Energy & Infrastructure Blog

Drawing from the knowledge and experience of our 300 lawyer-strong Energy & Infrastructure Practice Group, this blog provides updates and legal analysis on timely issues involving these ever-evolving markets. Bookmark this page and visit frequently or subscribe to our mailing list to keep up with the latest. Inquiries may be directed to editor Brian C. Greene, P.C., or the authors as noted. 

The dual pressures of the coronavirus (COVID-19) pandemic and the Russia–Saudi Arabia oil price war have accelerated themes that have been emerging in the oil and gas sector over the past few years. Join Kirkland partner Shubi Arora for a discussion with Dan Pickering, Chief Investment Officer of Pickering Energy Partners, on these challenges as well as potential opportunities for companies and investors during the current business climate.

Download the full webinar or browse clips by topic, including:

• Outlook for U.S. crude oil and natural gas markets
• Storage capacity considerations
• Impact of market dislocation on the midstream sector
• Near- and long-term changes to the RBL market and prospects of bank foreclosures and operation of assets
• The new wave of bankruptcies and effects of restructuring
• Sources of drilling capital going forward
• Oil majors’ response to the distressed E&P sector
• Outlook for private equity funds and management teams
• Emerging and potentially overlooked risks and opportunities
• Characteristics of well-positioned organizations and management teams
• General industry observations

New Proposed Regulations for Carbon Sequestration Tax Credits Answer Key Questions

by Scott W. Cockerham, Lane E. Morgan, Courtney Loyack and Alexandra N. Farmer

Proposed regulations for the carbon sequestration tax credit under section 45Q of the Internal Revenue Code issued by the U.S. Department of the Treasury on May 28, 2020, provide answers to a number of important questions that were left open after initial Internal Revenue Service guidance was issued in February 2020. Among other issues, the proposed regulations (the “Proposed Regulations”) address transfers of tax credits to third-party contractors, the requirements for secure storage of sequestered carbon oxide, and events giving rise to tax credit recapture. Although not yet final, taxpayers may rely on the Proposed Regulations immediately for taxable years beginning on or after February 9, 2018, as long as the rules are applied consistently and in their entirety. (Continue reading)

Net Metering Proceeding at FERC Could Shake up Already Dynamic Policy Environment for Distributed Generation Resources

by Brooksany Barrowes, Bob S. Fleishman, Nicholas Gladd and Drew Stuyvenberg

On April 14, 2020, the New England Ratepayers Association (“NERA”) asked the Federal Energy Regulatory Commission (“FERC”) to assert federal jurisdiction over aspects of net-metering programs, which allow an electric utility customer with onsite (or sometimes community-based or virtually onsite) renewable generation to export to the utility any generation that exceeds the customer’s onsite needs. Net metering historically has been regulated almost entirely at the state level. NERA’s petition, if granted, would result in a dramatic change in FERC policy that could reshape the evolving net-metering environment. (Continue reading)

FERC Interprets NGA to Allow Condemnation of State-Owned Property, Sidesteps Constitutional Question

by Brooksany Barrowes, Robert S. Fleishman, Nicholas Gladd and Ammaar Joya

On January 30, 2020, the Federal Energy Regulatory Commission (“FERC”), in a 2-1 vote, issued an order on condemnation rights of natural gas companies that hold a certificate of public convenience and necessity under section 7(h) of the Natural Gas Act (“NGA”), which may have wide-reaching effects for interstate natural gas pipeline companies, end-users of natural gas, and their investors. On May 21, 2020, FERC upheld its interpretation by issuing an order denying rehearing, in a 3-1 vote. As described in this post, FERC’s decision conflicts with recent court action and is being tested in pending litigation. (Continue reading)

 

IRS Updates Start of Construction Rules for Renewables Projects to Address COVID-19

by Scott W. Cockerham

The IRS released new guidance on May 27, 2020, that extends the deadline by which 2016 and 2017 vintage renewable energy projects must be placed in service to maintain tax credit eligibility (and thus financeability by tax equity and debt providers), and adds a new safe harbor to help renewable energy developers prove to financiers that the construction of their projects started on time. (Continue reading)

New Regulations Bolster CFE, Put Independent Renewable Power Projects in Limbo

by Nathan Santamaria and Carlos A. Moran (Kirkland & Ellis) and Hernando Becerra, Oscar Moreno and Diana Pineda (Gonzalez Calvillo)

