March 2017 Industry Digest

Trump’s Order To Limit Regulatory Growth Draws Legal Challenge

WASHINGTON–The Natural Resources Defense Council has joined consumer advocacy group Public Citizen and the Communications Workers of America in suing the Trump administration in an attempt to kill the president’s executive order (EO) directing federal agencies to repeal two regulations for every new rule they issue (see story, page 28). The plaintiffs are asking the U.S. District Court for the District of Columbia to issue a declaration that the order cannot be lawfully implemented and to bar federal agencies from doing so.

The EO, which President Trump signed on Jan. 30, also calls for no net cost increase for rules issued this fiscal year. The lawsuit alleges that the agencies cannot lawfully comply with the EO because doing so would violate the statutes under which the agencies operate, as well as the Administrative Procedure Act.

“President Trump’s order would deny Americans the basic protections they rightly expect,” asserts NRDC President Rhea Suh. “New efforts to stop pollution don’t automatically make old ones unnecessary. This order imposes a false choice between clean air, clean water, safe food, and other environmental safeguards.”

Adds Public Citizen President Robert Weissman, “No one thinking sensibly about how to set rules for health, safety, the environment and the economy would ever adopt the Trump EO approach–unless the only goal was to confer enormous benefits on big business. If implemented, the order will result in lasting damage to our government’s ability to save lives, protect our environment, police Wall Street, keep consumers safe, and fight discrimination. Irrationally directing agencies to consider costs but not benefits of new rules will fundamentally change our government’s role from one of protecting the public to protecting corporate profits.”

Among its complaints, the lawsuit faults the EO for:

  • Instructing agencies to focus on rules’ costs while ignoring their benefits;
  • Lacking statutory support in either the rules’ enabling legislation or a separate law commanding no net regulatory cost increase and a one-in-two-out approach to rule making; and
  • Threatening implementation of governing statutes.

The plaintiffs in the lawsuit are represented by lawyers at Public Citizen Litigation Group, NRDC, CWA and Earthjustice.

Trump Puts More Teeth Into Regulatory Reform

WASHINGTON–President Donald Trump put additional teeth into his regulatory reform efforts by signing an executive order on Feb. 24 instructing federal agencies to designate regulatory reform officers within their ranks as well as to create regulatory reform task forces.

Each regulatory reform officer “shall oversee the implementation of regulatory reform initiatives and policies to ensure that agencies effectively carry out regulatory reforms, consistent with applicable laws,” the order states. Among the policies specified is Executive Order 13771, signed by Trump on Jan. 30.

That order, the “Presidential Executive Order on Reducing Regulation and Controlling Regulatory Costs,” requires agencies to identify two existing regulations that can be repealed for each new regulation they promulgate (see story page 28). It also stipulates that the Office of Management and Budget establish a ceiling on the amount of incremental costs that will be allowed for each agency to issue new regulations in any fiscal year.

The Feb. 24 executive order instructs agencies’ regulatory reform task forces to “evaluate existing regulations and make recommendations to the agency head regarding their repeal, replacement or modification.” It directs task forces to identify regulations that:

  • Eliminate jobs or inhibit job creation;
  • Are outdated, unnecessary or ineffective;
  • Impose costs that exceed benefits;
  • Create a serious inconsistency with or otherwise interfere with regulatory reform initiatives and policies;
  • Rely on data, information or methods that are not publicly available or sufficiently transparent; and
  • Derive from or implement executive orders or other presidential directives that subsequently have been rescinded or substantially modified.

According to published reports, Trump signed the order following a round table with executives from top manufacturing companies, and said the order was “one of many ways we are going to get real results when it comes to removing job-killing regulations and unleashing economic opportunity.” Trump reportedly promised his deregulation efforts, tax reforms and trade policies would “return significant manufacturing jobs to our country.”

American Petroleum Institute President and Chief Executive Officer Jack Gerard applauded the initiative. “In the past few years, our industry has faced a regulatory onslaught with 145 new rules and regulations aimed at hindering development of our nation’s energy resources,” he states. “We must have smart, common-sense regulations that will continue to drive innovations in technology and support America’s energy renaissance.”

Western Alliance Lauds ONRR Freeze On Royalty Valuation Rule

DENVER–The Western Energy Alliance is cheering the Office of Natural Resources Revenue’s decision to hold off on its new royalty valuation rule while the matter is in litigation.

