D.C. Circuit Upholds Power Plant Mercury and Air Toxics Standards

The D.C. Circuit has upheld a 2012 EPA rule limiting air toxics emissions from coal- and oil-fired power plants.  The rule, commonly known as the Mercury and Air Toxics Standards, or “MATS,” requires new and existing coal- and oil-fired power plants to reduce emissions of mercury, arsenic, chromium, and other toxic air pollutants.

In a 2-1 decision, the D.C. Circuit rejected a variety of challenges from industry and environmental groups, including a challenge to EPA’s conclusion that it was not required to consider costs in determining whether regulation of electric utilities is “appropriate and necessary” under Clean Air Act § 112(n)(1)(A).  While acknowledging that cost of compliance plays an explicit role in setting “beyond-the-floor” MACT standards and indirectly influences the determination of MACT floors, the majority deferred to the EPA’s determination that it is reasonable to make the initial decision to list the utilities as sources of hazardous air pollutants without taking cost into consideration.

In his dissenting opinion, Judge Kavanaugh argued that the term “appropriate” necessarily implied that costs should be taken into account in making the listing decision, citing EPA’s own regulatory impact analysis, which estimated the cost of implementing the rule at $9.6 billion.

The lead case is White Stallion Energy Center, LLC v. U.S. Environmental Protection Agency, D.C. Circuit Case No. 12-1100.

-- Chris Jensen

For more information, please contact Chris Jensen at cdj@bcltlaw.com or (415) 228-5411.

California Finalizes Drinking Water Standard for Hexavalent Chromium

On April 15, 2014, the California Department of Public Health (CDPH) submitted the Final Statement of Reasons for the Hexavalent Chromium Maximum Contaminant Level (MCL) to the Office of Administrative Law.  No significant changes were made to the draft MCL of 10 ppb (µg/L) released by CDPH in August 2013, despite the receipt of approximately 18,000 comments on the proposal.  The MCL will become effective on July 1, 2014, once it is approved by the Office of Administrative Law. 

Prior to the draft hexavalent chromium MCL released by CDPH in August 2013, both California and federal law set a drinking water standard for total chromium, but neither California nor federal law set a drinking water standard specifically for hexavalent chromium.  The hexavalent chromium MCL in California will precede any drinking water standard for hexavalent chromium under federal law.

As previously discussed here and here, the hexavalent chromium MCL establishes the drinking water standard that water purveyors must meet in order to serve potable water to consumers.  Under existing California law, once the MCL is effective, public water purveyors will need to begin sampling for hexavalent chromium to meet the requirements of the California Safe Drinking Water Act (SDWA) and report the samples to CDPH.  If the samples exceed the MCL, purveyors have reporting obligations to customers and may be required to take a water source out of service under circumstances specified in the SDWA.

The publication of the hexavalent chromium MCL follows from an order issued by the Alameda County Superior Court requiring CDPH to set the MCL, previously discussed here.  See Natural Res. Def. Council v. Cal. Dep’t of Public Health, No. RG12-643520 (Alameda Sup. Ct. July 26, 2013). 

Although there had been discussion in recent weeks regarding including an extended grace period for compliance with the hexavalent chromium MCL for water purveyors, which would have triggered an extension of the comment period on the MCL, no extended grace period was included in the final version of the hexavalent chromium MCL.  More extended grace periods are frequently provided by the federal Environmental Protection Agency when establishing drinking water standards.  The California MCL provides for a six-month implementation period before compliance monitoring must begin, and an additional year to meet the standard, but one commenter indicated that a “lawsuit seeking to stay application of the MCL” would result if an extended grace period was not provided.
 
Barg Coffin will continue to monitor California’s efforts to develop a drinking water standard for hexavalent chromium as well as any litigation that challenges the new standard.
The Final Statement of Reasons is available here.

-  Rick Coffin and Dave Metres

For more information, please contact Rick Coffin at rcc@bcltlaw.com, (415) 228-5420, or Dave Metres at dmm@bcltlaw.com, (415) 228-5488.

