Porter

On June 10, 2015, the California Independent System Operator (“CAISO”) released a draft final proposal (the “Expanded Metering and Telemetry Options Phase 2, Distributed Energy Resource Provider”) that, if finalized, would represent an initial  step towards a regulatory structure that would result in distributed energy resources (“DERs”) competing in California wholesale energy markets.  DERs are resources that are physically connected to the distribution grid of an electric utility (e.g., rooftop solar, energy storage, plug-in electric vehicles, and demand response).  In order for DERs to sell into the CAISO wholesale markets, they would use the distribution grid of the electric utility to deliver power to or to take power from the transmission grid.  Currently, the vast majority of existing renewable resources sell their power to California’s electric utilities.  Those distributed resources are compensated by electric utilities for the electricity they generate at a rate far in excess of current CAISO market prices.  In addition, those resources do not have the right or the ability to sell power directly into the wholesale market.  Absent the California Public Utilities Commission (“CPUC”) adopting a substantially revised regulatory structure that sorts out the thorny jurisdictional, economic and technical issues (e.g., metering and compensation for resources located behind the retail meter), the immediate impact of CAISO’s proposal may be modest at best.

Under the proposal, CAISO would create a new classification for distributed energy companies, designating them Distributed Energy Resource Providers (“DERPs”).  DERPs would be allowed to aggregate resources behind certain load aggregation points in order to reach a 0.5 megawatt (“MW”) minimum threshold required to enter the CAISO market.  An agreement between a DERP and CAISO, termed a “DERP Agreement,” would establish the terms and conditions under which an individual DERP would operate.  Multiple aggregations could fall under the umbrella of a single DERP Agreement and the proposal also would allow the managing DERP to communicate with CAISO via a single point of contact.  DERPs would be classified as scheduling coordinator metered entities for metering purposes.  The CAISO has not yet proposed how the independent scheduling coordinators would meter the DERP’s aggregation of resources or how this information would be reported back to CAISO.  CAISO has indicated that demand response participating in the proxy demand resource (“PDR”) and reliability demand response resource (“RDRR”) frameworks, which already allow aggregation, would continue that participation and would not be part of DERP aggregations.

There likely will be initial restrictions placed on DERP aggregations that span multiple pricing nodes.  The proposal states that such aggregations may not exceed 20 MW.  CAISO has indicated that this restriction will be reevaluated after an initial twelve-month period has allowed CAISO to assess DERPs’ impact on the grid.  Additionally, CAISO’s proposal requires that an aggregation spanning multiple price nodes be entirely homogenous (resources fall into three modes:  generation; storage; or load).  This restriction will not apply to aggregations that are located within a single pricing node.

Much work remains to be done to fully integrate DERs into the grid.  For example, there are at least fourteen related CPUC proceedings that impact DERs, including, among others, those that address utility Distribution Resources Plans (R.14-08-013), Residential Rate Reform (R.12-06-013), and Energy Storage Procurement Framework and Design Program (D.13‐10‐040, D.14‐10‐045) and the related Action Plan of the California Energy Storage Roadmap (R.15‐03‐011).  That said, the CAISO’s proposal moves California a step closer to the energy grid of the future many are predicting.  DERPs theoretically could create so-called “virtual power plants,” which would be able to compete with more traditional, utility-scale power producers.  The ability of DERs to compete in wholesale markets may have the potential to attract additional capital to accelerate the deployment of clean energy technologies.  For example, battery power storage companies, which already are providing cost saving services for their customers (e.g., avoiding retail demand charges), may be able to unlock additional revenue streams via the networked aggregation of their deployed battery systems.  In addition, the proposal could lead to a more resilient grid and reduce the need for upgrades to distribution and transmission facilities – although the opposite may be just as likely.

Stakeholders’ reactions to the proposal were generally favorable, although many commenters requested clarifications and encouraged close coordination with the CPUC.  The most contentious issue may be whether and how DERs should be allowed to serve multiple markets.  For example, SolarCity, Stem, and Advanced Micro-Grid Solutions (which filed joint comments) support CAISO’s proposal, noting the importance of DERs being able to serve multiple markets (i.e., providing benefits to both the customer and the CAISO).  The California Energy Storage Alliance, which also supports the proposal, is seeking further clarification on availability requirements, opining that it would not be unreasonable to allow a DER to provide non-market services at times when the resource is not required to be available to the CAISO market.  But other commenters, like MelRok, oppose multi-usage as a potential loophole that would make it falsely appear to CAISO that grid benefits are occurring.

