The Nickel Report

Key Questions Answered on the Bay Area “Shelter-in-Place” and California-Wide “Stay-at-Home” Orders for Energy Industry and Manufacturing Facilities

On the morning of March 16, 2020, we first caught wind of impending Shelter-in-Place orders in Northern California, which began taking effect in several counties, encompassing much of the San Francisco Bay Area, on Tuesday.  Next, California Governor Gavin Newsom issued his March 19, 2020 “stay-at-home” order to try to slow COVID-19’s spread throughout the state.

Like the imposition of smallpox vaccine requirements a century ago, Jacobson v. Massachusetts, 197 U.S. 11 (1905), these orders are being imposed to promote the public good, but they will also impose hardship on businesses and citizens alike.  Newsom’s sweeping order directs nearly 40 million California residents to “stay home or at their place of residence -- except as needed to maintain continuity of operations of the federal critical infrastructure sectors.”  The seven Bay Area “shelter in place orders” affect about 7 million residents.  Like the Newsom order, the Bay Area orders require residents to “shelter at their place of residence” (although, unlike the statewide order, the county orders set an end date of April 7, 2020, subject to being extended, superseded, or amended) exempting individuals performing “Essential Activities,” which include “work necessary to the operations and maintenance of ‘Essential Infrastructure’” and the operation of “Essential Businesses.”

In light of these orders, companies in the energy and manufacturing sectors face difficult decisions, including whether their activities are subject to the orders and to what extent, how to comply where operations are able (or required) to be continued, and how compliance with pre-existing regulatory requirements may be achieved if personnel or other resources are limited.

Below are pointers for companies that are evaluating what these various orders mean during these uncertain times.  Although California is among the first to issue such orders, we can expect to see more issued across the country in the coming days and weeks.

Question 1:  Some of the orders provide for “essential businesses,” “essential infrastructure,” and “critical infrastructure”  to remain operational, but how does a company tell if it falls in these categories?

The Newsom Order’s “Critical Infrastructure” Language:  The statewide order applies to the federal critical infrastructure sectors outlined by the federal Cyber Infrastructure Security Administration (CIFA) in its guidelines for “Identifying Critical Infrastructure During COVID-19,” stating that Californians working in these 16 “critical infrastructure” sectors “may continue their work because of the importance of these sectors to Californians’ health and well-being.”  The 16 critical infrastructures identified by CIFA include among others the chemical, critical manufacturing, energy, transportation systems, and waste & wastewater systems sectors.  The energy infrastructure sector explicitly includes “electricity, oil, and natural gas.”  In general, oil and gas companies, including refining, distribution (marine/truck/rail terminals), should be considered part of critical infrastructure under the Newsom Order.

County/City Orders’ “Essential Infrastructure” and “Essential Businesses” Language: The Bay Area “shelter in place” orders define “Essential Infrastructure” to include at least “public works construction, construction of housing (in particular … for [the homeless]), airport operations, water, sewer, gas, electrical, oil refining, roads and highways, public transportation, solid waste collection and removal, internet, and telecommunications systems” provided that they carry out those services in compliance with Social Distancing Requirements.  “Essential Businesses” include “Essential Infrastructure,” plus “[b]usinesses that supply other Essential Businesses with the support or supplies necessary to operate.”  Under this definition, the full oil and gas supply chain should generally be considered essential infrastructure or at least essential businesses.  For example, a refinery cannot provide gasoline or jet fuel for its intended use unless the distribution chain is operating.

Question 2:  Assuming your business qualifies for continued operation, which workers are able to come to work for their functions?

There is ambiguity in the scope of the exemptions, given that arguably not all workers at a business are part of the “critical infrastructure” function.  The Newsom Order states that it is intended to be “consistent with” CIFA’s Memorandum on Identification of Essential Critical Infrastructure Workers During COVID-19 Response (March 19, 2020).  Although not a regulatory standard or directive, the CIFA Memorandum sheds light on and provides support for companies to assert in the future that their actions were consistent with government advice during the COVID-19 crisis.  Specifically, the CIFA Memorandum lists sectors and essential critical infrastructure workers for assisting states and local communities in “prioritizing activities related to continuity of operations and incident response.”^[1]

For the energy sector, the list includes workers needed to operate and maintain:

• crude oil storage facilities,
• petroleum product storage facilities,
• petroleum refineries,
• pipelines,
• terminals, and
• onshore and offshore operations for maintenance and emergency response.

