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Climate Change Ruled 2018 Energy-Related Court Decisions

Energy and climate change are inexorably intertwined, so it's no surprise that climate change was a central theme in the most notable court decisions affecting the energy sector this past year.

Federal district courts have rebuffed initial attempts by coastal cities to hold Big Oil liable for climate-related infrastructure damage, but nixed the Trump administration's approval of the controversial Keystone XL pipeline due to an inadequate analysis of its climate impacts. Meanwhile, federal appeals courts concluded state plans to prop up struggling nuclear power plants to aid climate change efforts didn't usurp federal electricity authority.

Meanwhile, a potential circuit court split on the scope of Clean Water Act liability and the U.S. Supreme Court opening the door a little wider for Endangered Species Act challenges carry big implications for energy companies.

Here are five significant energy-related court decisions in 2018:

Big Oil Scores Early Wins in Climate Torts Battle

In the wave of litigation brought by cities and counties seeking to put Big Oil on the hook for climate change-related infrastructure damage over their production and promotion of fossil fuels, early results indicate courts are skeptical such claims can be pursued.

In June, a California federal judge dismissed suits brought by Oakland and San Francisco against BP, Chevron, ConocoPhillips, ExxonMobil and Royal Dutch Shell, saying global warming should be tackled by lawmakers, not the courts. The following month, a New York federal judge tossed New York City's suit, citing the previous decision in part and saying the Big Apple's claims must arise under federal common law and, as a result, are displaced by the Clean Air Act and the U.S. Environmental Protection Agency.

"The fact that we now have a couple of decisions on those topics is starting to show how the courts are going to line up on a subject that is important to industry and the population in general," said Hunton Andrews Kurth LLP partner Stuart Hollimon. "Each of them concludes, 'Look, this is not something a district court, federal or state, should tackle.'"

The decisions haven't stopped new cases being filed by other municipalities. More importantly, the appellate courts haven't weighed in yet. Oakland, San Francisco and New York have appealed the dismissals to the Ninth and Second circuits, respectively.

Still, attorneys say the dismissals offer early guideposts as to the difficulty in sustaining these suits.

"You do see a trend where we could expect as these different cases are brought, judges will look to what the prior decisions said to guide their decisions going forward," said Kirkland & Ellis LLP partner Anna Rotman, who is representing an oil and gas company in other climate tort cases. "To the extent there's a wave of these cases being brought, as case are dismissed, it will be easier for other judges to dismiss other cases on similar grounds."

The cases are California Acting By and Through Oakland City Attorney Barbara J. Parker v. BP PLC et al., case number 3:17-cv-06011, and California Acting By and Through San Francisco City Attorney Dennis J. Herrera v. BP PLC et al., case number 3:17-cv-06012, both in the U.S. District Court for the Northern District of California; and City of New York v. BP PLC et al., case number 1:18-cv-00182, in the U.S. District Court for the Southern District of New York.

Nuke Subsidy Rulings Give States Wide Power Policy Berth

State efforts to promote zero-carbon electricity in order to combat climate change got a major boost when the Seventh and Second circuits upheld nuclear power plant subsidies offered by Illinois and New York, respectively, by concluding they don't intrude on federal authority over wholesale electricity markets.

Both appeals courts concluded that zero-emission credits offered by Illinois and New York for nuclear power plants don't directly impact wholesale power prices. That distinguishes them from subsidies offered by Maryland for new, gas-fired power plant construction that were struck down by the U.S. Supreme Court in the 2016 case Hughes v. Talen Energy Marketing.

Electricity policy experts say the appellate rulings cement two things: a narrow application of Hughes' conclusion that state subsidies can't be "tethered" to wholesale market prices, and a wide berth for states to craft clean energy incentives.

Some states are already putting those lessons to work. New Jersey is crafting a zero-emission credit program for its nuclear plants, while New York's offshore wind development program calls for winning projects to receive so-called ocean renewable energy credits.

The Illinois cases are Electric Power Supply Association et al. v. Star et al., case number 17-2445, and Village of Old Mill Creek et al. v. Star et al., case number 17-2433, in the U.S. Court of Appeals for the Seventh Circuit. The New York case is Coalition for Competitive Electricity et al. v. Zibelman et al., case number 17-2654, in the U.S. Court of Appeals for the Second Circuit.

A Circuit Split Over Groundwater Pollution Liability

Circuit courts appear divided over whether pollution that reaches navigable U.S. waters via groundwater is subject to the Clean Water Act's permitting requirements, which could potentially cover a wide range of energy-related activities, from coal ash pond leaks to pipeline spills.