In the most extensive of the comments filed, Pacific Gas & Electric Company (“PG&E”) supported the proposal with significant qualifications that reflect the technical issues that will be most problematic to the success of the framework proposed by CAISO.  PG&E explained that a customer that sought economic benefits from both electric utility net energy metering (“NEM”) tariffs and the CAISO DERP aggregation tariffs would be seeking to be compensated twice for the same resource.  PG&E noted that DERs located behind-the-retail-meter that are eligible for and participating in NEM (and receive a retail rate) cannot simultaneously have the option to sell their power into the wholesale markets.  PG&E recommends that CAISO’s tariff should preclude already committed resources from participating in a DERP agreement.  PG&E notes that metering requirements are not fully developed in the proposal.  That may prove to the most problematic issue in the framework.  PG&E also points out that CAISO does not have any jurisdictional authority to reach behind-the-retail-meter DERs.  Consequently, access to any behind-the-retail-meter resources cannot occur unless the CPUC has made a determination as to whether such resources should be permitted to sell into the wholesale market and, if so, how that can be accomplished in light of any existing customer tariff obligations (e.g., NEM) and interconnection contract obligations.  Moreover, it may not be technically feasible to separate out any behind-the-meter resources, such as rooftop solar and energy storage, given the customer’s obligations as a retail customer.

The failure of the proposal to address the thorniest jurisdictional and technical issues suggests that CAISO implicitly acknowledges that it is not in a position to provide an answer to resolve those issues.  Indeed, CAISO explicitly acknowledged that its proposed framework is a “first step” that comes with limitations.

We will continue to track the regulatory proceedings seeking to integrate DERs.  Please come back for future DER posts to this blog, including an upcoming post analyzing the recent decision of the CPUC implementing significant residential rate reforms and the Distribution Resources Plans recently filed by the Investor-Owned Utilities in CPUC R.14-08-013.

BLM Receives Challenges to Greater Sage-Grouse Plans From All Sides

Posted in Energy regulatory, Environmental and approvals, Permitting

By Marc Campopiano and Max Friedman

Following the May 28, 2015 release by the Bureau of Land Management (BLM) of 14 final Environmental Impact Statements (EISs) for land use plans designed to provide greater protection to the greater sage-grouse on approximately 50 million acres of BLM-managed land in 10 different western states, more than 40 environmental groups, industry organizations, states, and counties have  filed formal complaints with the BLM, protesting various aspects of the plans.  BLM aims to provide sufficient state and federal protection for the greater sage-grouse to avoid the need for a listing of the species by the U.S. Fish and Wildlife Service (FWS) as threatened or endangered under the Endangered Species Act (ESA).  Such a listing could have a significant impact on the livestock, mining, and oil and gas industries in a number of western states.

Environmental groups, including a coalition of the Sierra Club, the Center for Biological Diversity, WildEarth Guardians, the Prairie Hills Audubon Society, and the Western Watersheds Project, protested all of BLM’s plans, claiming that the BLM failed to implement its own scientific findings.  They argue that loopholes in the rules for oil and gas producers and for transmission lines will render the rules ineffective and afford the sage grouse insufficient protection.  Moreover, the differences among the various plans for the different states reflect, they suggest, a series of political compromises, rather than the implementation of the best scientific understanding.  The coalition also questioned whether the BLM would, in fact, act to implement the plans that it had put in place with these plans.

Another group, Defenders of Wildlife, filed a separate series of objections, focusing on the absence of designated sage brush reserves and protected winter habitat from the BLM’s plans and on the idea that the protected areas surrounding grouse breeding grounds (known as leks) were too small to be effective.  Other environmental groups like the Environmental Defense Fund, however, praised the plans as a substantial improvement over the prior legal landscape.

Industry and agricultural groups have similarly seen a wide range of reactions to the proposed rules.  The Western Energy Alliance, which represents nearly a quarter of the nation’s oil and natural gas producers, challenged the BLM’s plans primarily because they may impose significant restrictions on oil and gas producers that will make it difficult for future development to take place in sage-grouse habitat.  The National Cattlemen’s Beef Association and Public Lands Council also filed eight distinct challenges to the plans on behalf of ranchers across the West.  They argue that the BLM and the U.S. Forest Service are bound by mandate to pursue multi-use land management and argue that the sage-grouse plans thwart the productive use of their lands.  They further assert that well-managed grazing practices can actually be beneficial to the grouse population.

Several states, including Utah and Idaho, have also filed challenges.  By contrast, Wyoming has been generally supportive of the BLM’s efforts to avoid a listing for the grouse under the ESA.

Once all protests and other comments have been received, the BLM will review the comments over the course of the next several months before issuing records of decision (RODs) for each of the plans, thereby implementing the land-use plan amendments.  The goal is to have these RODs completed by August 2015, which will give the FWS time to respond to the plans’ implementation ahead of that agency’s September 30  2015 deadline for determining whether listing under the ESA is necessary and advisable.

