The Right Way to Obtain Multi-Line Rights in a Right-of-Way Transaction in Texas

There are many misconceptions about how multi-line rights are created in Texas. Contrary to popular belief, a multiple pipeline right-of-way cannot just be created by changing “pipeline” to “pipelines” in the granting provision.[1] In fact, if there is not an express provision in the easement granting the right to lay additional lines, a court will not imply rights beyond those of the easement.[2] In making the determination of multi-line use, Texas courts have routinely turned to the compensation clause and granting provision to see what the parties contemplated at the time of execution.[3]

In Hall, the landowner, Tom Hall, alleged that the pipeline operator, Lone Star Gas Company, excessively used its easement, which granted Lone Star “the right of way and easement to construct, maintain, and operate pipe lines.”[4] Lone Star also had the right of “ingress and egress from the premises, for the purposes of constructing, inspecting, repairing, maintaining, and replacing the property of [grantee].”[5] Although the subject easement agreement used the term “pipe lines,” it did not contain any further expression granting the right to lay additional lines in the future.[6] Furthermore, the compensation clause for future lines was intentionally deleted from the easement agreement.[7] In accordance with precedent case law, the court in Hall weighed the impact of this deletion in order to arrive at the true meaning and intention of the parties.[8] The court concluded that without some express provision addressing the right to lay additional lines or providing for additional compensation for a new line, Lone Star’s proposition that the easement permits future additional lines could not prevail.[9]

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You Don’t Own Me: 8th Circuit’s Definition of ‘Direct Ownership Interest’ in Wind Farms Excludes Parent Entities

Ownership changes at the parent-company level do not constitute a transfer of “direct ownership interests” in distant subsidiaries, a unanimous panel of the 8th Circuit held last month in Laredo Ridge Wind LLC, et al v. Nebraska Public Power District, No. 20-1956, 2021 WL 3731897 (8th Cir. Aug. 24, 2021). The Nebraska Public Power District (NPPD), a public utility company, sued four affiliated wind farm businesses for breach of Power Purchase Agreements (the PPAs) after the wind farms’ parent companies changed hands multiple times. The district court granted summary judgment in favor of the wind farms and a preliminary injunction preventing NPPD from terminating the PPAs, and the 8th Circuit affirmed.

From 2008 to 2010, NPPD signed identical PPAs with four limited liability companies (the Project Entities) that own and operate wind energy-generation facilities in rural Nebraska, each originally developed by Edison Mission Energy (Edison). Under the PPAs, NPPD agreed to buy all energy produced by the Project Entities for 20 years at a predetermined price. The Project Entities have no employees, and each is part of a multi-tier affiliate ownership structure with Edison at the top, the Project Entities at the bottom, and many layers of subsidiary holding companies in between. This tiered structure allows parent companies to allocate federal tax credits and is “largely a function of the syndication of multiple wind energy projects.” Brief of Appellees at 3, Laredo Ridge Wind LLC, et. al. v. Nebraska Public Power District, No. 20-1956 (8th Cir. Aug. 6, 2020). Continue Reading

The Section 401 Water Quality Certification Program and Its Impacts on Energy and Infrastructure Projects

Section 401 of the Clean Water Act (CWA) requires applicants for federally permitted projects “that may result in any discharge into the navigable waters” of the United States to seek water quality certifications from the local certifying authority that has jurisdiction over the project area where the discharge would occur. This cooperative federalism within the CWA gives states and authorized tribes the ability to protect their water resources from impacts related to federally permitted projects. This in turn provides states with the potential to exert significant influence over the development of energy and infrastructure projects, many of which are national in scope. For example, federal projects that require Section 401 certification can include, but are not limited to, natural gas pipelines, liquefied natural gas terminals, coal export terminals, oil pipelines and other interstate projects.

In determining whether to issue a Section 401 water quality certification, states are required to consider whether the proposed activity satisfies effluent limitation standards, water quality standards, national standards of performance, toxic and pretreatment effluents standards, and “any other appropriate requirement of state law.” There are numerous examples of states relying on ambiguous language in their respective rules and regulations in order to halt development projects or place on them impractical conditions that are arguably unrelated to the protection of water quality, including using potential climate change-related impacts as a basis for denying a certification.

