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United States’ First Offshore Wind Farm Obtains Critical Federal Approval

by McDermott Will & Emery | Aug 21, 2012 | Environmental, Project Development and Finance, Renewables

For the fourth time the Federal Aviation Administration (FAA) on August 15, 2012 issued a Determination of No Hazard to the proposed Cape Wind project, which, if constructed after a decade of planning, will be the United States’ first offshore wind farm. Energy Management Inc., the project’s developer, proposes to construct and operate 130 wind turbines in a 25-square-mile shallow area of Nantucket Sound known as Horseshoe Shoal at an estimated cost of $2.5 billion. The project has now received all required permits, including Construction and Operations Plan approval from the Bureau of Ocean Energy Management, Regulation and Enforcement and various other federal and state approvals, and a 25-year commercial lease from the Department of the Interior.

The FAA began its review of the Cape Wind project in 2002 and originally approved the project in May 2010, but the Cape Cod town of Barnstable and the Alliance to Protect Nantucket Sound, an environmental group created in 2001 to oppose the project, appealed the agency’s decision. In October 2011, the United States Court of Appeals for the District of Columbia reversed the FAA’s decision and remanded the matter to the agency for further review of whether the project posed safety hazards to air traffic. The D.C. Circuit found that the FAA had ignored its own regulations and failed to demonstrate that it had analyzed whether the project would negatively impact air traffic in approving the Cape Wind project.

The FAA’s most recent determination found that the Cape Wind project poses no hazard to air navigation, as the project falls within the agency’s obstruction standards and would not have any electromagnetic radiation effect on air traffic. FAA regulations provide that a structure negatively affects visual flight rules (VFR) air navigation if its height is more than 500 feet above the surface and if it is located within two miles of a commonly traveled VFR route. The Cape Wind project does fall within two miles of a commonly traveled VFR route, but the project’s proposed turbines will only reach 440 feet above the surface. The FAA found that, provided the Cape Wind project adheres to the agency’s height restriction, files construction forms with the agency as required, and properly lights structures that may obstruct planes, the project will pose no hazard to air traffic.

Appeals of the FAA’s decision are certainly possible; the Alliance for the Protection of Nantucket Sound has already indicated it will appeal. In addition, Republican Congressmen Darrell Issa (R-CA) and John Mica (R-FL) have suggested that the FAA may have been politically influenced to approve the Cape Wind project in 2010; a formal congressional investigation could add further delay to the Cape Wind project.

Energy Management Inc. plans to begin construction on the project in 2013. Three-quarters of the Cape Wind project’s anticipated electricity output has already been sold through power purchase agreements with electrical utilities in Massachusetts, and Energy Management Inc. is now seeking to raise capital. Each of the 130 proposed turbines [...]

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Nuclear Regulator Announces Temporary Suspension of Licensing Decisions

by McDermott Will & Emery | Aug 14, 2012 | Environmental, Project Development and Finance

by Ari Peskoe

On the heels of a recent decision by the U.S. Court of Appeals for the D.C. Circuit, the U.S. Nuclear Regulatory Commission (NRC) issued an order last week suspending final decisions in reactor licensing cases. The recent court ruling struck down elements of the NRC’s Waste Confidence Decision (WCD), which, according to the NRC, “undergirds certain agency licensing decisions.” The suspension affects issuances of both new construction licenses and reactor license renewals that are dependent on the WCD or temporary storage rules. The NRC did not rule out taking action with respect to waste confidence on a case-by-case basis.

In New York v. NRC, the D.C. Circuit held that it “cannot defer to the Commission’s conclusions regarding temporary storage because the Commission did not conduct a sufficient analysis of the environmental risks.” Petitioners challenged a 2010 update to the WCD, which has five findings about nuclear waste storage upon which the NRC based its rules on temporary storage. The NRC amended the WCD to state that a permanent repository for nuclear waste would be available “when necessary,” instead of “in the first quarter of the twenty-first century,” as the earlier draft stated. The NRC also extended the time horizon for safe storage of waste at reactor sites from 30 to 60 years beyond the licensed life of the plant. With regard to both amendments, the D.C. Circuit found that the NRC had violated the National Environmental Policy Act (NEPA). The Court determined that the WCD constituted a “major federal action” under NEPA and therefore the NRC must prepare an Environmental Impact Statement or an Environmental Assessment that makes a Finding of No Significant Impact.