Ninth Circuit Holds that the BLM’s Grant of a Right-of-Way for a Road Over Federal Land Does Not Trigger Consultation Under the ESA or an Environmental Impact Statement Under NEPA for a Wind Project with Independent Utility

Posted in Environmental and approvals

By Christopher Garrett & Daniel Brunton

On May 27, 2015, the United States Court of Appeals for the Ninth Circuit upheld the US Bureau of Land Management’s (BLM) grant of a right-of-way over federal land for a road (the Road Project) for a wind energy project developed by North Sky River Energy, LLC (North Sky) on private land (the Wind Project).[1] On the facts before it, the court held that the Wind Project was neither a federal action nor connected to the federal Road Project, and that therefore, the BLM was not required to consult with the US Fish and Wildlife Service (FWS) for the Wind Project under the Endangered Species Act (ESA) or to prepare an Environmental Impact Statement (EIS) under the National Environmental Policy Act (NEPA).

The court’s holding has important implications for project developers who propose projects that span both private and federal land. Careful structuring of such projects may allow streamlined environmental review of the portions of the project on private land.

BLM’s decision and the court’s ruling

North Sky applied to the BLM for an easement over federally owned land in order to connect its Wind Project to an existing state highway. North Sky originally proposed to place wind turbines on BLM land, but it amended its application to seek only to improve and expand existing BLM roads. The revised application also identified a second viable route of access—a route through private land only—that served as an alternative link from the Wind Project to the state highway. North Sky had rejected this private option in favor of the Road Project because the level of environmental disturbance that the private option required outweighed the expected environmental impact of the federal Road Project.

Before issuing a permit for the Road Project, the BLM informally consulted with the FWS under the ESA and issued a Finding of No Significant Impact under NEPA. The BLM concluded that North Sky’s private road option served as a viable alternative route, and noted that because of this, North Sky was likely to move forward with the Wind Project regardless of whether the BLM approved the right-of-way over federal land. Thus, the BLM limited both its NEPA review and its informal consultation with the FWS to the Road Project and did not, as the plaintiffs requested, treat the Wind Project as part of the project it was approving.

The plaintiffs filed a lawsuit challenging the BLM’s approvals, arguing that the BLM should have analyzed the Wind Project as part of the Road Project under both NEPA and the ESA.  The court rejected both arguments.

Under the ESA, federal agencies are required to ensure, in consultation with the appropriate wildlife agencies, that their actions are not likely to jeopardize the existence or critical habitat of any endangered species. However, this consultation requirement is triggered only by federal agency actions that are “authorized or carried out by the agency.” Specifically, the federal agency must consider all the direct and indirect effects of its proposed action, as well as the “effects of other activities that are interrelated or interdependent with that action.”[2]

The Ninth Circuit quickly dismissed the claim that the North Sky Wind Project itself constituted agency action.  The BLM “was required to and did consult on the direct effects of the Road Project,”[3] however, it was not required to do so for the private Wind Project. The Ninth Circuit held that the Wind Project was not a “direct effect” of the Road Project either, as the Wind Project was not directly funded, authorized, or carried out by the BLM, nor was there any element of discretionary federal involvement or control.

The court next analyzed whether North Sky’s Wind Project was an “indirect effect” of the Road Project. In order to prove this, Sierra Club had to demonstrate that the Wind Project was caused by the proposed Road Project; that it occurred later in time than the Road Project; and that the Wind Project was reasonably likely to occur. The court only discussed the causal element of this test, and here too the Ninth Circuit found that Sierra Club failed to make its case. The court reasoned that it could not be “fairly said that the Road Project caused the Wind Project or brought it into existence.”[4] Quite the contrary: because North Star had presented a viable alternative route through private land, the court found that the Wind Project likely would have been completed regardless of whether the BLM approved the Road Project.

Sierra Club’s final argument was that the Wind Project was “interrelated or interdependent” with the Road Project. Sierra Club claimed that, but for the BLM’s approval of the Road Project, the Wind Project would not have occurred. The court dismissed this argument, reasoning again that North Sky had a viable private route option. Because North Sky was prepared to use the private road option to complete its Wind Project if necessary, the BLM’s approval of the Road Project could not have been the “but for” cause of the Wind Project. The court further held that the Road and Wind Projects were independent and had separate utility from one another. The court agreed with the BLM’s finding that the Road Project served purposes independent from the Wind Project, including dust control and erosion reduction. “In sum,” the court held, “these projects fail the ‘but for’ causation test, and neither is an integral part of the other, neither depends on the other for its justification, and each has utility independent from the other.”[5]

Using a line of reasoning that mirrored its ESA analysis, the court found that the Wind Project did not trigger the BLM’s duty to prepare an EIS under NEPA. NEPA requires federal agencies to prepare an EIS in connection with any “major federal action” that significantly affects the quality of the human environment. This includes actions that are connected, cumulative, or similar to the “major federal action,” which is defined as an action that is “potentially subject to Federal control and responsibility.”[6]

Because the BLM had no control or responsibility over the Wind Project, the court held that the Wind Project did not constitute a “major federal action” under NEPA. Accordingly, the court’s NEPA analysis hinged whether the Wind Project was connected to the Road Project.[7] The Ninth Circuit employed an independent utility test, which focuses on whether “each of the two projects would have taken place with or without the other.”[8] Because the Wind and Road Projects both had independent utility, the court quickly dismissed the connectivity argument. In any event, the court found that the BLM’s environmental assessment of the Road Project “sufficiently evaluated the Wind Project as a cumulative effect of the Road Project.” [9] The agency’s assessment had included a detailed analysis of wind farms within a specified 25-mile distance of the Road Project, including the North Sky wind farm, which the court found to be sufficient consideration.