For the chemical sector, the list includes workers supporting:

• the chemical and industrial gas supply chains, including workers at chemical manufacturing plant
• the safe transportation of chemicals and
• the operation and maintenance of facilities (particularly those with high risk chemicals and/or sites that cannot be shut down) whose work cannot be done remotely and requires the presence of highly trained personnel to ensure safe operations, including plant contract workers who provide inspections.

For the manufacturing sector, critical workers include those necessary for the manufacturing of materials and products needed for:

• medical supply chains,
• transportation,
• energy,
• communications,
• food and agriculture,
• chemical manufacturing,
• nuclear facilities,
• operation of dams, water and wastewater treatment,
• emergency services, and
• defense industrial base.

Question 3:  How should companies address permit and regulatory requirements, including emission and discharge limits and monitoring and reporting requirements? 

The short answer is that permit requirements and regulatory limits continue to apply unless they are removed through the appropriate regulatory process or an emergency or malfunction defense is available under the regulatory structure.  This means that if violations occur during the COVID-19 crisis, either because of it directly or because reporting deadlines are missed due to the disruption in daily work schedules for employees, they must be reported as required by your permit terms or applicable regulations.

Recognizing the disruption companies in critical industries face, we have seen regulatory agencies communicating with the regulated community to indicate some flexibility, which will likely occur under the rubric of enforcement discretion.  “Enforcement discretion” means that although a regulator could initiate enforcement, based on the facts in a given situation, it exercises its discretion not to do so.  For example, one regulator communicated that although operations at the agency are “business as usual,” face-to-face meetings are suspended and advised “facilities to do what is necessary to protect business operations and the health and safety of staff during these times” and further acknowledged that if “doing so results in instances of non-compliance,” reports should be made to the agency (as would normally occur) but should reference and explain these circumstances, including specific reference to any relevant government orders and that where compliance depends on contractors that may be beyond the facility’s control, the facility should keep documentation to reflect it.

California’s State Water Resources Control Board recently issued a directive on compliance with their regulatory requirements, including permit requirements, explaining that “timely compliance by the regulated community with all Water Board orders and other requirements . . . is generally considered to be an essential function during the COVID-19 response.”  Even though companies are expected to comply with these requirements as a general matter, the Water Board specifically states that if an order or requirement “cannot be timely met because it would be inconsistent with current governmental directives or guidelines related to COVID-19, the entity responsible for compliance with the Water Board order or requirement must notify the applicable Water Board immediately [by email with details explaining the requirement, the nature of the inconsistency, why timely compliance is not being achieved, and any alternative actions being taken].”  The Water Board commits to responding within 48 hours to such submittals.  For more information on the Water Board order, click here.

Note that several California environmental regulations also allow companies to obtain emergency and longer term variances when conditions outside the control of a facility operator lead to noncompliance.  These are typically invoked for process upsets, unanticipated equipment breakdowns, and the like.  In some situations, it is possible that the variance provisions could be utilized, and this will depend on the facts of the situation at hand.  Having handled variances over the years with local air districts, we recommend companies follow the procedural requirements to obtain these variances to ensure that if pursued, they obtain the relief sought to allow for continued operation.

These California-based actions are being mirrored in other parts of the country.  For example, the Texas Commission on Environmental Quality (TCEQ) has issued reporting guidance, which states that TCEQ is delaying emission inventory report deadlines from March 31 to April 30, 2020 and will consider certain annual compliance reports due March 31, 2020 as being timely filed if received by April 30, 2020.  Similarly, Louisiana’s Department of Environmental Quality (LDEQ) has issued guidance delaying reporting deadlines by 30 days but only insofar as a facility does not have appropriate personnel available due to COVID-19 and provided that documentation is maintained and made available to LDEQ upon request.  Importantly, the LDEQ order explicitly states that relief is not being provided for monitoring required by air permits issued under the Clean Air Act’s acid rain or Title V operating permit programs or for the PSD program.