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Easing the Path Toward Carbon Sequestration: Revenue Ruling 2021-13

On July 1, 2021, the IRS released Revenue Ruling 2021-13 (Rev. Rul. 2021-13). That ruling (i) provided an example of the functionality-based definition of carbon capture equipment found in final Section 45Q Treasury Regulations; (ii) held that an investor must own at least one component (and is not necessarily required to own all components) of carbon capture equipment in the “single process train” of carbon capture equipment at a facility in order to claim a Section 45Q tax credit; (iii) clarified that when one or more components of a single process train are placed into service prior to the single process train being placed into a state of readiness and availability for the capture, processing and preparation of carbon oxide for transport for disposal, injection or utilization, the applicable placed-in-service date is that of the single process train and not the component; and (iv) ruled that a different placed-in-service date applies for tax depreciation purposes as compared to Section 45Q tax credit purposes. Continue Reading

President Biden’s Plan for the Carbon Sequestration Tax Credit

Investment in Section 45Q tax partnerships may soon increase rapidly as the Biden administration aims to increase the Section 45Q tax incentive for carbon capture, utilization and sequestration.[1] Specifically, President Biden’s American Jobs Plan includes proposals to extend the Section 45Q tax credit to make it “easier to use for hard-to-decarbonize industrial applications, direct air capture, and retrofits of existing power plants.”[2]

Moreover, in its General Explanations for 2022, the U.S. Treasury Department revealed three major proposals for enhancing the Section 45Q tax credit.[3] First, the proposals would extend the “commence construction” date for qualified facilities by five years, from Jan. 1, 2026, to Jan. 1, 2031. [4] This change would give developers and investors more time to plan, pool the necessary resources and wait for carbon capture to become more cost-efficient. Second, the Biden administration would provide an additional $35 credit for each ton of qualified carbon oxide captured from “hard-to-abate industrial carbon oxide capture sectors,” such as cement production, steelmaking, hydrogen production and petroleum refining, and disposed of in secure geological storage.[5] That would bring the total to $85 per ton for these projects in 2026 (adjusting, in part, for inflation afterward).[6] Third, the Biden administration would provide another additional $70 credit to DAC projects per ton of qualified carbon oxide disposed of in secure geological storage.[7] Thus, the total Section 45Q tax credit for DAC projects with geological storage would be $120 per ton in 2026 (adjusting, in part, for inflation afterward).[8] Continue Reading

Monetizing the Section 45Q Tax Credit: The Key to Carbon Sequestration

If there is to be rapid progress in limiting the increase of carbon dioxide (CO2) in the atmosphere, it will depend substantially on federal tax credits and state incentives for carbon capture and storage. For now, carbon capture and storage strategies are largely of three kinds: (1) biological removal (using photosynthesis to fix atmospheric CO2 in soils, grasses and trees), (2) direct air capture (DAC) (removing atmospheric CO2 and injecting it into geological formations), and (3) capture of CO2 before it is released. All three forms of capture may be the subject of a tax credit under Section 45Q of the U.S. Internal Revenue Code.

On July 1, 2021, the IRS released Revenue Ruling 2021-13 (Rev. Rul. 2021-13). In relevant part, that ruling held that an investor must own at least one component (and is not necessarily required to own all components) of carbon capture equipment in the “single process train” of carbon capture equipment at a facility in order to claim a Section 45Q tax credit. Continue Reading

Introducing Pillar and Post: Energy Law in the 21st Century

With this first posting, we inaugurate a blog called “Pillar and Post: Energy Law in the 21st Century.” Covering energy and environmental law, the blog will be your “catalog of record” for legal issues as law and policy careen back and forth under the influence of new ideas and enthusiasms.

For example, have new legal rules for subsurface trespass and pore space ownership benefitted the country? Cap and trade? Tax policy? Trends in risk allocation in transactions?  Eminent domain rules for energy infrastructure? Carbon storage regulation and incentives?  Carbon and methane offset markets? Enforcement actions and tort suits as substitutes for regulation? Use of environmental laws to block or delay projects? Broader interpretations of environmental laws to achieve policy initiatives? The push for a “greener” economy?

