.

Client Alert

Updated Alert: Governor Brown Signs Amendments to the California Consumer Privacy Act of 2018

October 4, 2018

by Joseph Lynyak

Download as a PDF

Share this page

1. Introduction

On June 28, 2018, the California Legislature unanimously passed, and the Governor immediately signed, a sweeping expansion of data privacy protections for residents of California.1 Assembly Bill No. 375, entitled the “California Consumer Privacy Act of 2018” (the “CCPA”), goes far beyond current U.S. privacy protections, and in many respects emulates elements contained in the European Union’s General Data Protection Regulation (the “GDPR”), including the ability of a consumer to require that personal information be deleted by a covered business.2 

Because of an unavoidable deadline to adopt the CCPA, discussed below, numerous drafting errors and patent ambiguities were contained in the legislation as finally adopted. In anticipation of this issue, a clean-up bill to address many of these problems was adopted on the last day of the California legislative session for 2018. That clean-up bill—Senate Bill 1121—was signed by Governor Brown on September 23, 2018.3 

This updated alert incorporates many of the significant changes made to the original version of the CCPA, and also contains a separate discussion of many of the changes made by S.B. 1121, as well as compliance concerns businesses should consider as the effective date for the CCPA approaches. 

2. Discussion

The numerous statutory provisions of the CCPA accomplish several stated goals, including: (a) the establishment of the rights of consumers in regard to their data; (b) providing a process whereby consumers can determine whether—and to what extent—a covered business is holding, selling and transferring their personal information; (c) requiring covered businesses to implement specific procedures to maintain consumer data and respond to consumer inquiries; (d) exempting (or partially exempting) certain business data collection and transfer practices  from the coverage of the CCPA; (e) imposing liability for non-compliance by means of enforcement actions authorized to be brought by the California Attorney General and private parties; and (f) authorizing the California Attorney General to issue interpretations and regulations to implement the CCPA.4

A. Background

The genesis of the CCPA was the explosion of data breach incidents in the past few years, as well as a wave of continuing revelations that many social media sites (considered by many to be now functioning as utilities) were monetizing consumer information using methodologies not well understood by consumers despite privacy disclosures, or allegedly being gathered in violation of contractual agreements between parties.

In response to these concerns, in late 2017, privacy advocates commenced qualifying a ballot initiative to adopt consumer privacy protections that business interests believed would have created burdensome privacy requirements, while also making subsequent amendment of any privacy rules adopted via the ballot initiative process extremely difficult to achieve.5 

Because a legislative alternative had to be adopted before the above-referenced privacy ballot initiative was certified, opponents of the ballot initiative hurriedly negotiated a legislative bill (i.e., A.B. 375) that ultimately was agreed to by privacy stakeholders. After the CCPA was adopted by the California Legislature and signed by the Governor, the ballot initiative was withdrawn.

As noted above, because of the deadline to avoid placing a privacy initiative on the ballot for the November 2018 elections, S.B. 1121 was employed as a legislative vehicle to correct many of the drafting flaws in A.B. 375. Further, several industry groups undertook an intensive lobbying effort to: (a) clarify the scope of certain exemptions from coverage; (b) extend the date from which the California Attorney General would be required to issue implementing regulations; and (c) delay the date from which the Attorney General could commence enforcement actions.

The result of these two legislative enactments adds a new Title 1.18.5 to the California Civil Code, whose coverage provisions include not only internet-based companies such as social media sites but practically all businesses that operate in today’s electronic environment using websites and other electronic means to capture consumer data obtained from California consumers.6 Since its adoption in late July, U.S. and international businesses located outside of California—but regularly interacting with California residents—have begun to realize that the CCPA may likely impact their operations with California residents despite not maintaining a physical presence in California.