CEQA Alert: Court of Appeal Addresses Inadequate Blight/Urban Decay Mitigation and Energy Impact Analyses

In California Clean Energy Committee v. City of Woodland (opinion filed 2/28/14; partial publication ordered 4/1/14), the Third Appellate District ruled that the City of Woodland violated the California Environmental Quality Act  (CEQA) when it approved a “super-regional retail center” by relying on inadequate measures to mitigate urban decay effects, rejecting a mixed-use alternative without adequate support for its infeasibility finding, and failing to adequately analyze the energy impacts of the project.

The project at issue proposed annexation of 154 acres of farmland to the City of Woodland and re-zoning of that land from “agricultural” to “general commercial” as part of the development of a regional commercial center that would include over 800,000 square feet of retail space, 100,000 square feet of office space, three hotels, four restaurants, and an 80,000 square foot auto mall. 

In approving a scaled-down version of this “super-regional retail center” project, the City concluded that the project would result in physical deterioration and urban decay of retail centers in other parts of the City, including the City’s downtown area.  The City adopted mitigation measures to address these effects, including:

1. requiring the developer to prepare market studies and urban decay analyses for future site-specific projects,
2. requiring the developer to contribute funds to develop a “retail strategic plan and implementation strategy” for the City’s downtown area, and 
3. requiring the City to coordinate with the owner of a local mall that would be impacted by the development, to develop a “strategic land use plan” for the mall. 

The Court of Appeal ruled that these mitigation measures were inadequate because they were too speculative and/or did not commit the City to any actual mitigation to reduce the urban decay effects associated with the project.  

The Court also held that the City violated CEQA by rejecting a mixed-use alternative to the project on the ground that it was environmentally inferior to the proposed project, where the administrative record contained no evidence to support this conclusion—the Draft and Final EIRs had both rejected the mixed use alternative on the basis of economic infeasibility rather than environmental inferiority. 

Finally, the Court held that the City violated CEQA by failing to adequately analyze the energy impacts of the proposed project—specifically, the City failed to adequately analyze transportation, construction and operational energy impacts and failed to consider renewable energy options for the project. 

-- Don Sobelman and Nicole Martin

For more information, contact Donald Sobelman at (415) 228-5456, des@bcltlaw.com, or Nicole Martin at nmm@bcltlaw.com, (415) 228-5435.

California Water Board Finalizes New Water Quality Requirements for Industrial Facility Storm Water Discharges

For the first time in 17 years, industrial facilities in California must contend with a new set of legal requirements controlling storm water.  On April 1, 2014, the California State Water Resources Control Board (State Board) formally adopted the final draft of the general NPDES permit that regulates storm water discharges associated with industrial activity, known as the “Industrial General Permit.” 

The new Industrial General Permit imposes additional permitting requirements and expands the scope of the Permit to cover new categories of industrial facilities.  Facility and EHS managers should review the new permit and ensure their facilities are on-track to be in compliance when the new Permit becomes effective on July 1, 2015.   Failure to comply with the new Permit could expose facilities to regulatory action by the State Board and the Regional Water Quality Control Boards, or result in a citizen group lawsuit under the Clean Water Act.

As discussed previously by Barg Coffin attorneys here, here, and here, the new Industrial General Permit will impose mandatory best management practices (“BMPs”), require increased sampling and monitoring, and mandate technical reports and action plans if monitoring shows that storm water discharges exceed certain pollutant concentrations. 

According to the State Board, there are over 10,000 California industrial facilities currently enrolled under the previous Industrial General Permit, and each will need to confirm that their operations and practices comply with the new requirements. 

Additionally, for the first time, some facilities not previously subject to regulation will be required to notify the State Board that their industrial activities are not exposed to rain water and will not discharge to storm drains in order to obtain an exemption from the substantive requirements of the Industrial General Permit.

Additional information is available on the State Board website, and the Order adopting the Industrial General Permit (2014-0057-DWQ) is available here.

