In the News Law360

Biggest Energy Decisions of 2019

Exxon Mobil Corp.'s victory in a landmark climate change trial headlined a year's worth of energy rulings that also included decisions limiting the Federal Energy Regulatory Commission's authority in utility bankruptcies and pipeline land seizures.

Exxon and other fossil fuel companies face a growing drumbeat of litigation over their contributions to climate change, but in mid-December, the oil giant beat accusations from the New York attorney general that it duped investors over climate-related risks to its business.

Elsewhere, courts took aim at clarifying FERC's authority. The Sixth Circuit rebuffed FERC's claim that it can determine whether utilities can ditch power purchase agreements in bankruptcy, though it said the agency isn't entirely powerless in those situations. And the Third Circuit said pipeline developers can't seize state-owned lands for their projects via eminent domain even if they have a FERC approval in their pocket.

Meanwhile, in the D.C. Circuit, FERC received a warning that its method of reviewing the climate change impacts of proposed pipelines might not be up to snuff, and states were told that they can't string out their Clean Water Act permitting for projects subject to FERC approval.

Here are five energy-related decisions that stood out to attorneys in 2019.

Exxon Beats NY Climate Change Fraud Suit

In the first trial that squarely addressed U.S. fossil fuel companies' understanding of climate change and the impacts and risks it poses to their businesses, a New York state judge on Dec. 10 cleared Exxon of accusations that it deceived investors about those issues.

Justice Barry Ostrager said the New York attorney general failed to prove that Exxon made any material misstatements or omissions about its practices that misled any reasonable investor, the threshold for sustaining claims under the Martin Act, New York's powerful securities law. It was the culmination of a public and bitter fight between the state and Exxon that started when the attorney general's office launched a probe of the oil giant in 2015.

"This was brought as a dramatic climate change case, but it was really, at its heart, a securities case," said Ronald Colombo, a securities law professor at Hofstra University's Maurice A. Deane School of Law. "And as a securities case, it didn't pan out."

Indeed, Justice Ostrager said nothing in his decision was "intended to absolve Exxon Mobil from responsibility" for contributing to climate change through the production of its greenhouse gas-emitting fossil fuels.

"But Exxon Mobil is in the business of producing energy, and this is a securities fraud case, not a climate change case," the judge said.

And while Exxon's victory highlights the difficulty of bringing climate-related securities lawsuits against energy companies, shareholder pressure to disclose climate-related risks remains.

"They're already making these disclosures because large institutional investors are demanding it," said Mike Biles, a partner in King & Spalding LLP's securities and enforcement practice who has represented oil and gas companies in securities cases. "This decision is not going to change that."

The case is New York v. Exxon Mobil Corp., case number 452044/2018, in the Supreme Court of the State of New York, County of New York.

6th Circuit Limits FERC's Power Deal Authority in Chapter 11

Weighing in on the growing turf war between FERC and bankruptcy courts over what roles they play when a utility goes belly up, the Sixth Circuit said Dec. 12 that bankruptcy courts have the final word over whether utilities can abandon power purchase agreements in Chapter 11. But the appeals court didn't completely slam the door in FERC's face.

The appeals court said that while an Ohio bankruptcy court had jurisdiction over a bid by FirstEnergy Corp.'s bankrupt merchant unit, FirstEnergy Solutions Corp., to reject a wholesale power deal with an electricity cooperative, it went too far in blocking FERC from taking any action.

The court said bankruptcy courts must consider and determine the impact of rejecting power purchase agreements based on the public interest to ensure that rejecting the contracts is the more equitable outcome. FERC should at least be afforded a say in that analysis, the opinion said.

That's a new, higher bar for bankrupt utilities to clear if they want to ditch power purchase agreements, Barnes & Thornburg LLP restructuring partner Jim Van Horn said. He said it will be interesting to see how the Ninth Circuit takes the Sixth Circuit ruling into account as it mulls whether FERC can have a say in whether Pacific Gas & Electric Co. can shed any of its $42 billion worth of power purchase agreements, a case with major implications for clean energy developers.

"Even if a bankruptcy court is determined to have exclusive jurisdiction, this heightened standard could result in a very different outcome in the PG&E case, given the parties involved and the dollars involved," Van Horn said.

PG&E, to this point, has pledged to honor all of its power purchase agreements, though it remains to be seen whether that pledge will survive an especially heated Ch. 11 process.

The case is In re: FirstEnergy Solutions Corp. et al., case number 18-3787, in the U.S. Court of Appeals for the Sixth Circuit.