B. Consumer’s Privacy Rights Under the CCPA

The CCPA establishes several privacy rights for California consumers (i.e., California residents):

  • The right to know what personal information is being collected;
  • The right to know whether personal information is sold or disclosed and to whom;
  • The right to say “no” to the sale of personal information; 
  • The right to access personal information; and 
  • The right to equal service and price, even if any privacy rights created by the CCPA are exercised.7 

These privacy rights are implemented by the provisions of the CCPA, and are summarized as follows:

The Right to Know What Personal Information Is Being Collected—Section 1798.100 of the CCPA allows a “consumer” to require a covered “business” to disclose to the consumer the categories and specific pieces of “personal information” that the business collects, maintains, sells or transfers.  

The Right to Know Whether Personal Information Is Being Sold or Disclosed and to Whom—Section 1798.110 of the CCPA requires that, when responding to a “verifiable consumer request,”8 a covered business provide the following: (i) the categories of personal information it has collected; (ii) the categories of sources from which the personal information is collected; (iii) the business or commercial purpose for collecting or selling personal information; (iv) the categories of third parties with whom the business shares personal information; and (v) specific items of personal information the covered business has collected about that consumer.9 

The Right to Prohibit the Sale of Personal Information and to Delete Information—Sections 1798.105 and 1798.120 of the CCPA create rights similar in kind to the EU’s GDPR to direct a covered business to cease selling personal information (i.e., the ability to “opt-out”) and to delete personal information in the possession of the business and its service providers.10 (The specific mandate to order a covered business holding personal information to delete the personal information is a radical departure from current U.S. privacy norms, and has been described in the EU as the “right to be forgotten.”)11  Certain exceptions to this right are included in the CCPA.

The Right to Non-Discrimination in Access, Equal Service and Price—Section 1798.125 of the CCPA contains antidiscrimination provisions that prevent a covered business from discriminating against a consumer who exercises his/her privacy rights under the CCPA. These provisions prohibit a covered business from: (a) refusing to conduct business with the consumer; (b) charging different prices or imposing penalties; or (c) providing a different level of products or services. However, a covered business may offer a different price, rate, level of service or quality of product of service if the differences are “related to the value provided to the consumer by the consumer’s data.”12 

C. Coverage and Definitions

There are three principal defined terms that are used to establish possible coverage under the CCPA (subject to exceptions and clarifications contained throughout the CCPA): (a) the term “consumer”; (b) the term “business”; and (c) the term “personal information.” For purposes of an inquiry by a business whether the CCPA might apply, the following analysis must be undertaken: If a covered business collects personal information of a consumer, the business should determine whether it must comply with the CCPA or whether an exception or partial exception applies. 

A consumer is a natural person who is a California resident however the individual is identified, including a unique identifier.13 It includes household information pertaining to the consumer, and hence can relate to areas such as utility bills for a family.14  

A business is a sole proprietorship or corporate entity of any type operating for a profit for its owners (including affiliated entities based upon a 50% ownership or control factor)15 that: (i) collects consumers’ personal information, whether alone or jointly with others; (ii) does business in the State of California,16 and (iii) satisfies one or more of the following thresholds:

  • The business has annual gross revenues in excess of $25,000,000;17
  • Alone or in combination with others, the business annually buys, receives for the business’ commercial purposes, sells, or shares for commercial purposes, alone or in combination, the personal information of 50,000 or more consumers, households, or devices;18 or 
  • The business derives 50 percent or more of its annual revenues from selling consumers’ personal information.19

Finally, the concept of personal information is defined in an extraordinarily broad manner, and means “information that identifies, relates to, describes, is capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer or household.”20 For purposes of clarity, the CCPA includes a list of non-inclusive examples of what constitutes personal information.21 

D. Compliance Procedures Required by Covered Businesses

To implement the new consumer privacy rights, the CCPA imposes several complex compliance and implementation requirements on covered businesses, and include:

Modification of Disclosures and Websites—Sections 1798.120(b) and 1798.135(a) of the CCPA require that informational disclosures be provided to consumers, including the functionality of websites to allow for the exercise of a consumer’s privacy rights. Among other things, businesses will need to revise and regularly update online privacy policies and/or California-specific consumers’ privacy rights to include the CCPA’s consumer rights.22 

Delivery of Information Requested by a Consumer—Within 45 days of the receipt of a verifiable consumer request from a consumer, a covered  business will be required to disclose and deliver the requested information, free of charge to the consumer.23 Businesses will be obliged to deliver the requested personal information twice a year (and impliedly may charge a fee if a request is made more than twice within that time frame).24 

Training and Creation of a Response Team—In order to accomplish the foregoing, a covered business will have to train staff to receive verifiable consumer  requests, including accessing compliance systems, retrieving information and complying with any directives made by a consumer. 