This decision by the NRC comes less than one month after Dr. Allison Macfarlane was sworn in as the NRC’s Chairman. Macfarlane holds a Ph.D. in geology from the Massachusetts Institute of Technology, served on the Blue Ribbon Commission, and was most recently an associate professor of environmental science and policy. As an academic, Macfarlane was critical of the process that selected Yucca Mountain, a site that was long-considered to host a geologic repository until President Obama cancelled the project in 2010. For example, in 2003 Macfarlane wrote that “politics probably played as significant a role as science in the selection of Yucca Mountain” and argued that scientific studies and outcomes were oriented around the policy goal of approving Yucca Mountain.

Earlier this year, the NRC issued licenses for new reactors at the Vogtle site in Georgia, the first licenses issued for new construction in a generation, and also issued licenses for two new reactors in South Carolina. The NRC has 16 applications for new licenses pending and an additional fourteen license renewals awaiting decisions.

Department of Interior Secretary Endorses Federal Regulation of Hydraulic Fracturing

by McDermott Will & Emery | Jul 25, 2012 | Environmental, Hydraulic Fracturing

by James A. Pardo and Brandon H. Barnes

Speaking about upcoming Bureau of Land Management/Department of Interior (DOI) rules for hydraulic fracturing (fracing) on federal land, DOI Secretary Salazar recently opined that state regulation of fracing was insufficient and suggested that more stringent federal regulations may be required. This is a sea change for Salazar, who previously made clear his endorsement of state fracing regulation. While it is possible that Salazar’s comments were meant only to defend the Obama Administration’s issuance of rules for fracing on federal land, that is not the way the comments have been interpreted. Salazar’s criticism of state fracing efforts as being "not good enough for" him was unambiguous. The DOI Secretary’s comments came on the same day that DOI extended the period for public comment on the DOI rules by 60 days to September 10, 2012.

The issue of state versus federal fracing regulation has been debated since the process first began garnering significant media attention in the late-2000s. With some exceptions, the U.S. Environmental Protection Agency (EPA) and other federal agencies cannot regulate the fracing process themselves unless and until Congress reverses its 2005 exemption of fracing from the Underground Injection Control rules of the Safe Drinking Water Act. Predictably, Salazar’s comments have been seized on by many national non-governmental organizations (NGOs) that have long advocated for federal control over what has always been a state regulated process. His comments reinvigorate a debate that state regulation advocates appeared to have largely won last year, when Salazar and several members of President Obama’s Department of Energy Task Force on Fracturing openly and clearly expressed their support for state regulatory efforts. Fracing stakeholders need to be keeping a close eye on the federal-versus-state regulatory debate, as it is certain to gain increased media coverage and political attention in this election year.

Reconsideration Motion Fails in Middlefield

by McDermott Will & Emery | Jul 25, 2012 | Environmental, Hydraulic Fracturing, Natural Gas

by James A. Pardo and Brandon H. Barnes

Cooperstown Holstein’s attempt to reverse the trial court’s decision upholding the Town of Middlefield’s zoning ban on hydraulic fracturing has failed. The Cooperstown Holstein case is now heading for appeal to New York’s Appellate Division, Third Department, where it likely will be consolidated with the Town of Dryden action that was appealed earlier this year. For more information about these cases, please see our earlier article, “Recent Court Decisions May Affect Hydraulic Fracturing in New York and Ohio.”

Indiana Adopts “Emergency” Hydraulic Fracturing Fluid Disclosure Rule

by McDermott Will & Emery | Jul 23, 2012 | Environmental, Hydraulic Fracturing

by James A. Pardo and Brandon H. Barnes

As hydraulic fracturing (fracing) activity increases in Indiana, in the view of the state’s Department of Natural Resources, so too has the need for increased and updated regulations. Last week, Indiana addressed this need in part by adopting new "emergency" regulations for fracing fluid disclosure. These regulations took effect on July 1, 2012, and require the following information to be disclosed immediately after well completion:

Volume and source of base fluid (water or other substance);
Type and amount of proppant (sand or other substance);
Trade name of each additive as identified on the material safety data sheets (MSDS);
Purpose of each additive;
MSDS for each additive;
Maximum volume of each additive, expressed as a percentage by mass or by volume;
Copies of documents like well service company job tickets that summarize the products used, pressure recording charts and logs or surveys calculating or mapping the fracture length and height.

