Brunini Law

Environmental Law Blog

A 30-Year Prophecy: What Trump v. Slaughter Means for the Energy Industry

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In 1997, as a commissioner at the Federal Energy Regulatory Commission (FERC), Brunini attorney Curt Hébert, Jr., who later served as chair of the commission, dissented from the agency’s decision involving the Edwards Dam in Maine.

The dam was the first operating hydroelectric facility in the country ordered by FERC to be dismantled. FERC’s decision marked a monumental shift in national energy and environmental policy, granting itself the authority to deny relicensing and order the removal of a project based primarily on environmental considerations. Nothing in Part 1 of the Federal Power Act directly gave FERC authority to order the licensee to remove a dam that is part of a federally licensed project. Instead, in the Edwards case, FERC arrogated to itself the authority to do so.

As recently noted by Real Clear Energy, Hebert’s concern at the time stretched beyond the dam to the much more fundamental risk of allowing an independent agency like FERC to move beyond faithfully implementing the authority expressly delegated to it by Congress toward making policy of its own.

“Hebert warned against allowing FERC to move beyond faithfully implementing the policies enacted by Congress and toward making policy of its own. His dissent reflected a broader constitutional concern that independent agencies derive their legitimacy from carrying out the law—not from exercising independent political authority. The basis of his dissent should now be reexamined.”

Well, nearly three decades later, the Supreme Court of the United States has signaled that it agrees, echoing the concerns he raised.

The court’s recent decision in Trump v. Slaughter marks a significant shift in administrative law by holding that officials who exercise substantial executive authority must remain accountable to the President through the power of removal.

In reaching that conclusion, the Supreme Court overturned Humphrey’s Executor, ending a nearly 100-year-old precedent that Congress could broadly insulate leaders of independent agencies from presidential control.

While the case focused on the Federal Trade Commission (FTC), its reasoning raises important constitutional questions for other independent agencies, including FERC. Because FERC also writes regulations, investigates potential violations, and enforces federal law, its traditional independence may now face increased scrutiny.

What does this mean for the energy industry?

Trump v. Slaughter could give the President greater influence over regulatory priorities, leading to faster shifts in energy policy across administrations and renewed debate over the proper balance between agency independence and democratic accountability.

  • Greater Regulatory Volatility
    Changes in agency leadership could lead to more rapid shifts in enforcement, rulemaking, and regulatory priorities, making it more difficult for companies to predict the long-term regulatory landscape.
  • Increased Infrastructure and Investment Uncertainty
    Permitting priorities, transmission planning, electricity market rules, and other FERC initiatives could change more quickly, creating additional uncertainty for long-term investments in pipelines, LNG facilities, renewable energy, and grid infrastructure.
  • More Constitutional Challenges
    The decision is likely to generate litigation over the structure and authority of independent agencies, including whether FERC’s traditional independence can withstand constitutional scrutiny.
  • Expanded Executive Influence
    Energy policy, including domestic production, renewable energy, grid reliability, and environmental initiatives, may become more closely aligned with each administration’s priorities.
  • Heightened Regulatory Scrutiny
    Energy companies should closely monitor legal and regulatory developments as agencies and courts determine how broadly Trump v. Slaughter applies beyond the FTC.

The greatest impact may not be any single regulatory change, but the increased likelihood that the regulatory environment will shift more quickly, and potentially more dramatically, with each change in presidential administration.

What should energy companies do?

  • Monitor Regulatory Developments Closely
    Stay informed about changes in agency leadership, litigation, and rulemaking that could affect operations, permitting, and compliance.
  • Build Flexibility into Planning
    Major infrastructure and capital projects should account for the possibility of shifting regulatory priorities over their lifecycle.
  • Evaluate Regulatory and Litigation Risk
    Assess how evolving agency authority and potential constitutional challenges could impact permitting, enforcement actions, and strategic initiatives.

As courts define the reach of Trump v. Slaughter, we are here to help navigate regulatory changes and identify opportunities or risks.

Brunini’s Regulatory practice spans environmental, energy, telecommunications, public utility, and eminent domain law.

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Biden’s unnecessary regulations on offshore oil rigs threaten jobs in Gulf States

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By CURT L. HEBERT JR. AND CURTIS SCHUBE

The Biden administration, in line with its goal of significantly reducing oil production, has quietly implemented regulations that are likely to result in a significant loss of jobs in the oil industry across the Gulf Coast states, including Mississippi and Louisiana.

For any offshore producer of energy, part of the company’s financial calculus has to be the ability to comply with all imposed industry regulations that require companies to be able to disassemble the facility and restore the site after the end of production (“decommissioning”).

This can be expensive, so often, this process requires companies to demonstrate their capacity to pay for the decommissioning. This can be done by demonstrating financial strength and reliability or by purchasing surety bonds if that financial strength and reliability is not demonstrated.

