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. 

Final Carbon Sequestration Tax Credit Regulations Shorten Recapture Period, Provide Guidance on “Utilization”

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

The U.S. Department of the Treasury (“Treasury”) and the Internal Revenue Service (the “IRS”) issued final regulations for the carbon sequestration tax credit under section 45Q of the Internal Revenue Code on January 6, 2021. The regulations make a number of important clarifications and technical changes, including by (1) shortening the tax credit recapture period from five years to three, and (2) providing needed guidance on tax credit eligibility for carbon oxide that is “utilized” in a chemical process or put to commercial use.

The regulations finalize, with modifications, an initial set of proposed regulations that was issued in May 2020 and leave project sponsors and investors with a much clearer and complete set of rules than they had in January 2020. (Continue reading)

IRS Relaxes Tax Credit Qualification Rules for Renewable Energy Projects Located Offshore or on Federal Land

by Scott W. Cockerham

IRS guidance released on December 31, 2020, makes it easier for developers of renewable energy projects located offshore or on federal land to qualify for tax credits by giving them an extended 10-year runway to place the projects in service after construction begins. Prior guidance required such projects to be placed in service within four years after the year in which construction began unless the developer could show that it continuously incurred costs and/or performed physical work on a project throughout the construction period.

The extension provides welcome certainty to developers of large-scale projects offshore or on federal lands, particularly offshore wind projects that have been facing permitting and other delays and were pushing up against a four-year deadline. (Read more)

Sweeping Energy and Infrastructure Provisions and Incentives in COVID-19 Relief Bill Signal Important Changes Coming in 2021

by Brooksany Barrowes, Robert S. Fleishman, Nicholas Gladd, Brian C. Greene, P.C., Marcia Hook and Jonathan E. Kidwell

On December 27, 2020, President Trump signed into law a massive omnibus appropriations and $900 billion COVID-19 relief bill (the “COVID-19 Relief Bill”). This post explores the implications of the COVID-19 Relief Bill for energy and infrastructure market participants and investors. (Continue reading)

Coronavirus Relief Package Implications for Renewables: Offshore Wind Wins Big and Other Renewable and Carbon Capture Projects See Extensions

by Scott W. Cockerham

Congress passed a $900 billion COVID-19 relief package late Monday night that included multiple tax extension provisions designed to spur investment in solar, wind, carbon capture, and a host of other renewables projects. The legislation – housed in what is titled the Taxpayer Certainty and Disaster Tax Relief Act of 2020, is expected to be signed by President Trump. In this blog post, we discuss the key energy and infrastructure-related provisions in the legislation. (Read more)

Webinar Recording: Energy, Climate and Environmental Matters in a Biden Administration

Kirkland recently hosted this webinar addressing energy, climate and environmental matters in a Biden administration. Kirkland attorneys Scott Cockerham, Alexandra Farmer, Robert Fleishman, Nicholas Gladd, Brian Greene and Jonathan Kidwell discussed what they expect to see in executive orders, federal regulatory actions and legislation.

View a full recording here.

Webinar Recording: A Proposal for Sustainable Investment in the E&P Sector: A Conversation with Kimmeridge Energy

Kirkland partners Doug Bacon and Julian Seiguer joined Mark Viviano of Kimmeridge Energy for a discussion on the current state of the E&P sector, including perspectives on sustainable investment.

Listen to the full webinar, or browse by topic, including:

• Trends and opportunities in E&P industry
• Current investor landscape for E&P sector and public E&P companies
• Ability of current investor base to effect industry-wide change
• Perspective on corporate financial management in the E&P industry
• Impact of other industry precedents on the financial management vision of the E&P sector
• Role and effect of global demand for oil and gas on investment
• Near-term industry objectives to mitigate investors' environmental concerns
• Potential impact of environmentally-conscious asset managers and pension funds
• Management alignment and role of compensation in perspectives on financial management and consolidation
• Response to compensation concerns in market
• Key governance concerns for E&P companies
• Characteristics of E&P companies with potential investor engagement  
  
  

Carbon Sequestration Tax Credit FAQ #4: What are Qualifying Emissions Sources for Section 45Q Tax Credit Projects?

by Scott W. Cockerham

To qualify for carbon capture tax credits, the tax rules require that a “qualified facility” be the source of carbon oxide emissions. Subject to minimum capture requirements described in this post, a “qualified facility” can be any industrial facility, electricity generating facility or direct air capture facility, as long as (i) the construction of the facility begins before 2024, and (ii)(A) either the construction of the carbon capture equipment at the facility begins before 2024 or (B) the original planning and design for the facility includes the installation of carbon capture equipment. (Continue reading)

Dealmaking for the Bridge and Tunnel Crowd — Infrastructure M&A in the Current Environment and Beyond

by Michael P. Brueck, P.C.