Over the last three weeks, the Mexican government adopted measures to suspend preoperational tests for solar and wind plants and allow the power market operator (“CENACE”) permanent authority to prioritize the dispatch of power plants based on reliability concerns rather than cost. The acting agencies (CENACE and the Ministry of Energy) justified their regulatory changes in the name of establishing grid security as a response to the changing market dynamics wrought by the COVID-19 crisis and related fluctuations in demand. The measures are expected to have a significant impact on wind and solar projects. (Continue reading)

IRS Publishes Inflation Adjustment for Production Tax Credits with Slight Bump for Certain Facilities

by Scott W. Cockerham

The Internal Revenue Service published the annual inflation adjustment factor used to calculate the value of production tax credits (“PTCs”) generated in 2020 on May 13, 2020. There is a one-cent per kilowatt-hour (“kWh”) increase for certain facilities as described below, but the rate for wind, closed-loop biomass and geothermal facilities remained unchanged from 2019. (Continue reading)

Department of Energy Announces New Initiative to Purchase Crude Oil for the Strategic Petroleum Reserve as a Test of Current Conditions

by Chris Heasley and Alia Y. Heintz

On May 13, 2020, the Department of Energy ("DOE") announced further support for the domestic oil and gas industry through a new solicitation for the DOE to purchase up to 1 million barrels of sweet crude from small to mid-sized U.S. oil producers “as a test of the current conditions of physical crude oil available to the SPR.” Under the new solicitation, the DOE must receive bids by 1:00 p.m. CT on May 27, 2020, and bids will be accepted only via email. The DOE anticipates that it will award contracts by May 29, 2020, with deliveries to take place between July 1, 2020, and July 31, 2020, and potentially some early deliveries accepted in June. (Continue reading)

 

U.S. Supreme Court Splits the Difference on CWA Permitting for Groundwater Discharges

by Alexandra N. Farmer and Ty'Meka M. Reeves-Sobers

On April 23, 2020, the U.S. Supreme Court issued a decision in County of Maui, HI v. Hawaii Wildlife Fund holding that the Clean Water Act (“CWA”) requires a permit when there is a direct discharge from a point source into groundwater only when that discharge is the “functional equivalent” of a direct discharge into navigable waters. The court declined to impose a bright-line rule for when that rule is satisfied, instead opting for a multi-factor test to be applied on a case-by-case basis. The court’s decision is expected to have a major impact on pending litigation involving similar discharges from coal ash ponds and underground pipelines, as well as recent guidance and rulemakings issued by the U.S. Environmental Protection Agency. (Continue reading)

New Pipelines and Other Utility Line Projects in Limbo Pending Federal Court Review of Nationwide Permit

by Alexandra N. Farmer, Tyler Burgess and Ty'Meka M. Reeves-Sobers

On April 15, 2020, a federal district court in Montana vacated the Army Corps of Engineers’ 2017 Nationwide Permit (“NWP”) 12, which authorizes certain utility line activities under § 404 of the Clean Water Act and is widely used in infrastructure projects such as in the construction of oil and gas pipelines. On May 11, 2020, the court narrowed its ruling to allow the Corps to continue to use NWP 12 for non-pipeline construction work and routine activities on existing projects, making non-pipeline projects safe for now, pending an expected appeal to the Ninth Circuit. The court’s invalidation of NWP 12 pending consultation with the Fish and Wildlife Service under the Endangered Species Act could have ripple effects on numerous projects, and in particular pipeline projects, seeking to come online before 2022. (Continue reading)

Prorationing in Texas Is Out, but Additional Storage Capacity Is on the Way

by Brooksany Barrowes, Robert S. Fleishman, Nicholas Gladd and Brett Nuttall

At a May 5, 2020, open meeting, the Railroad Commission of Texas (“RRC”) voted 2–1 to dismiss Pioneer Natural Resources USA Inc. and Parsley Energy Inc.’s motion seeking an order to restrict the production of crude oil on a statewide basis. Despite the dismissal, the RRC recognized the need for action to support the oil and gas production industry in Texas  and therefore voted to temporarily waive certain requirements of Statewide Rule 95 (Underground Storage of Liquid or Liquefied Hydrocarbons in Salt Formations) for a period of one year, commencing on May 5, 2020. (Continue reading)

Update: The US Department of the Treasury sent a response letter addressed to Senate Finance Committee Chairman Chuck Grassley (R-Iowa) on May 7, 2020 saying that it appreciates the concern raised in the Senators’ letter and “plans to modify the relevant rules in the near future.” We will continue to monitor the development of any future renewable tax credit guidance and encourage you to reach out to us with any questions.