Systems Design—While beyond the scope of this Alert, an implementation program might include the following components, many of which are essential elements of robust information governance policies and procedures: (a) mapping current data collection processes, data repositories and transfer protocols; (b) updating privacy policies; (c) developing and adopting policies, procedures and technologies to comply with the CCPA’s covered business obligations; (d) testing and verification;  (e) training and monitoring; and (f) modifying contractual arrangements with affiliates, vendors and third parties.

E.    Effective Date of the CCPA and Delayed Enforcement

As a result of a strong objection from the California Attorney General to a provision in A.B. 375 that would have required the Attorney General to issue implementing and interpretive regulations by January 1, 2020—which the Attorney deemed to be practically impossible—a somewhat complicated set of compliance and effective dates were adopted by S.B. 1121. 

Although the technical effective date of the CCPA remains January 1, 2020, because the Attorney General was given until July 1, 2020, to adopt regulations implementing the CCPA, no enforcement actions may be taken by the Attorney General until the earlier of six months after final regulations are adopted or July 1, 2020.25  

F.  Exemptions for Certain Business Data Collection and Data Transfer Activities

The CCPA contains numerous exemptions and partial exemptions of data use and functionality that will require close scrutiny by covered businesses. Each exemption is defined by the CCPA (and in many cases, was micro-managed in the legislative drafting process), and may assist (or hinder) a business in retaining the data or limiting its use on a go-forward basis if a consumer directs the business to cease using the data or to delete the same. Several of these categories include: (i) data used for purposes of a transaction with a consumer; (ii) sanitized data in a form not useable to identify a consumer; (iii) data used for public or peer-reviewed, historical or statistical research; (iv) publicly available personal information; (v) data used to comply with a consumer’s data inquiry and instructions; (vi) data used for security purposes; and (vii) data used for free speech purposes.26 

In addition, Section 1798.145 of the CCPA clarifies that the obligations imposed by the CCPA on a covered business do not restrict the ability of the business to: (1) comply with state or federal laws; (2) respond to civil, criminal and administrative actions, investigations and proceedings; (3) use “deidentified” consumer data (which can be collected, used and sold to third parties); and  (4) collect data “if every aspect of the commercial conduct takes place wholly outside of California.”27 

For health care providers and banking institutions, S.B. 1121 clarified that the CCPA does not apply to health care information subject to HIPPA and personal information that is subject to Title V of the Gramm-Leach-Bliley Act (“GLBA”), as well as corresponding California statutes.28 Further, the CCPA does not apply to the use of personal information obtained from or transferred to a credit reporting agency pursuant to the Fair Credit Reporting Act.29 

G.  Enforcement by the California Attorney General and Private Parties

For actions commenced by the Attorney General, Section 1798.155 of the CCPA allows imposition of penalties for intentional violations of any provision of the CCPA of up to $7,500 per violation, or $2,500 for unintentional violations if a business fails to cure unintentional violations within 30 days of notice of alleged non-compliance.30  

For enforcement actions brought by private plaintiffs for data theft or data security breaches, Section 1798.150 of the CCPA allows statutory damages from $100 to $750 per incident (or actual damages, whichever is greater).31 While a notice must be provided to a covered business providing a covered business the opportunity to cure the alleged violation, S.B. 1121 removed the authority of the Attorney General to intervene in a case brought by a private party. 