ONRR Director Gregory Gould announced the agency would suspend reporting requirements under the consolidated federal oil and gas, and federal and Indian coal valuation rule, which was finalized July 1 and took effect on Jan. 1. The first reports would have been due on Feb. 28, but Gould indicates ONRR is postponing the effective date until the legal challenges are resolved.

In the Feb. 27 Federal Register, the director says, “In light of the existence and consequences of the pending litigation, and given the potentially irreparable harm that could result if the 2017 valuation rule is implemented immediately, ONRR has determined that the public interest and justice requires postponing the effectiveness of the 2017 valuation rule until the litigation is resolved.”

Alliance President Kathleen Sgamma thanks Gould for postponing the rule, which she likens to the Dodd–Frank Wall Street Reform and Consumer Protection Act that President Obama signed into law in July 2010. “The valuation rule will do to small independent oil and natural gas producers operating on federal lands what Dodd-Frank did to community banks: render the federal regulatory environment so complex that small businesses cannot possibly comply,” Sgamma warns. “Small companies will be unable to take many legal deductions, and will pay royalties at a higher price than they actually can obtain in the market. Postponing the rule is a wise step, considering the ongoing litigation.”

The National Ocean Industries Association points out the rule bans the use of non-arm’s-length sales to determine royalty valuations, and instead employs “market-driven” calculations. “Under the rule, DOI may adjust a company’s oil and gas royalty valuations if they are 10 percent below ‘reasonable market prices’ for similar quality oil and gas in nearby locations,” NOIA describes. “The rule also removes an earlier policy that let oil and gas companies claim royalty deductions for business-related expenses.”

Sgamma praises the American Petroleum Institute and other parties involved in litigating the rule, which she maintains, “makes reporting horribly complex without changing the royalty valuation in many circumstances, thus increasing the burden without a revenue benefit to the government.”

U.S. Army Corps Grants Easement For DAPL

WASHINGTON–The path to completing the Dakota Access Pipeline cleared considerably in February after the U.S. Army Corps of Engineers granted Dakota Access LLC an easement to lay pipe under Lake Oahe in North Dakota and a federal judge denied a preliminary injunction to stop it.

Parent company Energy Transfer Partners confirmed Feb. 8 that it had received the easement the Army Corps had denied it during the Obama administration. On Nov. 14, the corps announced it was suspending the easement while it conducted additional environmental reviews “in light of the history of the great Sioux nation’s dispossessions of lands, the importance of Lake Oahe to the tribe, our government-to-government relationship, and the statute governing easements through government property” (AOGR, December 2016, pg. 37).

But on Jan. 24, President Trump signed a presidential memorandum instructing the Army Corps to “approve in an expedited manner . . . requests for approvals to construct and operate the DAPL” (see story page 28).

American Petroleum Institute President and Chief Executive Officer Jack Gerard called the corps’ action “welcome news (that) shows the new direction being taken by the administration to support jobs and the rule of law.”

He added, “Certainty in the permitting process is critical to harnessing the benefits that come from our nation’s energy infrastructure so that American consumers and workers, and the environment, can continue to benefit from our nation’s energy renaissance.”

The Cheyenne River Sioux Tribe sought a restraining order from the U.S. District Court for the District of Columbia to stop construction, but on Feb. 13, Judge James E. Boasberg denied its request. According to published reports, the Cheyenne River Sioux, which are a party with the Standing Rock Sioux Tribe in other pending court challenges to DAPL, argued the pipeline would interfere with their indigenous freedom to practice religion in pure, clean water.

“The mere presence of oil in the pipeline renders the waters religiously impure,” tribal lawyer Nicole Ducheneaux is quoted.

Although Judge Boasberg denied the restraining order, published reports say he did promise to rule on the tribe’s religious challenge before oil ran through the pipeline, and ordered ETP to provide the court weekly updates on when oil would begin to flow through the river-crossing pipe.

A company spokeswoman had told reporters previously that it would take approximately 60 days to drill under the lake and another 23 days to fill the line to Patoka, Il.

Meanwhile, Standing Rock Sioux attorney Chase Iron Eyes reportedly vowed the tribes would “continue to push legal remedies through the courts, seek an injunction against the pipeline, and push for the full environmental impact statement to be completed.”

Nebraska Permitting Resumes For Keystone

LINCOLN, NE.–TransCanada Corporation says it has filed an application with the Nebraska Public Service Commission seeking approval for the Keystone XL Pipeline route through the state.

