Energy & Environmental Law Blog

Energy & Environmental Law Blog

Analyzing the critical energy and environmental issues of the day

Additional IRS Guidance on Physical Work Test and Facility Transfers for Energy Tax Credits

Posted in Federal, Renewables

The IRS has released additional guidance (Notice 2014-46) on the “beginning of construction” requirement for the renewable energy production tax credit under Code Section 45 (PTC) and energy investment tax credit under Code Section 48 (ITC).  The notice clarifies the application of the Physical Work Test and the effect that certain transfers of a facility after construction has begun will have on a taxpayer’s ability to qualify for the energy tax credits.  The energy tax credits are available to a qualifying facility if construction of the facility began before January 1, 2014. Read More

Grant Recipients Likely to Accept a 50 Percent Share of Cleanup Costs Under New Washington Grant Funding Rule

Posted in CERCLA, Northwest

The new Department of Ecology (Ecology) grant funding rules, which are expected to go into effect in September 2014, will change the way grant recipients resolve contribution claims against other liable parties under the Model Toxics Control Act or CERCLA.  The new rule provides that grant recipients (e.g., cities, counties, Ports, etc.)  may use proceeds from insurance or a contribution claim to meet the recipients’ grant funding share requirements, provided the recipient complies with certain conditions.  This means a grant recipient does not have to repay Ecology as long as the amount it receives from other liable parties (minus its costs to pursue the claim) does not exceed the recipients’ grant funding share, which for most grant recipients is 50 percent.  And since there is no monetary incentive for grant recipients to collect more than 50 percent of what they received in grants, grant recipients should be willing to accept a 50 percent share (or more) of the liability at cleanup sites, regardless of the grant recipients’ actual liability. Read More

Alaska Department of Natural Resources Seeks Comment on Precedent-Setting Instream Flow Water Right

Posted in Water Law

Instream flow rights can be controversial among consumptive water users because they decrease the legally available supply of water for other uses that may arise in the future.  Conversely, instream flow rights are often championed by non-governmental and other entities seeking to protect environmental values supported by maintaining specific water levels in a given waterbody.  The holding of instream flow rights by the Federal government, whether based in state or Federal law, is particularly controversial in light of the tension between state and Federal water law systems and use.  The Alaska Department of Natural Resources’ (DNR) consideration of the United States Fish and Wildlife Service’s (FWS) application for an instream flow water right could be precedent-setting in Alaska and beyond. Read More

Ninth Circuit Rejects CERCLA Settlement, Declines to Give Deference to State Agency

Posted in CERCLA, Litigation

On August 1, 2014, a divided panel of the Ninth Circuit reversed a district court’s approval of a multi-party settlement at an Arizona waste site.  State of Arizona v. Ashton Company Incorporated Contractors and Engineers, et al., No. 12-15691 (9th Cir. August 1, 2014).  The dissenting opinion noted that this is only the second time an appellate court has done so, with both decisions made by the Ninth Circuit.  The reasoning of the majority has to give pause to parties preparing to enter into CERCLA settlements at state-lead sites.

On appeal, the majority opinion held that the district court had not conducted the “comparative analysis” required in the approval of CERCLA settlements under the Circuit’s prior rulings, including US v. Montrose Chemical, 50 F.3d 741 (9th Cir 1995).  In Montrose Chemical, the district court had expressly declined to examine the merits of the settlement and, without any discussion of the merits, relied upon the approval of the settlement terms by the Special Master appointed by the district court to oversee settlement negotiations.

In State of Arizona, the district court did review, but did not discuss, information from the State on the relative liability of the settling parties, instead relying on the judgment of the State agency as to whether the settlement served the public interest.  Because the State agency was making a judgment about the adequacy of a settlement under a federal statute, the majority would not give the same deference to the agency’s determination as it would have given to EPA. The lengthy dissent strongly took issue with the failure to grant deference to the State agency’s determination, and concluded that the record was adequate to support the settlements.

Interestingly, the State agency had provided the district court with information on the basis for the settlement, which included an estimate of total cost.  The court had also received the State environmental agency’s estimate of the relative liability of the settling parties, and its judgment that the settlement terms were in the public interest.  It is likely that both the agency and the district court concluded that more precision was not worth the candle – this was an early settlement and these were small parties at a multi-party site.  Whether one accepts the view that federal courts should give lesser deference to the judgments of state agencies enforcing a federal statute, even where, as with CERCLA, that statute provides the State with a significant enforcement role, the district court here would seem to be exercising the type of judicial discretion to which a reviewing court should give deference consistent with the reasoning in decisions cited by both the majority and the dissent.

As with Montrose Chemical, this settlement will be remanded to the district court for further proceedings.  One hopes that the proposed settlement will not meet the same fate as the settlement in Montrose on remand.  The settlement ultimately approved in Montrose contained the same substantive terms as the one reviewed and remanded by the Ninth Circuit, but only after years of delay while the litigation played out.  Such a delay for these de minimis parties would hardly serve the public’s interest or the objective of CERCLA to promote early settlement.

