This regular publication by DLA Piper lawyers focuses on helping clients navigate the ever-changing business, legal and regulatory landscape.
- Oil companies may need to prepare for more regulation of rail shipments of their products in light of new study. The Associated Press reported on February 22 that a 2014 report from the Department of Transportation predicts that in the next decade there will be as many as 10 derailments per year of trains hauling crude oil or ethanol, with damage totaling as much as $4.5 billion. Oil companies are well advised to prepare for more safety regulation. The growth in oil production due to fracking has been accompanied by a growing number of high-profile derailments, as the volume of flammable liquids transported by rail has risen dramatically over the last decade, driven mostly by the oil shale boom in North Dakota and Montana. Last week, for instance, saw a fiery derailment in Illinois. This year, nearly 900,000 carloads of oil and ethanol will be moved in tankers.
- If a company wants to drill off the Alaskan coast, it must adhere to strict safety measures. On February 20, the Obama Administration took steps to impose tough safety standards for offshore oil and gas exploration along Alaska’s northern coastline. The proposed rules put forth by the Department of the Interior aim to protect the environment while allowing energy companies access to offshore fields estimated to contain vast amounts of both oil and gas. The rules, if they become final, would require energy companies to clear a number of Arctic-specific safety hurdles before obtaining approval to drill in northern Alaska’s Beaufort and Chukchi seas.
- FERC approves risk-based approach to electric utility reliability compliance. On February 19, the Federal Energy Regulatory Commission approved a risk-based approach to monitoring and enforcing compliance by electric utilities with mandatory reliability standards. This approach, developed by the North American Electric Reliability Corporation (NERC), is designed to help ensure the stability of the electrical grid and to protect consumers and businesses across North America from power loss. According to NERC, the Reliability Assurance Initiative (RAI) approach to compliance focuses resources on higher-risk issues that matter more to reliability, while still identifying and correcting issues that pose lesser risks. In its order, FERC conditionally approved the proposed implementation of RAI, finding that NERC’s overall goal was reasonable. Its approval was subject to certain conditions, including a compliance filing within 90 days and an annual reporting requirement. NERC is a self-regulated organization that FERC granted, in 2007, the legal authority to enforce reliability standards with all users, owners and operators of the bulk power system in the United States.
- FERC chair points to greater role for natural gas to comply with EPA plan. At the National Association of Regulatory Commissioners’ Winter Committee Meetings in Washington, DC on February 18, Cheryl LaFleur, chair of the Federal Energy Regulatory Commission, gave a preview of the agency’s role in ensuring compliance by electric utilities and other power companies with the Environmental Protection Agency’s Clean Power Plan (CPP). LaFleur said that FERC’s role in implementing the CPP is only to assist the EPA in developing appropriate carbon pollution standards for power plants. She said it was likely that in order to meet the EPA’s standards and to reduce carbon emissions that lead to climate change, utilities will need to increase their use of natural gas and renewable fuels. The CPP calls for increased use of power sources that emit lower amounts of carbon pollution, such as natural gas combined cycle units. “In the next few years, as we work through compliance, I think FERC will have three prominent roles to play: the first on our energy infrastructure, the second on energy markets, and thirdly as an honest broker for discussion,” LaFleur said at the meeting.
- CFTC extends comment period on controversial position-limit rule, which applies to some energy commodities. Energy traders and others in the commodity industry will have more time to comment on a proposed regulatory change. On February 25, the Commodity Futures Trading Commission reopened the comment period on its proposed rules establishing position limits on certain commodities and on its proposed amendments to its aggregation policies for such position limits. The rules, which would implement a section of the Dodd-Frank Act, would impose position limits for traders in 28 commodities, including crude oil, natural gas, heating oil and gasoline. One idea behind the extension of the comment period is to address questions and comments from the February 26 meeting of the CFTC’s Energy and Environmental Markets Advisory Committee. The new comment period extends through March 28.
- Mexico’s shale opens up to outside energy development as a result of privatization. As a result of the ongoing efforts in Mexico to open up the market to private foreign investors for the first time in more than 70 years, Mexico has become one of the newest frontiers for oil and gas exploration. The possibilities of this dramatic change were the topic of a conference in mid-February in San Antonio that attracted nearly 300 oil and natural gas producers. A Mexican energy commissioner stated that the rights to drill for shale oil will be open for bidding this year, probably as soon as March or April. Mexico’s resources include an estimated 13 billion barrels of oil and around 600 trillion cubic feet of gas from shale reserves. These are the eighth and sixth largest supplies in the world, respectively.