Because these emergency regulations modify (rather than replace) Indiana’s existing disclosure rules for coal-bed methane operations, the existing provision protecting trade secrets remains intact under the new regulations. The definition of “base fluid,” however, is broader than we have seen proposed in states like New York, so drillers probably will not be able to avoid fluid disclosure requirements by using liquid propane. Many stakeholders with an interest in Indiana already should be familiar with the requirements of these new rules, as they closely track the disclosures already being voluntarily made on fracfocus.org.

New York Governor Floats Idea to Ban Hydraulic Fracturing in Majority of New York Counties

by McDermott Will & Emery | Jul 23, 2012 | Environmental, Hydraulic Fracturing

by James A. Pardo and Brandon H. Barnes

New York Governor Andrew Cuomo is reportedly considering a plan that would ban hydraulic fracturing (fracing) in all of New York with the exception of five counties along the Pennsylvania border: Broome, Chemung, Chenango, Steuben and Tioga. Even within those five counties, however, fracing would be strictly limited under the Governor’s scheme. Specifically, fracing permits would only be issued for wells located in communities that had not acted locally to prohibit the process – in other words, towns within the five counties still could exercise "home rule" to ban fracing by zoning amendment, or otherwise. Cuomo also would ban fracing in Catskill Park, near any drinking water aquifer, in any nationally-designated historic districts and initially would limit it to the “deepest” areas of the Marcellus Shale.

Governor Cuomo has been under intense pressure from both sides in the fracing debate, and his idea – which an anonymous New York State Department of Environmental Conservation (NYSDEC) official deliberately leaked to the New York Times – was an attempt to take the temperature of both sides to a possible compromise. It appears that Cuomo’s team sought to please environmentalists by banning fracing in most of the Empire State; assuage industry stakeholders by permitting fracing in certain counties with significant Marcellus plays and where public opinion appears to be leaning in favor of natural gas development; and build support with local officials from around the state by implicitly reaffirming "home rule" rights to ban fracing. Initial reaction to this "trial balloon" idea was largely negative from the anti- fracing side – which has been trying to build momentum for a full statewide ban – but recently has drifted towards tepid support as fracing foes may see it as their best chance to stop fracing in most of New York. Stakeholder response has been fairly neutral, with some companies expressing optimism because the plan allows fracing at all – an indicator of just how tight the debate has become in New York right now.

Cuomo’s plan would give everything to nobody, and something to everybody – providing considerable political cover to both the Governor and NYSDEC. For this reason alone, it is a plan that may have the best chance of passing through the regulatory, legislative, legal and public opinion gauntlet that currently exists for fracing in New York.

Federal Authorities Obtain First-Ever Criminal Conviction Regarding Fraudulent Generation of Renewable Fuel Credits

by McDermott Will & Emery | Jul 5, 2012 | Environmental, Renewables

by Susan M. Cooke and Bethany K. Hatef

On June 25, 2012, a federal jury in Maryland found the owner of a fraudulent clean energy production company guilty of wire fraud, money laundering and violations of the Clean Air Act (CAA). Rodney Hailey, the owner of Clean Green Fuels, LLC, was convicted of eight counts of wire fraud, 32 counts of money laundering and two counts of CAA violations in connection with his sale of fraudulent biodiesel renewable fuel credits. Mr. Hailey’s sentencing is scheduled for October 11, 2012. He faces imprisonment of up to 20 years for each wire fraud conviction; up to 10 years for each money laundering conviction; and up to two years for each CAA violation. While Mr. Hailey’s case marks the first criminal prosecution concerning the fraudulent generation of such renewable fuel credits, the Environmental Protection Agency (EPA) is currently investigating other cases where similar enforcement action may be taken.

As required by the Renewable Fuel Standard Program, EPA each year establishes the minimum volume of renewable fuel (Renewable Volume Obligation) to be produced or imported by refiners, importers, and most blenders of nonrenewable transportation fuel (obligated parties). Under EPA’s regulations which are set forth at 40 C.F.R. Part 80, Subparts K and M, a Renewable Identification Number (RIN) is assigned to each volume of renewable fuel that is produced, and the RIN is registered with EPA. After the associated fuel is obtained by an obligated party or blended into motor vehicle fuel, the RIN can be traded as a renewable fuel credit, either bilaterally or in private organized markets, and all transfers must be tracked on a system established by EPA and used to meet an obligated party’s Renewable Volume Obligation.

