Pratt's Energy Law Report Sample Issue September 2014

EDITORS’ NOTE: WElcOmE TO PRaTT’S ENERgy laW REPORT!Steven A. Meyerowitz and Victoria Prussen Spears

RaRE EaRTH ElEmENTS: DEEP SEa mININg aND THE laW OF THE SEaIan Coles

HOW THE UKRaINE cRISIS IS REDEFININg EUROPEaN, RUSSIaN, aND U.S. ENERgy RElaTIONSShane R. DeBeer and Wim Vandenberghe

U.S. SUPREmE cOURT RUlES ON EPa gHg PERmITTINg REQUIREmENTS: PROVIDES PaRTIal REPRIEVEEddie Lewis and Bob Greenslade

NEW yORK’S HIgHEST cOURT HOlDS THaT ZONINg laWS OF NEW yORK TOWNS BaNNINg FRacKINg aRE ENFORcEaBlE—a BRIEF aNalySIS OF THE ORal aRgUmENTS aND THE cOURT’S OPINIONH. Victor Thomas

ROyal DEcREE 413/2014 aND mINISTERIal ORDER IET/1045/2014 REgUlaTINg THE ElEcTRIcITy gENERaTION acTIVITy USINg RENEWaBlE ENERgy SOURcES, cOgENERaTION, aND WaSTEJavier Lasa

IN THE cOURTSSteven A. Meyerowitz

lEgISlaTIVE REgUlaTORy UPDaTESteven A. Meyerowitz

INDUSTRy NEWSVictoria Prussen Spears

EnErgy LawREPoRT

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Pratt’s Energy Law Report

VOLUME 14 NUMBER 1 SEPTEMBER 2014

Editors’ Note: Welcome to Pratt’s Energy Law Report!Steven A. Meyerowitz and Victoria Prussen Spears 1

Rare Earth Elements: Deep Sea Mining and the Law of the SeaIan Coles 4

How the Ukraine Crisis is Redefining European, Russian, and U.S. Energy RelationsShane R. DeBeer and Wim Vandenberghe 15

U.S. Supreme Court Rules on EPA GHG Permitting Requirements: Provides PartialReprieveEddie Lewis and Bob Greenslade 26

New York’s Highest Court Holds that Zoning Laws of New York Towns BanningFracking Are Enforceable—A Brief Analysis of the Oral Arguments and the Court’sOpinionH. Victor Thomas 32

Royal Decree 413/2014 and Ministerial Order IET/1045/2014 Regulating theElectricity Generation Activity Using Renewable Energy Sources, Cogeneration, andWasteJavier Lasa 35

In the CourtsSteven A. Meyerowitz 40

Legislative Regulatory UpdateSteven A. Meyerowitz 46

Industry NewsVictoria Prussen Spears 50

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Editor-in-Chief, Editor & Board ofEditors

EDITOR-IN-CHIEFSTEVEN A. MEYEROWITZ

President, Meyerowitz Communications Inc.

EDITORVICTORIA PRUSSEN SPEARS

Senior Vice President, Meyerowitz Communications Inc.

BOARD OF EDITORS

SAMUEL B. BOXERMAN

Partner, Sidley Austin LLP

ANDREW CALDER

Partner, Kirkland & Ellis LLP

M. SETH GINTHER

Partner, Hirschler Fleischer, P.C.

R. TODD JOHNSON

Partner, Jones Day

BARCLAY NICHOLSON

Partner, Norton Rose Fulbright

BRADLEY A. WALKER

Counsel, Buchanan Ingersoll & Rooney PC

ELAINE M. WALSH

Partner, Baker Botts L.L.P.

SEAN T. WHEELER

Partner, Latham & Watkins LLP

WANDA B. WHIGHAM

Senior Counsel, Holland & Knight LLP

Pratt’s Energy Law Report is published 10 times a year by Matthew Bender & Company, Inc.

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Place, NY 11764, [email protected], 631.331.3908, or Victoria Prussen Spears, Editor,Meyerowitz Communications Inc., PO Box 7080 Miller Place, NY 11764, [email protected],516.578.5170. Material for publication is welcomed—articles, decisions, or other items of interest to

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POSTMASTER: Send address changes to Pratt’s Energy Law Report, LexisNexis Matthew Bender, 121Chanlon Road, North Building, New Providence, NJ 07974.

Editor-in-Chief, Editor & Board of Editors

iv




PRATT’S ENERGY LAW REPORT

September 2014

EDITORS’ NOTE

Welcome to Pratt’s Energy Law Report!By Steven A. Meyerowitz and Victoria Prussen Spears

At no time in our nation’s history have the use of energy and innovative technological

advances been of such vital importance, raised as much controversy, or presented such risks.

With chronic turmoil in the Middle East, with new conflicts arising that threaten the stability

of energy supply lines, with energy costs a continuing concern, and with the United States and

much of the rest of the world still recovering from the recession, businesses and governments

continue to be faced with an extraordinary set of challenges in their quest to determine how

to develop and use a variety of energy sources. This all is taking place within the confines of

a wave of executive, legislative, and regulatory actions, and the need to attempt to balance

myriad, complex environmental concerns and judicial rulings.

Pratt’s Energy Law Report was created for lawyers and law firms, in-house energy counsel,

government lawyers, senior business executives, and anyone interested in energy-related

environmental preservation, the laws governing cutting-edge alternative energy technologies,

and legal developments affecting traditional and new energy providers.

Pratt’s Energy Law Report, a monthly journal published by LexisNexis, focuses on

alternative and traditional energy issues, as well as the critical juncture where energy

technologies and the environment intersect. Pertinent energy and energy-related environmen-

tal developments from federal, state, and local governments as well as case law and industrydevelopments are discussed, reviewed, and analyzed here.

Pratt’s Energy Law Report features content pertaining to legal issues associated with oil,natural gas, coal, hydropower, and nuclear power. In addition, Pratt’s Energy Law Reportexplores legal developments occurring in the full range of new and alternative energy areas,including hydraulic fracturing (fracking), biofuels, solar, wind, renewable energy credits, andother novel emerging technologies, such as carbon sequestration, demand-side managementtechniques, gasification, and fuel cells.

Pratt’s Energy Law Report also addresses energy-related environmental law issuesconfronting businesses today, including water and air quality standards, hazardous waste,community lead emission, diesel exhaust, and natural resource conservation.

Then, we have a number of columns—“In the Courts,” “Legislative and RegulatoryUpdate,” and “Industry News”—to keep our readers informed and up-to-date.

* * *

The Inaugural Issue!

This inaugural issue of Pratt’s Energy Law Report is exciting and informative, covering ahost of timely, important domestic and international energy and environmental issues,

EDITORS’ NOTE

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including rare earth elements and deep sea mining, the Ukraine crisis, a U.S. Supreme Court

ruling on Environmental Protection Agency permitting requirements, a major New York

Court of Appeals decision on fracking, and Spain’s new renewable energy facilities regime.

Rare Earth Elements

Our lead article, “Rare Earth Elements: Deep Sea Mining and the Law of the Sea,” by Ian

Coles, a Mayer Brown partner, presents key legal issues associated with mining in

international waters and illustrates the lengths to which corporations and national govern-

ments will go to secure their rare earth elements supply chains.

The Ukraine Crisis and Global Energy Relations

The continuing turmoil in Ukraine has heightened global energy concerns. Our next

article, “How the Ukraine Crisis is Redefining European, Russian, and U.S. Energy

Relations,” by Shane R. DeBeer and Wim Vandenberghe, attorneys at Dechert LLP, takes

stock of the myriad of existing European Union rules dealing with gas security of supply issues

and potential new approaches as put forward in the European Energy Security Strategy

recently released by the European Commission. It also considers the impact of the Ukraine

crisis on the Russian and U.S. gas markets.

EPA GHG Permitting Requirements

In “U.S. Supreme Court Rules on EPA GHG Permitting Requirements: Provides Partial

Reprieve,” Eddie Lewis and Bob Greenslade of Fulbright & Jaworski LLP discuss a recent

U.S. Supreme Court case holding that the federal Clean Air Act does not allow the U.S.

Environmental Protection Agency to regulate emissions sources under the Prevention of

Significant Deterioration and Title V permitting programs based solely on greenhouse gas

emissions.

Fracking in New York

In his article, “New York’s Highest Court Holds that Zoning Laws of New York Towns

Banning Fracking Are Enforceable—A Brief Analysis of the Oral Arguments and the Court’s

Opinion,” H. Victor Thomas, litigation counsel at King & Spalding, analyzes the oral

arguments and the recent decision by the New York Court of Appeals upholding the

enforceability of local zoning laws in New York that ban fracking.

Renewable Energy in Spain

In our final article, Javier Lasa, a partner in Dentons’ Madrid office, discusses Spain’s new

renewable energy facilities regime. The article is entitled, “Royal Decree 413/2014 and

Ministerial Order IET/1045/2014 Regulating the Electricity Generation Activity Using

Renewable Energy Sources, Cogeneration, and Waste.”

And More . . .

In this issue, we also have our “In the Courts,” “Legislative and Regulatory,” and “IndustryNews” columns.

Enjoy the inaugural issue of Pratt’s Energy Law Report! Let us know what you think (we canbe reached via email at [email protected] and [email protected],respectively)—and send us your news and your bylined articles for possible publication infuture issues of Pratt’s Energy Law Report.


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Steven A. MeyerowitzEditor-in-Chief

Victoria Prussen SpearsEditor

September 2014

EDITORS’ NOTE

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Rare Earth Elements: Deep Sea Mining and theLaw of the Sea

By Ian Coles*

This article presents key legal issues associated with mining in internationalwaters and illustrates the lengths to which corporations and national governmentswill go to secure their rare earth elements supply chains.

INTRODUCTION

There are 17 rare earth elements (“REEs”) including the lanthanides, whichoccupy the elements from near the bottom of the Periodic Table (atomic numbers 57to 71), along with the metals scandium and yttrium, which generally occur in thesame ore deposits and exhibit similar chemical properties. The lanthanides arecommonly divided into: lower atomic weight elements, lanthanum through toeuropium, referred to as the light rare earth elements (“LREE”) and the heavy rareearth elements (“HREE”)—gadolinium through to lutetium and yttrium.

The most commercially important REE deposits are associated with magmaticprocesses and are found in, or related to, alkaline igneous rocks, and carbonatite.

Inaptly named, the REEs’ geochemical properties meant that they were not oftenfound concentrated in economically exploitable ore deposits and were thought to be“rare” even though we now know better.

Initially—and for the subsequent 150 years—interest in REEs was almost purelyacademic. The new elements seemed to have few commercial or industrial applica-tions; indeed extracting them from their ores was too expensive to be viable on anindustrial scale. Since the mid-20th century, however, the unique chemical propertiesof the REEs have led to their use in a wide range of technological applications—and,inevitably, a strong surge in their economic value.

USES OF REEs

We are now reliant on REEs. Many of the electronic devices and technologicalapplications that have come to define the early 21st century are products of theunique chemical properties of REEs. Hybrid vehicles, rechargeable batteries, windturbines, mobile phones, flat-screen display panels, fluorescent light bulbs, laptopcomputers, disk drives, lasers, catalytic converters—all are dependent on REEcomponents.

At present, the highest-value commercial application of REEs is their use in the

* Ian Coles is a Mayer Brown partner and head of the firm’s banking and finance practice in Europe.Based in the firm’s office in London, he serves on the firm’s Partnership Board. Mr. Coles, who hasparticular experience in the mining finance sector, represents banks and other financial institutions,sponsors, and other participants in finance transactions throughout the world. He can be reached [email protected].


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manufacture of powerful permanent magnets (praseodymium and neodymium arethe principal REEs used in the process, plus small amounts of dysprosium andterbium). These magnets can be used in electric motors to produce greater power andtorque, which means that motors and therefore engines can be considerably smallerand lighter in weight. With the depletion of oil and gas reserves, hybrid engines takeon a greater share of the energy burden, and our reliance on REEs will increase. Aplethora of political commitments have been made, which in some part require thedeployment of technology including REEs. REE magnets also allow the miniatur-ization of hard disk drives like those in mobile devices.

Most energy-efficient lighting and display panels require REEs—chiefly europium,terbium, and yttrium—as phosphor compounds. This is an extremely strong growthsector; manufacturers of LED screens and the like constitute the second-largestcommercial REE market.

There are numerous other applications. The nickel-metal hydride (“NiMH”)rechargeable batteries used in hybrid cars and countless other electronic productsemploy a mixed REE alloy (mostly lanthanum). Catalytic converters use cerium aspart of the catalyst for converting NOx to harmless Nitrogen, Oxygen and toxic COto CO2. REEs—again, usually lanthanum—are also present in fluid-crackingcatalysts, used increasingly in the petrochemical industry to increase the efficiency ofthe refining process.

Rare Earths

GLASSES & POLISHING

Ce, La, Pr, Nd, Gd, Er, Ho

Polishing Compounds

Decolorizers/Colorizers

UV Resistant Glass

X-Ray Imaging

CATALYSTS

La, Ce (Pr, Nd)

Petroleum Refining

Catalytic Converter

Diesel Additives

Chemical Processing

Industrial Pollution

Scrubber

METALLURGICAL ALLOYS

La, Ce, Pr, Nd, Y

NimH Batteries

Fuel Cells

Steel

Lighter Flints

Super Alloys

RARE EARTH ELEMENTS: DEEP SEA MINING AND THE LAW OF THE SEA

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Aluminium /Magnesium

MAGNETS

Nd, Pr (Tb, Dy)

Motors

Disc Drives

MRI

Power Generation

Micro Generation

Microphones & Speakers

Magnetic Refrigeration

CERAMICS

La, Ce, Pr, Nd, Y

Eu, Gd, Lu, Dy

Capacitors

Sensors

Colorants

Scintillators

Refractories

PHOSPHORS

Eu, Y, Tb, Nd, Er, Gd (Ce, Pr)

Display Phosphors CRT, LPD, LCD

Fluorescent Lighting

Medical Imaging

Lasers

Fiber Optics

OTHER

Nuclear (Eu, Gd, Ce, Y, Sm, Er)

Defense (Nd, Pr, Dy, Tb, Eu, Y, La, Lu, Sc, Sm

Water Treatment

Pigments Ce, Y

Fertilizers

GLOBAL REE RESOURCES

With global demand for products containing REEs likely to increase, the search fornew stocks of REE ores has assumed huge economic significance.

Until 1948, most of the world’s REEs were extracted in India and Brazil. In the1950s large deposits of Monazite, then the largest source known, were discovered inSouth Africa. From the 1960s until the 1980s, California’s Mountain Pass REE minedominated production.

Today, the Indian and South African deposits still maintain a small output, and in


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2010 the US Geological Survey found that those deposits contained an estimated 13million metric tons of REEs. By far the greatest producer is China, which producedmore than 90 percent of the global supply of REEs in 2012. This figure is made evenmore impressive by the fact that China is estimated to hold only 25–35 percent ofthe world’s confirmed reserves, mostly in Inner Mongolia.

China’s monopoly is even more pronounced with regard to the eight Heavy RareEarth Elements (also known as the yttrium Group). All of our sources for theseelements are in China. Increasing demand for REEs has recently strained supply.There is therefore a growing concern regarding the potential for future shortages;projections suggest that worldwide demand for REEs could soon exceed supply byaround 40,000 tons annually, unless major new sources are developed. Theseconcerns have intensified as China, the predominant supplier, has moved to tightenits regulation of exports and crack down on REE smuggling.

China’s ostensible motivations in limiting the global REE supply are to conservescarce resources and protect the environment. Other reasons, however, have beensuggested for China’s actions. The Economist suggested that, by “slashing” theirexports of rare earth elements, China would be able to move Chinese manufacturersup the supply chain, “so they can sell valuable finished goods to the world rather thanlowly raw materials.”

In September 2011, China stopped production at three of its eight major mines.These mines accounted for almost 40 percent of total Chinese REE production. InAugust 2012, it announced a further 20 percent reduction in production.