The offshore oil industry has operated under a financial assurance model that has worked extraordinarily well for years and the oil industry has thrived under a successful financial assurance model. The typical journey of an offshore oil rig involves a major oil company erecting the oil rig and using it during its most productive phase. Eventually, the major companies may sell off the leasing rights to smaller, independent, oil companies who continue to extract oil until the oil rig reaches the end of its productive life.

Major oil companies have no trouble with financial assurance. They have a deep reserve of assets to draw upon, which usually prevents them from having to purchase surety bonds. However, the assets are not always sufficient for smaller companies.

This reality has historically not been a problem. The system has included joint and several liability between the oil producers, and it has relied on the market to act as a safety net. When the existing owner cannot pay for all of the decommissioning, predecessor owners have stepped up. This risk has usually been built into the transactions between the two companies, with the major oil companies doing their due diligence before assuming the risk. Importantly, with this system in place, as long as any company that has ever controlled the lease has the necessary financial strength, no surety bonds must be purchased.

The end result of this joint and several liability system is that the taxpayer almost never has to pay for decommissioning. Historically, only $58 million has been paid for by the taxpayer. This is a tiny amount considering the size of the industry. All of that amount came from sole liability leaseholders, where there was no predecessor owner to assume the gap in liability. Bottom line: The existing system has worked, and the taxpayer has been protected for decades.

Recently, the Bureau of Ocean Energy Management passed regulations that try to fix what wasn’t broken. They noticeably fail to affirm that this joint and several liability framework will remain moving forward — so much so that the Surety and Fidelity Association of America noted that “BOEM is silent as to how and when the required financial assurance will be called upon.”

As a result, small and independent oil companies are likely to be required to purchase surety bonds to meet their financial assurance requirements. However, the surety market has stated that it may not even be able to underwrite the amount of necessary surety bonds. Even if it could, this would add $6 billion in new costs for these small oil companies over the next 20 years.

Small oil companies make up over 75% of the oil companies currently operating in the outer continental shelf in the Gulf of Mexico. The average cost increase for those companies to purchase the newly required surety bonds is projected to be $379 million per year at best, but likely closer to $800 million per year. Assuming these small oil companies can even get the necessary surety bonds, the costs of the surety bonds are likely to damage them severely.

The new regulations are likely to put many small oil companies out of business, and the people who work for them are also likely to find themselves without jobs. Opportune LLP wrote that the new regulations will eliminate 36,000 jobs. Additionally, Opportune projects the regulations will shrink the nation’s gross domestic product by $9.9 billion and will cost the federal government $573 million in oil royalties.

The new regulations frivolously act as the tip of the spear for the environmental activists who seem to hold tremendous sway over key leadership in the Biden administration. The significant impact on Gulf States’ workers is unnecessary. The damage to the economy is unnecessary. It is time that our federal government stops appeasing the few at the cost of so many.

Hebert is the former chairman of the Federal Energy Regulatory Commission, a former chairman of the Mississippi Public Service Commission and a former chairman of the Oil and Gas Committee in the Mississippi House of Representatives. He is currently a partner with the Brunini Law Firm and is an expert on the complex power and energy industry as well as the regulation of the industry by government at all levels.

Schube is the executive director for the Council to Modernize Governance, a think tank committed to making the administration of government more efficient, representative and restrained. He is formerly a constitutional and administrative law attorney.

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A CIRCUIT SPLIT ON TITLE V PERMITS UNDER THE CLEAN AIR ACT

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A split has formed between the United States Courts of Appeals for the Fifth and Tenth Circuits over requirements applicable to obtaining Title V permits pursuant to the Clean Air Act, 42 U.S.C. § 7401 et seq. (“the Act”). See Environmental Integrity Project v. EPA, —F.3d—, 2020 WL 4686995 (5th Cir. Aug. 13, 2020); Sierra Club v. EPA, 964 F.3d 882 (10th Cir. 2020).

The foundation for the disputes in both cases was the propriety of the past issuance of preconstruction permits, i.e., New Source Review (“NSR”) permits, which are issued pursuant to Title 1 of the Act. NSR permits must be obtained before building a new facility or modifying an old one, and they are issued by states through vehicles called “state implementation plans” (“SIPs”). A state must provide notice and an opportunity to comment before a preconstruction permit is granted. See 40 C.F.R. § 51.161(a).

The requirements of a NSR permit differ substantially depending upon whether the new source is deemed a “major source” or “minor source.” If “major,” then the review for a NSR permit and the requirements that must be met are detailed and difficult. If “minor,” then the bar is considerably lower. As a result, this designation is important to interested parties.