Moving Forward: The Implications

Key factors that led the BLM to conclude that the Wind Project and the Road Project were independent—and the key factors that developers should consider when structuring their own projects to avoid duplicative federal environmental review—are as follows:

 

  • There was a private alternative to the Road Project. Perhaps the single most important factor that the BLM (and subsequently the court) considered was the fact that North Sky had identified an alternative, viable private option to the Road Project. The significance of this option is apparent, as the court specifically points out that the BLM had initially planned to seek a consultation for the Wind Project as an interdependent or interrelated activity under the ESA. The BLM’s view on this changed once the private road option was submitted and considered as a viable alternative, indicating that the BLM’s decision not to pursue consultation rested largely (if not entirely) on the existence of this private option. The court noted that the BLM’s change of stance in this regard was adequately justified, and that it was permissible because “the BLM’s evolving analysis was not a change in published regulation or official policy.”[10]
  • The private alternative option was viable. The court reviewed the BLM’s decision to grant the federal right-of-way under an “arbitrary and capricious” standard. Under the Administrative Procedure Act, a court may overturn an agency’s decision only if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.”[11] The court was thus highly deferential to the BLM’s conclusion that the alternative private route was, in fact, a viable one, and it did not discuss in detail what factors made the private project viable. However, the court did note that the BLM “had analyzed the Private Road Option as a ‘technically and economically feasible’ alternative to the Road Project. The BLM determined that North Sky’s pursuit of the Private Road Option . . . was ‘neither remote nor speculative.’” The court upheld the BLM’s decision that the private road was a viable option yet acknowledged that the private route “would ‘greatly impact vegetation and wildlife habitat,’ and possibly cause erosion[,]” among other constraints.[12]
  • The Road Project had “independent utility.” Here again, the court relied on the BLM’s findings that the Road Project had separable utility and was independent from the Wind Project. Specifically, the BLM had concluded that the Road Project “served the independent purposes of dust control, reducing erosion, and controlling unauthorized vehicle access to a national trail.”[13] From the court’s discussion, it appears that the independent utility factor was much more important to its NEPA analysis, whereas the existence of the private road option dominated the ESA analysis.
  • The BLM did undertake compliance measures with respect to the Road Project. The court notes that the BLM both submitted the Road Project for informal consultation under the ESA, as well as issued a finding of no significant impact under the NEPA.The Council of Environmental Quality (CEQ) has issued regulations that establish the minimum criteria agencies must meet when implementing the procedural provisions of NEPA. The CEQ regulations also call for agencies to adopt their own regulations, in order to supplement those promulgated by the CEQ. So while this case applies important principles, it is important to note that the result could be different under a different agency’s regulations.
  • This case did not specifically analyze the agency-specific regulations that the BLM (part of the Department of the Interior) uses in determining compliance procedures under NEPA. Rather, the controversy revolved around whether the BLM’s decisions complied with the CEQ regulations generally. But a couple of examples demonstrate how regulations can vary across agencies:
  • Beware Regulatory Differences Among Agencies
  • Department of the Interior (DOI). The DOI’s department-specific NEPA regulations state that whether an action is subject to the procedural requirements of NEPA “depends on the extent to which bureaus exercise control and responsibility over the proposed action and whether Federal funding or approval are necessary to implement it. If Federal funding is provided with no Federal agency control as to the expenditure of such funds by the recipient, NEPA compliance is not necessary.”[14] Agencies of the DOI, including both the BLM and the FWS, in turn can consult a DOI departmental manual (DM) that provides supplementary guidelines for implementing NEPA and DOI provisions. For example, the DM chapter pertaining to the BLM provides that an EIS level analysis should be completed when a proposed action meets one of two criteria: “(1) If the impacts of a proposed action are expected to be significant; or (2) [i]n circumstances where a proposed action is directly related to another action(s), and cumulatively the effects of the actions taken together would be significant, even if the effects of the actions taken separately would not be significant.”[15]
  • U.S. Army Corps of Engineers (part of the Department of Defense). According to the Corps’ specific regulations, in those situations where a permit applicant seeks to conduct activity requiring a Department of the Army permit which is itself only one component of a larger project, the district engineer must determine which portions of the larger project the agency has “sufficient control and responsibility” over to necessitate federal review.[16] Under these regulations, the district engineer is said to have this control “where the Federal involvement is sufficient to turn an essentially private action into a Federal action. These are cases where the environmental consequences of the larger project are essentially products of the Corps permit action.”[17] The Corps’ regulations were specifically upheld by the Ninth Circuit under a Chevron deference analysis[18] in Sylvester v. U.S. Army Corps of Engineers.[19]

In sum, while the court’s holding in this case does help define the contours of NEPA and ESA, it is important to be mindful of the fact that regulations and procedures vary across agencies.