The Chinese restrictions on supply failed in 2012, as prices dropped in responseto the opening up of other REE sources and, to a degree, stockpiling of existingreserves. But the search for alternative sources—in Australia, Brazil, Canada, SouthAfrica, Tanzania, Greenland, and the United States—goes on. Mines in manycountries were closed in the 1990s when China’s Stakhanovism REE output triggereda global fall in prices but, as supply falters and demand continues to increase,re-opening these facilities is becoming economically viable. The once world-leadingMountain Pass mine in California resumed limited operations in August 2012; othersignificant sites are under development in central Australia and northern Canada. TheCanadian deposit alone has the potential to supply about 10 percent of NorthAmerica’s annual $1 billion REE consumption. Vietnam began supplying Japan withRare Earths in 2010, while a potential mine site in east Africa, the Tanzanian-basedNgualla project, is reported to contain the sixth-largest deposit by tonnage outside ofChina, and is of very high grade. The development by China of REE projects inGreenland has created another potential hotspot; the Greenland government has sofar resisted pressure to restrict further Chinese exploration.

THE ENVIRONMENT

The environmental costs associated with Rare Earth extraction, purification,distribution and disposal can be significant. Bayan-Obo, China’s largest REE project,has been operating for more than four decades. According to the Germany-based


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Institute for Applied Ecology, the site now has an 11 Km2 waste pond, with toxicsludge that contains elevated concentrations of thorium.

Research by the Washington-based Institute for the Analysis of Global Securitysuggests that China’s undemanding environmental standards have allowed it toproduce Rare Earths around two-thirds more cheaply than its international competi-tors.

The institute’s report noted that China “has never actually worked out pollutantdischarge standards for the rare earth industry.” Many of the environmental problemsassociated with REE processing arise from the fact that the elements occur in China’sores only in very low concentrations. They therefore have to be separated and purifiedusing hydro-metallurgical techniques and acid baths. The waste liquids sluiced fromthe process into the tailings pond contain not only toxic chemicals like fluorine butalso radioactive elements.

China’s remarkable monopoly on the rare earths may, however, soon be fractured.A new plant, based in Malaysia but run by Australia’s Lynas Corporation, startedreefing REEs in February 2013; although they are not processing at full capacitywhile REE demand remains depressed, the plant is likely to become the world’slargest REE processing facility.

ENVIRONMENTAL COMPLIANCE

Seabed mining remains politically and environmentally challenging. Environmen-tal concerns which organizations such as The Ocean Foundation are concerned aboutinclude:

• Physical disturbance and destruction of benthic habitat and seabed fauna. Inaddition to potential destruction of these organisms, they are in turn eaten byother marine life (which could have an impact on the upwards food chain).

• Subsurface noise affecting marine mammals and fish.

• Modification of the natural wave and current regime through removal oraddition of substrate (potential coastal erosion both up and downstream).

• Risks associated with increased infrastructure, e.g., oil spills from vessels.

• At the Solwara 1 site (Papua New Guinea) a particular concern is that stocksof tuna could be contaminated by heavy metals and affect consumers eatingsuch tuna.

In recognition that the full impact of deep seabed mining activities on the deep seaenvironment and marine ecosystem still remains unknown, the ISA regulations onprospecting and exploration specifically impose obligations on each contractor tomonitor, evaluate and report to the ISA the environmental impacts of deep seabedmining.

OCEAN MINING AND THE LAW OF THE SEA

“The hydrosphere is the new frontier in mining.” These were the words in 2011


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of Mike Woodbourne, then the CEO of the Australian marine mining firmBonaparte Diamonds. This new frontier certainly offers substantial potential rewardsin terms of previously untapped mineral resources—but it also presents significantchallenges. No technology has yet been developed to effectively mine deep-seaminerals at a cost comparable to that of land-based mines.

The pioneering firms that sought to target ocean-floor Manganese nodules in the1970s quickly ran into seemingly insoluble difficulties with regard to costs andefficiency. Ocean-floor mining was simply not economical.

Now, however, the long-developing industry’s time might finally have come. Someenterprises—including a number of state-owned operations—have been prospectingsince 1984 and are preparing to begin exploitation in earnest.

Reports indicate that deep-sea mining is now attracting significant investment.Game-changing new technologies and heightened demand for mineral resources havetransformed the economics of the industry.

Global metal and mineral mining output was valued at $644 billion in 2010, butmining as a whole is still facing challenges; resource extraction continues to move toever remoter and more inhospitable locations. Deep-sea mining today accounts foralmost none of that global metal and mineral supply—but that could changedramatically. Industry projections suggest that by 2020 the deep-sea sector could beproviding five percent of total mining output, rising to 10 percent by 2030—a valueof some $65 billion in 2010 prices.

But such a level of output would barely scratch the surface of the potentialresources present—if tantalizingly out of reach—beneath the sea. The value of totalocean-floor gold deposits, for instance, has been put at $150 trillion at today’s prices.A UN official has described the scale of the oceans’ mineral deposits as “staggering.”

These remain very early days. UK Seabed Resources, a government-backed Britishsubsidiary of Lockheed Martin, has secured a license from the UN to explore a 4,000meter-deep area of Pacific seabed twice the size of Wales.

Another mining project, financed by Nautilus Minerals off the coast of Papua NewGuinea, is already underway, though controversy is not far away: the Papua NewGuinea government is challenging the terms of Nautilus’ deal, and environmentalistshave questioned the adequacy of the Environmental Impact Assessment carried outbefore mining began. Exploration continues but a date is set for arbitration inAugust. Investors in Nautilus include Metalloinvest, Anglo American, MB Holding,an Oman-based group.

The search for REEs has so far accounted for only a negligible proportion ofdeep-sea mining activity. However, recent reports indicate that Japanese scientistshave found a large source of REE ores in the Pacific Ocean, east of Tokyo. Thedeposit, estimated at around 6.8 million tons, is lodged in deep-sea mud 5,700meters below sea level, around the island of Minami-Torishima; it is the first depositof its kind to be found in Japan’s Exclusive Economic Zone.

Encouragingly, the Japanese deposits may not—by the standards of the


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industry—be excessively difficult to extract. Although they are deep underwater, thedeposits are in highly concentrated nodules that can be extracted using pressurizedair. Disturbance to the sea floor would be minimal; toxic acid leaching would not benecessary. What’s more, the high concentration of the ore deposits means that therelative cost of extraction would be low enough to make the project economical,according to team leader Professor Yasuhiro Kato of Tokyo University.

It is thought that the levels of the economically important Heavy REEs in theMinami-Torishima deposits are much higher than in Chinese ores; the discoverymight therefore provide the leverage Japan needs to break China’s monopoly on REEproduction.

Professor Kato questions the motivations of the current market leader. “[China’s]real intention is to force foreign companies to locate plants in China,” he argues.“They’re saying, ‘If you want our Rare Earth metals, you must build your factoryhere, and we can then steal your technology.’”

Japan’s industries account for almost 60 percent of global REE consumption.Based on the known distribution of REEs on land, the Minami-Torishima find couldlead to the discovery of further, similar offshore stocks.

BARRIERS TO OCEAN MINING

Frank Sansone, an oceanography professor at the University of Hawaii, hasemphasized the gulf that exists between the presence of deposits and the realisticprospect of extraction. “It’s not just something that you can glibly say, ‘Oh, this is ahuge amount of Rare Earth,’” he told Popular Mechanics. “It would be difficult toexploit. There’s a big difference between saying that the elements exist in largeamounts and being able to appropriately, economically and environmentally extractthat material.”

John Wiltshire, director of the Hawaii Undersea Research Laboratory, told thesame journal, “The truth of the matter is, nobody’s going to mine in the deepsea—even if somebody massively funds this—for a minimum of a decade. Thestart-up cost could run from $1 to $2 billion.” The academic community clearly hasnot fallen for the deep-sea hype. The pair have spent their entire careers studyingocean-floor mineral deposits—including rare earth mineral deposits. “I published apaper on this 25 years ago,” Wiltshire said. “The first papers that indicated RareEarth minerals go back 30 or 35 years. People have been talking about miningmanganese nodules since the 1960s.”

Now, as then, cost and time remain enormous hurdles to any business—orgovernment—planning on reaping a fortune from ocean-floor mining. In conversa-tion with Popular Mechanics earlier this year, Wiltshire cited the planned Nautilusmine off the coast of Papua New Guinea as an instance of the extreme challengesfacing deep-sea miners. Nautilus hopes to build a $157 million ship to support whatcould be the world’s only deep-sea gold and copper mine; it would have to be 680feet long, with a deadweight capacity of more than 20,000 tons, and bunks for up to160 people. The Nautilus project would see three remote-controlled devices—two


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cutters and a collector—lowered to the sea floor, some three miles down. It is thoughtthat an as-yet-undesigned pump system would be used to lift the ore from theseafloor to the giant ship. “They’ve already spent about $400 million,” Wiltshire said.“The boat will be a couple hundred million. A complete operation for Nautilus willeasily be a billion.”

Deep-sea deposits typically contain a 0.2 percent concentration of rare earths;deposits on land can have five to 10 percent concentrations. The obvious questionregarding deep-sea REEs is not “Are they there?” or “Can we extract them?” but “Isit worth it?” China’s monopoly seems likely to endure for at least a little while yet.

MINERAL MATTERS—THE LAW OF THE SEA EXPLAINED

The international legal framework for deep seabed mining stems from Part XI ofthe 1982 United Nations Convention on the Law of the Sea (the “UNCLOS”) andthe 1994 Agreement relating to the Implementation of Part XI of the UNCLOS.There are 166 States Parties to the UNCLOS.

A Dual Regime

The UNCLOS confers sovereign rights on coastal States Parties to explore, manageand exploit resources located within their respective continental shelves, which isbroadly defined in Article 76 as the seabed and subsoil extending up to 200 nauticalmiles from the shore. This is known as the “Exclusive Economic Zone.” Accordingly,a coastal States Party may develop its own policies to permit and regulate deep seabedmining within its national jurisdiction. That said, Article 235 of the UNCLOS alsoimposes a general obligation on all States Parties to protect and preserve the marineenvironment, both within and outside areas of national jurisdiction.

The seabed beyond the limits of national jurisdiction—referred to as “theArea”—and the minerals in the subsoil are declared by the UNCLOS to be “thecommon heritage of mankind.” Accordingly, the exploration and exploitation ofresources in the Area must be carried out “for the benefit of mankind as a whole.”Based on this premise, an independent body—the International Seabed Authority(“ISA”)—was established by the UNCLOS in 1994 to regulate and control seabedmining activities in the Area, with the 166 States Parties to the UNCLOSautomatically becoming members of the ISA.

Regulation of Deep Seabed Mining in the Area

In the Area, activities in relation to seabed mining may only be carried out inaccordance with the regulations, rules and processes laid down by the ISA (the“Mining Code”). Engaging in prospecting1 requires a satisfactory undertaking to begiven to the ISA that the proposed prospector will comply with the UNCLOS andthe Mining Code and will accept verification of compliance by the ISA. Exploration2

and exploitation may only be carried out under a contract with the ISA, which may

1 This is defined in the Mining Code as the searching for minerals without any exclusive rights.2 This is defined in the Mining Code as the searching for minerals with exclusive rights, the analysis


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be awarded to state agencies and private mining enterprises sponsored by a State Partyto the UNCLOS. The element of state sponsorship is fundamental to this regime, asit is designed to ensure that a State Party to the UNCLOS is ultimately responsiblefor the activities of entities which contract with the ISA. To date, the ISA has awarded19 exploration contracts, each valid for 15 years, with a further three contracts in thepipeline. The rapid increase in activity for the ISA in recent years reflects the renewedinterest in deep seabed mining, especially from the private sector.

The complete legal framework on the activities in the Area has yet to be developedby the ISA, as the current regulations are limited to prospecting and exploration. Inview of the fact that many of the contracts will expire in 2016, the ISA has publisheda technical study in February 2013, setting out the issues which should be addressedin a regulatory framework for exploitation, such as the licensing procedure, the fiscalregime and the division of profit and risk. The stated aim is that the regulations forexploitation will be in place by 2016.

National and Regional Efforts

The government of Papua New Guinea awarded a license for the world’s firstcommercial mining operation to Nautilus Minerals, a Canadian firm, in 2012.However, Nautilus’ Solwara 1 project is currently on hold as Nautilus is in disputewith the Papua New Guinea government over the terms of government participationin the project.

As the commercial interest in deep seabed mining grows in the territorial waters ofthe South Pacific region, a legislative and institutional framework will need to bedeveloped by each coastal state at the national level to ensure that the exploitation ofseabed minerals within its national jurisdiction is controlled and managed. Therecognition of this need has culminated in the Pacific-ACP States Regional Legislativeand Regulatory Framework for Deep Sea Minerals Exploration and Exploitation (the“Framework”), which was prepared under the regional project launched in 2011 withfunding from the EU and implemented by the Applied Geoscience and TechnologyDivision of the Secretariat of the Pacific Community. The Framework seeks toprovide the Pacific Island states with the tools and guidelines for the formulation ofa comprehensive national policy, legal framework, and institutional capacity toregulate and monitor deep seabed mining.

The most proactive of the Pacific Island states has been the Cook Islands, whichhas enacted national legislation—the Seabed Minerals Act 2009. Mark Brown, theCook Islands’ finance minister, told The Guardian that the Cook Islands “have theonly legislation in the world dedicated to deep water minerals” mining. He believesthe minerals on the bottom of the South Pacific could increase gross domesticproduct a hundredfold and that the seabed surrounding the Cook Islands couldtransform the nation into one of the richest in the world in terms of per-capitaincome. Brown also told The Guardian that they would expect stakes in mining

of such minerals and testing of equipment and facilities and the carrying out of studies of the factorsthat must be taken into account in exploitation.


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companies for free in return for the rights to exploit its resources. Tenders may begranted by June 2014.

As for the United Kingdom, a bill was introduced to the House of Commons inJune 2013—The Deep Sea Mining Bill 2013-14—which (if passed) will apply toEngland and Wales and Northern Ireland, to amend the provisions of the Deep SeaMining (Temporary Provisions) Act 1981 (which was passed prior to the UNCLOS)to make it consonant with the UNCLOS. The provisions apply to the Area (ratherthan the Exclusive Economic Zone).

REFERENCES

1. China Warns its Rare Earth Reserves are Declining. BBC News, June 20,2012.

2. Chao ECT, Back JM, Minkin J, Tatsumoto M, Junwen W, Conrad JE,McKee EH, Zonglin H, Qingrun M. Sedimentary carbonate-hosted giantBayan Obo REE-Fe-Nb ore deposit of Inner Mongolia, China; a corner-stone example for giant polymetallic ore deposits of hydrothermal origin.1997. United States Geological Survey Publications Warehouse. 29 February2008.

3. USGS. Rare Earth Elements in U.S. Not So Rare: Significant DepositsFound in 14 States. U.S. Department of the Interior. Full Report: ThePrincipal Rare Earth Elements Deposits of the United States—A Summaryof Domestic Deposits and a Global Perspective.

4. Cox C. 2008. Rare earth innovation. Herndon (VA): The Anchor HouseInc.

5. China To Limit Rare Earths Exports, Manufacturing.net, September 1,2009.

6. China to cut exports of rare earth minerals vital to energy tech. thehill.com,October 19, 2009.

7. The Difference Engine: More precious than gold. The Economist, September17, 2010.

8. Rare earths supply deal between Japan and Vietnam. BBC News. October31, 2010.

9. Peak Resources—Maiden Resource, Ngualla Rare Earth Project, ASXAnnouncement, 29th February 2012.

10. Chinese Workers—in Greenland?, BusinessWeek, February 10, 2013.

11. Scientists in Japan discover rare earths in Pacific Ocean east of Tokyo.Japan Daily Press, June 29, 2012.

12. Daily Telegraph online, March 24, 2013.

13. Bradsher, Keith. After China’s Rare Earth Embargo, a New Calculus. TheNew York Times. October 29, 2010.


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GENERAL

C. R. Hammond, Section 4; The Elements, in CRC Handbook of Chemistry and Physics, 89thEdition (Internet Version 2009), David R. Lide, ed., CRC Press/ Taylor and Francis,Boca Raton, FL.

Hedrick, James B. REE Handbook—The ultimate guide to Rare Earth Elements. Rare MetalBlog. Toronto, Canada.

BBC News (2013), available at www.bbc.co.uk/news/science-environment-21774447. GlobalOcean Commission 2012 www.globaloceancommission.org/issues/seabed-mining/.

Shaping Tomorrow (2013), available at www.shapingtomorrow.com/trendAlert.cfm?output=1&id=22542.

Samoa News 2013, available at www.samoanews.com/?q=node/73256.

Mining Australia (2011), available at www.miningaustralia.com.au/features/seabed-mining-plunging-into-the-depths-of-a-new-fr.

Wired 2013, available at www.wired.co.uk/news/archive/2013-01/16/jamaica-rare-earth-minerals.