From March 2009 to December 2010, Clean Green Fuels, sold more than 32 million fraudulent RINs representing over 23 million gallons of renewable biodiesel fuel. In 2010, EPA received a complaint that Mr. Hailey’s company was selling fraudulent RINs. This sparked an investigation by EPA’s Air Enforcement Division in July 2010, and the U.S. Attorney’s Office for the District of Maryland filed charges against Mr. Hailey in October 2011 with respect to his fraudulent sale of RINs and his registration of Clean Green Fuels with EPA as a biodiesel producer when that company never produced any fuel.

In addition to its criminal prosecution of Mr. Hailey, EPA issued Notices of Violation to gasoline and diesel refiners, blenders, and importers that utilized Clean Green Fuels RINs to demonstrate compliance with their Renewable Fuel Obligations. EPA maintains that entities submitting false RINs for compliance purposes are subject to enforcement, regardless of whether they knew or had reason to know that the RINs were invalid. During April 2012, EPA settled with 28 of those parties, requiring them to replace the fraudulent RINs with valid RINs and to pay civil penalties.

Appeals Court Forcefully Validates EPA’s Emerging Program for Controlling Emissions of Greenhouse Gases

by McDermott Will & Emery | Jul 3, 2012 | Environmental

by Jeffrey D. Watkiss

A unanimous panel of the U.S. Court of Appeals for the D.C. Circuit in Coalition for Responsible Regulation, Inc. v. EPA decisively affirmed against industry and state challenges EPA’s developing programs for regulating emissions of greenhouse gases. Those programs respond to the U.S. Supreme Court ruling in Massachusetts v. EPA, 549 U.S. 497 (2007) that greenhouse gases are an air pollutant subject to regulation under the U.S. Clean Air Act (CAA). As EPA moves ahead to implement the new programs, natural gas-fired and renewable generation will increasingly if not completely, displace new investment in coal-fired generation.

In direct response to the Massachusetts decision, EPA issued an Endangerment Finding for a single air pollutant defined as comprising an aggregate group of six long-lived and directly emitted greenhouse gases that are “well mixed” in the atmosphere and cause global climate change: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydroflourocarbons (HFC), perflourocarbons (PFC), and sulfur hexafluoride (SF6). Affirming EPA,the panel explained that the CAA requires EPA to answer only two questions in connection with endangerment: whether greenhouse gas may reasonably be anticipated to endanger the public health and welfare and whether motor-vehicle emissions cause or contribute to that endangerment. These are scientific determinations, the court explained, that are not informed by “performing cost-benefit analyses, gauging the effectiveness of whatever emission standards EPA would enact, [or] predicting society’s adaptive response to the dangers or harms caused by climate change.”

The panel dismissed as “little more than a semantic trick” the petitioners’ complaint that EPA improperly “delegated” its scientific determinations to the Intergovernmental Panel on Climate Change (IPCC), the U.S. Global Climate Research Program and the National Research Council by relying on the research compiled and synthesized by those research bodies. The panel ruled that EPA “reviewed existing scientific evidence” that included syntheses of individual studies and research,” including 18,000 peer-reviewed scientific studies in the case of the IPCC. The panel rejected the petitioners’ argument that EPA itself was required to perform those studies: “EPA is not required to re-prove the existence of the atom every time it approaches a scientific question.” As to Texas’ complaint that EPA did not identify the atmospheric concentration that endanger public health or welfare, the panel held that such a threshold is not required by the CAA. The opposite is what is required: a case-by-case “sliding scale” that sounds the alarm as danger is approached.

Challenges to the Tailpipe Rule and the panel’s discussion of those challenges were brief, but consequential. The petitioners did not challenge the substance of the Tailpipe Rule, but instead argued that EPA arbitrarily and capriciously ignored the automatic consequence of setting this standard for new motor vehicle emissions of greenhouse gases: Once a standard is set for regulating the emissions of greenhouse gases from new motor vehicles, then EPA becomes obligated to also set a New Source Review performance standard and operating permits for major stationary sources of greenhouse gas emissions. EPA consideration of collateral costs associated with triggering standards for major stationary sources is not permitted, the [...]

