Energy Law
Chapter 1 – Energy Policy
A. The Importance of Energy
1. Top 10 Issues
(1) Land Availability
(2) Renewable Energy
(3) Federalism
(4) Regulatory Transitions
(5) Network Regulation
(6) International Climate Change
(7) Market Volatility
(8) New Technologies and the Mix of Energy Uses
(9) Merger Policy and Antitrust
(10)Emerging Environmental Issues
2. Scope of the Book: Energy Law is the allocation of rights and duties concerning the exploitation of all energy resources between individuals, between individuals and governments, between governments and between states.
a. Environmental Law
b. Natural Resources
c. Regulated Industries
3. Energy Resources and Policy
a. Energy Resources
b. U.S. Energy Policy and Legislation
c. Law and Policy Themes
B. Government Regulation
1. Multiplicity of Regulatory Agencies
a. Federal Agencies
b. State Agencies
c. Local Agencies
2. Federalism Issues
a. Impacts beyond jurisdictional boundaries
b. The Commerce Clause
3. Competition
a. The limits of regulation
b. Competitive restructuring
C. The Global Environment
D. Top 5 List of Worst Mistakes
(1) Using price predictions to make policy
(2) Smyth v. Ames
(3) Different environmental standards for incumbents
(4) Reluctance to endorse the common carrier concept in natural gas and electricity transmission
(5) Phillips Petroleum Co. v. Wisconsin
Chapter 2 – Energy in Nature
A. Meanings of Energy
B. Solar Energy: some jurisdictions may provide a right to an unobstructed use of sunlight. At common law there may be a legal remedy available to use the sun to provide energy to the house. Private Nuisance – balance person’s right to exclusive enjoyment of land and utility of other people from activity.
C. Externalities, The Coase Theorem, and Public Goods
D. Skip
E. Energy and Ecology
– Ecology is the study of the interrelationship among living things and their environment.
– Flow of energy in living things in how nature works
– Branch of biological sciences
1. Energy as the Source of Life
a. The Food Web: Plant life is always the first link in the chain. And the number of individual plants or animals decrease rapidly as one goes up the chain.
(1) Plants are producers
(2) Animals are either first or second order “consumers”
(3) Plants and animals consumed by “Decomposers”
(4) Niche refers to the place of each species in the community
b. Ecosystems: organisms live in closely integrated units. All relations among organisms can be described in the exchange of energy and chemical substances.
(1) Entropy: heat escaping into the atmosphere
(2) Productivity refers to the accumulated biomass at any trophic level and the caloric energy required to support that amount of organic matter.
(a) Article quantified the exchange of energy. Plant life captures 1/10 of 1% of sunlight
(b)Producers – Second-order consumers – First-order consumers
(3) Two main patterns in energy flow
(a) Organisms become progressively more efficient in their extraction of energy from lower levels as one moves up the food chain
(b)Respiration takes an even bigger chunk of the energy as one travels up the chain.
2. Static and Dynamic Ecology
a. Patch Dynamics: The characteristics of natural areas change as the plants and animals adjust to changing environmental conditions, even where humans impose no direct impact on the area.
b. A. Dan Tarlock: The Nonequilibrium Paradigm in Ecology and the Partial Unraveling of Environmental Law
(2) Nonequilibrium Ecology: rejects the vision of a balance of nature.
(3) Ecosystems can be managed, but not restored or preserved
(4) Conservation biology is a regulatory science that seeks to develop scientific standards that can be applied to regulatory criteria and then to develop the management strategies to meet those standards.
(5) Adaptive Management is premised on the assumption that management strategies should change in response to new scientific information
(6) Most Federal Legislation is based on the static nature model.
3. The Law of Nature
a. Florida Power Corp v. Florida Dept. of Environmental Regulation: Excellent source into how lawyers work in environmental agencies. In Oklahoma: administrative law judges report the facts as they think they found them with their recommendation. Hearing officers are not bound by these finding of facts, they can make their own determinations of the facts.
b. Paige v. Fairfield: Natural resources must be viewed beyond economic scope. Ejusden Generis: general terms terms will be construed to embrace things of the same general kind or character as those specifically enumerated. Mitigation always helps
c. Joseph Sax: Property Rights and the Economy of Nature: Understanding Lucas v. South Carolina Coastal Council
(2) Transformative economy: property as a discrete entity that can be made one’s own by working it and transforming it into a human artifact.
(3) Economy of nature: land consists of systems defined by their function, not by man-made boundaries.
E. Sustainable Development (Develop natural resources, but do so in a way that doesn’t permanently destroy them.
1. Intergenerational Equity
a. Sustainable Development: development that meets the needs of the present without compromising the ability of future generations to meet their own needs. (Use does not exceed Production; e.g. Water you take out does not exceed the aquifers recharge ability)
b. Conservation: foresight and restraint in the exploitation of the physical sources of wealth as necessary for the perpetuity of civilization and the welfare of present and future generations.
c. A Sustainable economy does not destroy plant and animal species faster than new ones evolve.