Popular Mechanics (2013), available at www.popularmechanics.com/science/environment/why-deep-sea-rare-earth-metals-will-stay-right-where-they-are-for-now.

Castor, S B, and Hedrick, J B. 2006. Rare Earth Elements. In: Kogel, J E, Trivedi, N C,Barker, J M, and Krukowski S T., Industrial Minerals and Rocks: Commodities, Markets,and Uses, 7th edition. SME. P.1568.

Samson, I M, and Wood, S A. 2004. The rare earth elements: behaviour in hydrothermalfluids and concentration in hydrothermal mineral deposits, exclusive of alkaline settings.In: Linnen, R L, and Samson, I M. Rare-element geochemistry and mineral deposits.Geological Association Of Canada Short Course Notes Volume 17. Geological Associa-tion Of Canada, 269–298.

Gupta, C K, and Krishnamurthy, n. 2005, Extractive Metallurgy of Rare Earths, CRC Press,508pp.

Walters, A and Lusty, P, 2011, Rare Earth Elements, British Geological Survey. CCTV (2012),available at www.china.org.cn/video/2012-04/26/content_25242652.htm.

The World (2013), available at www.theworld.org/2013/05/deep-sea-mining-economic-bonanza-or-environmental-boondoggle.


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How the Ukraine Crisis is Redefining European,Russian, and U.S. Energy Relations

By Shane R. DeBeer and Wim Vandenberghe*

The continuing turmoil in Ukraine has once again heightened Europe’s concernover its energy security and rehashed memories of the gas disputes of January2006 and 2009 when supplies to Europe were disrupted. Following thesedisputes, the 28 Member States (“MSs”) of the European Union (“EU”) havebeen working to develop a more coherent energy security of supply (“SoS”)strategy. The question of whether Europe is currently in a better position to headoff a potential new gas supply crisis continues to be of concern to oil and gasplayers, utilities, financial institutions and other investors, and governmentagencies. This article takes stock of the myriad of existing EU rules dealing withgas SoS issues and potential new approaches as put forward in the EuropeanEnergy Security Strategy recently released by the European Commission. It alsoconsiders the impact on the Russian and U.S. gas markets.

BACKGROUND

For Europe, energy and security are inextricably intertwined. Part of this reflectssimple economic reality. The EU is both the world’s second largest consumer ofenergy and the world’s largest energy (oil and gas) importer. Several countries inCentral and Eastern Europe (“CEE”) are completely gas import-dependent. More-over, their import-dependence is poorly diversified, with Russian gaspredominant—in some cases the only source of supply.1 Today, Europe covers around65 percent of its natural gas demand from imports.2 Some 39 percent of Europe’s gasneeds come from Russia via three routes—the Druzhba pipeline through Ukraine;the Yamal pipeline through Poland and Belarus; and the Nord Stream pipeline thatcrosses the Baltic Sea to Germany.

The Ukraine crisis sparked a newfound sense of urgency among European leadersregarding the need to reduce this high gas dependency and the European Council3

called on the Commission to present a comprehensive study of EU energy security,

* Shane R. DeBeer is a partner at Dechert LLP in Moscow and London, focusing his practice ontransactions in project finance, commercial real estate development, cross-border M&A, and generalcommercial matters, particularly in the energy sector. Wim Vandenberghe is special counsel in the firm’sBrussels office, concentrating his practice on EU regulatory law, energy, and competition law. Theauthors may be contacted at [email protected] and [email protected], respec-tively.

1 Bulgaria, Estonia, Finland, Latvia, Lithuania, and Slovakia receive 100 percent of their natural gassupply from Russia.

2 Germany and Italy are the biggest net importers of gas.3 The European Council consists of the Heads of State or Government of the MSs, together with

its President and the President of the European Commission.

HOW THE UKRAINE CRISIS IS REDEFINING EUROPEAN, RUSSIAN, AND U.S. ENERGY RELATIONS

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which it published on May 28, 2014.4 Before considering the study, this articlereviews the existing EU regulatory framework for safeguarding energy security andconsiders why Europe is now in a better (or worse) position compared to the 2006and 2009 Ukraine gas crises.

EUROPE’S EVOLVING ENERGY LANDSCAPE

EU Internal Gas Market and its External Dimension

The first aspect of Europe’s energy security policies involves its own internal energymarket (“IEM”).

One of the central ideas of the IEM is that through market liberalization andintegration rules, all MSs are connected to a Europe-wide gas supply grid. This IEMwould not only provide a more robust gas system throughout Europe, but also allowMSs to share and trade gas more flexibly, thereby creating a more liquid market thatmitigates the impact of potential supply interruptions. Following a third wave ofenergy liberalization directives and regulations commonly referred to as the “ThirdEnergy Package”, the IEM is to be completed by 2014 according to a EuropeanCouncil declaration made in 2013.5 However, significant work remains to be done,in particular with the drafting and implementation of the so-called “network codes”(“NCs”). These codes essentially create common rules on technical and commercialconditions for the access to and use of the gas transmission networks across Europeso that gas can be sent to where it is commercially interesting and/or technicallyneeded in the event of a crisis. For example, the NC on Capacity AllocationMechanisms6—which enters into force on November 1, 2015—provides for rules onthe allocation of capacity at the interconnection points of transmission systemsbetween MSs. It requires transmission system operators (“TSOs”) to apply harmo-nized auctions, to offer bundled products (so eliminating the risk for a shipper of onlysecuring capacity rights at one side of the border) and to bring unused capacity backto the market through surrendering procedures such as use-it-or-lose-it (“UIOLI”).Gas trading is increasingly being regulated too in an attempt to create more liquidwholesale markets.7

While the IEM is primarily aimed at the development of an integrated energymarket between MSs, the EU is also exporting its internal gas market reforms intoneighboring non-EU countries, notably through the Energy Community Treaty.8

4 Presidency conclusions of the Brussels European Council (March 20/21, 2014).5 Presidency conclusions of the Brussels European Council (May 22, 2013).6 Regulation No. 984/2013.7 Regulation No 1227/2011 on Wholesale Energy Market Integrity and Transparency (“REMIT”);

European Market Infrastructure Regulation No 648/2012 (“EMIR”).8 The March 2006 EU Green Paper argues that energy security can best be achieved through a

“pan-European energy community,” a “common regulatory space” around Europe. See also, Commu-nication on security of supply and international cooperation, “The EU energy policy: engaging withpartners beyond our borders,” COM (2011) 539.


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The Energy Community Treaty covers not only South Eastern Europe9 but alsoMoldova and Ukraine, with Armenia, Georgia, Norway, and Turkey taking part asObservers.10 While Ukraine acceded to the Energy Community in September 2010,it went further by signing a memorandum of understanding (“MOU”) in February2014 to accelerate the transposition of the abovementioned Third Energy Packageand certain other EU gas regulations into national law and to reform its energy sector,including Ukraine’s oil and gas incumbent Naftogaz and its TSO, Ukrtransgaz.11

The external dimension of the SoS further takes shape thanks to otherinternational/multilateral instruments such as the Energy Charter Treaty (“ECT”).12

Despite having the improvement of energy security as one of its key objectives,especially in relation to gas transit disputes, and the availability of a fast-trackconciliation procedure, the ECT’s leverage to act is low as Russia did not ratify theECT and ceased its own interim application thereof in October 2009.13 However, theECT may remain relevant to potential future transit problems, for example in theSouthern Gas Corridor under development. While the ECT is the EU’s primarydocument governing energy investment trade with external parties, various bilateralinstruments, as well as soft law and (in)formal cooperation mechanisms exist too,e.g., the Eastern Partnership; Southern Mediterranean Partnership; EU-RussiaDialogue; and EU-US Energy Council.

Apart from the gas reform or liberalization laws that impact SoS, applied bothinside and outside the EU, the EU has also enacted several instruments specificallyaimed at mitigating gas supply risks. For example, following the Russian-Ukrainiangas crisis in January 2009, the EU adopted the so-called SoS Regulation.14 TheRegulation contains requirements for national energy regulators to produce riskassessment, preventive action and emergency action plans. TSOs in turn need toadapt their networks to enable permanent physical reverse flow at all interconnectionpoints.15 The Regulation further requires that all gas undertakings provide informa-tion regarding their long term gas supply contracts with third (non-EU) countries/suppliers to the relevant national energy regulator(s). Details to be provided relate tocontract duration; contracted volumes in total, on an annual basis and the averagevolume per month; in the event of an alert or emergency, contracted maximum dailyvolumes; and contracted delivery points.

Another important transparency requirement relates to intergovernmental agree-

9 Albania, Bosnia and Herzegovina, Kosovo, FYR of Macedonia, Montenegro, and Serbia.10 Georgia is presently in the process of joining the Energy Community as a fully-fledged member.11 MOU between the Ministry of Energy and Coal Industry of Ukraine and the Secretariat of the

Energy Community dated February 7, 2014.12 The ECT has, in addition to the EU, 51 states as signatories. Of these, 14 are former Soviet states.

Many others have observer status, including China, Iran, and the U.S.13 Ukraine, however, is a member of the ECT.14 Regulation No. 994/2010 concerning measures to safeguard security of gas supply.15 Reverse flows are an important factor of flexibility as they provide alternative supply routes and

connect gas systems to additional entry systems, including indirect access to LNG terminals.


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ments (“IGAs”) in the field of energy concluded by MSs and third countries.16 NewIGAs must be submitted to the Commission for assessment of their compatibilitywith EU energy law. It is precisely in this context that the Commission claims thatthe IGAs concluded between six MSs and Russia in relation to the South Streampipeline—which would run from the Black Sea to Austria and make the EU’s flagshipNabucco pipeline project irrelevant17—should be reviewed, as they are allegedly notin line with EU gas law, in particular the rules on unbundling and transmissiontarification.

Gas Infrastructure

Partly in response to the 2009 gas disruptions, the European gas infrastructuresystem is arguably more robust than it was five years ago, with more supply options:storage,18 liquefied natural gas (“LNG”) terminals, and cross-border interconnec-tions.

The Third Energy Package created a more pan-European approach to infrastruc-ture planning through the so-called Ten-Year Network Development Plans, which aredrawn up by the TSOs of all MSs. It also provides certain stimuli for infrastructureconstruction, such as the obligation on national energy regulators to grant appro-priate risk-related incentives through regulated transmission use tariffs (anticipatoryinvestments, early recognition of costs incurred, additional return, etc.).

However, significant physical congestion at cross-border points and other concernsremain, and strengthening its infrastructure is therefore a priority for the EU. TheEnergy Infrastructure Package of 2013 seeks to facilitate investment and to acceleratekey cross-border infrastructure to support the IEM.19 Key infrastructure includesbidirectional interconnectors, newly built LNG terminals, increased storage andre-routing pipelines. In gas, the following four trans-European priority corridors andareas have been identified: North-South gas interconnections in Western Europe;North-South gas interconnections in Central Eastern and South Eastern Europe; theSouthern Gas Corridor; and the Baltic Energy Market Interconnection Plan in gas.

The European Commission adopted in 2013 a list of 248 key energy infrastructureprojects within these priority corridors. This list will be updated every two years.Carrying the label “projects of common interest” (“PCI”), they will benefit fromfaster and more efficient permit granting procedures and special regulatory/tarification treatment. They may also have access to EU financial assistance under the

16 This requirement was implemented further by Decision No. 994/2012/EU establishing aninformation exchange mechanism with regard to IGAs between MSs and third countries in the field ofenergy.

17 Also because Azerbaijan—supposed to be the key backer of the Nabucco West project—ultimately decided to deliver its gas from the Shah Deniz field in the Caspian Sea through the alternativeTrans-Adriatic Pipeline (“TAP”) to Greece and Albania.

18 Storage can provide system integrity to the gas supply and infrastructure by providing flexibility;contributing to more independence; and reducing the transmission system investment (increase entrycapacity and volume).

19 Regulation No 347/2013 on guidelines for trans-European energy infrastructure.


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so-called Connecting Europe Facility (“CEF”) program, under which a 5.85 billioneuro budget has been allocated to trans-European energy infrastructure for the period2014–2020.20 Enhanced loans, project bonds and equity instruments will also beavailable.

The EU is not only looking at trans-European gas infrastructure but also outside.For example, the EU pledged to ensure effective interconnections not only betweenMSs but also with third countries such as Ukraine, notably through a reverse flow gaspipeline with Slovakia.21

Constructing so-called transit-avoiding pipelines is also under consideration;because 90 percent of European gas imports are delivered by pipelines, gas istransported across several sovereign territories, raising the possibility of a further layerof risk, and hence heightening security concerns. Pipelines such as Nord Stream andSouth Stream—filled with Russian gas—bypass traditional transit countries such asUkraine and Belarus.

Promoting Indigenous Energy Supply: From Renewables to Shale andNuclear

There is broad European agreement that the EU should also look inward todetermine how its dependence can be mitigated by indigenous energy sources.

First of all, renewable energy has significantly diversified the EU’s energy supplymix. The current share of renewables in EU final energy consumption has increasedfrom 8.3 percent in 2004 to 14.1 percent in 2013 and is projected to reach 20percent in 2020.22 This is partially due to the revision in 2009 of the so-calledRenewables Directive, which aims at increasing Europe-wide production and use ofalternative and renewable energy sources (“RES”). In January 2014, the Commissionproposed a 27 percent RES target by 2030.23 However, the revised EU state aidguidelines published on April 9, 2014 may no longer facilitate deployment ofrenewable energy as rapidly as in the past, since the Commission introducesimportant changes such as the obligation that power is sold against wholesale priceinstead of fixed feed-in tariffs.24

Apart from Norway, which is not an EU member, there is very little gas productionwithin Europe (essentially only in the UK, the Netherlands, and Denmark) and it isdeclining. Certain MSs such as the UK and Poland see shale gas as an important wayto develop Europe’s indigenous unconventional resources and as a path to energy

20 The first call for proposals eligible for CEF funding is currently open. See, press releaseCommission dated May 12, 2014, “Commission releases €750 million for infrastructure projects.”

21 Commission, Memo regarding support to Ukraine, March 5, 2014; European Council, statementon Ukraine, March 6, 2014.

22 Eurostat, News Rrelease, no 37/2014, March 10, 2014.23 Commission, Communication, A policy framework for climate and energy in the period from

2020 to 2030, COM (2014) January 15, 22, 2014.24 Commission, Guidelines on State aid for Environmental Protection and Energy 2014–2020,

COM (2014) 2322.


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independence.25 Shale gas reserves are currently anticipated in at least 16 countriesacross Europe. The EU’s Joint Research Centre puts Europe’s technically recoverableunconventional gas resources at 11,700 bcm, about a quarter of that of the UnitedStates.26 The US Energy Information Administration estimates that Poland andFrance hold the largest reserves of shale gas in Europe (they have estimated reserveslarge enough to make them self-sufficient for the next three decades).27 Significantestimated reserves are also said to exist in the UK, Germany, Belgium, and theNetherlands, as well as certain Scandinavian countries, Romania, and Ukraine.

Shale gas exploitation in Europe is considerably more complex than the UnitedStates for a number of reasons (including ownership of mineral resources, populationdensity and geology). For a while, it seemed that the regulatory framework wouldhave added another layer of risks as the EU was considering imposing specific shalegas regulations. However, the UK and Poland argued that there was no need foradditional legislation that would stifle investment. Instead, on January 22, 2014 theCommission published a set of minimum principles that MSs should implement inconnection with the regulation of the exploration and production of hydrocarbonsusing high volume hydraulic fracturing (i.e., “fracking”).28 These guidelines arenon-binding, although the Commission has indicated that it may establish bindinglaw in mid-2015 if MSs fail to apply them in an effective manner.

Nuclear power is even more controversial than shale gas in terms of publicacceptance. It nonetheless accounts for roughly one-third of Europe’s overall powergeneration.29 However, governments are polarized in Europe, and while nations suchas France and the UK rely heavily on nuclear power, others such as Germany opposeit and have committed to phasing out their nuclear reactors altogether. Pronounceddifferences in national nuclear energy policies, and the principle that the energy mixis left to each MS to decide,30 have prevented the EU from developing a commonnuclear energy policy.

Promoting Foreign Gas Supply

Apart from reducing its reliance on imported gas by developing renewable andnuclear power as well as unconventional hydrocarbons such as shale gas, the EU isalso looking at diversifying its sources of imported gas, in particular through thedevelopment of the so-called Southern Corridor.31 This would link Europe with gasfrom Central Asia and the Caspian and Black Sea areas. Supply would mainly come

25 Gas is also considered to be a less carbon toxic fossil fuel compared to coal or oil so shale gas fitswithin the EU climate change policy of reducing CO2 emissions and becoming ultimately a carbonneutral economy.