“This application has been shaped by direct, on-the-ground input from Nebraskans,” relates TransCanada President and Chief Executive Officer Russ Girling. “The thousands of Nebraskans we have met over the last eight years understand the value of this project and what it means to the state. As we have said consistently, safety and a respect for the environment remain our key priorities. We are listening and acting on what we have learned.”

The company notes that the Nebraska Department of Environmental Quality in 2013 approved the proposed route, which avoids the area defined as the Nebraska Sandhills. The review also included consultations with landowners along the pipeline corridor, where more than 90 percent have signed voluntary easements to construct the pipeline, TransCanada indicates.

Permitting requirements restrained the Keystone project for eight years before President Obama in November 2016 denied a permit for the 1,187-mile pipeline, which would transport oil from the tar sands in Alberta, Canada, to connections near Steele City, Ne., for eventual shipment to Gulf Coast refineries. Obama’s decision prompted TransCanada to withdraw its original route application to the Nebraska Public Service Commission (AOGR, Dec. 2015, pg. 30).

TransCanada Corporation has resubmitted its application for a federal cross-border permit at the Trump administration’s urging. Trump also has given the State Department a deadline by which it must make a determination and directed it to consider the January 2014 final supplemental environmental impact statement as satisfying all applicable legal requirements (see story, page 33).

Published reports indicate Canadian Prime Minister Justin Trudeau supports the Keystone XL Pipeline, which he says will boost Canadian jobs and government revenues.

IPAA, ASL Suing USFWS For Failing To Delist American Burying Beetle

AUSTIN, TX.–The Independent Petroleum Association of America and the American Stewards of Liberty (ASL) have notified the U.S. Fish & Wildlife Service of their intent to sue the agency under Section 4(b)(3)(B) of the Endangered Species Act for failing to timely act on their August 2015 petition to delist the American burying beetle.

ASL says the groups notified USFWS in a letter dated Feb. 22.

According to the organization, USFWS listed the American burying beetle as endangered in 1989, based on claims of a 90 percent reduction in its historical range. However, ASL says it demonstrated in its delisting petition that more current data indicate the beetle’s known range has expanded 100-fold since it was listed. “Robust populations are found now in several states in at least five ecological regions,” ASL says.

In March 2016, ASL notes, USFWS responded to IPAA’s and ASL’s delisting petition with a preliminary determination that delisting might be warranted. However, as is pointed out in the attorney’s letter notifying USFWS of the group’s intent to sue, if the service makes a positive determination that delisting may be warranted, within 12 months of receiving the delisting petition, it must either issue a proposed rule to begin the delisting process or publish a finding that a delisting is not warranted.

“We believe the case for removing the American burying beetle is clearer than ever,” declares IPAA Senior Vice President of Government Relations and Political Affairs Dan Naatz. “USFWS has had time to properly review and act on our petition. Economic threats to the affected communities continue to cost private landowners, businesses and local governments millions.”

ASL adds that it believes delisting the beetle is consistent with President Donald Trump’s Jan. 30 executive order on reducing regulations and controlling costs.

9th Circuit Confirms ESA Listing Based On Climate Projections

WASHINGTON–The U.S. Court of Appeals for the 9th Circuit in San Francisco has refused to reconsider its decision upholding the National Marine Fisheries Service’s listing of the Pacific bearded seal as a threatened species based on projections of climate change, according to a report from the Independent Petroleum Association of America.

IPAA explains that NMFS listed the seal as threatened under the Endangered Species Act in 2009, based on projections that climate change would reduce the seals’ winter sea-ice habitat significantly by 2095. A number of organizations, including local governments and native American groups, challenged the listing, and in 2014, a U.S. district court held in Alaska Oil & Gas Association v. Pritzker that “an unknown, unquantifiable population reduction” nearly 100 years in the future was too remote and speculative to support an endangered listing.

The 9th Circuit overturned the district court’s ruling last October, finding that NMFS’s administrative record demonstrated reasonable and evidence-based justification for the listing (AOGR, December 2016, pg. 14). The appeals court rejected the plaintiff’s petition for reconsideration on Feb. 22.

“The ruling could have major implications for future ESA listings and raises concerns about the possibility of listing determinations being made without substantial scientific evidence of current impacts,” worries IPAA. “As recently as October last year, the Pacific bearded seal was listed as a species of ‘least concern’ by the International Union for Conservation of Nature.”

Published accounts note that the U.S. Fish & Wildlife Service also used climate projections to list the polar bear as threatened in 2009, which the 9th Circuit upheld in February 2016.