The authors would like to thank Briana Cornelius for her contributions to this post.

 

[1] See Sierra Club v. Bureau of Land Mgmt., No. 13-15383, 2015 U.S. App. LEXIS 8728 (9th Cir. May 27, 2015).

[2] 50 C.F.R. § 402.02.

[3] Sierra Club, 2015 U.S. App. LEXIS 8728, at *9.

[4] Id. at *11.

[5] Id. at *12-13.

[6] 40 C.F.R. § 1508.18.

[7] Sierra Club had claimed only that the Wind Project was connected to the Road Project, not cumulative or similar, so the court limited its analysis to this factor.

[8] Pac. Coast. Fed. of Fishermen’s Ass’ns v. Blank, 693 F.3d 1084, 1098-99 (9th Cir. 2012).

[9] Sierra Club, 2015 U.S. App. LEXIS 8728, at *15.

[10] Id.

[11] 5 U.S.C. § 706(2)(A).

[12] Sierra Club, 2015 U.S. App. LEXIS 8728, at *4-5.

[13] Id. at *12-13.

[14] 43 C.F.R. § 46.100.

[15] U.S. Dep’t of the Interior, Departmental Manual, Managing the NEPA Process, 516 DM 11 (2008).

[16] 33 C.F.R. § 325, App. B., § 7b.

[17] Id.

[18] When a court reviews an agency’s construction of a statute that the agency administers, there are two rules the court must follow: (1) the court must adhere to any unambiguously expressed intent of Congress, and (2) the court must defer to the agency’s interpretation when a statute is ambiguous or silent as to an issue, so long as that interpretation is based on a permissible construction of the statute. Chevron, U.S.A., Inc. v. National Resources Defense Council, Inc., 467 U.S. 837 (1984).

[19] 884 F.2d at 399.

*

DRECP Agencies Announce Phase I Updates

Posted in Energy regulatory, Environmental and approvals, Finance and project development

By Marc Campopiano, Joshua Bledsoe, Jennifer Roy, James Erselius

Phase I of the Desert Renewable Energy Conservation Plan (“DRECP”) is underway on the 9.8 million acres of public land managed by the Bureau of Land Management (“BLM”). As discussed in our previous post, the four lead agencies responsible for the plan introduced a phased approach to implementing the DRECP in March 2015 in response to public comments. Under Phase I of this approach, between 81,000 and 718,000 acres of BLM-managed land will be designated as Development Focus Areas for renewable energy development, between 1.6 and 5.3 million acres will be added to the National Landscape Conservation System, and between 2.4 and 3.6 million acres will be designated as Special Recreation Management Areas.

On June 15, 2015, the BLM, US Fish & Wildlife Service, and state partner agencies preparing the DRECP posted additional information about the timing of Phase I of the DRECP. Later this year, the lead agencies will release a final BLM Land Use Plan Amendment and Final Environmental Impact Statement for Phase I. According to the recent update, the agencies are still determining how best to use private lands for conservation and renewable energy development in the remaining two components of the DRECP. In the Natural Community Conservation Plan (“NCCP”) component, the agencies are considering multiple options, including a plan-wide NCCP, individual county NCCPs, and a coordinated but less formal approach to siting and mitigating the impacts of renewable energy projects. In the federal General Conservation Plan (“GCP”) component, the agencies similarly are continuing to explore their options with local governments.

The agencies have indicated that they will continue to engage with federal, state, and local partners as they complete Phase I. The agencies will review the comments received during the public comment period on the Draft DRECP as they work to finalize the Land Use Plan. Depending on the scope of public comments, the agencies anticipate that a final EIS will be released in late fall 2015, with a Record of Decision in 2016.

California Supreme Court Upholds City of San Jose Inclusionary Housing Set-Aside Ordinance

Posted in Finance and project development

By Chris Garrett, Cindy Starrett and John Morris

Today, the California Supreme Court unanimously upheld the City of San Jose’s Inclusionary Housing Ordinance, rejecting a facial constitutional challenge brought in California Building Industry Association (CBIA) v. City of San Jose (Affordable Housing Network of Santa Clara County et al.), S212072. The Court determined that, contrary to CBIA’s position, conditions upon new development contained in San Jose’s Inclusionary Housing Ordinance did not need to be justified by the more stringent constitutional standard that would be applicable under the takings clauses of the federal or state Constitution, and instead passed muster under the more lenient standard that “such regulations must be reasonably related to a constitutionally permissible public purpose.”