26 JRC Report, Unconventional Gas: Potential Energy Market Impacts in the European Union,2012.

27 EIA/ARI, World Shale Gas and Shale Oil Resource Assessment, June 2013, XI-2.28 Recommendation from the European Commission, 2014/70/EU.29 There are 131 operating reactors in 14 MSs.30 Article 194 Treaty on the Functioning of the European Union.31 This was first outlined in the Commission’s EU Security and Solidarity Action Plan dated


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from Azerbaijan and possibly Turkmenistan. The UK also proposed to work with theMiddle East and to explore the export of Iraqi gas into the Southern Corridor.32

North Africa and the Eastern Mediterranean are other regions in which the EU isseeking to develop future gas supplies.

Apart from piped gas, the EU already imports significant amounts of Algerian,Qatari and Nigerian LNG and increased LNG reception facilities have beenconstructed or are being considered in several MSs—which may be welcome in viewof possible U.S. LNG.33 LNG also entails fewer supply disruption risks compared topiped gas, as a tanker can be re-routed to another gas-producing country and/orterminal.

Contractual Position

Apart from regulatory constraints (e.g., capacity use; third party access) andopportunities (subsidies for pipeline construction), the gas market is also framed bycontracts between commercial partners. Contracts can relate to infrastructureinvestment and use as well as to gas supply arrangements. Long term gas supplyagreements in particular facilitate infrastructure investment.34 There is a high level ofinterplay between this legal/regulatory space and the contractual space.

Additionally, contracts are increasingly being challenged either directly by contractparties or by authorities. Contract parties—in particular the buyer—frequently try torenegotiate long term supply agreements, typically arguing that the price (indexation)or take-or-pay clauses are unfair. This is sometimes resolved amicably, while at othertimes arbitration proceedings are initiated. The Commission has also intervened inthis contractual space by initiating proceedings for alleged anti-competitive behavior.

Commission’s New Energy Security Strategy

In a reaction to the geopolitical events in Ukraine and the EU’s dependence onimported energy, on May 28, 2014 the Commission adopted a new European EnergySecurity Strategy (“Strategy”), with the aim of strengthening SoS.35

The Strategy is based on an in-depth study of MSs’ energy dependence andaddresses medium—and long term SoS challenges. Not surprisingly, MSs in the Eastand South-East of Europe are most vulnerable to supply disruptions. The Strategynot only focuses on gas concerns but also on oil, coal and power.

November 13, 2008, following the 2006 Ukraine-Russia gas dispute.32 UK, Energy security in the EU—Non paper, 2014.33 Between 2009 and 2013, six LNG terminals of a total capacity of 55 bcm have been deployed in

the EU, so the current number of LNG terminals stand at 22 (197 bcm/y). Six LNG terminals arecurrently under construction or are committed (32 bcm/y), for example, in Poland and Lithuania. Afurther 32 LNG terminals (>160 bcm/y) are under study or planned.

34 Gas projects—LNG trains, regasification plants, and natural gas pipelines—are typically veryexpensive and not many financiers are willing to invest in them without some risk mitigation througha long term contract with a guaranteed rate of return.

35 European Commission, Communication “European Energy Security Strategy,” COM (2014)330, May 28, 2014.


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While it is heralded as a new comprehensive strategy, it does not really propose awhole new set of measures but instead brings together the existing SoS pillars(diversifying external energy supplies, upgrading energy infrastructure, completingthe EU’s IEM and focusing on energy efficiency), and seeks to further fine tune andreinforce them.36

For example, the Strategy emphasizes the need for cross-border gas infrastructureas already developed under the aforementioned Energy Infrastructure Package of2013 and singles out 27 gas projects that are “critical for EU’s energy security in theshort and medium term . . . and the Commission therefore intends to intensify itssupport for [these] projects by bringing together the project promoters to . . . speedup project implementation . . . and relevant Ministries to ensure strong politicalsupport.”37

The “speaking with one voice” doctrine in external EU energy policy is not neweither, although the Strategy includes proposals to make this more concrete for thefirst time. For example, the Commission will analyze the development of a “singlebuyer” model or a “voluntary demand aggregation mechanism” that would increasethe bargaining power of European buyers vis-à-vis gas suppliers.

The Strategy also calls for more homegrown energy. This includes renewables,exploiting existing gas reserves and shale gas, which “could partially compensate fordeclining conventional gas production.”

In terms of additional and/or alternative gas suppliers, the Strategy emphasizes areinforced partnership with Norway as well as with Azerbaijan (Southern GasCorridor), North Africa (Algeria, Libya) and Arab states (Iraq and Iran if sanctionsare lifted). LNG is praised for its flexibility and the EU is therefore looking at(increased) supplies from Qatar, Australia, Nigeria, and possibly from the UnitedStates (although the Commission recognizes the competition for cargoes going toAsia).

It comes as no surprise that the Strategy focuses on the EU becoming less relianton Russian gas. The Commission clearly singled out Russia when it stated that theSouth Stream project “should be suspended until full compliance with EU legislationis ensured and re-evaluated in light of the EU’s energy security priorities.” TheCommission also criticized the fact that there is neither diversification nor back-upof nuclear fuel assemblies for Russian-designed reactors operating in Europe (whichaccount for 40 percent of the reactors in operation) as these are supplied as anintegrated package by TVEL.

36 Among the proposals is the revision and amendment of the SoS Regulation (e.g., to have a moreprecise EU-wide definition of “protected customers”) and the Decision No. 994/2012/EU regardingIGAs which would make it mandatory for MSs and companies to inform the Commission beforeconcluding IGAs.

37 Among the projects listed as a priority for the next two years: LNG terminals in Poland andLithuania; a gas interconnector between Greece and Bulgaria with reverse flow capabilities; completionof a reverse flow interconnector between Hungary and Slovakia; new gas storage capacity in Bulgaria;two separate reverse flow projects connecting Hungary with Romania and Austria, respectively; and twoseparate interconnectors connecting Bulgaria with Serbia and Turkey respectively.


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Similarly, the EU will consider measures to protect strategic or critical energyinfrastructure and particularly those controlled by “non-EU entities, notably state-companies, national banks or sovereign funds from key supplier countries.”

The possibilities for increased indigenous European production, or increasedsupplies from anywhere but Russia, will involve not only a lot of time but alsomoney.38 The Commission recognizes this and hopes that by making fundingavailable—through the EIB or national investment banks—this will leverageadditional private capital investment participation. The proposals of the Commis-sion, including actions to ensure uninterrupted supplies this winter, were discussed bythe European Council on June 26–27 and will be further implemented this year.

U.S. PERSPECTIVE ON ENERGY SECURITY IN A TRANSATLANTICCONTEXT

Together, the EU and the United States represent the world’s largest energy market.Over the years, the EU and the United States have been broadening the transatlanticenergy dialogue. In November 2009 they established the “EU-US Energy Council”to promote transparent and stable global energy markets.

At the 2014 EU-US Energy Council summit,39 parties confirmed the SoSmeasures discussed above in terms of supply diversification, increased production ofdomestic energy resources, etc. Reference was made to the Trans-Atlantic Trade andInvestment Partnership (“TTIP”) currently under negotiation, with the idea beingthat a trade agreement in energy would form part of the TTIP. This would end U.S.limits on exports of natural gas and possibly open the way for shale gas exports toEurope. The four Visegrad states of Poland, Slovakia, Hungary, and the CzechRepublic recently petitioned the U.S. Congress to begin such exports.40

Of course, for exports to commence, the U.S. Department of Energy must approvethe export terminals (exports of gas from the United States to a country with whichthe United States has a free-trade agreement (“FTA”) are fast-tracked). To that end,the U.S. Department of Energy has introduced new streamlined procedures for theapproval process, so that a project may “jump the queue” if it hurries to complete itsenvironmental reviews. At this writing, one project has been approved and 14proposals are being studied by Federal Energy Regulatory Commission (“FERC”),the United States energy regulatory agency.

AND WHAT ABOUT RUSSIA?

Russia owns 45 tcm of gas reserves, which amounts to 23 percent of the world’s

38 E.g., the Commission estimates that a sum of around 200 billion euro is required to 2020 todeliver the necessary key energy infrastructure.

39 EU-US Energy Council, Joint Press Statement, April 2, 2014, ref. 140402/01.40 Written testimony of Dr. Anita Orban, Ministry of Foreign Affairs of Hungary, before the House

Subcommittee on Energy and Power of the Energy & Commerce Committee of the U.S. House ofRepresentatives, Geopolitical Implications of LNG Export Liberalization, March 25, 2014.


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total proven reserves.41

In order to maintain or even increase its current production levels, Russia mustinvest heavily in its gas production capacities. Gazprom’s major producing fields arealready in decline, including the “Big Three” (Yamburg, Urengoy, and Medvezh’ye).To compensate for declining output from these fields, Gazprom has to develop newones. And, perhaps also in the wake of the events in Ukraine, attention is nowfocused on the massive Chayanda and Kovytka fields, which will eventually becomethe primary source for the gas to be sold by Gazprom to China National PetroleumCorporation (“CNPC”) in a major (38 bcm/y) deal signed on May 21, 2014. Toaccess these fields in remote eastern Siberia, however, Gazprom must use prepayments(and other financing) to complete the world’s longest pipeline, the 3,200 kilometer“Power of Siberia” pipeline to deliver the gas to East Asia.

Russian gas exports to Western Europe are predicted to increase by only 30bcm/yin the Russian Energy Strategy 2020.42 Since the adoption of the EU’s Third EnergyPackage, Russia has made it very clear that it was unhappy with certain of the newobligations, notably on unbundling,43 gas transport capacity allocation and third-party grid access.44 Resolution was sought for years informally through theRussia-EU Energy Dialogue and the EU Russia Gas Advisory Council (part of theRussia-EU Energy Dialogue), but with little outcome. On April 30, 2014, the WTOreceived a request for consultations from the Russian Federation against the EU ThirdEnergy Package and the implementing legislation by MSs in relation to theunbundling and third party grid access rules, which allegedly are inconsistent with anumber of obligations under GATT, GATS, and the Agreement on Subsidies andCountervailing Measures and the Agreement on Trade-Related Investment Mea-sures.45

41 Cedigaz, Natural Gas in the World, 2012.42 Russian Energy Strategy 2020, approved by Decree N° 1715-r of the Government of the Russian

Federation dated November 13, 2009.43 Depending on the MS concerned, and which unbundling model is chosen, this may lead to

Gazprom having to sell its shareholding in the gas TSO of that MS to maintain its upstream(production) or downstream (supply) activities. Similarly, unbundling rules apply to new gas pipelinesin which Gazprom has an interest (e.g., South Stream), though exemptions are available if certaincriteria are met.

44 The new third party access rules may lead to a possible loss of transportation capacity forGazprom and will make it more difficult to secure capacity that matches the volumes and durationsunder its long term gas supply agreements. While this is a possible issue for any gas supplier/shipperregardless whether they are EU or non-EU based, it is a more pressing issue for Gazprom in view of thebillions of cubic meters of gas it needs to transport across several borders to reach the final delivery pointin Europe. New gas pipelines can receive an exemption from third party access duties under the relevantEU regulations when certain conditions are fulfilled. However, the Commission typically does not grantfull exemptions (as opposed to national energy regulators), and this may lead to situations where thepipeline gas capacity is substantially underused as a consequence of the EU decision reserving part of thecapacity to third parties though there is no such interest.

45 WTO, Case number WT/DS/476/1. The text of the request as submitted by the RussianFederation is available on the WTO Web site.


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Like the EU, Russia has been keen over the last few years to develop alternativetransit routes so as to reduce its dependence on Ukraine as a transit state for gassupply to Europe (e.g., the Nord Stream and South Stream gas pipelines).

With the European gas market becoming more problematic, Russia fears that theThird Energy Package is a wedge issue, and that rather than Russia being a monopolysupplier, Europe threatens to become a monopsony buyer. With that in mind, Russiahas shown not only by the inking of the Gazprom-CNPC deal, but also by lifting themonopoly on LNG export projects, that not only the “Power of Siberia,” but alsoLNG (Rosneft’s Sakhalin-1 project, Novatek’s Yamal project, and, further on,Gazprom’s Vladivostok project) all promise to reduce Russian dependence on Europein the longer term—at which point Europe may have already significantly reduced itsdependence on Russia.

OUTLOOK AND IMPLICATIONS FOR INDUSTRY

Security of supply has an important investment component. The establishment oflarge-scale gas infrastructures is very capital-intensive, with construction costs forpipelines running into billions of euro. As a result, a clear, transparent and predictableframework for energy transactions is very important for investors. While the existingframework already poses challenges to investors (e.g., secure bankability for pipelineprojects in view of EU regulatory restraints on third-party access) but also toshippers/suppliers (e.g., secure gas pipeline capacity that matches their long termcontractual supply obligations), it remains to be seen if any new proposals that mayfollow from the new European Energy Security Strategy will not further muddle thisalready complex framework.

In addition, the EU seems keen to have a say in the more commercial aspects ofgas projects, ranging from enhanced transparency over commercial terms to limitingthe (long) duration of supply agreements and to setting up an EU agency acting asa single buyer. It remains to be seen if the EU dares to touch on the commercial legalbasis of European gas security (i.e., long term supply and transport agreements),which it could always do under the pretext of antitrust enforcement. Strongerenforcement of the EU energy regulations governing the entire gas supply chain(exploration of (un)conventional resources; gas import, midstream and downstreamtransport; wholesale trading) are announced in the new European Energy SecurityStrategy, certainly when foreign (non-EU) companies or states are part of the businessactivity concerned. Finally, new opportunities may arise from piped gas from CentralAsian states (for the EU) or to Asia (for Russia) as well as from LNG cargoes. At thesame time, significant infrastructure investments are needed throughout the EU(interconnections, LNG, storage), Russia (pipelines), and the United States (LNGterminals).


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U.S. Supreme Court Rules on EPA GHGPermitting Requirements: Provides PartialReprieve

By Eddie Lewis and Bob Greenslade*

The United States Supreme Court recently issued its opinion in Utility AirRegulatory Group v. EPA, holding that the federal Clean Air Act does not allowthe U.S. Environmental Protection Agency to regulate emissions sources under thePrevention of Significant Deterioration and Title V permitting programs basedsolely on greenhouse gas emissions. The authors of this article discuss the case andnote that the Court’s opinion could be viewed as a pyrrhic victory that providesonly temporary relief for many large industrial facilities.

INTRODUCTION

Recently, the United States Supreme Court issued its opinion in Utility AirRegulatory Group v. EPA,1 holding that the federal Clean Air Act (“CAA”) does notallow the U.S. Environmental Protection Agency (“EPA”) to regulate emissionssources under the Prevention of Significant Deterioration (“PSD”) and Title Vpermitting programs based solely on greenhouse gas (“GHG”) emissions.

Specifically, the Court held that the EPA’s interpretation that GHGs are “regulatedpollutants” that can, on their own, trigger PSD and Title V permitting requirementswas impermissible because it would cover small sources that Congress did not expectwould need to undergo permitting. In addition, the EPA cannot deviate from theexplicit 100 and 250 tons per year (“tpy”) applicability thresholds established underthe CAA for the PSD and Title V programs. However, the Supreme Court also heldthat the EPA did have discretion to require Best Available Control Technology(“BACT”) for “anyway” sources, meaning sources which are otherwise subject to PSDpermitting requirements based on emissions of conventional, non-GHG pollutants.For these sources, the Court determined that the EPA may establish de minimisthresholds, above which BACT would be required if PSD review was alreadytriggered for other pollutants.

Because the EPA will almost certainly establish such de minimis thresholds, theCourt’s opinion could be viewed as a pyrrhic victory that provides only temporaryrelief for many large industrial facilities. In fact, the opinion creates the potential forthe EPA to establish lower thresholds than those provided by the Tailoring Rule,

* Eddie Lewis is a partner and Bob Greenslade is a senior associate at Fulbright & Jaworski LLP,practicing environmental law. Mr. Lewis focuses his practice on environmental litigation, enforcement,compliance counseling, remediation, permitting, auditing, and transactional matters. Mr. Greensladeconcentrates on state and federal air compliance and permitting, enforcement matters, corporate duediligence, and climate change. The authors may be contacted at [email protected] [email protected], respectively.