Fifth Circuit Court Declines To Rehear Critical Habitat Case

NEW ORLEANS–A federal court has voted 8-6 against rehearing–either en banc or before the full court–a case about critical habitat for the dusky gopher frog, the Independent Petroleum Association of America reports. The mid-February decision lets stand a 2-1 ruling in June 2016 that upholds the government’s position.

The case’s key legal question asks whether the government can deem an area as critical habitat for an endangered species even if the species is absent from that area (AOGR, Aug. 2016, pg. 19). Although the frog can be found only in Mississippi, its historical habitat extended into Louisiana and Alabama, and in 2012 the U.S. Fish & Wildlife Service designated 6,477 acres in St. Tammany Parish, La., as critical habitat.

According to the majority opinion in last summer’s ruling, USWFS relied on a reasonable interpretation of the Endangered Species Act in determining the Mississippi lands alone would be inadequate for the frog’s survival and that the Louisiana acreage–which includes 1,544 acres of private timberland–was essential for its conservation. The court also held that, because ESA critical habitat designations are a valid exercise of authority under the Commerce Clause of the U.S. Constitution, USFWS did not exceed its Commerce Clause authority.

The ruling also rejected claims that USFWS was required to complete an environmental impact statement before it designated the critical habitat.

Court Stays Lawsuit Challenging USFWS’s Critical Habitat Rule

WASHINGTON–The U.S. District Court for the Southern District of Alabama temporarily has stayed litigation filed by 18 states against the U.S. Fish & Wildlife Service’s expanded definition of critical habitat, the Independent Petroleum Association of America reports.

IPAA says the 60-day stay was granted Feb. 10 on an unopposed motion filed by the defendants in State of Alabama et al v. National Marine Fisheries Service, Secretary of Commerce, and U.S. Fish & Wildlife Service to allow the Trump administration time to become familiar with the issue.

IPAA explains that in February 2016, USFWS finalized rules that enabled it to designate as critical habitat, areas that did not at the time, and might never be, necessary to conserve a species simply by determining that “it is reasonable to infer from the record that (the unoccupied areas) eventually will become necessary to support the species’ recovery.”

IPAA says USFWS’s order also:

  • Redefines “habitat destruction and adverse modification” to protect not only existing habitat features, but features that someday may develop; and
  • Essentially adopts as policy a de facto moratorium on ever excluding federal lands from critical habitat designations.

Eighteen states led by Alabama and Arkansas challenged the rules in November in the federal district court in Alabama, arguing they violated the Endangered Species Act and were arbitrary and capricious under the Administrative Procedure Act.

Colorado AG Files Suit Against Boulder County For Activity Moratorium

DENVER–Colorado Attorney General Cynthia Coffman is suing Boulder County, Co., for its moratorium on new oil and gas development within its jurisdiction. Press accounts indicate the board of county commissioners characterizes the moratorium as a necessary interval in which to update its oil and gas regulations.

Coffman cites a May 2016 Colorado Supreme Court ruling that pre-empts local bans on oil and gas development that conflict with the Colorado Oil and Gas Conservation Act, which regulates all aspects of oil and gas development within the state (AOGR, June 2016, pg. 14). After that case, which arose because the Colorado cities of Longmont and Fort Collins attempted to ban hydraulic fracturing, most other local governments lifted similar bans, Coffman indicates. In the lone exception of Boulder County, officials twice extended its moratorium, she notes, which began in February 2012.

According to the AG, she put Boulder County on notice on Jan. 27 that failure to lift the moratorium by Feb. 10 would prompt the state to take legal action. However, she says, county commissioners responded with a claim that more time was necessary to draft regulations and prepare to accept new applications for oil and gas development.

The Colorado Oil & Gas Association applauds the AG’s move to compel compliance by filing suit in Boulder County District Court. “It’s not about drilling, or fracturing or pipelines, it’s about the law, and the law is clear,” states COGA President and Chief Executive Officer Dan Haley. “Long-term moratoriums–and this one is more than five years now–are illegal. Boulder County shouldn’t be surprised that the AG cares about the rule of law in Colorado.”

Coffman indicates Boulder County’s opportunity to update its oil and gas oversight has been more than sufficient. “It is not the job of industry to enforce Colorado law; that is the role of the AG on behalf of the people of Colorado,” she says. “Regrettably, Boulder County’s open defiance of state law has made legal action the final recourse available to the state.”

According to media accounts, county officials uphold the moratorium’s legality as necessary to complete their regulatory update.