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EPA Proposes to Approve Texas State Implementation Plan

by McDermott Will & Emery | Jun 18, 2012 | Environmental

by Ari Peskoe

The U.S. Environmental Protection Agency (EPA) recently proposed to approve revisions to Texas’s air pollution permitting program. These revisions, which requires EPA’s approval pursuant to the Clean Air Act, would bring Texas’s State Implementation Plan (SIP), in compliance with federal standards and additionally establish a Plant-wide Applicability Limits (PALs) program in the state.

Under the federal Clean Air Act, states are authorized to develop their own permitting programs, as long as they meet minimum national standards set by Congress and EPA. The proposed revisions to Texas’s SIP will update its New Source Review (NSR) Program, which requires that entities constructing or modifying major air pollution sources obtain a permit prior to construction. The state’s proposed revisions include an update to the method for evaluation of ozone standards in NSR applications to bring it into compliance with a 2006 D.C. Circuit Court decision, an administrative timing change that may change which air quality standards are applied to a permit, and the establishment of a PALs program.

A PAL establishes a site-wide emissions limit for an existing source. By using a PAL, an owner or operator can make changes that increase an individual units’ pollutant emissions so long as plant-wide actual emissions do not exceed its PAL. PALs provide increased operating flexibility for owners and operators, and create an incentive for owners and operators to employ innovative control technologies and pollution control measures to reduce emissions and enable economic expansion. According to the EPA, the the Texas PALs program will reduce emissions because a PAL is based on actual emissions, which are generally less than the emissions allowed under current permits. EPA concluded that Texas’s new rules were at least as stringent as the applicable federal regulations and should have the same impact as the federal PAL rules.

Existing major stationary sources that meet certain criteria will be eligible for a PAL. PALs are pollutant-specific and issued for ten-year terms. Baseline emissions under a PAL are established using any consecutive 24-month period in the last ten years. Emissions calculations include emissions from startups, shutdowns and malfunctions and are adjusted to account for units that have been permanently shut down and potential emissions from units constructed after the baseline period. To obtain a PAL, a facility owner or operator must submit a permit application to the Texas Commission on Environmental Quality. PAL applications are subject to public notice and comment.

Once EPA’s proposed approval of Texas’s revised SIP is published in the Federal Register, EPA will accept public comments for 30 days.

*Jessica Bayles, a summer associate in the McDermott’s Washington D.C. office, contributed to this article.

ITC Will Decide on Duties for Solar Imports

by McDermott Will & Emery | Jun 14, 2012 | Environmental, Project Development and Finance, Renewables

by Raymond Paretzky and David J. Levine

The U.S. International Trade Commission (ITC) is now beginning its final phase “injury investigation,” which will result in a determination in November as to whether U.S. producers are harmed by imports of allegedly dumped and/or subsidized imports of Crystalline Silicon Photovoltaic Cells and Modules from China.

The parallel dumping and subsidy actions began with the filing of a petition by Solar World Industries America Inc., the U.S. subsidiary of a German parent company, in October 2011. In December, the ITC issued a unanimous affirmative preliminary injury determination, rejecting arguments by companies opposed to the action that price declines in the industry resulted not from Chinese imports but rather from plummeting silicon prices, reduced U.S. government incentives for the housing industry to use solar cells/panels, and limited U.S. demand. The ITC will revisit these arguments in its more expansive final phase investigation, in which importers, U.S. producers, purchasers and Chinese producers will be required to answer ITC questionnaires. All parties with interests at stake are well advised to make their positions and relevant facts known to the ITC.

If the ITC finds that the U.S. industry making these products is in fact injured (or threatened with injury) by the imports, the United States will impose tariffs on imports of these products. The amount of the tariffs will be determined by the U.S. Department of Commerce (DOC) in separate proceedings. DOC preliminarily found that subsidization was occurring in the range of 2.90 to 4.73 percent and dumping in the range of 31.14 to 249.96 percent, but DOC could change these rates in its final investigations, which are currently ongoing.

Key dates in the ITC investigation’s final phase are:

Questionnaire Responses Due Aug. 13 Confidential Staff Report Released Sept. 13 Requests to Appear at Hearing Due Sept. 19 Prehearing Briefs Due Sept. 20 Hearing Oct. 3 Posthearing Briefs Due Oct. 11 Final Comments on New Info. Due Nov. 1 ITC Vote (Proposed) Nov. 7

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