1 Util. Air Regulatory Grp. v. EPA, 134 S. Ct. 2427 (2014).


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meaning it may become more difficult for some sources to escape BACT review forGHGs.

Of note, there is language in the opinion acknowledging assertions that BACTshould be restricted to add-on controls and should not encompass measures such asenergy efficiency. The Court somewhat sidestepped this issue, by assuming (but notdeciding) that BACT may be used to force “some” improvements in energy efficiency.Nevertheless, this section of the opinion may have implications for future BACTreviews.

It is also unclear how the Supreme Court’s opinion will impact future challengesto the EPA’s pending proposed New Source Performance Standards (“NSPS”) for newand modified electricity generating units (“EGUs”) and the separate proposed NSPSfor existing EGUs. On the one hand, the opinion delivers a stern warning that theEPA cannot by interpretation “bring about an enormous and transformativeexpansion in the EPA’s regulatory authority without clear congressional authoriza-tion.” On the other hand, the Supreme Court has, for the third time, held that theEPA has authority to regulate GHG emissions under the CAA. Although there arenow limits on that authority in the context of PSD and Title V, NSPS is a whollyseparate program with different, though similar, definitions. In particular, there areno statutory tpy thresholds under the NSPS. Further, the NSPS provisions use theterm “best system of emission reduction” (“BSER”) instead of the term BACT, whichmay have implications on the manner of permissible control methods.

BACKGROUND: THE TIMING AND TAILORING RULES

The Supreme Court’s opinion concerns two EPA rulemakings, the “Timing Rule,”issued in April 2010, and the “Tailoring Rule,” issued in May 2010. In the TimingRule, the EPA formalized a December 2008 interpretation that air pollutants become“subject to regulation” if a provision adopted under the CAA requires actual controlof emissions of that pollutant. Based on this interpretation, the EPA explained thatpermitting requirements under Title I (PSD) and Title V of the CAA wouldautomatically trigger for GHGs, not when the agency’s GHG standards for light-dutyvehicles were finalized, but when the emissions limits took effect on January 2, 2011.The Timing Rule established, at a general programmatic level, when PSD and TitleV permitting requirements would become applicable.

In contrast, the Tailoring Rule concerned the emissions levels at which permittingwould be triggered for individual stationary sources. Despite statutory languagedefining these “major source” thresholds as either 100 tpy or 250 tpy, the TailoringRule established thresholds of 100,000 tpy and 75,000 tpy of CO2 equivalents(“CO2e”). Countless comparatively small combustion sources emit 100 tpy or 250tpy of CO2e, so the EPA justified its departure from the statute based on anadministrative need to phase in the permitting requirements to avoid the “absurdresults” associated with the flood of applications that would result from immediatelyapplying the statutory limits.

Of note, the first phase of the Tailoring Rule provided that, between January 2,

U.S. SUPREME COURT RULES ON EPA GHG PERMITTING REQUIREMENTS: PROVIDES PARTIAL REPRIEVE

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2011, and June 30, 2011, GHG increases of 75,000 tpy of CO2e triggered PSDpermitting only for “anyway” sources, meaning sources already subject to PSD reviewbased on new or increased emissions of non-GHG pollutants. In other words, duringthis very first phase-in period, sources could not trigger PSD review based on GHGsalone, but were nevertheless subject to BACT for GHGs if they had to undergo PSDpermitting “anyway.”

THE D.C. CIRCUIT’S OPINION

The case below, Coalition for Responsible Regulation v. EPA,2 involved consolidatedchallenges in the United States Court of Appeals for the District of Columbia Circuit(“D.C. Circuit”) to four EPA rulemakings regarding GHG emissions:

(1) an endangerment finding;

(2) emissions standards for light-duty vehicles;

(3) the Timing Rule; and

(4) the Tailoring Rule.

The court upheld all four rules. The endangerment finding and light-duty vehiclerules were not under review by the Supreme Court, so we will dispense with asummary of their treatment by the D.C. Circuit.

The D.C. Circuit began its analysis by noting that the CAA requires PSD permitsfor stationary sources emitting major amounts of “any air pollutant.”3 CitingMassachusetts v. EPA,4 the court concluded that “any air pollutant” includes allregulated air pollutants, including GHGs.5 Based on the “Declaration of Purpose”included by Congress in the CAA legislation, the court also found that the PSDprogram was meant, in part, to protect against adverse effects on weather andclimate.6

Next, the court expressly rejected, based on a textual analysis, the following threearguments:

(1) that the PSD program is focused exclusively on localized air pollution;

(2) that stationary sources which are not major for a “criteria pollutant,”7 cannotbe subjected to PSD requirements based on their GHG emissions; and

(3) that, before adding GHGs to the PSD program, the EPA was required to go

2 684 F.3d 102 (D.C. Cir. 2012).3 684 F.3d 102, 134 (D.C. Cir. 2012).4 549 U.S. 497 (2007).5 684 F.3d 102, 134 (D.C. Cir. 2012).6 684 F.3d 102, 135–136 (D.C. Cir. 2012).7 Meaning an air pollutant for which the EPA has established National Ambient Air Quality

Standards.


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through an evaluation process associated with designating new criteria pollutants.8

Finally, the court turned to the Timing and Tailoring Rules. The court dismissedthe challenges to the two rules based on standing. Specifically, the court held that thepetitioners were subject to PSD and Title V permitting requirements “by automaticoperation of the statute” and, because the Timing and Tailoring Rules actuallymitigate those automatic permitting requirements, there was no injury in fact to beremedied by the requested vacatur of the rules.9

THE SUPREME COURT’S OPINION

The Supreme Court granted review of a single question: “Whether EPApermissibly determined that its regulation of greenhouse gas emissions from newmotor vehicles triggered permitting requirements under the Clean Air Act forstationary sources that emit greenhouse gases.” The opinion breaks this question intotwo elements:

(1) Whether the EPA can require PSD and Title V permitting can be triggered

solely by GHG emissions; and

(2) Whether the EPA can require BACT for sources otherwise subject to PSDpermitting.

On the first issue, five justices10 rejected the EPA’s contention that regulation ofGHG emissions from mobile sources, pursuant to Title II of the CAA, triggeredGHG permitting under PSD and Title V. First, the Court noted that the EPAregularly construes and limits the general CAA term “air pollutant” based on thespecific context of CAA programs. According to the Court, Massachusetts v. EPA didnot embrace the EPA’s categorical position that GHGs “must be air pollutants for allpurposes.”

Next, the Court addressed whether the EPA had discretion to impose GHGpermitting for stationary sources. Citing the EPA’s own language, the Court notedthat applying PSD and Title V permitting based on statutory thresholds of 100 tpyand 250 tpy of GHGs was inconsistent with the substance of Congress’ regulatoryscheme. In this context, the Court noted the following:

• “EPA’s interpretation is also unreasonable because it would bring about anenormous and transformative expansion in EPA’s regulatory authority

without clear congressional authorization.”

• “When an agency claims to discover in a long-extant statute an unheraldedpower to regulate a significant portion of the American economy, we typically

8 684 F.3d 102, 136–144 (D.C. Cir. 2012).9 684 F.3d 102, 146–147 (D.C. Cir. 2012).10 Justice Scalia delivered the majority opinion, in which Justices Roberts and Kennedy concurred

in all parts. Justices Thomas and Alito concurred in the part discussing this first issue. Justice Alito wasjoined by Thomas in a dissent arguing that Massachusetts v. EPA was wrongly decided.


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greet its announcement with a measure of skepticism.”11

• “An agency has no power to ‘tailor’ legislation to bureaucratic policy goals by

rewriting unambiguous statutory terms.”

• “Were we to recognize the authority claimed by EPA in the Tailoring Rule,we would deal a severe blow to the Constitution’s separation of powers.”

Despite the language above, seven justices preserved the EPA’s authority to imposeBACT controls for GHG emissions for sources that must undergo PSD review“anyway.”12 The Court noted that the text of the BACT provision in the CAA is farless open-ended than the text of the PSD and Title V permitting triggers. Specifically,BACT is required “for each pollutant subject to regulation under this chapter,”13 withthe “chapter” meaning the entire CAA.14

The Court determined that allowing the EPA to impose BACT for GHGemissions from “anyway” sources would not extend EPA’s jurisdiction to millions ofpreviously unregulated entities, but would only moderately increase the demands forsources already subject to regulation. The Court also stated that such BACT controlswould only be required for sources emitting more than a de minimis amount ofGHGs, which is not necessarily the 75,000 tpy CO2e threshold established by theTailoring Rule.

Telegraphing an important issue for future resolution, the Court did not endorsethe EPA’s BACT guidance for GHG emissions. The Court acknowledged argumentsasserting that BACT is about “end-of-stack” controls, and cannot be used to regulateenergy use, but assumed without deciding that BACT can be used to force someimprovements in energy efficiency. The Court then cautioned the EPA that there isa potential for GHG BACT to lead to “an unreasonable and unanticipated degree ofregulation,” and that the Court’s decision should not be taken as providing the EPAfree rein for any future regulatory application of BACT.

CONCLUSION

This was the third GHG decision from the Supreme Court in seven years. The firsttwo, Massachusetts v. EPA and American Electric Power Co. v. Connecticut, endorsedthe EPA’s regulation of GHGs under the current provisions of the CAA. While thisnew decision provides some restraints on the EPA’s discretion, the fact remains thatseven justices voted to uphold the EPA’s general statutory authority to regulate

11 Citing FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 159 (2000) (internalquotations omitted).

12 Justices Scalia, Roberts, and Kennedy were joined by Justices Ginsburg, Breyer, Sotomayor, andKagan. Justice Breyer authored a dissent, joined by Justices Ginsburg, Sotomayor, and Kagan, thatwould have upheld the EPA’s Timing and Tailoring rules.

13 Specifically, Chapter 85 of 42 U.S.C., titled “Air Pollution Prevention and Control.”14 42 U.S.C. § 7475(a)(4).


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emissions of GHGs.15

It appears clear that the Supreme Court’s decision invalidates any PSD permitsissued by the EPA and the states since July 1, 2011 to sources that are only major forGHGs. Less clear is whether the opinion also invalidates BACT provisions in PSDpermits for “anyway” sources or the fate of GHG permits issued by EPA when stateshave refused to issue GHG permits to anyway sources. The Court endorsed the EPA’spower to impose BACT on these sources, but only for those sources emitting morethan a de minimis level of GHG emissions. Among other things, it appears that thevalidity of prior BACT determinations for GHG emissions from these sources willdepend on whether the EPA can successfully argue that the Tailoring Rule thresholdsare at least de minimis.16

The Court’s opinion raises the prospect that more, and not fewer, industrialsources will eventually be subject to BACT limits for GHGs. On the one hand, theCourt’s opinion restricts the subset of sources to those which must apply for a PSDpermit. On the other, it appears that the EPA may now be able to lower GHGthresholds and, no longer faced with the prospect of subjecting millions of sources topermitting requirements, the agency may be willing to do just that.

The Court’s opinion is very specific to the language in the CAA’s PSD provisionsand, therefore, may be of limited use in challenges to the EPA’s proposed NSPS fornew and modified EGUs and proposed NSPS for existing EGUs. In particular, thereare no statutory tpy applicability thresholds in the NSPS provisions. Also, PSDproscribes Best Available Control Technology, but the NSPS requires the best systemof emissions reduction—it remains to be seen whether, as the EPA contends, BSERallows the types of measures proposed by the EPA in the NSPS for existing EGUs.Finally, it will remain to be seen how the decision impacts the United States’negotiating and bilateral deal making leverage in the forthcoming internationalclimate negotiations in Lima, Peru in December, 2014, where a preliminary draft textof a global climate change deal is anticipated.

15 During oral arguments, Chief Justice Roberts noted that he was in the dissent in Massachusetts,but in the context of stating that he considers Massachusetts binding precedent on the Court.Accordingly, it is not surprising that the Chief Justice did not join Justice Alito’s dissent.

16 Specifically, the EPA might argue that it could not establish thresholds below de minimis,meaning the thresholds must be at least de minimis.


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New York’s Highest Court Holds that ZoningLaws of New York Towns Banning Fracking AreEnforceable—A Brief Analysis of the OralArguments and the Court’s Opinion

By H. Victor Thomas*

In this article, the author analyzes the oral arguments and decision in a recentNew York Court of Appeals case, which held that zoning laws of New York townsbanning fracking are enforceable.

INTRODUCTION

A non-profit, Food & Water Watch, reports that 421 measures against frackinghave been passed by state and local governments and that communities across thenation are lobbying their local and state elected officials because they believe frackingposes an unacceptable risk to their drinking water. Energy companies, however,maintain that the process is safe when done properly, brings economic developmentto communities, and is necessary to achieve national energy independence.

A key battleground for this controversy is the region overlying the Marcellus Shale,a rock formation rich with natural gas that extends from Ohio and West Virginia intoPennsylvania and New York. Seventy New York municipalities have zoning laws thatprohibit oil and gas drilling operations, including fracking, and more than a hundredhave enacted moratoriums on drilling activities.

NORSE ENERGY CORP. USA, V. TOWN OF DRYDEN

New York’s highest court agreed to hear appeals from an energy company and a gaslessee challenging two lower court decisions that upheld zoning laws that ban drillingand fracking in the towns of Middlefield and Dryden. Numerous amicus briefs werefiled, including a brief by the American Petroleum Institute.

The appeal was decided on June 30, 2014. The webcast and transcript of the oralarguments, which may be found on the New York Court of Appeals’ Web site,contain many questions and comments by the justices that may provide insight intothe issues that concern them.

APPELLANTS’ ARGUMENTS

Appellants’ principal argument was that all zoning ordinances banning fracking ordrilling activities are preempted by, and are unenforceable under, a 1981 amendmentto a New York statute that was enacted long before fracking became controversial.The statute, ECL § 23-0303(2), states:

* H. Victor Thomas is a litigation counsel in King & Spalding’s Houston office and is a member ofthe firm’s Texas Appellate Team. He may be contacted at [email protected].


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The provisions of this article [of the Oil, Gas and Solution Mining Law(“OGSML”)] shall supersede all local laws or ordinances relating to theregulation of the oil, gas and solution mining industries; but shall notsupersede local government jurisdiction over local roads or the rights of localgovernments under the real property tax law.

Appellants argued that the plain language of this provision:

(1) vests exclusive control over oil and gas activities in the state, including theresponsibility for proper well spacing and location; and

(2) supersedes all municipal zoning laws prohibiting drilling or frackingoperations because such laws constitute a regulation of the oil and gasmining industries.

Appellants further argued that the fact that the statute provides for only twoexceptions (local roads and real property tax) evidences a legislative intent that zoningordinances are superseded along with all other regulations not stated in the twoexpress exceptions.

One of the courts below, however, interpreted the statute differently, stating:

The zoning ordinance at issue, however, does not seek to regulate the detailsor procedure of the oil, gas and solution mining industries. Rather, it simplyestablishes permissible and prohibited uses of land within the town for thepurpose of regulating land generally.

The towns also argue that the OGSML preemption provision is indistinguishablefrom a preemption provision contained in another New York statute that has beeninterpreted by the New York courts to not preempt zoning laws. The towns furtherargue that:

(1) the right of towns to regulate and zone land use is an importantfundamental right;

(2) that statutes that have been found to preempt or limit this right expresslyreference zoning and land use laws; and

(3) therefore, because the OGSML does not expressly reference zoning laws, itdoes not preempt them.

POLICY ARGUMENTS

Both sides argued that important public policy interests were at stake and that thestatute should be interpreted to support the policy interest favored by that side. Forexample, Appellants’ brief asked: “What prudent operator would ever invest in oiland gas development in New York if, after the fact, municipalities could, based upona 3-2 majority vote, enact broad based drilling bans that obliterate the operator’sentire property interest?” The towns replied that this was a false concern becauseseveral other oil and gas producing states permit localities to prohibit drilling withintheir borders, including California, Illinois, and Texas, and oil and gas investment isflourishing in these states.

HIGHEST COURT HOLDS ZONING LAWS OF TOWNS BANNING FRACKING ENFORCEABLE

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Another policy argument that drew interest from the justices was that to properlydevelop the state’s energy resources, the state needs to be able to decide where drillingmay take place and that doing so effectively would become unworkable if 932 townsin the state are allowed to override the state’s drilling decisions.