In reaching its conclusion, the Court agreed with the City that the Ordinance’s 15 percent affordable housing set-aside did not in fact deprive developers of a legally identifiable property interest. (Decision at pp. 31-32). Instead, writing for the Court, Chief Justice Cantil-Sakauye compared the Ordinance to an ordinary land use regulation akin to a price control:

“[I]t is well established that price controls are a constitutionally permissible form of regulation with regard to real property as well as to other types of property or services. . .  Accordingly, just as it would be permissible for a municipality to attempt to increase the amount of affordable housing in the community and to promote economically diverse developments by requiring all new residential developments to include a specified percentage of studio, one-bedroom, or small-square-footage units, there is no reason why a municipality may not alternatively attempt to achieve those same objectives by requiring new developments to set aside a percentage of its proposed units for sale at a price that is affordable to moderate or low income households. So long as the price controls are not confiscatory and do not constitute a regulatory taking, there is no reason such price controls should not be evaluated under the same standard applicable to the public art requirement in Ehrlich and other land use measures that are not subject to the Nollan/Dolan test, namely, that such regulations must be reasonably related to a constitutionally permissible public purpose.” (Decision at p. 54)

Furthermore, the Court rejected CBIA’s position that the heightened standard of judicial review was appropriate based upon the Court’s previous decision San Remo Hotel L.P. v. City & County of San Francisco, in which the Court upheld a local development mitigation fee against a constitutional takings claim. The Court emphasized that, unlike the development mitigation fee at issue in San Remo that sought to mitigate the impact of new development on affordable housing, San Jose’s Inclusionary Housing Ordinance served the additional “constitutionally legitimate purposes” of increasing affordable housing supply and assuring the distribution of affordable housing units as part of mixed-income developments citywide to promote economic diversity within the City. (Decision at p. 6). Accordingly, the Court affirmed the determination of the Court of Appeal that the less stringent “legitimate public purpose” standard generally applicable on judicial review of legislative land use regulations applies to the Ordinance.

Justice Werdegar filed an additional concurring opinion to discuss further the bounds of San Remo’s “reasonable relationship” test, and Justice Chin likewise filed an additional concurring opinion to distinguish the Ordinance from a true “subsidized” housing requirement. Latham prepared a detailed summary of the issues, lower court decisions, and Supreme Court oral argument for the case earlier this year in the Clean Energy Law Report here. Plaintiff CBIA had argued successfully in the Superior Court that the City had failed to demonstrate a nexus between the Ordinance and the deleterious public impacts of new residential development, that developers should not be required to pay for the costs of subsidizing affordable housing, and that the City’s justification for shifting that burden to the builders was not adequate. The Court of Appeal reversed, however, finding that the Superior Court had erred by applying an overly rigorous standard of judicial review and holding that the Ordinance should have been analyzed as an exercise of the City’s police power under a more lenient “legitimate public interest” standard.

 

Bureau of Land Management Releases Conservation Plans for Greater Sage-Grouse

Posted in Environmental and approvals

By Marc Campopiano, Max Friedman and Gunnar Gundersen

On Thursday, May 28, 2015, the Bureau of Land Management (BLM) released fourteen final Environmental Impact Statements (EISs) that incorporate greater-sage-grouse conservation measures into the land-use plans for about 50 million acres of BLM-managed land in 10 western states. The population of the sage-grouse has declined by more than half over the last decade. As discussed in our prior entry, the US Fish and Wildlife Service (FWS) is under a court-ordered deadline to decide whether to list the sage-grouse on the endangered-species list by September 30, 2015.

The BLM is the nation’s biggest land management agency, controlling land that covers roughly 60 percent of the grouse’s habitat. BLM’s land conservation plans for the sage grouse will be considered by the U.S. Fish and Wildlife Service before reaching a listing determination. The BLM’s plans are based on three objectives:  (1) minimizing new or additional surface disturbance;  (2) improving habitat conditions; and (3) reducing threat of rangeland fire to sage-grouse and sagebrush habitat. The BLM identifies two types of conservation areas: Priority Habitat Management Areas, which include breeding, late brood-rearing, and winter concentration areas and are identified as having the highest conservation value for maintaining sustainable grouse populations; and General Habitat Management Areas, which are designed to provide greater flexibility for land use activities and include other areas of seasonal or year-round habitat.

The specific plans contained in the various EISs differ somewhat from location to location. The EISs addressing Wyoming’s 38.9 million acres, for example, follow aspects of Wyoming’s state plan for protecting the grouse, stating that in the Priority Habitat areas (totaling about 5 million acres), total existing and new disturbances will be limited to five percent of land per square mile. This would limit disturbances to an average of one mining or drilling facility per square mile. Additionally, the EIS and Wyoming plan create a 0.6 mile buffer zone for sage-grouse breading grounds, known as leks. The BLM also stated that the “plans honor all valid, existing rights, including those for oil and gas development, renewable energy, rights-of-way, locatable minerals, and other permitted projects.”