H. Interpretative and Rule-Making Authority Given to the Attorney General

Perhaps in light of the complexity of the CCPA (and the haste in which it was drafted and adopted), Section 1798.155 of the CCPA specifically authorizes any business or third party to request guidance from the California Attorney General “on how to comply with” the CCPA. Further, Section 1789.185 directs the California Attorney General to issue regulations clarifying the requirements of the CCPA, as well as updating the nomenclature as technology advances beyond the scope of the technology in existence as of the date that the CCPA was adopted. As noted above, the Attorney General now has until July 1, 2020 to issue implementing regulations.32

I. Impact of S.B. 1121 on the CCPA 

Although the adoption of S.B. 1121 was helpful in correcting obvious drafting errors, S.B. 1121 did not alter the expanded scope of privacy rights as originally envisioned by A.B. 375. Compliance will be burdensome and complicated—it is a virtual certainty that in the coming year industry groups will lobby the California Legislature for expanded flexibility and exemptions from coverage.

Besides extending the effective date of the CCPA, S.B. 1121 modified the health care exemption as set forth in Section 1798.145(c), as well as the exemption for financial institutions as set forth in Section 1798.145(e). 

However, it is important to note that the exemptions do not technically exempt health care in regard to companies or financial institutions, but rather, personal information that is subject to existing federal and California laws and regulations. This means, for example, that a financial intermediary would be subject to the obligations under Title V of the Gramm-Leach-Bliley Act and the California Financial Information Privacy Act in regards to the capture, sale or transfer of consumer data. However, if data is transferred, it is not clear whether the business receiving the personal information is entitled to rely upon these partial exemptions.

Importantly, the exemption for financial institutions does not exempt a financial institution from a private party lawsuit or class action for a data breach that is authorized by Section 1798.150.33  

3. Observations and Recommendations

We note the following:

First, while the California Legislature will convene between now and the effective date of the legislation—and is expected to provide additional clarification on several confusing and sometimes internally contradictory provisions—few industry participants anticipate significant substantive changes to the increased privacy protections contained in the CCPA, due to the fact that there may remain an overhanging threat by privacy adherents to restart the ballot referendum that was abandoned as a result the compromise that has become the CCPA.

Second, the scope of the CCPA potentially encompasses all retail and commercial activity that includes the collection of data relating to a resident of California and retained, sold or transferred by a covered business. At the earliest possible date, businesses, including non-California businesses, must immediately commence the process of evaluating coverage under the CCPA, as well as designing and implementing an effective compliance program. 

Third, because of the compromise nature of the provisions of the CCPA, data breaches may immediately result in the filing of private party litigation demanding statutory damages from the business whose data was the subject of the breach. Because the only defense to statutory damages is a showing that the business maintained adequate security measures, security policies and procedures will have to be constantly updated and verified. 

Finally, the adoption of the CCPA has created a call for a national policy on privacy that would preempt state laws such as the CCPA. Considering that the GDPR required several years to negotiate (and several additional years to implement), adopting a national privacy standard may at best be a long term strategy. (Whether a national privacy policy ultimately resembles the new EU privacy protections of the GDPR, which are already experiencing significant growing pains, remains to be seen.) In any event, while a national privacy law is now under active consideration, preemption of state laws favored by businesses may be difficult due to the extremely narrow GOP majority. This might mean, for example, the adoption of a national privacy standard that reflects some or all of the provisions of the CCPA or the EU’s GDPR. 

*       *       *

This Alert is intended to be a high-level summary of several significant provisions of the CCPA, and is not intended to be a comprehensive recitation of all of the CCPA’s requirements applicable to individual industries and businesses. Our Cybersecurity, Privacy, and Social Media Practice Group will be closely following developments in the following months, and we would welcome discussion of questions and comments from clients and friends of the firm.


1 https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180AB375.
2 See https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2016.119.01.0001.01.ENG&toc=OJ:L:2016:119:TOC.
3 https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180SB1121. 