NEW YORK COURT OF APPEALS RULING

The court held that New York’s current statutes fail to provide a “clear expression”of intent to preempt the municipal ordinances:

These appeals are not about whether hydrofracking is beneficial or detri-mental to the economy, environment or energy needs of New York, and wepass no judgment on its merits. These are major policy questions for thecoordinate branches of government to resolve. The discrete issue before us,and the only one we resolve today, is whether the State Legislature eliminatedthe home rule capacity of municipalities to pass zoning laws that exclude oil,gas and hydrofracking activities in order to preserve the existing character oftheir communities. There is no dispute that the State Legislature has thisright if it chooses to exercise it. But in light of ECL 23-0303 (2)’s plainlanguage, its place within the OGSML’s framework and the legislativebackground, we cannot say that the supersession clause—added long beforethe current debate over high-volume hydrofracking and horizontal drillingignited—evinces a clear expression of preemptive intent.

Justice Pigott issued a dissenting opinion that disagrees with the majority’sinterpretation of the supersession clause.

CONCLUSION

One lesson from the case is clear. If a state wishes to avoid litigation as to whethermunicipalities are precluded from passing zoning laws that prohibit all drilling andfracking operations, it should enact a law that expressly states that zoning laws aresuperseded or preempted.

The litigation and legislative battles over fracking continue to rage with both sidesscoring wins. Although New York courts have upheld zoning laws prohibitingfracking, on June 4, 2014, North Carolina’s governor signed a law that lifts a 2012moratorium and that clears the way for permits to be issued for gas drilling byfracking by next spring.


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Royal Decree 413/2014 and Ministerial OrderIET/1045/2014 Regulating the ElectricityGeneration Activity Using Renewable EnergySources, Cogeneration, and Waste

By Javier Lasa*

This article discusses Spain’s new renewable energy facilities regime, which willbring legal certainty for at least three years.

NEW REGULATORY REGIME FOR RENEWABLE ENERGY FACILITIES

From July 2013 to June 2014, the Spanish government has undertaken a reformof the Renewal sector by approving the following pieces of legislation:

• Royal Decree Law (“RDL 9/2013”), which entered into force on July 17,

2013;

• The Electricity Sector Act (the “Law 24/2013”), which entered into force on

December 26, 2013;

• Royal Decree Law (“RDL 431/2014”) regulating the electricity generationactivity using renewable energy sources, cogeneration, and waste, approved

by the Spanish government on June 6, 2014; and

• Ministerial order IET/1045/2014, MO 1045/2014, approved by the gov-ernment on June 20, 2014 that implements RDL 431/2014, by fixing theretribution parameters for each type standard installation.

The main reason for this renewable reform is the adoption of a new retributionsystem aimed to reduce the electricity deficit. This has been made by eliminating thetariffs and premium granted up to now, to renewable facilities.

RDL 413/2014 entered into force on June 11, 2014, and its implemented MO1045/2014 has entered into force on June 21, 2014. Settlements to renewablegenerators for the sale of electricity from July 17, 2013 onwards will be made as perthe legislation recently enacted.

APPLICATION OF ROYAL DECREE 431/2014

RDL 431/2014 implements RDL 9/2013 which is the origin of the new financialregime applicable to existing renewal, cogeneration, and waste facilities. RDL431/2014 maintains the essential rights and obligations of electricity producers usingrenewable energy sources, cogeneration and waste, in particular priority in terms ofdispatch and access and connection to the grid.

* Javier Lasa is a partner in Dentons’ Madrid office and legacy co-head of the Global Energy andNatural Resources Group. He may be contacted at [email protected].

ROYAL DECREE 413/2014 AND MINISTERIAL ORDER IET/1045/2014

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FINANCIAL REGIME AND ITS REVIEW

Financial Regime

By means of RDL 431/2014 to the proceeds obtained from the sale of electricityat the pool, existing and new facilities are entitled to receive, throughout theirregulatory life, the following additional retribution consisting of:

• Retribution on investment (“Rinv”). Rinv is allocated per unit of installedcapacity, and is expressed in MW/h. It remunerates, when applicable, theinvestment costs for each standard facility which cannot be recoveredthrough the sale of electricity in the market.

• Retribution on operation (“Ro”). Ro is also expressed in MW/h. Itremunerates, when applicable, the shortfall needed so that the incomeobtained by the asset matches the operation costs.

Fixed and floating costs are considered when calculating the Ro. As to floatingcosts, those are as follows:

• insurance;

• management and general expenses;

• representation cost in the pool market;

• transmission and distribution fees;

• operation and maintenance costs;

• electricity generation tax;

• costs related to water; and

• gas consumption.

As to fixed costs those are as follows:

• land lease costs;

• security surveillance costs; and

• land tax costs.

As to both the Rinv and Ro they are granted assuming that the asset is efficient andwell managed, i.e. it has the available means for carrying out its operations, and itscosts are of an efficient company and its income and profits are reasonable.

The total compensation shall allow renewal assets to compete on equal conditionswith other technologies in the market and to obtain reasonable profitability. Once theregulatory life of the asset has expired, the asset will stop receiving both retributions.Likewise if an asset during its regulatory life has reached the reasonable profitabilityit will stop receiving the Rinv.

To calculate the Rinv and the Ro for each standard asset, the following parametersapproved by the Ministerial Order 1045/2014 are used:

• Return on investment (Rinv);


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• Return on operation (Ro);

• Incentive for investment due to the decrease of the generation cost (“Iinv”);

• Regulatory useful life;

• Minimum number of operating hours;

• Operation threshold;

• Maximum number of operating hours for the purposes of receiving thereturn on operation;

• Upper and lower annual limits of the market price; and

• Annual average of the daily and intraday market price.

In addition, the following are also parameters needed to calculate the abovementioned parameters:

• Standard value of the initial investment of the standard installation;

• Estimate of the daily and intraday market price;

• Number of hours of operation of the standard installation;

• Estimate of future income from participation in the generation market;

• Other operating income defined in Section 24 (State Aid);

• Estimate as to future operation costs;

• Update rate calculated based on reasonable profitability;

• Adjustment rate of a standard installation; and

• Net asset value of the asset.

The existing renewable assets that benefited from a particular compensationscheme (tariff/premium), before the entry into force of RDL 9/2013, are grantedautomatically with a specific remuneration scheme.

As to new facilities or modification of existing facilities, the specific compensationscheme is granted based on a competitive procedure following the transparency,objectivity, and non-discrimination principles.

Renewable facilities can only receive the specific remuneration until they reach theregulatory useful life, then they cease to receive the return on investment and thereturn on operation. However, such facilities can continue to sell energy generated inthe market.

Review of the Financial Regime

RDL 413/2014 establishes regulatory periods of six years. The first regulatoryperiod falls between July 14, 2013 (date of entry into force of Royal Decree-Law9/2013) and December 31, 2019. Each regulatory period is divided into tworegulatory half-periods of three years. Remuneration parameters are reviewed at theend of each half-period or regulatory period.

RDL 413/2014 foresees that both the standard value of the asset upon which the


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profitability is calculated as well as the remuneration parameters used to calculate theRinv and the Ro, can be reviewed.

As to the standard value upon which the reasonable profitability is calculated foreach type of asset, this is calculated based on the average performance of the 10 yeargovernment bonds on the secondary market, for the 24 months prior to May of theyear before the start of the regulatory period, increased by a differential. BeforeJanuary 1, 2018, that is a year before the ending of the period, a new act shall beenacted fixing the difference for the next regulatory period.

In addition, by means of the MO 1045/2014, the remuneration parameters can bereviewed after the end of each regulatory period.

On the contrary, neither the regulatory useful life of the asset nor the standardvalue of the initial investment can be modified.

After the end of the first three years’ regulatory sub period, by means of a freshMinisterial Order, the following can be reviewed for the rest of the regulatory period:

i. estimated income from the sale of the energy generated, valued at productionmarket price, as well as the parameters directly related;

ii. forecast operating hours and estimated generation market prices for the firstthree years of the regulatory period, adjusting them to actual market prices.

The result of this review is that certain type assets can be deprived from or grantedwith the Ro. A positive reading is that the rule brings certainty to investors at leastfor the first three years as the retribution scheme Ro is fixed for this period. Inaddition, the Ro can be reduced or deprived for an asset if it does not reach theminimum type asset operating hours for a particular year.

In relation to the electricity price in the market, it is calculated by means of theaverage of the quotation for the yearly contracts for futures traded at OMIP duringthe last six months of 2013. To this average, an amending coefficient based on dataavailable to the National Commission for energy and Competition for eachtechnology, is applied. So as to reduce uncertainty as to this price, RDL 413/2014sets up upper and lower limits. When the annual average of the daily and intradaymarket price exceeds such limits this creates, in the annual calculation, either apositive or a negative balance. This is called “adjustment value due to deviations inthe market price” and will be offset during the useful life of the asset.

CONCLUSION

The new regime set up by RDL 413/2014 as well as by the MO 1045/2014, is tobring legal certainty for at least the first three years, as Ro is not reviewed during thisperiod. It implies a deep change of the economic scheme established by RDL661/2007 and a significant cut of the special regime facilities’ revenue. This is likelyto have a significant negative impact on many owners of affected facilities. As aconsequence of its enactment, and the negative impact on many owners, courtactions will be brought against it, in particular:

• Court actions before the Supreme Court, appealing the RDL and its


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implementing MO (direct appeals);

• Administrative and court appeals against the resolutions applying the RDLand the MO (indirect appeals); and

• Claims for damages due to unfair change in law, against the State of Spaineither in national courts or by means of arbitration proceedings under theEnergy Charter Treaty Request.

The government will need to consider whether the rescue of the renewal industryis needed by creating a new entity like a Sareb for renewals, State owned entity thattakes over distress PV and renewals projects.

Banks will need to consider whether they need to set up a rescue fund so as torefinance PV and renewal substantial projects. In addition and by the same time theyshall comply with the accounting rules for banks of Spain relating to provision of baddebts (RD 2/2012) the Guindos regulation, in relation to the refinancing obligations.

Likewise the regulatory authorities Bank of Spain and CNMV will need to watchcarefully the compliance of the above mentioned regulation by lending banks.

Based on the above, and: (i) assuming that a renewal Sareb is not going to becreated and (ii) that banks will be closely monitored as to the application of provisionfor bad debts, they may prefer to dispose substantial nonperformance renewallending.


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In the Courts

By Steven A. Meyerowitz*

U.S. SETTLEMENT WITH MINNESOTA COAL-FIRED UTILITY TOREDUCE EMISSIONS

In a settlement with the United States, Minnesota Power (“MP”), an ALLETEcompany based in Duluth, Minnesota, has agreed to install pollution controltechnology and meet stringent emission rates to reduce harmful air pollution fromthe company’s three coal-fired power plants located in Cohasset, Hoyt Lakes, andSchroeder, Minnesota The settlement will resolve claims that the company violatedthe New Source Review provisions of the Clean Air Act by unlawfully constructingmajor modifications at its plants without obtaining required permits and installingand operating the best available air pollution control technology, as the Act requires.

In a statement, the U.S. Environmental Protection Agency (“EPA”) said that itexpected that the actions required by the settlement will reduce harmful emissions byover 13,350 tons per year, which includes approximately 8,500 tons per year of sulfurdioxide. The company estimates that it will spend over $500 million to implementthe required measures.

The settlement also requires that the company pay a civil penalty of $1.4 millionto resolve Clean Air Act violations and spend at least $4.2 million on environmentalprojects to benefit local communities. The state of Minnesota is co-plaintiff to thesettlement and will receive $200,000 of the penalty.

The settlement requires that the company install pollution control technology andimplement other measures to reduce sulfur dioxide (SO2), nitrogen oxide (NOx),and particulate matter emissions from its three coal-fired power plants, which includenine operating units, as well as a biomass-and-coal-fired cogeneration plant thatprovides power and steam to an adjacent paper mill. Among other requirements, thecompany must install control technologies and meet emission rates that will beamong some of the lowest in the country for SO2 at its largest unit and for both SO2and NOx at the second largest unit.

In addition, the company must retire, refuel, repower, or reroute emissions at fiveother units, and must meet emission rates and install additional control technologiesat remaining units. The company also must comply with declining system-wideannual tonnage limits for both SO2 and NOx.

The settlement also requires that the company spend $4.2 million on projects that

* Steven A. Meyerowitz, the Editor-in-Chief of Pratt’s Energy Law Report, is a graduate of HarvardLaw School. For nearly five years, Mr. Meyerowitz was an attorney for a prominent Wall Street law firmbefore founding Meyerowitz Communications Inc., a law firm marketing communications consultingcompany that works with some of the largest and most successful law firms in the country. Mr.Meyerowitz has been an outside Editor-in-Chief for a number of law and business publications for manyyears, including The Banking Law Journal, Pratt’s Journal of Bankruptcy Law, and the Financial FraudLaw Report. He can be reached at [email protected].


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will benefit the environment and local communities, including $2 million to build alarge-scale solar installation system to benefit a local tribe known as the Fond du LacBand. In addition, the company will provide between $500,000 and $1 million toreplace, retrofit, or upgrade wood burning appliances to reduce pollution, and$200,000 to the National Park Service to restore wetlands at Voyageurs NationalPark. For the remaining money, the company can select from the following fourproject types: land donation and restoration, electric vehicle charging stations, cleandiesel projects, or installation of renewable energy.

VOLVO GROUP ORDERED BY U.S. CIRCUIT COURT TO PAYPENALTIES IN ENGINE EMISSION CASE

The U.S. Court of Appeals for the District of Columbia Circuit has ruled that theVolvo Group should pay penalties and interest of approximately SEK508 millionfollowing a dispute between the Volvo Group and the U.S. Environmental ProtectionAgency (“EPA”) regarding emission compliance of diesel engines. The circuit courtaffirmed a district court’s ruling that model year 2005 Volvo Penta engines violatedthe provisions of a consent decree. Volvo said that this ruling was expected to havea negative impact on the Volvo Group’s operating income of approximately SEK 440million in the third quarter of 2014.

In 2012, the district court issued a judgment ordering the Volvo Group to paypenalties and interest for engines that Volvo claimed were not part of the decree.Volvo filed an appeal on several grounds. The court of appeals’ ruling was renderedon July 18, 2014.

FRENCH CITIZEN SENTENCED FOR OBSTRUCTING A CRIMINALINVESTIGATION INTO ALLEGED BRIBES PAID TO WIN MININGRIGHTS IN GUINEA

Frederic Cilins, a 51-year old French citizen, has been sentenced in the U.S.District Court for the Southern District of New York to 24 months in prison forobstructing a federal criminal investigation into alleged bribes to obtain miningconcessions in the Republic of Guinea.

According to court documents, Cilins obstructed an ongoing federal investigationconcerning potential violations of the Foreign Corrupt Practices Act (“FCPA”) andother crimes. The government said that federal law enforcement was investigatingwhether a particular mining company with which Cilins was affiliated had paidbribes to officials of a former governmental regime in the Republic of Guinea toobtain and retain valuable mining concessions in the Republic of Guinea’s Simandouregion. During monitored and recorded phone calls and face-to-face meetings, Cilinsagreed to pay substantial sums of money to induce a witness to the alleged briberyscheme to leave the United States to avoid questioning by the FBI, as well as to givedocuments to Cilins for destruction that had been requested by the FBI as part of theinvestigation, prosecutors said. In addition, the government asserted that Cilins alsosought to induce the witness to sign an affidavit containing false statements regarding

IN THE COURTS

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matters under investigation by the grand jury; that witness was the former wife of anow-deceased Guinean government official who held an office in Guinea that allowedhim to influence the award of mining concessions.

Cilins pleaded guilty on March 10, 2014 to a one-count superseding informationcharging him with obstruction of a federal investigation. In addition to his sentence,he was ordered to pay a fine of $75,000 and forfeit $20,000.

FORMER EXECUTIVE OF FRENCH POWER COMPANY SUBSIDIARYPLEADS GUILTY IN CONNECTION WITH FOREIGN BRIBERYSCHEME

A former senior executive of a subsidiary of Alstom SA, the French power andtransportation company, has pleaded guilty for his participation in a scheme to paybribes to foreign government officials.

William Pomponi, a former vice president of regional sales at Alstom Power Inc.,the Connecticut-based power subsidiary of Alstom, pleaded guilty in federal court inNew Haven, Connecticut, to conspiracy to violate the Foreign Corrupt Practices Act(“FCPA”) in connection with the awarding of the Tarahan power project inIndonesia. Pomponi had been charged in a second superseding indictment on July30, 2013.