FWS will review other conservation measures, including BLM’s effort to protect the sage-grouse and its habitat and plans by the US Forest Service and five western state governments, to determine whether the combined conservation efforts make formal listing of the greater sage-grouse as threatened or endangered under the Endangered Species Act (ESA) unnecessary.

Reactions to the finalized EISs have been mixed. The Western Energy Alliance stated that it believes that the sage-grouse plans will cost the oil and natural gas industry “between 9,170 and 18,250 jobs and $2.4 billion to $4.8 billion of annual economic impact across Colorado, Montana, Utah, and Wyoming,” while others have expressed concerns regarding impacts to mining and grazing in the region. By contrast, conservation groups and sportsmen have generally reacted favorably to the issuance of the EISs, although some environmentalists have argued that the plan makes too many compromises with industry. State governments, which hope to avoid a listing of the sage-grouse under the ESA and associated impacts on the local economy, have generally backed the plan, as well.  Wyoming Governor Matt Mead publicly stating that “it is appropriate to celebrate today.” State governors now have 60 days to perform a “consistency review” of the EIS plans and make additional recommendations to BLM.

Nine Western States Throw Their Support Behind Case Challenging Reach of the Endangered Species Act

Posted in Environmental and approvals

By Andrea Hogan, Mark Campopiano, Sara Orr, and Daniel Brunton

On May 26, nine western states filed an amicus brief in People for the Ethical Treatment of Property Owners  (PETPO) v. United States Fish and Wildlife Service urging the 10th Circuit Court of Appeals to limit the reach of the Endangered Species Act.

At issue in the case is a special regulation that the Fish and Wildlife Service adopted under section 4(d) of the Endangered Species Act to protect the Utah prairie dog, a threatened species living only in Utah. At the District Court, PETPO argued that no constitutionally enumerated powers allow the Federal Government to regulate the Utah prairie dog.  Specifically, PETPO argued that the Commerce Clause does not provide the essential federal authority, because the Utah prairie dog is a purely intra-state animal with little or no commercial value. The District Court was persuaded by this argument, holding that “[a]lthough the Commerce Clause authorizes Congress to do many things, it does not authorize Congress to regulate takes of a purely intrastate species that has no substantial effect on interstate commerce.”

In the subsequent appeal of the case, the nine western states’ recently filed amicus brief emphasizes the states’ traditional authority to regulate wildlife within their borders and the states’ responsibility to manage their own wildlife populations. Specifically, the brief notes that the State of Utah already has regulations that strictly control the take of Utah prairie dogs and that the Utah Legislature has recently appropriated an additional $400,000 to fund its management plan.

The appeal comes as some in Congress have called for amending the Endangered Species Act and the wildlife agencies have taken partial steps to address local concerns over the sweep of the Endangered Species Act by seeking additional input from states on listing decisions. While there is bi-partisan recognition that federal permitting needs to be streamlined to encourage important projects, including renewable energy and water projects, the scope of the Endangered Species Act remains controversial. Land owners, developers, and project proponents of all kinds should continue to monitor the PETPO case, which could significantly affect the range of species that the wildlife agencies can regulate under the Endangered Species Act.

US Fish & Wildlife Service Proposes First-of-its-Kind Migratory Bird Incidental Take Authorizations

Posted in Environmental and approvals

By Benjamin Hanelin, Jennifer Roy, and Natalie Rogers

On May 26, 2015, the US Fish and Wildlife Service (FWS) announced its intent to prepare a programmatic environmental impact statement (PEIS) to evaluate the potential impacts of permits authorizing the incidental take of migratory birds under the Migratory Bird Treaty Act (MBTA).  The PEIS will address, among other things, the potential environmental impacts of a permit system for regulating and authorizing incidental take, and potential mitigation requirements.  The FWS is accepting public comments on the scope of the PEIS and alternative approaches until July 27, 2015.

If adopted, FWS’ proposed rulemaking could provide incidental take protection that is currently unavailable under the existing regulatory scheme—at least for certain industries. At present, otherwise lawful activities that may incidentally harm migratory birds are offered no protection under the MBTA. The MBTA provides that, unless and except as permitted by regulation, it shall be unlawful at any time, by any means or in any manner, to pursue, hunt, take, capture, kill, or attempt to take, capture, or kill any migratory bird. The MBTA’s protections are broad, extending to nearly every bird species in North America, including waterfowl, songbirds, shorebirds, and raptors.  A majority of courts have held that the violation of the MBTA’s take prohibition is a strict liability offense, even for the unintentional, incidental take of migratory birds. Accordingly, most industrial takings of migratory birds are charged under a strict-liability Class-B misdemeanor violation for any “person. . . or corporation” that violates the MBTA’s prohibitions. The MBTA provides no civil penalty; violation of the statute is subject only to a criminal sanction.