While some pockets of the M&A market have shown inconsistency in the wake of COVID, interest in the infrastructure sector remains strong. The factors that incubate a healthy dealmaking environment in this asset class remain favorable, and continued interest in the sector should be expected. But infrastructure M&A presents its own set of unique dynamics that must be skillfully navigated to create successful outcomes. (Continue reading)

House’s Clean Economy Jobs and Innovation Act Would Create Opportunities and Impose Restrictions on Different Segments of the Energy and Infrastructure Sectors

by Paul D. Tanaka, P.C., Stefanie I. Gitler, Jonathan E. Kidwell, Tyler Burgess, Michael J. Mahoney, Brooksany Barrowes, Robert S. Fleishman and Nicholas Gladd

On September 24, 2020, the U.S. House of Representatives passed the Clean Economy Jobs and Innovation Act, H.R. 4447 (“CEJIA” or the “Bill”) by a vote of 220-185, largely on party lines. The Bill would authorize new research and development initiatives at the Department of Energy (“DOE”) and new funding for electric vehicle infrastructure, electric grid modernization, energy efficiency programs and environmental justice programs. We summarize the CEJIA provisions that have the strongest potential to impact the energy and infrastructure sectors. (Continue reading)

Listen: 2020 Kirkland DOE Energy Storage & Financing Summit

This recent two-part event focused on valuing individual systems and entire portfolios of energy storage projects, providing greater transparency to financial institutions, and promoting deeper insights into this emerging asset class to facilitate further investment. Workshops, panels and keynotes featured topics including “Energy Storage — Towards Resilience and Bankability,” “Energy Storage Vision and Outlook” and more.

Listen to Part 1 and Part 2 of the event, or read a transcript.

USMCA Energy & Environmental Takeaways

by Brooksany Barrowes, Robert S. Fleishman, Nicholas Gladd, Chris Heasley, Sanjay José Mullick, Paul D. Tanaka, P.C., Mateo Todd Aceves, Madison Erin McMurray and Anais Bourbon

Energy and infrastructure investors are eager to understand how the United States-Mexico-Canada Agreement (“USMCA”), which recently replaced the North American Free Trade Agreement (“NAFTA”), will affect their investment and cross-border trade. Our view is that the USMCA’s modest reforms likely will not materially disrupt energy trade among the U.S., Canada and Mexico. However, market participants should be aware of the rule changes and note that, depending on the circumstances, discrete aspects of the USMCA may produce advantages or disadvantages at the margin. (Continue reading)

Bloomberg Launches Data-Driven ESG Scores for the Oil & Gas Sector

by Alexandra N. Farmer and Michael J. Mahoney

Bloomberg recently launched its proprietary environmental and social scores (the “ES Scores”), starting with the oil & gas sector. The Bloomberg scores are noteworthy for their transparency and industry-specific peer comparisons, providing companies with an opportunity to analyze the scoring methodology and underlying data and therefore to better understand where they are perceived to be relatively low-performing. This may ultimately enable companies to strategically improve their environmental, social and governance (“ESG”) ratings, if desired and consistent with their business objectives. (Continue reading)

 

Carbon Sequestration Tax Credit FAQ #3: How do the Recapture Rules Work?

by Scott W. Cockerham and Lane E. Morgan

Carbon capture tax credits are subject to clawback by the IRS if the carbon oxide for which the credits are claimed leaks into the atmosphere (a “recapture event”) during a five-year period after the initial storage, injection or use of the carbon oxide in a commercial process. The taxpayer would be required to repay the credits as additional tax due for the year in which the recapture event occurs. (Continue reading)

Update: The final regulations for Massachusetts' Clean Peak Standard took effect on August 7, 2020. The Clean Peak Application portal is anticipated to be made available on September 9, 2020, and prospective applicants can register in advance for a Clean Peak Standard ID at www.neepoolgis.com.