-Don Sobelman and Dave Metres

For more information, please contact Don Sobelman at (415) 228-5456 or des@bcltlaw.com, or Dave Metres at (415) 228-5488, or dmm@bcltlaw.com

DTSC Announces Initial Priority Products Under Green Chemistry Regulations

The next phase of California’s Safer Consumer Products regulations (SCPR), also known as the Green Chemistry regulations, began on March 13, 2014, with the Department of Toxic Substances Control’s announcement of the three initial “priority products” proposed for comprehensive review and “alternatives analysis” under the SCPR.  Those products are being proposed by DTSC as priority products because they contain one or more chemicals of concern identified by DTSC under the regulations, and, according to DTSC, have the potential to cause significant harm to people or the environment, are widely used, and create the potential for significant exposure to the public from the chemicals in the products.

The three products proposed for designation as priority products, and the chemicals for which they have been associated, are:

• Children’s foam sleeping products containing chlorinated Tris (TDCPP, or tris(1,3-dichloro-2-propyl) phosphate), used as a chemical flame retardant,
• Spray polyurethane foam systems containing unreacted diisocyantates (SPF), used in home and building insulation, weatherization, sealing and roofing, and
• Paint stripper containing methylene chloride.

The next step will be a rulemaking process that will result in DTSC’s final determination whether to list those products, and the adoption of associated regulations.  Once the regulations are adopted, which will likely take at least another year, manufacturers of the products will need to notify DTSC that they make one of the priority products, and ultimately perform an “alternatives analysis” to determine whether safe ingredients are available and feasible.

 

The selection of children’s foam sleeping products containing Tris was particularly curious because those products have already been subject to significant and widespread citizen enforcement under Proposition 65.  Putting aside whether those Proposition 65 cases were warranted, manufacturers of those products are generally phasing out the use of Tris as a chemical flame retardant.  Why DTSC selected a product for which manufacturers have essentially been performing some level of alternatives analysis for the past few years is not readily apparent.

 

--Josh Bloom

 

For more information, contact Josh Bloom at jab@bcltlaw.com or (415) 228-5400.

State Water Board to Adopt Revised Industrial Storm Water Permit on April 1, 2014

The California State Water Resources Control Board (State Board) recently notified the public that it will consider for adoption the final draft of the general NPDES permit that regulates storm water discharges associated with industrial activity.  The State Board will hold a public hearing on adoption of the permit at its meeting on April 1, 2014 at 9:00 a.m. at the Cal/EPA headquarters in Sacramento.

The State Board is soliciting comments by the public regarding revisions that have been made to the draft permit since July 19, 2013.  Those revisions are mostly minor, but importantly include a change to the effective date of the new permit, moving it back to July 1, 2015, from the previously proposed effective date of January 1, 2015.  Written comments must be submitted to the State Board by Tuesday, March 4 at 12:00 noon.  Oral comments may be made at the April 1 hearing.

As previously discussed here and here, the State Board’s proposed general permit would impose a new set of permitting requirements for industrial storm water discharges and would expand the scope of the program to cover new categories of industrial facilities.  With storm water discharges continuing to be the most active area of citizen enforcement under the Clean Water Act, California industrial facilities should review these proposed changes and confirm with counsel that they will be ready to obtain coverage under the new permit in 2015.

-- Don Sobelman and Dave Metres

For more information, contact Don Sobelman at des@bcltlaw.com or (415) 228-5456.  Dave Metres can be reached at dmm@bcltlaw.com or (415) 228-5488.

Public Statements Made In Wake Of Environmental Disaster May Give Rise To Shareholder Securities Claims

When speaking on environmental issues affecting publicly-traded corporations, corporate officers, directors and management should be mindful of potential exposure to liability under the securities laws.  After two oil spills in less than six months in Prudhoe Bay, Alaska, oil and gas company BP faces claims not only related to the environmental effects of the spills, but also securities claims from its shareholders. 