Bipartisan Senator Group Asks Treasury for Relief for Renewables Placement in Service Deadline

by Scott W. Cockerham and Brian C. Greene, P.C.

A bipartisan group of senators sent Treasury Secretary Steven Mnuchin a letter dated April 23, 2020, urging a one-year extension of an IRS deadline relevant to the qualification of renewables projects for tax credits. The letter was signed by Senate Finance Committee Chairman Chuck Grassley (R-Iowa), Ranking Member Ron Wyden (D-Ore.), Sens. John Thune (R-S.D.), Maria Cantwell (D-Wash.), and Senate Energy and Natural Resources Committee Chairman Lisa Murkowski (R-Alaska) and Ranking Member Joe Manchin (D-W.Va.). The extension would enhance the financeability of renewables projects that began construction in 2016 or 2017 and have been delayed by COVID-19. (Continue reading)

Trump Administration Moves to Restrict Bulk-Power Systems from “Foreign Adversaries”

by Mario Mancuso, P.C., Sanjay José Mullick and Jeremy Iloulian

On May 1, 2020, the White House issued an executive order that could result in restrictions on transactions involving non-U.S. bulk-power system electric equipment. The order raises more questions than it answers, but could potentially have significant impacts on utilities and the power and renewables industries. Ultimately, the impact of the order will depend on rules to be promulgated by the U.S. Department of Energy — which could look to last year’s executive order on information and communications technology and services, and related rules promulgated by the Department of Commerce, as a guide. (Continue reading)

Revisions to Main Street Lending Program Open Door to More Opportunity for Energy and Infrastructure Companies

by Brian C. Greene, P.C. and Scott W. Cockerham

The Federal Reserve has released updated term sheet guidance and a detailed FAQ on the Main Street loan programs. The revised guidance should open up the program to more energy and infrastructure borrowers. At the same time, some energy and infrastructure companies may not qualify for loans due to the incorporation of SBA affiliation rules and loan sizing metrics. Further, asset-based borrowers in the oil & gas and renewables sectors will need to wait while the Federal Reserve and Treasury “evaluat[es] the feasibility of adjusting the loan eligibility metrics of the Program for such borrowers.” (Continue reading)

Water Dedications in Bankruptcy May Be Less Secure than You Think

by Anna G. Rotman, P.C., Shubi Arora, P.C., Kim Hicks, P.C. and Chad M. Smith

Many water midstream agreements are built on the dedication technology that has long been used for oil and gas contracts. Water rights, however, are treated differently from mineral interests in most states. As a result, even though many water gathering contracts include dedications expressly intended to be covenants running with the land, such contracts may have a greater chance of being successfully rejected in bankruptcy on the theory that the covenant relates to personal property (i.e., produced water) and not real property.    

Parties to midstream water contracts should recognize that, in a bankruptcy context, the rejection of the agreement as an executory contract is possible, and build that into their pricing and contract terms. (Continue reading)

COVID-19: Evaluating OSHA Recording and Reporting Obligations

by Paul D. Tanaka, P.C., Toby Chun, Jonathan E. Kidwell and Michael J. Mahoney

As more and more COVID-19 cases are confirmed and some states may begin to lift workplace restrictions, businesses are facing the question of whether the Occupational Safety and Health Administration (“OSHA”) requires them to record and/or report instances where an employee has tested positive for COVID-19. Given the potential ramifications of recording or reporting an employee’s COVID-19 illness, employers should familiarize themselves with OSHA’s recording and reporting obligations, review OSHA’s enforcement guidance for recording cases of COVID-19 and consult with counsel to determine how these obligations may apply to their particular circumstances. (Continue reading)

 

Kirkland has nearly 300 lawyers in our Energy & Infrastructure Practice Group. We represent public and private companies, financial institutions, and private equity firms and hedge funds in cutting-edge transactions in the upstream, midstream, downstream, water, power (conventional and renewable), infrastructure and services sectors, and our attorneys have decades of experience advising clients in these sectors throughout the life-cycle of the underlying assets. Our attorneys collectively cover all of the practice areas necessary to drive successful outcomes for our clients in these transactions and engagements, including corporate M&A, private equity, fund formation, capital markets, debt and project finance, restructuring, litigation, tax, environmental, real estate and energy regulatory practices, among others.