Fifth Circuit Rejects Application of Sackett to Corps’ Jurisdictional Determination

Posted in EPA, Litigation

In Belle Company, LLC et al v. USACE, No. 13-30262 (July 30, 2014), the Fifth Circuit rejected an effort to apply the Supreme Court’s decision in Sackett v. EPA, 132 S. Ct. 1367 (2012), to a determination by the Army Corps of Engineers that part of a proposed landfill constituted wetlands.  The Fifth Circuit held that while the determination of wetland status marked the consummation of the Corps’ decision-making process, it satisfied only one prong of the required test for subject matter jurisdiction under the Supreme Court’s decision in Bennett v. Spear, 520 U.S. 154 (1997).  The court held that the jurisdictional determination, by itself, did not adversely affect the plaintiff.  The determination could only adversely affect his rights in a future administrative action, e.g., through a future decision on plaintiff’s application for a 404 permit.  If the permit were denied, the plaintiff could then seek judicial review of that decision.  In so ruling, the Fifth Circuit relied on its recent decision in Luminant Generation Co. LLC v. EPA, in which it held that a notice of a Clean Air Act violation was not final agency action because “adverse legal consequences will flow only if the district court determines that Luminant violated the Act or the SIP.”  2014 WL 3037692 at *3 (5th Cir 2014).

In Sackett, the Supreme Court held that an EPA administrative order to a landowner directing it to restore filled wetlands constituted final agency action for purposes of the Administrative Procedure Act (APA), even though EPA had not moved to enforce the order and had offered the landowner an opportunity to engage in informal negotiations.  However, once the order had been issued, Sackett risked penalties for non-compliance with the order, as well as for violation of the Clean Water Act, and was unable to take any action to challenge the order.  As the Fifth Circuit noted, Belle, unlike Sackett, could initiate an action for review of any permit denial based on the jurisdictional determination, and in the interim did not risk the incurrence of $75,000 a day in penalties while waiting for the agency to take some action based on its administrative determination.

The jurisdictional determination by the Army Corps obviously has an immediate impact on the landowner, affecting its decisions regarding future development of the property, even if it does not, like the order in Sackett, immediately subject the landowner to penalties for non-compliance.  If it stands, the Fifth Circuit’s decision here (and in Luminant) suggests that the impact of Sackett may be more narrow than some had hoped, and that parties unhappy with agency administrative determinations may in many cases remain unable to immediately seek judicial review.

National Security & Climate Change: What Do We Need to Know?

Posted in Climate Change

What do a White House senior advisor, a member of Congress, scientists, military planners, and business people all have in common? At a June 4 symposium in Seattle organized by the Jackson Foundation and the Pacific Northwest National Laboratory, they all agreed that Climate Change is having a growing impact on national security that will only increase with time.

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California Air Resources Board-Commissioned Report Recommends Ways to Avoid Price Volatility in California’s Cap and Trade Market

Posted in California, Cap and Trade

Concerned about the potential for price volatility in its cap and trade program, the California Air Resources Board (CARB) commissioned the Market Simulation Group (MSG) at the University of California Energy Institute to look at the issue and make recommendations.  The MSG issued its report last month, entitled “Report of the Market Simulation Group on Competitive Supply/Demand Balance in the California Allowance Market and the Potential for Market Manipulation.

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FERC’s $3,250,000 Enforcement Action Against the Arizona Public Service Company Provides Guidance for an Effective Compliance Program

Posted in Federal, FERC, NERC

FERC’s enforcement action with regard to the Arizona Public Service Company (“APS”) provides some instructive guidance for all regulated utilities as to what FERC’s Office of Enforcement deems to be an effective compliance program.  Read More

Comment Period Extended on Expansion of Critical Habitat Rules

Posted in Federal, Land Use

The Fish and Wildlife Service and National Oceanic and Atmospheric Administration announced last week that they are extending the deadline for comments on new critical habitat rules from July 11 to October 9, 2014.  The proposed rules were announced in May.  79 FR 27060 (May 12, 2014).  The agencies propose a revision of the term “destruction or adverse modification,”  extending it to both occupied and unoccupied habitat areas necessary for “conservation” of the species.  The agencies observed that “conservation” includes both survival and recovery, and that inclusion of unoccupied habitat was consistent with federal court ruling in several cases. However, for purposes of listing a species, the agencies have just published notice of a final binding policy statement on the interpretation of the term “significant portion of its range” – a key element of the Endangered Species Act – limiting “range” to areas actually occupied by the species.  http://www.regulations.gov at Docket Number FWS-R9-ES-2001-0031. Read More

FERC Adopts New Methodology to Determine Electric Utility ROE

Posted in FERC

In a long-awaited decision, the Federal Energy Regulatory Commission on June 19, 2014, revised its methodology for determining the rate of return on common equity (ROE) used to establish cost-based rates of public utilities subject to FERC jurisdiction.  In Martha Coakley, et al. v. Bangor Hydro Electric Company, et al., 147 FERC ¶ 61,234 (2014) (FERC Docket No. EL11-66-000), the FERC adopts a two-step DCF methodology used in natural gas pipeline rate cases which utilizes both short-term and long-term growth projections.  In the two-step DCF methodology adopted for electric utilities, the short-term forecast will receive a two-thirds weighting and the long-term forecast will receive a one-third weighting in calculation of the growth rate for the DCF model.  The short-term growth estimate is to be based on the five year projections by IBES (or a comparable source), and the long-term growth estimate is to be based on the average of the GDP growth rates.  FERC will apply the new methodology prospectively and to any pending ROE complaint proceeding in which a decision has not yet been made.  Read More