It is also important to recognize that many of the programs administered by the state – air, water, waste – are being executed pursuant to a delegation or approval from U.S. EPA.  In such cases, the federal government often retains enforcement authority.  Last week, the American Petroleum Institute sent a letter to the President asking him to direct agencies to provide for appropriate relief in this situation, so further federal guidance may be on the way.  See, e.g., https://www.reuters.com/article/us-health-coronavirus-oil-api/u-s-oil-industry-asks-trump-for-regulatory-relief-during-coronavirus-outbreak-idUSKBN2172W0.  In addition to this letter, we can anticipate calls from some sectors for balancing the health crisis with the importance of maintaining the core activities of the U.S. economy.  See, e.g., It’s Dangerous to Be Ruled by Fear: The reaction to the pandemic should not be allowed to become as dangerous as the disease itself, Brett Stephens, New York Times (Mar. 20, 2020). These decisions are of course vested with policymakers and are beyond the scope of this post, except to note that they signal the potential for shifting sands as this crisis evolves and better information on the virus is obtained by health officials to inform decisionmaking by governmental bodies.

All of the above counsels in favor of making all reasonable efforts to comply consistent with the health and safety of employees and the public and in the event that compliance is not going to be achieved, to communicate and document the reasons and to meet any immediate reporting requirements associated with deviations from permit or regulatory requirements.  These steps will be advantageous to the company when later seeking enforcement discretion or in defending any enforcement action that may occur.

Question 4:  Will there be regulatory inspections and do we have to let the agencies in to conduct them if we have limited staff on site when they arrive?

It is likely that agencies view their inspection authority as an “Essential Governmental Function,” and the Bay Area orders vest discretion to make this determination with the agency at issue.  Thus, an agency could decide that it needs to inspect your facility and could show up on site.  That being said, the orders do require the agencies to conduct their “essential governmental functions” “in compliance with Social Distancing Requirements.”

In practice, we are seeing agencies deferring “routine” inspections that were already scheduled for the days right after the orders took effect and indicating that they intend to be reasonable in their actions if they do find a need to come on site.  For example, this could take the form of giving advance notice so that the inspections can be focused on critical issues and done in compliance with social distancing.  If an inspector arrives and insists on entering the facility (and otherwise presents proper credentials), a company likely needs to allow the inspector to enter, but should feel free to (1) call counsel and (2) ask for time to have the appropriate personnel accompany (safely distanced) the inspector at the facility, as would occur for any other inspection.  Companies do not normally allow inspectors to walk through facilities unaccompanied for safety reasons, and this crisis should not alter that.

Question 5:  Given the current level of uncertainty, are there any guideposts for companies to consider?

Yes.  In making decisions about your operations and bringing people into work to fulfill vital functions, it is important to consider the overarching goals of the response, in light of what can seem to be competing objectives.  The overarching objective is protecting the public health and safety.  The goal is to  “maintain the services and functions Americans depend on daily and need to be able to operate resiliently during the COVID-19 pandemic response.”  https://www.cisa.gov/publication/guidance-essential-critical-infrastructure-workforce.  At the same time, many workers in the energy and manufacturing sectors provide an essential compliance function, particularly with respect to environmental laws.  Thus, limiting community spread of COVID-19 is undoubtedly a top priority at this time, but doing so must also take into account other important environmental, health, and safety regulations that apply under the existing regulatory structure.  The key here, as discussed below, is documentation and communication regarding decisions being made, and not assuming that any environmental regulatory requirements will be automatically excepted during this period.

Question 6:  We have an important permit application pending for our business.  Is it going to be delayed now and what can we do to move it forward?

Several state agencies have posted on their websites that although their building may be closed to the public, they are still accepting and processing permit applications.  Again, communication is key here.  Because many agency personnel are working remotely (as are company personnel), reaching out by email to is the best way to check on the status of a pending application.  Although approvals may be delayed, the remote working environment could result in permit engineers being able to focus on processing complex applications that may be hard to address when in the office with mandatory meetings and other obligations.  More likely, however, permit application processing is likely to be delayed, especially in many agencies that have an existing backlog of permit applications.  A separate challenge is the inability to hold public hearings, where required to process a particular application.

Question 7:  Where can we learn more?

Our lawyers are preparing a series of blog posts to transmit useful information in this time of uncertainty.  Stay tuned to the blog for additional posts and visit our COVID-19 Resource Center for information on other areas of the law impacted by COVID-19.

*Clare Ellis, who works extensively on oil and gas environmental issues in our San Francisco office contributed significantly to the research and analysis for this post.

^[1] This blog post does not address employment issues.  Please see Hunton’s employment blog for further information on employment issues raised by COVID-19.