Massachusetts Pushes Its Renewable Energy Program into New Territory by Issuing Final Regulations for Its Clean Peak Energy Portfolio Standard

by Robert S. Fleishman, Nicholas Gladd, Brian C. Greene, P.C. and Brett Nuttall

On March 20, 2020, the Massachusetts Department of Energy Resources (“DOER”) finalized its regulations to implement a new Clean Peak Energy Portfolio Standard (“Clean Peak Standard”). The Clean Peak Standard is a first-of-its-kind state policy designed to provide incentives to clean energy technologies that can either supply electricity or reduce demand during peak demand periods. (Continue reading)

Q&A: Energy Transition and the Changing Private Equity Landscape

Kirkland partners Shubi Arora and Rahul Vashi held a discussion with Chris Manning of Trilantic North America and Ryan Turner of Stronghold Resource Partners on energy transition and the changing private equity investment landscape. Download the full webinar or browse by segmented topic discussion.

Topics included:

• Impact of COVID on sponsors and energy companies
• Impact of dislocation on traditional private equity and the emergence of new investment models
• Emerging and potentially overlooked investment opportunities
• M&A opportunities and creative solutions to bridge a bid-ask spread
• De-risking capital projects and PE's role in providing capex solutions
• Energy transition generally and the changing investor base
• Convergence of PE and hedge fund investment opportunities and impact on deal landscape
• LP reaction to downturn and increased emphasis on ESG
• Impact of upcoming elections on investment strategies

Energy: Oil & Gas 2020, Chambers and Partners: Law and Practice

Kirkland partners Anthony Speier, David Castro and Chris Heasley authored this article regarding trends and developments in the energy space. To read the full text, please click visit Chambers and Partners' website.

Managing PFAS Liability Risk

by Jennie Morawetz  and Paul D. Tanaka, P.C.

Federal and state legislative and regulatory initiatives targeting per- and polyfluoroalkyl substances (“PFAS”) are continuing to move forward notwithstanding the COVID-19 pandemic and could have significant consequences — particularly for the energy and infrastructure sector.  The rapidly changing PFAS landscape impacts companies in the energy and infrastructure space specifically as potential PFAS “sources” and “receivers," and understanding the current trends can help energy and infrastructure companies position themselves to manage PFAS liability risk going forward. (Continue reading)

Dakota Access Pipeline Shutdown Order: What Happened and What’s Next

by Brooksany Barrowes, Robert S. Fleishman, Matt Gibson, Chris Heasley, Danny Nappier and Paul D. Tanaka, P.C.

On July 6, 2020, U.S. District Judge James A. Boasberg ordered the operator of the Dakota Access Pipeline (“DAPL”), Dakota Access, LLC, to shut down DAPL, which has been in operation since 2017 and has the capacity to transport 570,000 barrels of Bakken crude each day, and to remove all oil from DAPL until the U.S. Army Corps of Engineers (“USACE”) completes an environmental impact statement (“EIS”) under the National Environmental Policy Act (the “Shutdown Order”). The court gave Dakota Access until August 5, 2020, to drain the approximately 1,200-mile pipeline of oil despite the USACE’s estimate that an EIS could take between 12–15 months to complete.

This post describes the Shutdown Order and subsequent court action and lays out some considerations for North Dakota crude oil producers in view of the resulting uncertainty. (Continue reading)

The Prospect of a Biden Administration: What Does it Mean for the Electricity Sector?

by Brooksany Barrowes, Robert S. Fleishman, Nicholas Gladd, Brian C. Greene, P.C., Jonathan E. Kidwell, Scott W. Cockerham and Tyler Burgess

Electricity sector companies and investors should give careful consideration in the coming months to the implications of a potential Joe Biden presidency — possibly combined with a Democratic-controlled Congress — and the implications for their portfolios and business strategies. Over the course of the 2020 Democratic presidential primary season, candidates and party leaders have shaped what seems to be an emerging consensus Democratic Party view on electricity sector regulation and on the approach to energy policy more generally. (Continue reading)

Implications for the Energy Industry in Light of the U.S. Supreme Court Decision in McGirt v. Oklahoma

by Fraser F. Wayne, John Christian, Chris Heasley, Anna G. Rotman, P.C., Brian C. Greene, P.C. and James Dolphin