FWS’ proposed rulemaking would narrow the scope of the MBTA’s prohibitions and provide an avenue for incidental take protection that is currently unavailable for certain industries. Under the current proposal, the FWS intends to analyze four approaches to regulating the incidental take of migratory birds:

  • Establish general incidental take authorizations for some types of hazards to birds associated with particular industry sectors, specifically (1) oil, gas, and wastewater disposal pits; (2) methane or other gas burner pipes at oil production sites; (3) communication towers; and (4) electric transmission or distribution lines. The FWS may seek additional general authorizations in its rulemaking for hazards to birds associated with other industry sectors, such as wind energy generation;
  • Establish individual permits authorizing incidental take for particular projects or activities;
  • Develop memoranda of understanding with federal agencies authorizing incidental take from agency operations and activities; and/or
  • Develop voluntary guidance for industry sectors regarding operational technologies or techniques to avoid or minimize incidental take.

If the FWS adopts any of these approaches, it will promulgate new implementing regulations under the MBTA. The FWS recognizes that a regulatory process for authorizing incidental take would greatly benefit industry and federal agencies. For example, according to the proposed rule in the Federal Register, an authorization program could “provide greater certainty for entities that have taken efforts to reduce incidental take and significantly benefit bird conservation by promoting implementation of appropriate conservation measures to avoid or reduce avian mortality.” An authorization program could also “create a regulatory mechanism to obtain meaningful compensatory mitigation for bird mortality that cannot be avoided or minimized through best practices, risk management, or technologies.” Although the program alone cannot address every conservation need of migratory birds, the FWS’ proposal appears to try to strike a balance between minimizing the administrative burden of complying with a regulatory process and avoiding and minimizing impacts on migratory birds.

The FWS is soliciting information from other interested government agencies, Native American Tribes, the scientific community, industry, and nongovernmental organizations, and invites public comment on this proposed rulemaking.  Specifically, the FWS seeks input from the public and interested parties on its proposed approaches for the rulemaking, and the possibility of expanding the rulemaking to include a general authorization for wind energy generation. Our Environmental, Land and Resources attorneys will be closely tracking the proposed rulemaking and PEIS processes and are available to advise clients on the potential impacts of those processes.

EPA Proposes Renewable Fuel Standards for 2014-2016

Posted in Environmental and approvals

By Ann Claassen and Eli Hopson

On May 29, EPA took long-awaited action on the Renewable Fuel Standard (RFS), with the unusual step of proposing standards for several years at once. EPA is reproposing the 2014 RFS—its original proposal of November 2013 having been heavily criticized—and is proposing, for the first time, the 2015 and 2016 RFSs. EPA proposes to set the compliance levels for 2014 at the level of production that actually occurred, while recognizing that some reallocation of Renewable Identification Numbers (RINs) will be needed. For 2015 and 2016, EPA proposes to reduce the overall volumes of renewable fuels from those required in the Clean Air Act.

Applicable Volumes Specified in the Clean Air Act (billion ethanol-equivalent gallons)*

2014 2015 2016
Cellulosic biofuel 1.75 3.0 4.25
Biomass-based diesel ≥1.0 ≥1.0 ≥1.0
Advanced biofuel 3.75 5.5 7.25
Renewable fuel 18.15 20.5 22.25

Proposed Volume Requirements*

2014 2015 2016
Cellulosic biofuel (million gallons) 33 106 206
Biomass-based diesel (billion gallons) 1.63 1.70 1.80
Advanced biofuel (billion gallons) 2.68 2.90 3.40
Renewable fuel (billion gallons) 15.93 16.30 17.40

*All values are ethanol-equivalent on an energy content basis, except for BBD which is biodiesel-equivalent.  (Tables from EPA’s pre-publication version of the rule.)

EPA’s proposal reduces the overall volumes based in part on the blend wall—the cap on the amount of ethanol that can be blended into the fuel supply in practice— given that many vehicles in the market are limited to using blends of ethanol of 10% or less. As in the original 2014 RFS proposal, EPA is relying on its waiver authority in Clean Air Act § 211(o)(7); if made final, it will be the first time EPA has based an RFS waiver on factors affecting fuel consumption instead of limitations to fuel production.

Although the proposal increases renewable fuel production goals as desired by biofuels groups while acknowledging the blend wall concerns of oil refiners and blenders, both supporters of renewable fuels and opponents of the program have already registered objections to the proposal.

As well as the overall 2014-2016 RFS, EPA is proposing: 2014-2017 biomass-based diesel volumes; 2013-2015 compliance and attest reporting deadlines; rescission of the 2011 cellulosic biofuel volume; and amendments to clarify the scope of the algal biofuel pathway. According to the pre-publication manuscript, comments on the proposal, which will appear soon in the Federal Register, must be filed with EPA on or before July 27, 2015.

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