Army Will Not Grant Easement for Dakota Access Pipeline

On December 4, the U.S. Army’s Assistant Secretary for Civil Works announced that the Army will not approve an easement that would have allowed Energy Transfer Partners’ proposed Dakota Access Pipeline to cross under the Missouri River at Lake Oahe in North Dakota, effectively putting the project on hold.  In an accompanying memo, the Army Corps of Engineers explains the history and background of this decision.

The proposed Dakota Access Pipeline is approximately 1,172 miles of pipeline that would connect the Bakken and Three Forks oil production areas in North Dakota to an existing crude oil terminal near Patoka, Illinois. It is projected to transport 470,000 barrels of oil per day, if completed as planned.

Lake Oahe is a project of the Army Corps of Engineers on the Missouri River.  The pipeline’s proposed crossing at Lake Oahe thus requires several Corps approvals, including permission under Section 14 of the Rivers and Harbors Act of 1899 and an easement, or right-of-way, under the Mineral Leasing Act.

The Corps granted Section 14 permission in July 2016, accompanied by an Environmental Assessment (EA) under the National Environmental Policy Act (NEPA), finding that the proposed crossing “did not constitute a major Federal action that would have significant environmental impacts.” The EA briefly described an alternative route, which would have crossed the Missouri River 10 miles north of Bismark, ND.

As to the easement, the proposed crossing of Lake Oahe is about 0.5 mile upstream of the Standing Rock Sioux Tribe’s reservation. Lake Oahe provides drinking water and irrigation to the Tribe, and portions of the lake downstream from the proposed crossing are within the Tribe’s reservation boundaries.  The Tribe also retains water, hunting, and fishing rights in the lake.  Protesters have gathered at the site since the spring (background here).

On November 14, the Army concluded that “additional discussion and analysis are warranted 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.”  The Army reports that there was a meeting December 2 between the representatives of the Tribe, the applicant, and the Corps.  This meeting included technical discussions and “a meaningful exchange of information.”

Citing the NEPA requirement to consider reasonable alternatives to recommended actions, including in “some cases where environmental effects on Tribal resources are at stake,” the Corps’ December 4 determination found that additional review and analysis is appropriate before deciding on the easement. That is, “the Army will not grant an easement to cross Lake Oahe at the proposed location on the current record.”

The Tribe released the statement of Standing Rock Sioux Tribal Chairman Dave Archambault II, applauding the administration’s efforts and decision to “genuinely consider the broad spectrum of tribal concerns.”

Energy Transfer Partners and Sunoco Logistics Partners released their statement that they “are fully committed to ensuring that this vital project is brought to completion and fully expect to complete construction of the pipeline without any additional rerouting in and around Lake Oahe.”

It remains to be seen what the incoming administration, with its indications of support for the project, will mean for the Dakota Access Pipeline.  As we have previously noted, a new administration cannot typically overturn an agency decision such as this without some scrutiny (although Congressional action on the project is also a possibility).

Litigation  against the pipeline remains pending, including a complaint brought in July by the Standing Rock Sioux and Earthjustice.  The court previously denied the Tribe’s motion for a preliminary injunction.  The company recently filed a motion for summary judgment.

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Fourteen States Release Report on Carbon-Dioxide-Enhanced Oil Recovery

This month, a work group of fourteen states, led by Governors Matt Mead (R-WY) and Steve Bullock (D-MT), issued a report entitled Putting the Puzzle Together: State & Federal Policy Drivers for Growing America’s Carbon Capture and CO2-EOR Industry.  Carbon-Dioxide-Enhanced Oil Recovery (CO2-EOR) is a technique in which CO2 is injected into mature oil fields in order to recover remaining crude.  Currently, CO2-EOR accounts for about 4% of domestic oil production.

The State Work Group advocates increased use of CO2-EOR and argues that pairing CO2-EOR with carbon capture and storage can provide the United States with a long-term, low-carbon way of using abundant domestic fossil energy resources.  The report explains that for every 2.5 barrels of oil produced, CO2-EOR can safely and permanently store an average of one metric ton of CO2 underground.  However, currently less than a quarter of the CO2 used for CO2-EOR comes from power plants and industrial sources.  The vast majority comes from geologic sources.  The State Work Group argues that state and federal policies can be used to encourage both CO2-EOR and the commercialization of carbon capture, utilization, and storage.

The report identifies a number of challenges, including the high capital costs, low revenues from CO2 sales because of low oil prices, and limited availability of debt and equity for CO2-EOR projects due to policy uncertainty and market risks.  To address these challenges, the report recommends that Congress pursue a targeted package of federal incentives that include expanding existing tax credits for CO2 sequestration, establishing federal price stabilization contracts for the CO2 sold from capture facilities to EOR operators, and making carbon capture eligible for tax-exempt private activity bonds and for master limited partnerships.  The report also explains that state policies can complement these recommended federal policies, particularly changes to state tax policies that favor the capture of CO2 from power plants and industrial sources and the use of CO2 to produce oil through EOR.

The State Work Group plans to issue additional policy recommendations in the future.

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Outcome of Litigation Hazy for EPA’s Regional Haze Rule

Litigation over EPA’s Regional Haze Rule Federal Implementation Plans for Texas and Oklahoma took another turn this week as EPA and the petitioners/petitioner-intervenors filed their respective status reports with the Fifth Circuit informing the Court of their unsuccessful attempt to settle the case.