On July 9, 2020, the U.S. Supreme Court, in a 5-4 decision, held that land Congress had reserved for the Creek Nation in the 19th century remains “Indian country” for purposes of the Major Crimes Act. While many commentators within the oil and gas industry have paid close attention to the McGirt decision, the opinion is, on its face, narrow in scope as it only relates to the Major Crimes Act (“MCA”). However, the eventual implications of this decision could have a significant impact on taxation and regulation of energy companies operating on the land at issue — a portion of Northeastern Oklahoma that includes most of the city of Tulsa. (Continue reading)

Webinar Recording: Energy Innovation: Outlook, Opportunities and Challenges for U.S. Carbon Capture and Storage Projects Webinar

Significant developments in the technology and economics of carbon capture, usage and storage ("CCUS") have led to increasing interest in this topic among energy professionals. Panelists including Kirkland partners Alexandra Farmer and Scott Cockerham discussed developments in the CCUS industry following the most recent issuance of 45Q tax credit guidance by the IRS, including perspectives on: 

• The global and U.S. outlook for CCUS 
• Recently issued IRS guidance for the 45Q tax credit 
• Investor interest in and key implementation considerations of CCUS 
• Strategies for managing the challenges associated with CCUS, including regulatory requirements, potential liabilities and financial assurances 

To listen to a recording of the event, click here.

FERC Establishes New ROE Policies for Jurisdictional Electric Utilities and Natural Gas and Oil Pipelines

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

The Federal Energy Regulatory Commission (“FERC”) recently issued two key orders establishing new policies for determining the return on equity (“ROE”) component of the cost-of-service rates charged by FERC-jurisdictional electric utilities, natural gas pipelines and oil pipelines. Both orders signal a departure from the ROE methodologies previously used by the FERC for the respective industries and could significantly impact the earnings of FERC-jurisdictional entities, and the returns ultimately realized by their investors. (Continue reading)

Update: DFC-DPA Loan Picture Comes into Focus; Kodak Gets the First Take

by Brian C. Greene, P.C. and Nathan Santamaria

We covered in June the nascent domestic loan program — administered by the U.S. International Development Finance Corporation (“DFC”) — intended to bolster domestic supply chain weaknesses in light of global trade stresses created by the COVID-19 pandemic. On Tuesday, we got word of the first test case: The Wall Street Journal scooped (and the DFC later confirmed), the execution of a letter of interest by the DFC for a $765 million, 25-year loan to Kodak to bridge the multi-decade photo-chemical expertise of the company into the manufacturing of raw materials used in drug manufacturing.

According to the Journal, China produces the world’s largest supply of active pharmaceutical ingredients used in the manufacture of common medicines, and the U.S., as the world’s largest consumer of such materials, produces only 10% of its domestic needs. According to the DFC, Kodak will by itself be able to produce a quarter of domestic needs after using loan proceeds to retool manufacturing facilities to produce the ingredients. This use of proceeds satisfies the DFC financing condition that the funds be spent to build out the U.S. industrial capabilities strained by the COVID-19 outbreak and response.

Reduced Speed Ahead: New LNG and Interstate Natural Gas Pipeline Facilities Likely To Face Construction Delays Following Recent D.C. Circuit Opinion and FERC Rule

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

It is likely that a recent D.C. Circuit opinion and the Federal Energy Regulatory Commission’s ("FERC") Order No. 871 will combine to delay construction and ultimately increase the cost of FERC-approved gas pipelines and LNG facilities, which could create uncertainty for project developers and investors. In addition to the implications for LNG and interstate natural gas pipeline proceedings, the opinion could have significant impacts in FERC proceedings under its Federal Power Act jurisdiction. (Continue reading)

The Prospect of a Biden Administration: What Does it Mean for Oil and Gas?

by Brooksany Barrowes, David Castro Jr., P.C., Kevin T. Crews, P.C., Robert S. Fleishman, Chris Heasley, Jonathan E. Kidwell, Anthony Speier, P.C., Paul D. Tanaka, P.C., Tyler Burgess and Madison Erin McMurray

Oil and gas industry companies and investors should give careful consideration over the next several months to the possibility of not only a Joe Biden presidency, but also a Democratic-controlled Congress — and the resulting impact to their business outlook and strategies. Over the course of the 2020 Democratic presidential primary season, candidates and party leaders have shaped what seems to be an emerging party consensus on oil and natural gas regulation and the approach to be taken to energy policy more generally. (Continue reading)

Carbon Sequestration Tax Credit FAQ #2: How do Tax Credit Transfers Work?