2. Industrial Ecology (Efficient use of energy and other resources in modern industrial processes)
a. Clinton Andrews: Putting Industrial Ecology into Place: Evolving Roles for Planners
(2) Industrial Ecology: waste from one industrial process can serve as the raw materials for another, thereby reducing the impact of industry on the environment.
(3) Industrial ecology takes a longer-term perspective than most environmental management approaches and seeks to understand the full picture rather than only the snippets defined by political expedience
3. Renewable Energy Resources (resources that can be utilized without any discernable reduction in their future availability.
a. Cool Renewables: Can produce energy without being burned
– Solar Energy
– Windpower
– Geothermal Energy
– Deepwater Energy (tidal power plants; convection plants)
– Ocean resources (fish meal and guano)
– Hydropower (largest source)
– Hydrogen-powered fuel cells
b. Hot Renewables: require combustion
– Biomass (wood)
– Waste vegetation from agricultural crops
– Cogeneration (processes that take advantage of heat needed for other purposes to produce electric energy (wood chips)
– Municipal solid waste
c. Most renewable resources need to be backed up by facilities that use fossil fuel resources (Dispatchable Power)
Chapter 6 – Oil
A. Some Basics
1. The Long Term Price of Oil: Fluctuations in the price of oil have driven much of the legislation enacted by both state and federal governments in the U.S.
2. Terminology
a. Petroleum consists of a mixture of liquid (crude oil) and natural gas.
b. The law mostly treats petroleum as a single commodity
c. Pools are sedimentary rocks, which look and feel like concrete
d. Reservoirs have oil and gas stored in the tiny pore spaces of sedimentary rocks
e. Porosity – how many pore spaces are there in the rock in sample. How much of the rock is occupied by rock particles and how much is occupied by pore spaces between the particles. A good measure is 10-20% porosity.
f. Permeability – relative ability of the oil that is trapped in pore spaces to move out of them into other pore spaces and keep moving out to a well bore. Quantification of the ability of the oil to move through the oil.
g. First, must have oil in the rock.
3. The Oil and Gas Lease
a. In the US private landowners can own oil and gas and other minerals in the ground as real property.
b. All other countries, the state owns the mineral resources
c. US – contract, property, and tort law plays a part in oil and gas law.
d. The exploration and production of oil and gas are typically done pursuant to an “oil and gas lease” between the landowner as lessor and an oil company as lessee.
e. Fundamental tension between the lessor and lessee. The oil company bears all the expense for its well work. The landowner keeps a cost-free interest (i.e. royalty).
f. Initially, the oil company wants an option to drill a well. The landowner expects that well to be there very soon. Normally, lease provides for a primary term – gives oil company an option not an obligation to develop a well. Can let lease expire and never drill there. Oil company wants an option to decide whether to attempt to drill a well. If the oil company does find oil, they want to keep that lease going for a long time.
g. The lessee wants the right, but no the duty, to develop a leasehold for a certain time. If promising deposits are found, the lessee wants the right to hold the lease for as long as profitable production continues.
h. The lessor transfers the exclusive right to develop the minerals to the lessee in return for a cost-free share of production, called a royalty.
i. In addition, the lessor will bargain with the lessee for a bonus – a one-time cash payment to the lessor for signing the lease.
j. A typical oil and gas lease includes 3 basic clauses
(1) A granting clause that transfers the mineral estate under the described land to the lessee from the lessor.
(2) The habendum clause which reads “this lease shall be for a primary term of ___ years and as long thereafter as oil or gas is produced from said land.”
(3) The royalty clause which grants the lessor to a 1/8 royalty on all the oil and gas produced from the lease.
4. The Oil Business
– The largest companies in the industry are often vertically integrated and operate in all 5 stages of the value chain: (1) Exploration; (2) Production: (3) Refining; (4) Distribution; (5) Marketing
a. Exploration: Geologists look for underground formations of porous, permeable rock which have trapped oil and gas.
b. Production: 3 types of displacement mechanisms:
(1) Dissolved gas drive: oil in the reservoir contains gas in solution. This dissolved gas expands as a result of the pressure gradient around the well bore and comes out of solution. Only 10-30% of the oil can be recovered
(2) Gas-cap drive: the upper part of the reservoir is filled with gas, and oil with dissolved gas lies beneath the gas cap. Recycle the gas back down. Recovery rate at 25-50%
(3) Water drive: the oil lies atop a layer of compressed water which expands upward slightly when the pressure reduction from the well bore spreads outward. Water can “scrub” the reservoir rock more thoroughly as it migrates though the pore spaces. Recovery rate of 75-80%
(4) Two factors must be controlled to produce a reservoir efficiently:
(b)The rate of production
(c) The location of wells
(d)Thus, there is a Maximum Efficient Rate of Production
c. Refining: separates compounds into desired products such as gasoline, jet fuel, kerosene, diesel, fuel, heating oil, and asphalt. Separating certain fractions from what is initially emobied in the crude oil. Different boiling points to remove different types of petroleum. When it comes to the natural gas in the well, the refining turns into removing impurities (water, sulphur, etc.). Also some valuable elements are extracted (natural gas liquids – propane, butane, etc.) from oil.