DC Circuit Clarifies Time Limit for State Water Permit Reviews

The D.C. Circuit ruled in January that the one-year clock for states to act on Clean Water Act permit requests doesn't reset if applications are withdrawn and resubmitted, a decision the U.S. Supreme Court refused to review on Dec. 9.

The circuit court held that California and Oregon waived their CWA Section 401 authority to issue water quality permits to PacifiCorp for its Klamath hydroelectric project and that FERC was wrong to extend more time to the states for their water quality reviews.

That overturned FERC's 2014 determination that even though PacifiCorp resubmitted applications involving the same project, each application was an independent request subject to a new one-year review period.

"The practical consequence is that the states and state agencies have been deprived of one of their favorite points of leverage, which was to delay granting of certification under Section 401," Winston & Strawn LLP energy litigation partner Gordon Coffee said.

Indeed, FERC has already cited the ruling in concluding that New York environmental regulators waived their Section 401 authority over a pair of pipeline projects.

Coffee said the ruling has prompted some states to simply deny Section 401 permits outright, albeit without prejudice, daring project developers to either reapply or challenge the denial in court.

"I suspect that's going to generate a lot of litigation," Coffee said.

The case is Hoopa Valley Tribe v. FERC, case number 14-1271, in the U.S. Court of Appeals for the D.C. Circuit.

3rd Circuit Thwarts Pipeline's NJ Land Grab

The Third Circuit threw up a big roadblock in September to the proposed $1 billion PennEast pipeline when it said developers couldn't seize New Jersey-owned land for the controversial project, which FERC had previously approved.

Wiping out a lower court decision that allowed PennEast Pipeline Co. LLC to take dozens of state-owned parcels along the pipeline's route, the Third Circuit said the Natural Gas Act didn't trump the Garden State's 11th Amendment sovereign immunity from condemnation suits by private companies.

There's nothing in the Natural Gas Act suggesting the federal government — in this case, FERC — can delegate its authority to override a state's sovereign immunity for private eminent domain purposes, the court said.

PennEast has vowed to ask the U.S. Supreme Court to review the decision, claiming it threatens to stymie gas development nationwide because no interstate gas pipeline of any significant length can be built without crossing at least some land where a state has an interest.

"I think there are going to be very few pipeline projects out there that don't have to reevaluate their strategies," Kirkland & Ellis LLP energy and infrastructure partner Brooksany Barrowes said. "It could change the way that projects are developing, and it gives additional fodder to opponents of new pipeline construction, where they have a new argument to resist projects."

But Coffee said the implications of the ruling might not be quite as far-reaching as they're made out to be.

"A lot of states don't mind granting easements for pipelines, and a lot of gas pipelines don't need to cross state land," Coffee said.

The case is In re: PennEast Pipeline Co. LLC, case number 19-1191, in the U.S. Court of Appeals for the Third Circuit.

DC Circuit Puts FERC On Notice Over Climate Change Reviews

Contained in the D.C. Circuit's June 4 rejection of a challenge to FERC's approval of a Kinder Morgan pipeline expansion project in Tennessee was a warning to the agency that its climate change reviews may not be legally sufficient.

The appeals court said landowners couldn't support their claims that FERC violated the National Environmental Policy Act when it refused to consider the project's indirect greenhouse gas emission impacts in the form of increased upstream gas production and downstream gas use.

But the appeals court spent much of its opinion saying FERC's view of its GHG obligations was an improper reading of the court's 2017 decision in Sierra Club v. FERC , which said that NEPA requires the agency to review indirect environmental impacts that are "reasonably foreseeable" and ordered FERC to review the downstream greenhouse gas impacts of the Sabal Trail pipeline.

"It was a warning shot across the bow of FERC that it needs to be more rigorous in its NEPA analysis," Coffee said. "There's a broader trend here of the D.C. Circuit expecting a more extensive review of environmental impacts, and it's not just for gas pipelines."

But while the decision sets a roadmap for future challenges to FERC pipeline approvals, Barrowes said there may not be a pending case that squarely tees up the issue of FERC's greenhouse gas reviews. Meanwhile, FERC has continued to approve projects based on the GHG rationale it used in the Kinder Morgan case.

"FERC isn't adopting any different policy now, and I don't see the standoff changing, in the near term, through litigation," Barrowes said.

The case is Lori Birckhead et al. v. Federal Energy Regulatory Commission, case number 18-1218, in the U.S. Court of Appeals for the D.C. Circuit.