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Energy Litigation To Watch In 2023

In this Law360 article on energy litigation cases to watch in 2023, partner Ben Barnes discussed the ongoing case to determine whether of the Public Utility Commission of Texas overstepped its authority when it maxed out energy prices during the aftermath of Winter Storm Uri.

Climate change will grab the energy litigation spotlight in 2023, with courtroom fights over the government's ability to combat it and whether oil and gas companies should pay to mitigate it.

The U.S. Supreme Court is once again being asked to determine whether climate torts against fossil fuel companies belong in state or federal court. There are also battles over federal and state authority to regulate greenhouse gas emissions from vehicles and the Biden administration's efforts to curtail offshore oil and gas drilling.

Elsewhere, a looming Supreme Court ruling on the scope of Clean Water Act jurisdiction will have major implications for energy infrastructure, while the Federal Energy Regulatory Commission faces a challenge over moves to accommodate state clean energy priorities within the electricity markets it oversees, and Texas utility regulators face a challenge over their moves during a deadly 2021 winter storm.

Here's a list of energy cases that attorneys will be closely watching this year:

Climate Tort Litigation

The battle over where climate torts against fossil fuel companies can be contested is back at the Supreme Court, which is fielding petitions to review rulings by several circuit courts that suits brought by local governments belong in state court.

The Tenth Circuit, and several other circuit courts, have reaffirmed their previous rulings that such suits don't implicate federal law and thus belong in state court after the Supreme Court last year ordered circuit courts to expand their reviews of remand orders in BP PLC et al. v. Mayor and City Council of Baltimore .

In their petitions, the companies argue that there's a clear conflict with the Second Circuit's April 2021 dismissal of New York City's climate change suit after determining that that case was a matter of federal law. The affirmed remand orders also conflict with rulings that claims arising under federal law can't pass as state law claims under the well-pleaded complaint rule, the companies argue.

And there's a sign that at least some of the justices are interested in making a final call on where climate torts can be contested. The Supreme Court in October asked the U.S. solicitor general to weigh in on the matter in the appeal of the Tenth Circuit's decision.

"Going back to when I clerked many, many years ago, that was done when the court was concerned the decision below, even if there's not a conflict, might be wrong, and they're interested in the views of the federal government on it," said Stuart Singer, a partner with Boies Schiller Flexner LLP who once clerked for Justice Byron White.

The cases are Suncor Energy (U.S.A.) Inc. et al. v. Board of County Commissioners of Boulder County et al., case number 21-1550; Mayor and City Council of Baltimore v. BP PLC et al., case number 22-361; Chevron Corp. et al. v. San Mateo, California, et al., case number 22-495; Shell Oil Products Co. LLC et al. v. State of Rhode Island, case number 22-524; and Sunoco LP et al. v. City and County of Honolulu et al., case number 22-523., all in the Supreme Court of the United States.

Vehicle Emissions Litigation

In the latest fight over regulating greenhouse gases from the transportation sector, the Biden administration faces D.C. Circuit challenges over tighter emissions and fuel economy standards, with Republican-led states and industry groups claiming that they are too stringent and environmental groups claiming that they aren't stringent enough.

Meanwhile, many of those same Republican-led states are also challenging the Environmental Protection Agency's restoration of a California Clean Air Act waiver that permits the state to set its own emissions standards and run a zero-emissions vehicle program. The waiver had been yanked by the Trump administration.

The red states allege that California's "special treatment" under the Clean Air Act violates the Constitution's intent to hold all states equal. California, along with allied states and cities, said Congress gave it the right to set its own automotive emissions standards because of its high concentration of motor vehicles — and resultant air quality problems. Electric utilities, clean energy industry groups and several automakers are also backing California.

"It deals with the broader issues of whether states can go beyond federal law — in this case, to control actions of vehicle manufacturers," Singer said. "It's an important case in terms of federalism, pollution control and greenhouse gas emissions."

The California waiver case is Ohio et al. v. U.S. Environmental Protection Agency et al., case number 22-1081, in the U.S. Court of Appeals for the District of Columbia Circuit.

The vehicle emissions regulations case is State of Texas et al. v. U.S. Environmental Protection Agency et al., case number 22-1031, in the U.S. Court of Appeals for the District of Columbia Circuit.

Clean Water Act Litigation

The Supreme Court is poised to determine the proper extent of the federal government's jurisdiction under the Clean Water Act to regulate certain wetlands, a case that has implications for a broad swath of energy infrastructure, including pipelines and power plants.

In October, the justices heard oral arguments in landowners' appeal of the Ninth Circuit's 2021 ruling that the EPA has the authority to regulate their property under the act. The landowners dispute the validity of a legal test, crafted by Justice Anthony Kennedy in 2006's Rapanos v. United States , that the EPA and the appeals court relied on to support a determination that the property contained a covered wetland.

Much of the justices' questioning revolved around how broadly agencies and courts have defined a wetland that is "adjacent" to "waters of the United States," both Clean Water Act terms that the statute does not define but are crucial in making a jurisdictional determination.

The definition of "waters of the United States" has been a source of controversy for years, with the past three presidential administrations all taking a crack at providing some additional clarity.