This is where Title V becomes important. Title V permits were added to the Act in 1990, well after the introduction of NSR permits in 1977. The purpose of Title V permits is to provide each source with a single permit that contains and consolidates all information needed to comply with the Act without imposing new substantive requirements, and they must be renewed every five years.

The permit must contain:

“enforceable emission limitations and standards, a schedule of compliance, a requirement that the permittee submit to the permitting authority, no less often than every 6 months, the results of any required monitoring, and such other conditions as are necessary to assure compliance with applicable requirements of this chapter, including the requirements of the applicable implementation plan.”

§ 7661c(a) (emphasis added).

The split concerns the meaning of “applicable requirements” when a Title V permit or renewal is sought after, sometimes even years after, having obtained a Title 1 permit. How are the Title 1 requirements incorporated into the Title V permit?

One interpretation is that “applicable requirements” means a Title V permit must incorporate all of the requirements in the previously granted Title 1 permit, but nothing more. Another is that it must include all of the requirements of the SIP, and not simply the requirements contained in the permit, and this means it includes the requirements for major NSR. See 42 U.S.C. §§ 7410(a)(2)(c), 7471, 7502(c)(5).

The difference in this interpretation is enormous. Under the former, a court only determines whether the Title V permit incorporates the requirements contained in the Title I permit as issued. Under the latter, a court can second-guess the issuance of the type of preconstruction permit, i.e., major or minor, at a later point in time.

The difficulty faced by the Fifth and Tenth Circuits is that § 7661c(a) does not define “applicable requirements.” The Tenth Circuit resolved this issue by looking to the definition of this term in 40 C.F.R. § 70.2, the regulation that implements § 7661c(a). Section 70.2 provides, in relevant part:

“Applicable requirement means all of the following as they apply to emissions units in a part 70 source…

(1) Any standard or other requirement provided for in the applicable implementation plan approved or promulgated by EPA through rulemaking under title I of the Act that implements the relevant requirements of the Act, including any revisions to that plan promulgated in part 52 of this chapter”

The Tenth Circuit reasoned “the applicable implementation plan” includes SIPs, and SIPs require major NSR.

The Fifth Circuit, by contrast, discussed (among other factors) the lack of a definition provided in the statute, legal authority indicating Title V does not impose new substantive requirements, and the EPA’s view before enacting § 70.2 that “the intent of [T]itle V is not to second-guess the results of any State’s NSR program.” Environmental Integrity Project, 2020 WL 4686995 at *3. It recognized that preconstruction permits are already subject to a notice and comment period and approval by the EPA, and adopting the petitioner’s view (the view adopted by the Tenth Circuit) could “make Title V a vehicle for the public to (again) challenge preconstruction permits” because it makes possible re-examining the substantive validity of underlying Title I preconstruction permits. Id. at 10. To private and other interested parties, this injects uncertainty in the permitting process because there is, resultantly, no finality to a permitting decision. A preconstruction permit issued in Year 1 could be re-litigated in Year 15 upon renewal of a Title V permit.

The Fifth Circuit decision is binding in Louisiana, Mississippi, and Texas, while the Tenth Circuit’s is binding in Colorado, Kansas, New Mexico, Oklahoma, Utah, and Wyoming. It is possible the split will not be resolved until the United States Supreme Court addresses the issue. However, because the Fifth Circuit rested its decision on the EPA’s interpretation of a statute, i.e., § 7661c(a), and the Tenth Circuit rested its decision on the EPA’s interpretation of a regulation, i.e., § 70.2, it is also possible the Fifth Circuit could revisit the issue and reframe its approach if future arguments raised before the court focus more closely on the EPA’s interpretation of § 70.2. Foundation for this suggestion can be seen in footnote 6 of the Fifth Circuit’s opinion.

Welcome to Our New Environmental Law Blog

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Brunini’s environmental practice group is widely acknowledged as a statewide leader. Our attorneys have broad experience in both environmental litigation and regulatory proceedings and we are eager to share our ideas, opinions and commentary with you on our new Environmental Law Blog.

Our goal is to provide some perspective on developments within the realm of environmental law. Our blogs will not just be about what happened, we’ll also try to explain the “how” and the “why” the issues we’ll report on matter. Our goal is to provide information that is of true value and interest to you and your business.

And we encourage you, the reader, to comment on our blog entries. Let us know if you think we missed the point or if you find issues that we did not consider. Our new blogs gives us all an opportunity to share our thoughts and ideas and to keep the conversation moving forward on topics that interest and move us all regarding environmental law.

Look for new blog posts to the Brunini Blog every week. Or, we invite you to sign up to receive an e-mail notification whenever a new blog is posted. Look for the sign up option on this page. We look forward to hearing your comments about our blogs and hope you will become a regular reader.