United States: Energy, Environment And Resources Update - Issue 4 | December 2015

EPA Science Advisory Board Criticizes EPA’s Hydraulic Fracturing Study Report

On December 4, 2015, the EPA Science Advisory Board (SAB) made public its first formal comments on EPA's June 2015 hydraulic fracturing study report ("Assessment of the Potential Impacts of Hydraulic Fracturing for Oil and Gas on Drinking Water Resources," External Review Draft, EPA/600/R-15/047). Specifically, the SAB issued "Preliminary Summary Responses to Charge Questions from Members of the EPA Science Advisory Board (SAB) Hydraulic Fracturing Research Advisory Panel." These preliminary responses are bullet-styled answers to the eight "charge questions" that were posed by EPA to its SAB about the draft hydraulic fracturing study report.

Charge Question 4 asks SAB the following specific questions, among others: "Are the major findings concerning well injection fully supported by the information and data presented in the assessment? Do these major findings identify the potential impacts to drinking water resources due to this stage of the hydraulic fracturing water cycle? Are the factors affecting the frequency or severity of any impacts described to the extent possible and fully supported?"

In its preliminary responses, the SAB did not pull punches in criticizing EPA's work: "In general, the conclusions regarding how many wells are leaking or not are not well supported. ... It is not clear from the chapter, nor from the summary of the data at the end of the chapter, that either the frequency or the severity have been adequately addressed, nor dismissed as unable to assess such impact or severity. The anecdotal data is not statistical in nature, and therefore conclusions as to severity and true risk are difficult to assess. The reader is left to wonder if anything can happen anywhere at any time."

It seems unlikely that the way in which EPA's hydraulic fracturing study has been conducted to date will enable the oil and gas industry and the environmentalist community to come to a shared view about risks associated with hydraulic fracturing and how to best mitigate them.

Clean Power Plan—Motions for Stay

As widely reported, in late October more than two dozen states, along with numerous private plaintiffs, brought challenges to EPA's controversial Clean Power Plan (CPP) final rule that was issued under the stated authority of Section 111 of the Clean Air Act. Perhaps encouraged by the Sixth Circuit's October 9, 2015, imposition of a stay in the "Waters of the United States" litigation (in which 31 states and a number of private parties have challenged another controversial EPA final rule, this one issued pursuant to the Clean Water Act), the CPP opponents are seeking a stay of implementation of the CPP final rule pending final adjudication of their challenges on the merits.

The plaintiffs' motions for stay argue that: (a) the plaintiffs will likely prevail on the merits; (b) absent a stay, coal mining operators, coal workers and coal-dependent communities will be irreparably harmed; (c) conversely, if a stay is granted, no parties will be harmed; and (d) a stay is in the public interest. EPA's opposition brief, filed on December 3, takes exactly the opposite stance. EPA argues that: (a) it has clear authority to issue the Clean Power Plan rule, (b) the plaintiffs will suffer no harm if a stay is not issued and (c) the public interest will benefit if implementation of the rule is not delayed.

Briefing will conclude on December 23, 2015, and will be followed by (as yet unscheduled) oral argument. With so much at stake (the CPP, for some states, requires the implementation of major changes in electricity generation), an early review of the plaintiffs' likelihood of prevailing on the merits —if the court reaches that issue—will be front-page news. Stay tuned.

Mexico Passes Legislation to Encourage Clean Energy Development

On December 9, 2015, Mexico finalized its Energy Transition Law (LTE), which establishes a target of 35-percent clean energy in electric generation by 2024 through a series of benchmarks, with a 25-percent target by 2018 and a 30-percent target by 2021. The law includes a flexibility mechanism that allows for the targets to be lowered during the first four years in the case of either significant scarcity or price inflation.

The law also contains the details of Mexico's Clean Energy Certificate (CEL) program. Under the program, CELs will be tracked and are tradable, with one CEL equal to one megawatt hour of clean energy generation. Twenty-year CELs, as well as 15-year clean energy power purchase agreements, will be auctioned during the first quarter of each year. The first auction will take place in March 2016, with four to six million CELs expected to be available. This auction will serve as a trial run, with state utility Comisión Federal de Electricidad (CFE) the only buyer of electricity from generators awarded CELs. CFE is required to meet 5 percent of its electricity demand with clean energy by 2018. Future auctions will be open to commercial wholesale electricity suppliers with the number of CELs available each year dependent on several considerations as Mexico aims to develop a robust CEL market.

California Congressional Delegation Continues to Struggle with Drought Legislation

Despite some early light rainfall, the California drought persists. Nearly two-and-a-half months into the new water year, and even with some ski areas having small amounts of snow to make rock skiing fun, California's water security remains in dire condition.

For approximately the past year, House and Senate legislators from the California delegation have been negotiating a compromise bill to reconcile differences between a House bill and a Senate bill. Talks appeared to be progressing rather well on the staff level up until recently.

According to two press releases issued in rapid fire by U.S. Senator Dianne Feinstein, it appears that someone on the staff in the House of Representatives had introduced a bill allegedly

supported by Senator Feinstein for inclusion in the omnibus appropriations bill. That piece of legislation had not been agreed to by the senator and the use of her name was not authorized, according to the press release. Newspaper reports indicated that the administration still had significant concerns regarding some of the fishery aspects of the legislation.

On December 10, 2015, members of the Republican delegation issued a series of statements critical of the Senate's refusal to take up the bill they promoted. Whether Senators Feinstein and Boxer will be willing to continue to negotiate a bill after the so-called breach of trust is unknown. Various newspapers have called for continued discussions. Absent a drought bill that would provide authority and encouragement to the federal fish agencies, California water will continue to be run under minimal conditions prescribed by federal biological opinions and state water quality standards. If the El Niño affect does not yield a record amount of precipitation, hopefully much of it as snow, the California water crisis will likely continue.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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