"I think the energy industry is concerned about how statutory terms are interpreted by the agencies that govern them — like the EPA — and how the Supreme Court looks at these rules," said Collin Cox, litigation partner at Gibson Dunn & Crutcher LLP. "It's not just a Clean Water Act issue for energy companies."

The case is Michael Sackett et al. v. U.S. Environmental Protection Agency et al., case number 21-454, in the Supreme Court of the United States.

FERC Clean Energy Subsidy Litigation

The Third Circuit will hear oral arguments Jan. 10 over a commissioner stalemate that allowed the nation's largest grid operator to no longer require state-backed renewable energy sources to meet a price floor in electricity capacity auctions. 

PJM Interconnection LLC's rollback of its minimum offer price rule went into effect in September because a 2-2 split among FERC commissioners over the proposal's legality prevented them from acting on it. All four commissioners issued legally required statements explaining their reasoning.

Power producers within PJM's footprint want the Third Circuit to either force FERC to break the stalemate or explain why PJM should be allowed to do an about-face on an expanded version of the minimum offer price rule that the agency ordered the grid operator to craft. Opponents of the new price rule argue that it made it more likely that subsidized renewable energy supplies from some states would be pushed into regional markets, increasing costs in other states less supportive of alternative energy subsidies.

The expanded minimum offer price rule had restricted the presence of state electricity programs in whole electricity auctions run by PJM, which led to legal challenges by consumer groups, states and environmental groups. But those initial challenges were put on hold as PJM worked on a revision. In the current litigation, Ohio and Pennsylvania officials are backing the power producers.

A key question will be how the appeals court addresses FERC's stalemate. Congress amended the Federal Power Act in 2018 so that any FERC inaction allowing a rate change to take effect is an agency order subject to rehearing and judicial review. That question looms even larger given that FERC is poised to begin 2023 with just four commissioners instead of its usual five, which raises the possibility of future stalemates.

"This will be an important precedent to tell us what happens," said Will Barksdale, energy regulatory counsel at Skadden Arps Slate Meagher & Flom LLP. "The commission is much more polarized than it was 10, 20 years ago, and you're going to get more of these 2-2 splits when you have four sitting commissioners."

The case is PJM Power Providers Group v. Federal Energy Regulatory Commission, case number 21-3068, in the U.S. Court of Appeals for the Third Circuit.

Oil And Gas Leasing Litigation

Attorneys are closely watching an oil and gas industry challenge to the Biden administration's moves to curb future oil and gas leasing on federal lands and in federal waters.

The American Petroleum Institute and other groups have sued the Bureau of Land Management and the Bureau of Ocean Energy Management over their implementation of a January 2021 executive order directing the agencies to temporarily pause new leases.

"That issue in general, any kind of moratorium or restriction of leasing on federal lands, is important," said Michael Morfey, who co-leads Hunton Andrews Kurth LLP's energy litigation practice group.

The suit is in the same Louisiana federal court that in 2021 issued a nationwide preliminary injunction blocking the pause in a suit brought by 13 Republican-led states. The Fifth Circuit vacated that injunction in August, but U.S. District Judge Terry Doughty promptly issued a permanent injunction limited to the 13 states that filed the lawsuit, as well as several upcoming lease sales.

Cox of Gibson Dunn said the litigation over the Biden administration's oil and gas leasing policies epitomizes the growing prevalence of nationwide injunctions issued by federal district courts.

"I'm interested in how it affects energy policy going forward," Cox said. "It's one of the best examples about how the national debate on energy policy is winding its way through the courts."

Meanwhile, the Biden administration has proposed a new five-year leasing program for 2023-28.

The case is American Petroleum Institute et al. v. U.S. Department of the Interior et al., case number 2:21-cv-02506, in the U.S. District Court for the Western District of Louisiana.

Winter Storm Uri Litigation

There's been a raft of litigation stemming from a deadly winter storm that caused blackouts across Texas. One significant case that's nearing a conclusion could determine whether the Public Utility Commission of Texas overstepped its authority when it decided in February 2021 to max out energy prices in an effort to encourage more electricity production as the state dealt with the aftermath of Winter Storm Uri earlier that month.

A Texas appeals court in April heard oral arguments in Luminant Energy Co. LLC's bid to invalidate two emergency orders issued in the wake of Uri that instructed the Electric Reliability Council of Texas Inc. to set electricity prices at their maximum wholesale cap of $9,000 per megawatt hour for roughly five days.

During the storm, ERCOT, which controls 90% of Texas' electricity grid, implemented rolling blackouts to shed load from the grid and avoid a catastrophic black start, an event during which the electricity grid's frequency drops so low that generators are automatically kicked off the system for their own safety and the entire grid loses power.

The grid operator also, at the order of the commission, set electricity prices at their maximum wholesale cap and maintained that pricing for 32 hours after the last widespread outages, overcharging market participants by $16 billion, according to an independent market monitor.

The overcharges caused companies and utilities to rack up billions of dollars of debt as they provided electricity to their customers — and forced some into bankruptcy.

"If that Public Utility Commission order is deemed invalid, a lot of people will have a lot of questions of how people are going to be able to unwind what happened during the storm," Kirkland & Ellis LLP litigation partner Ben Barnes said.

The case is Luminant Energy Co. LLC v. Public Utility Commission of Texas, case number 03-21-00098-CV, in the Texas Court of Appeals for the Third District.

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