Building upon individual applications of law to circumstances, the posts may help readers over time to find answers. Each post will always represent the views of the individual author alone.  We hope they will be thought-provoking. We promise they will be short. After all, who has time for more? The next enthusiasm is already tugging at your sleeve.

No Takebacks: Consequences of Choosing the Path of Litigation

A Houston oil and gas consulting firm waived its right to compel arbitration in a long-standing dispute given its “persistent pursuit of litigation,” the Fifth Circuit held last month in Int’l Energy Ventures Mgmt. L.L.C. v. United Energy Grp., Ltd., 2021 WL 2177062 (5th Cir. May 28, 2021). International Energy Ventures Management (IEVM) first sued United Energy Group (UEG) in Texas state court in 2013 over alleged nonpayment for consulting services. The agreement governing these services contained an arbitration clause, which IEVM initially ignored — until it became clear that its litigation strategy was failing. At that point, three months into the case, IEVM moved to compel arbitration. Since then, the dispute has worked its way through state court, federal court, two arbitrations and back again. Last month, the Fifth Circuit said, “Enough.”

For nearly eight years, IEVM strategically ping-ponged between litigation and arbitration, prospecting for a more favorable forum. When the likelihood of proceeding in state court looked low, IEVM moved to compel arbitration; when the first arbitrator held that IEVM had waived its right to arbitration, it jumped back into pending litigation; when that pending litigation was resolved in favor of UEG, IEVM filed a second lawsuit in state court and simultaneously initiated a second arbitration. Continue Reading

Emerging Chemical Issues – Ethylene Oxide (Part 5 of 5): OIG, EPA and the Consequences of Premature Public Disclosures

U.S. EPA has recently come under fire from its quasi-independent auditor, the Office of the Inspector General (OIG), which has issued multiple reports accusing EPA of not moving with sufficient speed or transparency to increase regulations of sources of EtO. In these reports, OIG pressed the issue by publishing EPA draft work files, over EPA’s objection, which identified many facilities potentially contributing to increased community cancer risks. But publishing the draft screening results for these facilities is likely to have unintended consequences including complicating information gathering efforts, and increasing private litigation.

OIG’s April 15, 2021 Report

On April 15, 2021, the OIG issued a report accusing the Trump administration of delaying communications about cancer risk to communities near industrial EtO emissions. The gist of OIG’s criticism was that EPA had conducted some short-term monitoring of EtO emissions at the Sterigenics facility in Willowbrook, Illinois, as part of the 2014 NATA, but when the monitoring suggested that the facility’s EtO emissions were contributing to EtO concentrations significantly above the IRIS EtO URE, EPA did not immediately publish the monitoring results and engage in community outreach, but instead waited until the release of the 2014 NATA many months later to publicly disclose the EPA modeling of the Sterigenics sterilizer. Continue Reading

Emerging Chemical Issues – Ethylene Oxide (Part 4 of 5): Special Considerations Related to the Sterilization Industry

Commercial sterilization operations find themselves in a more unique and complex regulatory context than many other industrial sources of EtO. Unlike the chemical manufacturing industry, which can often make decisions about EtO usage based solely on the grounds of technical feasibility and costs, sterilizers may not be able to accept some methods of emission limitations, such as throughput limits (i.e., limits on how much EtO they can use in their processes in the first place), because sterilizers are also subject to independent regulations from the FDA, which actually require them to use EtO to sterilize certain products, and even can require certain amounts or concentrations of EtO to be used to ensure medical equipment is properly disinfected. This dynamic of potentially overlapping agency jurisdiction necessarily complicates EPA’s regulatory process for sterilization operations, since EPA not only has to account for dangers associated with EtO emissions, but also has to do so in a way that doesn’t infringe on FDA’s regulatory programs that protect the sterility of medical devices (thus protecting human health). COVID-19 introduced yet another reason to proceed with deliberate caution on any regulatory actions that limit sterilization operations in a way that could jeopardize the continuous availability of adequate medical supplies. Continue Reading