Pomponi is the fourth defendant to plead guilty to charges stemming from thisinvestigation. Frederic Pierucci, the vice president of global boiler sales at Alstom,pleaded guilty on July 29, 2013 to one count of conspiracy to violate the FCPA andone count of violating the FCPA and David Rothschild, a former vice president ofregional sales at Alstom Power Inc., pleaded guilty to conspiring to violate the FCPAon November 2, 2012. Marubeni Corporation, Alstom’s consortium partner on theTarahan project, pleaded guilty on March 19, 2014 to one count of conspiracy toviolate the FCPA and seven counts of violating the FCPA, and was sentenced to paya criminal fine of $88 million. FCPA and money laundering charges remain pendingagainst Lawrence Hoskins, the former senior vice president for the Asia region forAlstom, and trial is scheduled for June 2, 2015.

According to court filings, the defendants, together with others, paid bribes toofficials in Indonesia, including a member of the Indonesian Parliament andhigh-ranking members of Perusahaan Listrik Negara (“PLN”), the state-owned andstate-controlled electricity company in Indonesia, in exchange for assistance insecuring a $118 million contract, known as the Tarahan project, to providepower-related services for the citizens of Indonesia from facilities in Tarahan.Prosecutors asserted that, to conceal the bribes, the defendants retained twoconsultants purportedly to provide legitimate consulting services on behalf of Alstomand Marubeni in connection with the Tarahan project. In reality, according to thegovernment, the primary purpose for hiring the consultants was to use theconsultants to pay bribes to Indonesian officials.

The first consultant retained by the defendants allegedly received hundreds ofthousands of dollars in his Maryland bank account to be used to bribe the member


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of Parliament. The consultant then allegedly transferred the bribe money to a bankaccount in Indonesia for the benefit of the official. According to court documents,emails between Hoskins, Pomponi, Pierucci, Rothschild, and their co-conspiratorsdiscussed in detail the use of the first consultant to funnel bribes to the member ofParliament and the influence that the member of Parliament could exert over theTarahan project.

Prosecutors said, however, that in the fall of 2003, Hoskins, Pomponi, Pierucci andothers determined that the first consultant was not effectively bribing key officials atPLN. According to prosecutors, one email between Alstom employees described PLNofficials’ “concern that if we have won the job, whether their rewards will still besatisfactory or this agent only give them pocket money and disappear.” Moreover, thegovernment contended, an employee at Alstom’s subsidiary in Indonesia sent anotheremail to Hoskins asserting that the first consultant “has no grip on the PLN Tenderteam at all” and “is more or less similar to [a] cashier which I feel we pay too much.”

As a result, co-conspirators retained a second consultant to bribe PLN officials,according to the court documents. Prosecutors alleged that the co-conspiratorsdeviated from Alstom’s usual practice of paying consultants on a pro-rata basis inorder to make a much larger up-front payment to the second consultant so that theconsultant could “get the right influence.” An employee at Alstom’s subsidiary inIndonesia sent an email to Hoskins, Pomponi, Pierucci, and others asking them tofinalize the consultancy agreement with the front-loaded payments but stated that inthe meantime the employee would give his word to a high-level official at PLN,according to the charges. The defendants and their co-conspirators were successful insecuring the Tarahan project and subsequently made payments to the consultants forthe purpose of bribing the Indonesian officials, according to the government.

AUSTRALIAN MAN PLEADS GUILTY IN LAS VEGAS TO BIOFUELSFRAUD SCHEME

Nathan Stoliar, of Australia, has pleaded guilty in federal court in Las Vegas to fivefelonies for his role in multiple schemes, worth in excess of $41 million, to generatefraudulent biodiesel credits and to export biodiesel without providing biodieselcredits to the United States as required by law.

Stoliar and another defendant had been charged in January 2014 in a 57-countindictment alleging conspiracy, wire fraud, false statements under the Clean Air Act,obstruction of justice, and conspiracy to engage in money laundering. Following hisindictment, Stoliar’s arrest was sought by the United States. Located in Poland, Stoliarreturned in early February to the United States to surrender for arrest. Stoliar pleadedguilty to one count of conspiracy, one count of conspiracy to engage in moneylaundering, two counts of wire fraud, and one count of making false statements underthe Clean Air Act.

Stoliar is required by the plea to forfeit $4 million and pay $1 million inrestitution. He faces a maximum sentence of 20 years in prison and a $500,000 finefor each count of conspiracy to engage in money laundering and wire fraud, five years

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in prison and a $250,000 fine for conspiracy, and two years in prison and a $250,000fine for making false statements under the Clean Air Act.

The Energy Independence and Security Act of 2007 created a number offederally-funded programs that provided monetary incentives for the production anduse of renewable fuels such as biodiesel in the United States. Biodiesel producers andimporters can generate and attach credits known as “renewable identificationnumbers,” or RINs, to the gallons of biodiesel they produce or import. Becausecertain companies (such as companies that sell transportation fuel in the UnitedStates) need RINs to comply with regulatory obligations, RINs have significantmarket value. They are routinely bought and sold in the marketplace. In addition, toensure that RINs are generated for renewable fuel used only in the United States, andin order to create an incentive for biodiesel in the United States to be used in theU.S., anyone who exports biodiesel is required to obtain these valuable RINs for allexported gallons and provide the RINs to EPA.

According to the government, beginning around September 2009, Stoliar and aco-defendant operated and controlled a company—City Farm Biofuel in Vancouver,British Columbia, Canada—that represented itself as a producer of biodiesel from“feedstocks” such as animal fat and vegetable oils. Prosecutors said that Stoliar and aco-defendant also formed a company called Canada Feedstock Supply, whichrepresented itself as City Farm’s supplier of feedstocks necessary to produce biodiesel.According to the government, a co-defendant operated and controlled a companybased in Las Vegas called Global E Marketing (“GEM”) and, using these three andother closely-held companies, Stoliar and his codefendants claimed to producebiodiesel at the City Farm facility and to import and sell biodiesel to GEM, and thengenerated and sold RINs based upon this claimed production, sale, and importation.In reality, prosecutors asserted, no biodiesel produced at City Farm was ever importedand sold to GEM as claimed.

According to the government, Stoliar and his codefendants used GEM to claim toblend the biodiesel with petroleum diesel, allowing them to sell the RINs separatelyfrom any actual biodiesel. Using this scheme, Stoliar and his co-defendants falselyclaimed to import, purchase and blend more than 4.2 million gallons of biodiesel,sold the RINs, and fraudulently generated more than $7 million, the governmentasserted.

The indictment also alleged that, beginning around the same time period andcontinuing through December 31, 2013, Stoliar and a co-defendant, using theircompany MJ Biodfuel, bought over 23 million gallons of RIN-less biodiesel that hadbeen blended with small amounts of petroleum diesel to form B-99. As alleged, thedefendants bought the B-99 from unrelated companies in the United States, and thisB-99 had been used by other companies to generate and separate RINs from the fuel.Because B-99 cannot be used to again generate a RIN, and because it cannot be usedfor other tax-related incentives, B-99 sells for substantially less than 100 percentbiodiesel (known as B-100), according to prosecutors. As alleged, Stoliar sold someof this biodiesel to purchasers in the United States, claiming it was B-100 producedat the City Farm facility and imported into the United States. By claiming this


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biodiesel was B-100 and not RIN-less B-99, Stoliar marketed the fuel as eligible tobe used by purchasers to generate credits and incentives, and Stoliar was able to sellthe fuel for as much as $2.30 per gallon more than he otherwise would have beenable, prosecutors contened.

Moreover, according to the government, Stoliar and his co-defendants exportedsignificant amounts of the RIN-less B-99 they bought in the United States toCanada. Stoliar then sold the biodiesel in Canada, and conspired with hisco-defendants to not acquire and provide RINs to the United States for these exportsas they were required to do by law, according to the government. In doing so, Stoliarand a co-defendant failed to give to the United States RINs worth in excess of $34million, keeping this money for themselves instead, prosecutors asserted.

Finally, the government contended that Stoliar and a co-defendant conspired tolaunder the proceeds of their crimes, utilizing foreign banking institutions andcomplex financial transactions to promote their illegal schemes and distribute theproceeds of their crimes. The government asserted that accounts were utilized inCanada, Nevada, and Australia, and transactions between the defendants’ closely-heldcompanies were described as other legitimate transactions involving biodiesel, whenin reality they were not.

Sentencing for Stoliar has been set for October 30, 2014 in Las Vegas, Nevada.

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Legislative and Regulatory Update

By Steven A. Meyerowitz*

RAPID SHALE GAS DEVELOPMENT OUTPACED PENNSYLVANIAENVIRONMENTAL AGENCY’S ABILITY TO OVERSEE INDUSTRY ANDPROTECT WATER QUALITY, PENNSYLVANIA AUDITOR GENERALFINDS

An audit by Pennsylvania Auditor General Eugene DePasquale has found that themeteoric growth of the shale gas industry caught the Pennsylvania Department ofEnvironmental Protection (“DEP”) unprepared to effectively administer laws andregulations to protect drinking water and unable to efficiently respond to citizencomplaints.

The audit covered the period of 2009 through 2012 and was launched byDePasquale in January 2013 immediately after he became auditor general. The audit’spurpose was to assess the DEP’s ability to protect the water quality in the wake ofgreatly escalated shale gas well drilling.

The audit revealed that the DEP had failed to consistently issue official orders towell operators who had been determined by the DEP to have adversely impactedwater supplies. After reviewing a selection of 15 complaint files for confirmed watersupply impact, auditors discovered that the DEP had issued just one order to a welloperator to restore or replace the adversely impacted water supply.

The DEP claimed that in many cases such orders were procedurally unnecessaryas well operators already may have taken steps to restore the water supply under whatthe agency termed “voluntary compliance.”

Auditors also reported that the DEP did a poor job in communicating itsinvestigation results to citizens who registered complaints with the department. Theagency was not always timely in meeting statutory timeframes for response tocomplaints it did receive, according to the report.

Auditors also noted that the DEP’s complaint tracking system, used to monitor allenvironmental complaints, including those that were oil and gas related, wasineffective as it did not provide management with reliable information to effectivelymanage the program.

In the area of inspections, auditors attempted to measure how quickly the DEPwas in conducting its initial inspection of shale gas wells, a basic regulatory

* Steven A. Meyerowitz, the Editor-in-Chief of Pratt’s Energy Law Report, is a graduate of HarvardLaw School. For nearly five years, Mr. Meyerowitz was an attorney for a prominent Wall Street law firmbefore founding Meyerowitz Communications Inc., a law firm marketing communications consultingcompany that works with some of the largest and most successful law firms in the country. Mr.Meyerowitz has been an outside Editor-in-Chief for a number of law and business publications for manyyears, including The Banking Law Journal, Pratt’s Journal of Bankruptcy Law, and the Financial FraudLaw Report. He can be reached at [email protected].


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responsibility. Auditors said, however, that they were thwarted by the DEP’s lack ofreliable data-learning that only a “needle in a haystack” review of thousands ofhard-copy files would ever yield a conclusion. The auditors also reported that theDEP uses a 25-year-old policy on the frequency of inspections, which has a “loophole” that only requires the DEP to conduct inspections as it has the financial andhuman resources to do so.

Auditors also found that the DEP does not post to its website all statutorilyrequired inspection information. When the data was tested for accuracy, the auditorsfound errors of more than 25 percent in key data fields, and that as many as 76percent of inspectors’ comments were omitted from the online inspection reporting.

The auditors also noted that the DEP does not use a manifest system for trackingshale gas well waste from the well site to disposal. Instead, the DEP relies upon a“disjointed process” that includes self-reporting by well operators with no assurancesthat waste is disposed of properly.

With respect to transparency, auditors said that they discovered that accessing theDEP data was challenging as it was a myriad of confusing web links and jargon. Theinformation that was presented on its decades-old eFACTS database often wasincomplete, according to the auditors, requiring a physical review of hard-copy filesat distant offices to verify the actual information.

Of the eight audit findings and 29 recommendations to improve the DEP’smonitoring of potential water quality impacts of shale gas development, the DEPdisagreed with all audit findings, but agreed with the majority of the recommenda-tions.

Among the recommendations, auditors encouraged the DEP to:

• always issue an administrative order to a well operator who the DEP hasdetermined adversely impacted a water supply—even if the DEP used thecooperative approach in bringing the operator into compliance or if theoperator and the complainant have reached a private agreement;

• develop better controls over how complaints are received, tracked, investi-gated, and resolved;

• invest resources into replacing, or significantly upgrading, its complaintmanagement system;

• find the financial resources to hire additional inspectors to meet the demandsplaced upon the agency;

• implement an inspection policy that outlines explicitly the requirements fortimely and frequent inspections;

• create a true manifest system to track shale gas waste and be more aggressivein ensuring that the waste data it collects is verified and reliable;

• reconfigure the agency website and provide complete and pertinent infor-mation in a clear and easily understandable manner;

• invest in information technology resources and develop an IT structure that

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will ensure its oil and gas program has a strong foundation for the ongoingdemands placed upon it; and

• develop an all-electronic inspection process so that inspection information isaccurate and timely to the DEP and public stakeholders.

“Shale gas development offers significant benefits to our commonwealth and ournation, but these benefits cannot come at the expense of the public’s trust, health, andwell-being,” DePasquale said. “We must collectively find solutions to this challengeso that Pennsylvania becomes a leader among states in regulating shale gasdevelopment. I am committed to working with the governor, the General Assembly,and other partners to ensure this audit begins that discussion.”

COMMERCE DEPARTMENT PRELIMINARILY FINDS DUMPING OFIMPORTS OF CERTAIN CRYSTALLINE SILICON PHOTOVOLTAICPRODUCTS FROM CHINA AND TAIWAN

The U.S. Department of Commerce has announced its affirmative preliminarydeterminations in the antidumping duty (“AD”) investigations of imports of certaincrystalline silicon photovoltaic products from the People’s Republic of China andTaiwan.

Commerce preliminarily determined that certain crystalline silicon photovoltaicproducts from China and Taiwan have been sold in the United States at dumpingmargins ranging from 26.33 to 58.87 percent, and 27.59 to 44.18 percent,respectively.

As a result of the preliminary affirmative determinations, Commerce will instructU.S. Customs and Border Protection to require cash deposits based on thesepreliminary rates as adjusted for export and domestic subsidies found in a companioncountervailing duty (“CVD”) investigation.

In 2013, imports of certain crystalline silicon photovoltaic products from Chinaand Taiwan were valued at an estimated $1.5 billion and $656.8 million, respectively.

Commerce is scheduled to announce its final determinations on or aboutDecember 16, 2014.

If Commerce makes affirmative final determinations, and the U.S. InternationalTrade Commission (“ITC”) makes affirmative final determinations that imports ofcertain crystalline silicon photovoltaic products from China and/or Taiwan materiallyinjure, or threaten material injury to, the domestic industry, Commerce will issue ADorders. The ITC will make its final injury determinations in January 2015. If eitherCommerce’s or the ITC’s final determinations are negative, AD orders will not beissued.

FEDERAL GOVERNMENT PROPOSES NEXT OFFSHORE WIND LEASESALE; IDENTIFIES 344,000 ACRES OFFSHORE NEW JERSEY

The federal government has announced the proposed sale of leases for nearly


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344,000 acres offshore New Jersey for commercial wind energy leasing.

The Bureau of Ocean Energy Management (“BOEM”) said in a statement that itidentified the “New Jersey Wind Energy Area” in consultation with members of itsNew Jersey Intergovernmental Renewable Energy Task Force, which includes federal,state, tribal, and local government partners. The BOEM proposes to auction theWind Energy Area as two leases: the South Lease Area (160,480 acres) and the NorthLease Area (183,353 acres). The Wind Energy Area begins about seven nautical milesoff the coast from Atlantic City.

Based on an analysis prepared for the BOEM by the Department of Energy’sNational Renewable Energy Laboratory, the New Jersey Wind Energy Area ascurrently delineated, if fully developed, may be able to support up to 3,400megawatts of commercial wind generation, enough to power about 1.2 millionhomes.

To date, the BOEM has awarded five commercial wind energy leases off theAtlantic coast: two non-competitive leases (Cape Wind in Nantucket Sound offMassachusetts and an area off Delaware) and three competitive leases (two offshoreMassachusetts-Rhode Island and another offshore Virginia). Competitive lease saleshave generated about $5.4 million in high bids for about 277,550 acres in federalwaters.