The Ninth Circuit in February upheld a lower court's decision saying that Maui County, Hawaii, violated the CWA by allowing pollutants from four wastewater injection wells to eventually seep into the Pacific Ocean. An appeals court panel held that the injections at issue constituted "point source" discharges that are subject to the CWA's National Pollutant Discharge Elimination System permitting requirements, even though they did not directly discharge the pollutants into the ocean.

The Fourth Circuit in April reached a similar conclusion to the Ninth Circuit in reviving a suit over a Kinder Morgan Energy Partners LP subsidiary's gasoline pipeline spill in South Carolina. But in September, the Sixth Circuit took the opposite stance in ruling that the CWA didn't apply to alleged pollution from coal ash ponds maintained by the Tennessee Valley Authority and Kentucky Utilities Co. that traveled through groundwater.

Maui County and Kinder Morgan have each appealed their rulings to the Supreme Court.

"As you define 'point source,' one way or another, you grow or shrink the ability of environmental regulators to separately regulate each part," said Dykema member Tom Alleman. "If there is a true circuit split, you will have a whole lot of the nine Supreme Court justices saying, 'Yes, that's something we need to resolve.'"

In a sign that they're at least interested in tackling the issue, the justices on Dec. 3 asked the solicitor general to weigh in on the issue of CWA liability covering groundwater, and want a response by Jan. 4.

The cases are Hawaii Wildlife Fund et al. v. County of Maui, case number 15-17447, in the U.S. Court of Appeals for the Ninth Circuit; Upstate Forever et al. v. Kinder Morgan Energy Partners LP et al., case number 17-1640, in the U.S. Court of Appeals for the Fourth Circuit; and Kentucky Waterways Alliance et al. v. Kentucky Utilities Co., case number 18-5115, and Tennessee Clean Water Network et al. v. Tennessee Valley Authority, case number 17-6155, both in the U.S. Court of Appeals for the Sixth Circuit.

Supreme Court Expands Scope of Endangered Species Fights

In sending a dispute between Weyerhaeuser Co. and the U.S. Fish and Wildlife Service involving the dusky gopher frog back to the Fifth Circuit, the Supreme Court gave property owners additional ammunition in challenging endangered species protection decisions.

The high court unanimously vacated the Fifth Circuit's decision that affirmed the FWS' decision to protect area owned by Weyerhaeuser and others for the endangered frog, disagreeing that the agency's decision wasn't reviewable under the Endangered Species Act. It then remanded the case back to the Fifth Circuit to settle key legal issues, including whether the FWS abused its discretion by concluding that the conservation benefits of designating the area a "critical habitat" for the frog would outweigh the $33.9 million in potential costs from barring future development.

Even if the Fifth Circuit ultimately sides with the FWS, King & Spalding LLP partner Andrew Stakelum said the Supreme Court's ruling at least opens the door for property owners such as oil and gas developers to contest agency reviews.

"It really tries to reinstate a balance between the property owners and the government and give the property owners more of a say in how they use their property for a development," said King & Spalding LLP partner Andrew Stakelum. "We're going to be seeing more of these issues arise as we push for [oil and gas] development in the Permian Basin [of West Texas] and elsewhere."

The case is Weyerhaeuser Co. v. U.S. Fish and Wildlife Service et al., case number 17-71, in the Supreme Court of the United States.

Keystone XL Approval Struck Down

A Montana federal judge Nov. 8 vacated the presidential cross-border permit for the Keystone XL pipeline and halted work on the controversial project until the U.S. Department of State crafts an environmental review that complies with federal law, casting fresh doubt on the project's future.

But attorneys say it's U.S. District Judge Brian Morris' reasoning for nixing the permit for TransCanada Corp. oil sands pipeline that's significant. The judge said the Trump administration's decision didn't pass legal muster on several counts, led by an insufficiently explained reversal of the Obama-era conclusions about the climate-related impacts of the project.

It's the latest instance of federal courts — district and circuit — slapping the government's wrist for an inadequate climate analysis on energy development. Other casualties have included a natural gas pipeline and federal coal leasing extensions.

"Obviously, that is a hot-button political item," Alleman said. "It is an extremely important decision."

President Donald Trump publicly blasted the decision and indicated that the government may appeal it to the Ninth Circuit.

The cases are Northern Plains Resource Council et al. v. Shannon et al. and Indigenous Environmental Network et al. v. U.S. Department of State et al., case numbers 4:17-cv-00031 and 4:17-cv-00029, in the U.S. District Court for the District of Montana.