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October 09, 2017
Judge vacates BLM’s postponement of methane rule

An attempt by the Department of Interior’s Bureau of Land Management (BLM) to postpone the effective date of the Obama administration’s final rule to reduce leaks of methane at oil and gas (O&G) production facilities operating on federal land was found illegal by a U.S. judge for Northern California District Court.

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oil refinery

In her vacatur order, U.S. Magistrate Judge Elizabeth D. LaPorte wrote that the BLM failed on every point it made to justify its postponement of its Waste Prevention, Production Subject to Royalties, and Resource Conservation Rule (November 18, 2016, FR). The vacatur applied to BLM’s postponement notice (June 15, 2017, FR). As a result, affected O&G facilities must continue to work toward achieving compliance with those parts of the rule that require compliance by January 18, 2018. The BLM estimates industry compliance costs at $114 million.

The case against the BLM and the postponement were brought by the states of California and New Mexico and a coalition of 17 conservation and tribal citizens groups.

Air regulation

Issued under the Mineral Leasing Act of 1920, the stated objective of the rule is to “reduce waste of natural gas from venting, flaring, and leaks during oil and natural gas production activities on onshore Federal and Indian (other than Osage Tribe) leases.” The rule requires that, over time, O&G producers use currently available technologies and processes to cut flaring in half at oil wells on public and tribal lands. Operators must also periodically inspect their operations for leaks and replace outdated equipment that vents large quantities of gas into the atmosphere. Other parts of the rule require operators to limit venting from storage tanks and use best practices to limit gas losses when removing liquids from wells. The rule also clarifies when operators owe royalties on flared gas.

Critics of the rule contend that its real objective is to reduce emissions of methane because it is a potent greenhouse gas (GHG). The argument is that this makes the rule an air regulation and that only the EPA may issue air regulations. In early February, the U.S. House voted to nullify the rule, but the proposal did not clear the Senate.

Also, on March 28, 2017, President Donald Trump issued an Executive Order directing Department of Interior (DOI) Secretary Ryan Zinke to suspend, revise, or rescind any DOI action that unduly burdens the development of domestic energy resources beyond the degree necessary to protect the public interest or otherwise comply with the law.

Administrative Procedures Act

In its subsequent postponement notice, the BLM invoked Section 705 of the Administrative Procedures Act (APA), which states that, when an agency finds that justice so requires, it may postpone the “effective date” of action taken by it, pending judicial review. The BLM concluded that “justice requires [the BLM] to postpone the future compliance dates for [certain] sections of the Rule” in light of “the substantial cost that complying with these requirements poses to operators . . . and the uncertain future these requirements face in light of the pending litigation and administrative review of the Rule.”

Effective date and compliance date

LaPorte made the following findings regarding the plaintiffs’ arguments and BLM’s defense.

  • The January 17, 2017, effective date of the rule has passed, but the compliance date for the major requirements has not. While the APA allows an agency to postpone an effective date, it says nothing about a compliance date. The BLM contended that it should be afforded deference (under the Chevron deference), thereby allowing it to interpret APA’s compliance date as the effective date. But LaPorte agreed with the plaintiffs’ argument that the Chevron deference is warranted only when an agency is exercising authority delegated to it by Congress to administer a particular statute. “Congress has not delegated the [BLM] authority to administer the APA,” said LaPorte.
  • The BLM argued that the rule specifically referenced compliance dates that were meant to phase in over time, which thereby established at least two different effective dates. The BLM therefore concluded that it should be able to use Section 705 after the official effective date but before the January 17, 2018, compliance date comes due because the compliance date is functionally equivalent to a second effective date. LaPorte did not agree. “Not only is this argument contrary to the plain language of the statute, but it collapses the clear statutory distinction between the two periods before and after a rule takes effect,” LaPorte stated.
  • Plaintiffs also argue that the BLM violated APA’s notice-and-comment requirements by effectively repealing the rule without obtaining comment from the public. The BLM responded that Section 705 does not refer to notice-and-comment requirements. LaPorte disagreed. “The APA specifically provides that the repeal of a rule is rulemaking subject to rulemaking procedures,” LaPorte wrote.
  • Plaintiffs said BLM’s decision was arbitrary and capricious because it only took into account the costs to the O&G industry of complying with the rule and completely ignored the benefits that would result from compliance. LaPorte agreed. “The Postponement Notice relied on precisely the same Regulatory Impact Analysis that [the BLM] had previously relied upon to support adoption of the Rule and justify its costs, which showed that the benefits substantially outweighed the costs,” LaPorte wrote. “Thus, it supported the Postponement Notice by only considering one side of the equation. It is a fundamental principle of the APA that an agency’s decision is arbitrary when it ‘entirely failed to consider an important aspect of the problem.’ Although an agency is entitled to change its policy positions, it has an obligation to adequately explain the reason for the change and its rejection of its earlier factual findings.”
  • The BLM contended that the cost of the rule was not justified because circumstances had changed between the time the rule was developed and finalized and the time it was postponed in June 2017. Plaintiffs asserted that the only thing that actually changed before issuance of the postponement notice was “the agency’s position with respect to whether those costs are justified.” Again, LaPorte agreed with the plaintiffs, stating that BLM’s failure to consider the benefits of the rule rendered it arbitrary and capricious.
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