As previously reported, in July 2016, the Court granted the petitioners’ motion to stay implementation of EPA’s Regional Haze Rule as applied to Texas and Oklahoma.  Shortly thereafter, the parties jointly filed, and were granted, a request to stay the judicial proceedings in order to afford the parties an opportunity to negotiate a settlement.  Based on the status reports, the parties’ attempts to reach a global settlement in these consolidated cases and in similar cases pending in the Tenth (Luminant Generation Co. v. EPA, No. 16-9508) and D.C. Circuits (Texas v. EPA, No. 16-1078) were not successful.  In its status report, EPA also informs the Court that it intends to request a voluntary remand of the portions of the final rule that involve the replacement of disapproved elements of the states’ proposed State Implementation Plans with a Federal Implementation Plan.  Petitioners, in their status report, state that at this time they do not join in EPA’s motion because they have not yet had a chance to review it.  The motion for voluntary remand has not yet been filed, but in the interim, the Court has resumed the briefing schedule with petitioners’ briefs due on December 29, 2016.

At the same time as the status reports were being filed, Sierra Club and the National Parks Conservation Association, intervenors in support of EPA, filed a petition for rehearing en banc of the July 2016 decision.  Petitioners ask the full Court reconsider the three-member panel’s decision rejecting EPA’s finding that the rule is based on a determination of nationwide scope or effect and denying EPA’s request that the petitions be heard in the D.C. Circuit.

In further litigation news, last week, the State of Arkansas filed a petition for review of its EPA Regional Haze Rule Federal Implementation Plan (which was issued on September 27, 2016). Arkansas seeks review in the U.S. Court of Appeals for the Eighth Circuit.

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Handful of States Seek Review of EPA’s Cross-State Air Pollution Rule in Wisconsin v. EPA

Five states last week filed a petition for review with the U.S. Court of Appeals for the D.C. Circuit seeking review of EPA’s Cross-State Air Pollution Rule Update for the 2008 Ozone NAAQS (CSAPR).  The CSAPR sets new nitrogen oxide (NOx) emission budgets for the summertime (May–September) ozone season and applies to power plants in 22 eastern states.  While the petition does not go into specifics of the challenge, the five state petitioners—Wisconsin, Alabama, Arkansas, Ohio, and Wyoming—ask the court to set aside the final rule on grounds that it exceeds EPA’s statutory authority and is otherwise arbitrary and capricious.

The petition for review kicks off another round of litigation against EPA related to EPA’s attempts to exercise its authority under the “good neighbor” provision of the Clear Air Act (42 U.S.C. § 7410(a)(2)(D)(i)(I)). As previously reported, EPA’s Clean Air Interstate Rule, the predecessor to CSAPR, was overturned by the D.C. Circuit in 2008.  North Carolina v. EPA, 531 F.3d 896, on reh’g, 550 F.3d 1176 (D.C. Cir. 2008).  On remand to the agency, EPA issued its first iteration of the CSAPR, which set annual NOx and sulfur dioxide (SO2) emissions budgets for 28 upwind states to address interstate transport of ozone pollution under the 1997 Ozone National Ambient Air Quality Standards (NAAQS) and of fine particulate matter (PM2.5) pollution under the 1997 and 2006 PM2.5 NAAQS.  That rule was upheld by the Supreme Court in EPA v. EME Homer City Generation, L.P., 134 S. Ct. 1584 (2014).  The states’ petition, while the first, may not be the last—the deadline to file petitions for review of the rule is December 26, 2016.

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FERC Issues Proposed Rule on Electric Storage Resources and DER Aggregations

At the open meeting held on November 17, 2016, FERC announced a Notice of Proposed Rulemaking on Electric Storage Participation in Markets Operated by Regional Transmission Organizations and Independent System Operators. The proposed rule aims to address concerns about barriers that electric storage resources and distributed energy resource (DER) aggregations may face to their participation in organized wholesale electric markets.

As the proposed rule explains, electric storage resources (such as batteries, flywheels, and pumped-hydro) that operate in organized markets often must use participation models that were designed for traditional resources. These participation models do not account for the unique characteristics of electric storage resources. While some organized markets have created participation models for electric storage resources, these models allow storage resources to provide only limited services.

The proposed rule would require each regional transmission organization (RTO) and independent system operator (ISO) to create a participation model for electric storage resources that recognizes and accommodates the unique physical and operational characteristics of these resources. In particular, these models must, among other things, (1) make electric storage resources eligible to provide all capacity, energy, and ancillary services that they are capable of providing; (2) include bidding parameters that reflect the physical and operational characteristics of electric storage resources; and (3) set a minimum size requirement for electric storage resources no greater than 100 kW.

The proposed rule explains that organized markets also currently limit the participation of DER aggregations (entities that combine DERs in order to jointly participate in organized markets). DER aggregations often can participate only as demand response, which limits the services they can provide. DER aggregations are also often prevented from injecting power back into the grid or increasing consumption if there is an operational requirement to do so.

The proposed rule would require each RTO and ISO to allow DER aggregations to offer to sell capacity, energy, and ancillary services in the organized wholesale electric market. The proposed rule would also require RTOs and ISOs to remove any unnecessary restrictions on how the DERs that participate in aggregations must be operated.

Commissioner LaFleur issued a separate statement on the proposed rule. While she “strongly support[s] the development of a market participation model for storage resources,” Commissioner LaFleur’s statement specifically requests comments on the part of the proposed rule addressing DER aggregations. She notes that because DER aggregations connect to the grid at the distribution level, they raise unique issues beyond those facing energy storage resources.

Comments are due 60 days from the proposed rule’s publication in the Federal Register.

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