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Industry News

By Victoria Prussen Spears*

LAW FIRM NEWS

Jackson Kelly Adds Three Oil and Gas Attorneys

Jackson Kelly PLLC has added Akron attorneys Mark Bernlohr, Clay Keller,and J. Alex Quay to the firm. The lawyers will practice in the firm’s industrial,environmental, and complex litigation practice group.

Mr. Bernlohr has practiced in Ohio for more than 25 years and represents large oiland gas exploration companies and related industries in various types of litigation. Herepresents contractors, owners, developers, architects, and suppliers in the prosecu-tion and defense of construction claims; equipment leasing/finance companies andbanks involved in equipment leasing and litigation; and several large oil and gasexploration companies in the defense of their oil and gas lease rights.

Mr. Keller has experience representing upstream and midstream companiesoperating in Ohio for the exploration and development of the Utica Shale. Herepresents producers and midstream companies as trial counsel in litigation mattersinvolving mineral title disputes, right-of-way agreement disputes, Dormant MineralAct claims, oil and gas lease termination, trespass, nuisance and water wellcontamination claims, joint venture disputes, mineral title curative issues, andstatutory unitization matters.

Mr. Quay’s practice involves a wide variety of oil and gas and energy law matters,including litigation related to lease lawsuits, lease construction and interpretation,unitization, and emerging issues involving Ohio’s Dormant Mineral Act. In addition,Mr. Quay’s practice involves title examinations and the preparation of certified oiland gas title opinions. He also represents clients in matters relating to real propertydisputes, quiet title actions, and mineral ownership disputes.

* * *

Energy Partner Megan Harmon Named to Schnader’s Executive Committee

Megan Harmon has been elected to Schnader Harrison Segal & Lewis LLP’sexecutive committee for a three year term. The seven member executive committeeestablishes rules and procedures for the firm and provides financial oversight. Allmembers of the committee are elected by the firm’s partners.

* Victoria Prussen Spears, the Editor of Pratt’s Energy Law Report, has been a researcher, writer,editor, and marketing consultant for Meyerowitz Communications Inc. for many years, regularlywriting and editing legal and business articles that have been published in a variety of prominentjournals and working with clients on product development, strategic planning, and marketinginitiatives. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorneyat a leading New York City law firm before joining Meyerowitz Communications. She can be reachedat [email protected].


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Ms. Harmon is a co-chair of the firm’s energy, environmental, and sustainabilitypractice groups. She concentrates her practice in business counseling, transactions,mergers, acquisitions and dispositions, project development, public-private partner-ships and finance, and has experience in contract negotiations, federal and statecompliance matters, employment issues, and procurement.

* * *

Energy Lawyer Patricia Tan Openshaw Joins Gibson, Dunn & Crutcher inHong Kong as a Partner

Patricia Tan Openshaw has joined Gibson, Dunn & Crutcher LLP’s HongKong office and will continue her energy and infrastructure practice.

Ms. Openshaw focuses her practice on project development and finance, mergersand acquisitions, and banking and finance transactions in the energy and infrastruc-ture sector. Ms. Openshaw advises Asian and U.S. companies in cross-borderacquisitions, restructurings, refinancings, private equity investments, and divestituresof energy and infrastructure assets throughout the region. She has handled energy andinfrastructure transactions in Indonesia, Australia, China, Fiji, India, Korea, Thai-land, Singapore, and the United States.

Before joining the firm, she practiced with Paul Hastings and Skadden, Arps, Slate,Meagher & Flom in New York and Hong Kong. She graduated from the UCLASchool of Law. She is fluent in Fukien and Tagalog.

* * *

Mining Attorney Alison Lacy Joins Fasken Martineau

Alison Lacy has joined Fasken Martineau as a partner and member of the globalmining, infrastructure, and project finance groups in Toronto.

Ms. Lacy has experience with project development, project financing, mining, andenergy-related transactions. She has advised on mining projects in Panama, Cuba,Chile, and Madagascar and has worked on transactions in the electricity and resourcesectors in Canada, Chile, Argentina, Brazil, Bolivia, Mexico, Colombia, Uruguay,China, and India.

* * *

Squire Patton Boggs Adds Former Pemex Lawyer Fernando Cano-Lasa asOf Counsel in its Houston Office

Squire Patton Boggs has added Fernando Cano-Lasa as of counsel in its Houstonoffice. Mr. Cano-Lasa joins the firm after spending 12 years with Petroleos Mexicanos(“Pemex”), the state-owned Mexican oil and gas company, and Pemex ProcurementInternational, Inc., where held a variety of roles in their legal departments.

With more than a decade of experience handling transactional and legal matters inthe Mexican and Latin American oil and gas industries, Mr. Cano-Lasa primarilyadvises U.S. and international corporations in energy and corporate law, includingthe interpretation of and resulting opportunities created by the significant energy

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reform approved by the government of Mexico in 2013.

* * *

Houston Energy Law Firm Absorbs Competitor’s Office

Houston and New Orleans-based law firm Bland & Partners P.L.L.C. has mergedwith the Houston office of Crain Wilson, P.L.L.C.

The merger results in the addition of six attorneys and four legal support staff toBland & Partners, as well as an expansion of its client base. The firm is currentlyhome to 31 attorneys and legal staff. Crain Wilson attorneys joining Bland &Partners include Susan Noe Wilson, Deborah Busby, Doug Hammond, MichaelHogue, Tom Deen, and of counsel Alan Folger.

* * *

Burleson LLP Relocating to Larger Offices in Pittsburgh

Burleson LLP, a law firm devoted primarily to the oil and gas industry, hascompleted a move into new offices in Pittsburgh, adding 10,000 square feet tosupport its recent growth in the Appalachian Basin. The firm now occupies morethan 25,000 square feet on the second floor of Southpointe Town Center at 1900Main Street.

* * *

COMPANY NEWS

Panoro Appoints Laub and Quijandria Partner Anthony Laub BenavidesDirector

Panoro Minerals Ltd. has appointed Anthony Laub Benavides as a director ofthe company. Mr. Laub is a partner in Laub and Quijandria, a Peruvian firm thatprovides legal, regulatory advisory, and economic and financial consulting services tothe energy and mining industries. In addition to a law degree from Peru, he holds anLL.M. in energy law and policy from the University of Dundee, in the UnitedKingdom.

From 1997 to 2005, Mr. Laub held various positions in the Ministry of Energyand Mines (Lima, Peru), including director-general of legal counsel, and secretarygeneral of the ministry. He has also acted as a director of several companies in thepower generation and metal mechanic sectors.

* * *

Seabron Adamson Re-Joins Charles River Associates’ Energy Practice

Seabron Adamson has re-joined Charles River Associates’ energy practice, as vicepresident. Charles River is a provider of economic, financial, and managementconsulting services.

Mr. Adamson has more than 20 years of experience in the energy industry,


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focusing on the application of economic analysis to competitive energy markets bothin the U.S. and Europe. He advises clients in both the electricity and natural gassectors on matters such as market design, asset valuation, litigation support,transmission pricing, and contract analysis. Most recently, he had been a seniorconsultant to Charles River and, prior to that, his experience included leadingCharles River’s energy practice from 2006 to 2008.

Mr. Adamson has provided testimony before the Federal Energy RegulatoryCommission, U.S. state and Canadian provincial regulators, and arbitral tribunals.He also brings a background in international markets, having been involved withenergy sector restructuring, pricing, and valuation issues in the European Union,India, China, and Latin America.

Mr. Adamson earned an M.S. in technology and policy from the MassachusettsInstitute of Technology and an M.S. in applied physics and a B.S. in physics from theGeorgia Institute of Technology.

* * *

INTERNATIONAL ENERGY LAW NEWS

European Bank for Reconstruction and Development’s Mongolia WindFarm Project Wins U.S. Treasury Award

The U.S. Treasury Development Impact Honors award has recognized theEuropean Bank for Reconstruction and Development’s (“EBRD”) Salkhit windfarm project in Mongolia.

The Salkhit wind farm, a large-scale renewables project in Mongolia and the firstnew electricity generator in the country for the last 30 years, was conceived by localinvestors with early EBRD equity participation. The plant is located 70 kilometersfrom the capital, Ulaanbaatar.

Salkhit, which means “windy mountain” in Mongolian, was built in 2013 andprovides about five percent of Mongolia’s electricity production. It is operated byClean Energy LLC and majority-owned by a local investor, Newcom. According toEBRD research, Mongolia has significant potential for further wind power explora-tion, provided that the country’s transmission grid is properly upgraded andmodernized.

The project received long term financing from the EBRD and the NetherlandsDevelopment Finance Company FMO (US$ 47 million each) and further equitycontribution from General Electric, which also provided the turbines to harness theMongolian wind.

According to the U.S. Department of the Treasury, the projects honored at theceremony “reflect the critical work of the MDBs [multilateral development banks],which strengthens communities around the world, including in fragile states.”

* * *

LNG Facility Regulation Enacted by British Columbia

With liquefied natural gas on the rise in British Columbia, the Oil and Gas

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Commission has enacted the Liquefied Natural Gas Facility Regulation. The Oiland Gas Commission has described the regulation as a “technical regulation designedto comprehensively address regulatory aspects associated with proposed small- andlarge-scale LNG facilities.”

Learn more: http://www.canadianenergylawblog.com/2014/07/25/british-columbia-enacts-lng-facility-regulation/.

* * *

Germany’s Renewable Energy Law Approval Confirmed by EuropeanCommission

The European Commission has found the new German Renewable Energy Act(EEG 2014) to be in line with EU state aid rules. The EEG 2014 provides supportfor the production of electricity from renewable energy sources and from mining gas.It also reduces the financial burden on energy-intensive users and certain auto-generators by reducing their level of payment of the EEG-surcharge. Finally, the EEG2014 provides that the aid will be progressively allocated through tenders thatgradually will be opened to operators located in other Member States. TheCommission has concluded that the EEG 2014 will further EU environmental andenergy objectives without unduly distorting competition in the single market.

* * *

Breitburn Energy Partners LP to Acquire QR Energy, LP, for Approximately$3 Billion in Unit-for-Unit Transaction

Breitburn Energy Partners LP will acquire QR Energy, LP, in a unit-for-unitexchange, implying a transaction value of approximately $3 billion, including QREnergy’s existing net debt and outstanding Class C Convertible Preferred Units.

UBS Investment Bank acted as exclusive financial advisor to Breitburn, andprovided a fairness opinion to the Breitburn board of directors.

Latham & Watkins LLP acted as legal counsel to Breitburn.

RBC Capital Markets and Greenhill & Co., LLC, acted as joint financialadvisors to QR Energy, and Greenhill & Co., LLC, provided a fairness opinion toQR Energy’s board of directors.

Vinson & Elkins LLP acted as legal counsel to QR Energy.

Tudor, Pickering and Holt provided a fairness opinion to the conflicts committeeof QR Energy’s board of directors.

Bracewell & Giuliani LLP acted as legal counsel to the conflicts committee of QREnergy board of directors.

* * *

Ex-Im Bank Finances Export of U.S.-Manufactured Wind Turbines to Talasde Maciel Wind Farm in Uruguay

The Export-Import Bank of the United States is providing a $64.5 million direct


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loan to Astidey S.A., in Montevideo, Uruguay, for the purchase of U.S.-manufacturedwind-turbine generators being exported by Gamesa Technology Corporation Inc.,headquartered in Feasterville-Trevose, Pennsylvania.

Gamesa will supply, transport, install, and commission 25 of its G97 2.0-megawatt(“MW”) wind turbines in the 50 MW Talas de Maciel I wind farm in theDepartment of Flores, Uruguay, located approximately 135 kilometers northwest ofMontevideo. The agreement also includes Gamesa’s operation and maintenance ofthe facility for 20 years.

* * *

THOUGHT LEADERS

Fukushima Daiichi Nuclear Accident Underscores Need to Actively SeekOut and Act on New Information about Nuclear Plant Hazards, Says NewNAS Report

A new congressionally mandated report from the National Academy of Scienceshas concluded that the overarching lesson learned from the 2011 FukushimaDaiichi nuclear accident was that nuclear plant licensees and their regulators mustactively seek out and act on new information about hazards with the potential toaffect the safety of nuclear plants. The committee that wrote the report examined thecauses of the Japan accident and identified findings and recommendations forimproving nuclear plant safety and offsite emergency responses to nuclear plantaccidents in the U.S.

Personnel at the Fukushima Daiichi plant responded to the accident with courageand resilience, and their actions likely reduced its severity and the magnitude ofoffsite radioactive material releases, the committee said. However, several factorsrelating to the management, design, and operation of the plant prevented plantpersonnel from achieving greater success and contributed to the overall severity of theaccident, according to the report.

The report recommended particular attention to improving the availability,reliability, redundancy, and diversity of specific nuclear plant systems:

• DC power for instrumentation and safety system control;

• tools for estimating real-time plant status during loss of power;

• reactor heat removal, reactor depressurization, and containment ventingsystems and protocols;

• instrumentation for monitoring critical thermodynamic parameters—forexample temperature and pressure in reactors, containments, and spent-fuel

pools;

• hydrogen monitoring, including monitoring in reactor buildings, and

mitigation;

• instrumentation for both onsite and offsite radiation and security monitor-

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ing; and

• communications and real-time information systems.

To further improve the resilience of U.S. nuclear plants, the report alsorecommended:

• The U.S. nuclear industry and the U.S. Nuclear Regulatory Commission(“USNRC”), should give specific attention to improving resource availabilityand operator training, including training for developing and implementingad hoc responses to deal with unanticipated complexities.

• The U.S. nuclear industry and the USNRC should strengthen theircapabilities for assessing risks from events that could challenge the design ofnuclear plant structures and components and lead to a loss of critical safetyfunctions. Part of this effort should focus on events that have the potentialto affect large geographic regions and multiple nuclear plants, includingearthquakes, tsunamis, and other geographically extensive floods, andgeomagnetic disturbances. The USNRC should support these efforts byproviding guidance on approaches and overseeing rigorous peer review.

• The USNRC should further incorporate modern risk concepts into itsnuclear safety regulations using these strengthened capabilities.

• The USNRC and the U.S. nuclear industry must continuously monitor andmaintain a strong safety culture and should examine opportunities to increasethe transparency of and communication about their efforts to assess andimprove nuclear safety.

Learn more: http://national-academies.org.

* * *

Is North Dakota’s Oil Production Growth Sustainable?

The U.S. Energy Information Administration reported that North Dakotaproduced 30 million barrels of oil in April. This level of production is, according toBen Casselman of the FiveThirtyEight blog, “as much as it had in all of 2004.” Mr.Casselman also noted that between “2004 and 2008, North Dakota’s oil productiondoubled. Then it doubled again. And again.”

That level of growth, is “nearly unprecedented in the modern oil industry. It’s alsounsustainable,” said Mr. Casselman.

Learn more: http://fivethirtyeight.com/features/north-dakotas-oil-bonanza-is-unsustainable/.


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EDITORS’ NOTE: WElcOmE TO PRaTT’S ENERgy laW REPORT!Steven A. Meyerowitz and Victoria Prussen Spears

RaRE EaRTH ElEmENTS: DEEP SEa mININg aND THE laW OF THE SEaIan Coles

HOW THE UKRaINE cRISIS IS REDEFININg EUROPEaN, RUSSIaN, aND U.S. ENERgy RElaTIONSShane R. DeBeer and Wim Vandenberghe

U.S. SUPREmE cOURT RUlES ON EPa gHg PERmITTINg REQUIREmENTS: PROVIDES PaRTIal REPRIEVEEddie Lewis and Bob Greenslade

NEW yORK’S HIgHEST cOURT HOlDS THaT ZONINg laWS OF NEW yORK TOWNS BaNNINg FRacKINg aRE ENFORcEaBlE—a BRIEF aNalySIS OF THE ORal aRgUmENTS aND THE cOURT’S OPINIONH. Victor Thomas

ROyal DEcREE 413/2014 aND mINISTERIal ORDER IET/1045/2014 REgUlaTINg THE ElEcTRIcITy gENERaTION acTIVITy USINg RENEWaBlE ENERgy SOURcES, cOgENERaTION, aND WaSTEJavier Lasa

IN THE cOURTSSteven A. Meyerowitz

lEgISlaTIVE REgUlaTORy UPDaTESteven A. Meyerowitz

INDUSTRy NEWSVictoria Prussen Spears

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Pratt's Energy Law Report Sample Issue September 2014

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Transcript of Pratt's Energy Law Report Sample Issue September 2014