On February 13, 2014, the Ninth Circuit Court of Appeals, in Reese v. Malone, Case No. 12-35260 (9th Cir., Feb. 13, 2014), reversed, in part, the dismissal of a securities class action brought by BP shareholders claiming investment losses after oil was discovered to be leaking from two separate pipelines in Prudhoe Bay in 2006.  After the second spill, BP temporarily shut down operations in the region, and BP’s share price decreased by four percent.

The Court found the plaintiffs adequately pled that BP knowingly, or with deliberate recklessness, made false and misleading statements actionable under Rule 10b-5 and various sections of the Securities Exchange Act of 1934.  The statements at issue regarded the condition, maintenance and monitoring of three Prudhoe Bay pipelines before and after the first spill, which occurred in March 2006.  Specifically, the Court considered four statements made by officers of BP and its wholly-owned subsidiary, BP-Alaska, and one statement appearing in BP’s 2005 Annual Report.

Approximately two weeks after the first spill, BP-Alaska Senior Vice President Maureen Johnson told the Associated Press (“AP”) that corrosion that ultimately caused the first spill was observed in a 2005 inspection, “but appeared to be occurring at a ‘low manageable corrosion rate.’”  Johnson also stated that the “highly corrosive conditions” leading to the first spill were “unique to that line,” and that similar problems had not been found in other pipelines in Prudhoe Bay.  Then in May 2006, Johnson told an oil and gas trade publication that no other oil transit line in the region had “the same combination of factors” as the line where the first leak occurred.

The Court rejected BP’s arguments that Johnson’s statements were not misleading, but rather merely incomplete or preliminary.  In so ruling, the Court noted BP’s own inspection and investigation data from before and after the first spill, which contradicted Johnson’s statements regarding the rate and presence of corrosion.  The Court also disagreed with the district court’s finding that the plaintiffs failed to adequately allege Johnson’s statements were made with the requisite knowledge—or scienter—to be actionable under the securities laws.  The Court found that given Johnson’s position as the head of the BP unit responsible for the spill, her role in communicating with the press regarding the condition of the pipelines, and the fact that a regulatory Corrective Action Order (“CAO”) discussing the similarities between the Prudhoe Bay pipelines was addressed directly to her, it would be “absurd” to believe she did not have knowledge of information contradicting her statements.

The Court did affirm the district court’s dismissal as to the class action claims based on BP CEO John Browne’s statement in April 2006 that the first spill occurred “in spite of the fact that [BP has] both world class corrosion monitoring and leak detection systems, both being applied within regulations set by the Alaskan authorities.”  The Court agreed with the district court that Browne’s statement was false, but that plaintiffs had not alleged facts sufficient to create an inference of scienter, based on the timing of the statement, which was made before the BP Board received a detailed update about the first oil spill.

However, the Court disagreed with the district court regarding whether plaintiffs had adequately pled their securities claims based on a statement appearing in BP’s 2005 Annual Report.  The Annual Report, issued June 30, 2006, stated: “Management believes that the Group’s activities are in compliance in all material respects with applicable environmental laws and regulations.”  The Court found that the complaint cited evidence of numerous alleged and confirmed violations of environmental laws and regulations, such that the plaintiffs had adequately pled the falsity of the statement.  As to scienter, the Court concluded it would be “absurd” for BP management to be unaware of the significant compliance issues, in light of the magnitude of the violations alleged and confirmed, the public attention surrounding the spills, and contemporaneous documents demonstrating management’s awareness of non-compliance with the CAO.  Moreover, while acknowledging that the context of the statement alerted investors about risks of adverse effects on the company from potential future compliance issues, the Court also found that BP attempted to downplay its existing non-compliance and emphasize unpredictable risks associated with the industry at large. 

Applying a “holistic” analysis, the Court determined that plaintiffs’ allegations against BP went beyond “simple corporate mismanagement,” and at a minimum compelled an inference of deliberate recklessness as to the false or misleading nature of the statements at issue.  The parties now return to the district court to litigate the merits of the plaintiffs’ claims against BP.

--Samir J. Abdelnour

For additional information, Samir Abdelnour can be reached at (415) 228-5443 or sja@bcltlaw.com.