by Scott W. Cockerham

Carbon capture tax credits are normally available to the person who (1) owns the carbon capture equipment and (2) physically or contractually ensures the capture and disposal, injection or utilization of the carbon. The tax code also provides an alternative rule whereby the owner of the carbon capture equipment can elect to transfer the credits to someone that it contracts with to dispose, inject or utilize the carbon (a “carbon offtaker”). (Continue reading)

Four Key Steps to Assessing and Mitigating Climate Risk

by Alexandra N. Farmer and Jennie Morawetz

Energy and infrastructure businesses and investors that tackle climate risk, potentially starting with physical risk, have a significant opportunity to create value by positioning themselves to take advantage of market changes that prioritize climate, in addition to mitigating risk to their investments and assets. In this post, we highlight four key steps to assessing and mitigating climate risk. (Continue reading)

DOE Requests Information to Secure the Bulk-Power System from “Foreign Adversaries”

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

Developers and sponsors have a soon-ending opportunity to make their views known to the U.S. Department of Energy (“DOE”) on its recent Request for Information (“RFI”) “to understand the energy industry’s current practices to identify and mitigate vulnerabilities in the supply chain for components of the bulk-power system (BPS).” Comments responding to the RFI are due by August 7. Later this year, it is expected that DOE will issue proposed rules to regulate this area, and the RFI provides insight into features those rules are likely to contain. (Continue reading)

EPA’s COVID-19 Enforcement Discretion Policy Will Terminate on August 31, 2020 

by Paul D. Tanaka, P.C., Carleigh Trappe Rodriguez and Michael J. Mahoney

On June 29, 2020, the U.S. Environmental Protection Agency (“EPA”) announced that its temporary policy regarding enforcement of environmental legal obligations during the COVID-19 pandemic (the “Enforcement Policy”) will terminate on August 31, 2020. Many companies in the energy and infrastructure space may be impacted by the termination of the Enforcement Policy. Any businesses that have taken advantage of EPA’s enforcement discretion under the Enforcement Policy should be prepared to resume compliance activities in the ordinary course when the Enforcement Policy terminates. (Continue reading)

The USMCA Offers Some Protections for U.S. Investments in Mexico’s Energy Sector

by Mario Mancuso, P.C., Sanjay José Mullick, Carlos A. Moran and Anais Bourbon

On July 1, the United States-Mexico-Canada Agreement (“USMCA”) entered into force, replacing the generation-old North American Free Trade Agreement (“NAFTA”) with a modernized trade agreement. Though the USMCA largely does away with the investor-state dispute settlement mechanism (“ISDS”) that was a central feature of NAFTA, a similar ISDS system is preserved for certain U.S. investments in Mexico’s energy sector. (Continue reading)

Carbon Sequestration Tax Credit FAQ #1: Who is Eligible for the Credit?

by Scott W. Cockerham

This is the first in an ongoing series of blog posts that will answer frequently asked questions about the carbon sequestration tax credit under section 45Q of the Internal Revenue Code. We have seen a significant uptick in interest in carbon capture projects since the release of additional IRS guidance this year, and we hope this series will be useful for those interested in learning more about the carbon capture market. This first post will explain eligibility for the credit. (Continue reading)

 

Special Considerations for Protecting Interests under Water Agreements in Bankruptcy

by Rahul D. Vashi, P.C., Anna G. Rotman, P.C., Chris Heasley, Shubi Arora, P.C., Kenneth A. Young, Fraser F. Wayne and John C. Elkins

To protect the recoupment of upfront investments, it is customary for water midstream companies to attempt to fashion their contracts with exploration & production ("E&P") companies in a manner that insulates their risk in the event an E&P company becomes insolvent and declares bankruptcy. One common method used by the midstream companies to mitigate their risk and protect their investment in the gathering assets is to create (or attempt to create) a dedication of production from the E&P company structured as a covenant that runs with the land (“CRWTL”).

While the classification of a midstream agreement as a CRWTL has been tested in recent bankruptcies in the oil and gas context, water disposal and gathering agreements (“Water Agreements”) with similar language have not been tested and there is reason to believe that such agreements may be treated differently than their oil and gas counterparts. We discuss certain issues and considerations that are specific to Water Agreements and may affect whether such a Water Agreement is determined to contain a CRWTL that cannot be rejected under the Bankruptcy Code. (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.