d. Oil is stored at the surface of well sites in tanks.
e. Transportation and Distribution: varies with the relative weight of petroleum. Can’t collect natural gas at the surface. Gas can only be kept in the ground or send it through a gas pipeline to a purchaser.
B. The Early History of Petroleum
1. Oil Before Petroleum
a. Of Whales and Wax
b. Kerosene
c.
ight to provide the service (monopoly power)
3. The exclusive right to provide the service is contained to a fixed geographic territory
4. As time passes, and newcomers demand entry into the market, the breadth of the initial entrance rights may be narrowly construed.
A. Historical Origins
1. The English Common Law
(a) Humphry W. Woolrych, A Treatise on the Law of Waters and Sewers 108-09
(b)Tripp v. Frank: The owners of ferries are bound at their peril to supply them for the public use; and are therefore fairly entitled to preserve the exclusive advantage arising from them.
(1) The feudal system allowed businesses to run on a monopoly basis
(2) The right to serve became an important part of early law
(c) Oklahoma Statutes: Perpetuities and monopolies shall never be allowed in the State of Oklahoma. No municipal corporation shall ever grant, elect, or choose a franchise without a majority of the vote by the populate. No exclusive franchise will ever be granted. Any franchise shall not exist more than 25 years.
(d)Oklahoma Municipal League: Non-exclusive revocable license. If cities never use the power to invoke a license they have in fact granted a perpetuity.
2. The Classic American Cases
(a) Charles River Bridge: whether the grant of a monopoly franchise guaranteed the monopolist protection against later entrants. NO
(1) The act of the legislature by which the bridge company was incorporated is the grant of certain franchises, by the public, to a private corporation, and in a matter where the public interest is concerned.
(2) Rule of Construction – that any ambiguity in the terms of the contract, must operate against the adventurers, and in favor of the public, and the plaintiffs can claim nothing that is not clearly given them by the act.
(3) A monopoly is an exclusive right, granted to a few, of something which was before of common right.
(b)Stanley Kutler, Privilege and Creative Destruction: The Charles River Bridge Case
(1) Symbol for the rapid technological developments competing for public acceptance against existing privileged property forms.
(2) Principles involved the state’s role and power of encouraging or implementing innovations for the advantage of the community.
(3) Logic of utility: the utility agrees to serve customers and, in return, the state provides the utility protection against new entrants and guarantees recovery of its costs through regulated rates.
(c) Munn v. Illinois: legislature setting a price ceiling on Chicago grain operators
(1) When private property is devoted to a public use, it is subject to public regulation
(2) They stand in the very gateway of commerce and take toll from all who pass
(3) Under this power the gov. regulates the conduct of its citizens one towards another, and the manner in which each shall use his own property, when such regulation becomes necessary for the public good.
(4) Legal ruling which enabled state governments to regulate the boundary between private interest and public good in economic matters
(5) If property is “clothed with the public interest” must submit to be controlled by the public for the common good
(6) The control of prices by many types of businesses is nothing new.
(d)Summary: The Common Law Rules for Public Utilities:
(1) Service to public: It operates a business that is thought to provide a service to the public
(2) Monopoly Power: It has the legal or de facto authority to prevent other businesses from competing with it.
(3) Fixed Territory: A geographical boundary is defined, within which the business is required to provide service.
(4) Duty to Serve: The business has a duty to serve all members of the public, but only for the specific service for which it has a monopoly
(5) Technological Limits: As technology changes, the nature of the businesses’ monopoly may be narrowly construed
(6) Reasonable Prices: Rates charged by public utilities, which the common law had required be reasonable, could be regulated by the legislative branch.
(e) The Wrong Side of the Tracks 142-40
(1) New utility networks possessed many of the characteristics of common carriers: (1) they provided what were more and more commonly perceived as essential services; (2) they were usually natural or legal monopolies, or both; they exercised the power of eminent domain; and (3) they operated under a franchise from the state or municipality
(2) Four different rationales for imposing the obligation to furnish adequate supply or service without discrimination:
(i) The imposition of a common right to access drawn from the doctrine of services as a public calling, essential to individual survival within the community
(ii) The duty to serve all equally, inferred from and recognized as an essential part of natural monopoly power
(iii) The duty to serve all parties alike, as a consequence of the grant of the privileged power of eminent domain; and
(iv) The duty to serve all equally, flowing from consent, express