4 The CCPA is an extension (or elaboration) on a Californian’s constitutional right to privacy, as set forth at Article 1, Section 1 of the California Constitution.
5 See https://oag.ca.gov/system/files/initiatives/pdfs/17-0027%20%28Consumer%20Privacy%29_1.pdf. 
6 The CCPA is set forth at Sections 1798.100 through 1798.198 of the California Civil Code.
7 Section 2 of A.B 375. 
8 Section 1798.140(y) of the CCPA.
9 Section 1798.110 of the CCPA. It appears that a business collecting personal information that is sold or transferred to a third party, in the absence of a contractual right, may not be able to restrict the use of any data transferred to the receiving party.
10 While adult consumers must opt-out of the sale of their personal information, a covered business must obtain the affirmative authorization for the sale of personal information for minors under the age of sixteen. Section 1798.120(d) of the CCPA.
11 Section 1798.120 of the CCPA, which references the definition set forth at Section 17014 of Title 18 of the California Code of Regulations.
12 Section 1798.125(b)(1) of the CCPA also authorizes a covered business to provide financial incentives, including payments to a consumer, for the collection, sale or deletion of personal information. 
13 Section 1798.140(g) of the CCPA.

14
 Importantly, unlike virtually all “consumer” protection statutes, the use of the term “consumer” should be viewed as data information pertaining to a resident of California that may also include non-consumer purposes such as a resident’s business operations that can be associated to an individual. (Whether this definitional approach includes individuals operating as a sole proprietorship or in a broader context as an employee of a corporate entity is unclear.)

15
 Section 1798.140(c)(2) of the CPPA.

16
 California takes a very expansive view of the concept of what constitutes “doing business” in California, and merely engaging in an internet transaction with a California resident is clearly intended to include non-California businesses within coverage of the CCPA.

17
 Section 1798.140(c)(1)(A) of the CCPA. It is unclear whether this threshold is to be computed on a global basis or solely in regard to business associated with California residents.

18
 Section 1798.140(c)(1)(B) of the CCPA. It should be noted that even modestly successful websites may exceed this threshold. (Further, if a business is hosted on another website through connectivity or a hosting arrangement the transmission of data through a sharing arrangement may implicate coverage under the CCPA.)

19
 Section 1798.140(c)(1)(C) of the CCPA.
20 Section 1798.140(o)(1) of the CCPA.
21 Sections 1798.140(o)(1)(A) through (o)(1)(K) of the CCPA. The non-inclusive list includes data items as: (a) name, address, unique personal identifiers, social security number, driver’s license, passport number, biometric information, etc.; (b) categories of personal information specifically identified under California law, including protected classifications; (c) commercial or consumer consuming histories or tendencies; (d) internet usage and browsing history; (e) employment and educational history; and (f) inferences drawn from any of the personal information collected to create a profile about a consumer. Importantly, S.B. 1121 amended the definition of “personal information” to make clear that identifiers such as IP addresses, geolocation data, or purchasing history are “personal information” only if they can be “reasonably linked, directly or indirectly, with a particular consumer or household.”
22 The CCPA imposes heightened obligations on businesses that sell consumers’ personal information.  For example, covered businesses will be required to provide a conspicuous link, titled “Do Not Sell My Personal Information,” on their Internet homepages and in their online privacy policy, which consumers can use to opt-out of the sale of their information.   Many companies that specialize in big data, however, do not actually sell consumers’ personal information, meaning they arguably would not be subject to these heightened requirements.  (Google, for example, has advertisers describe their target market to Google, at which point Google uses its data to “place” advertisements accordingly. The same is true of Facebook.)
23 Section 1798.130(a)(2) of the CCPA.
24 Businesses may extend the deadline to comply with a consumer’s request by 90 days for complex or voluminous requests.
25 Because regulations issued by the Attorney General will likely impact violations of the CCPA that would give rise to a private cause of action, private party civil damage actions would appear to be subject to this enforcement delay as well.
26 Sections 1798.105(d) and 1798.140(o)(2) of the CCPA.
27 Section 1798.145(a) of the CCPA.
28 These two significant exemptions apply to personal information that is subject to these alternative privacy requirements, but not the entities themselves. This may mean, for example, that industry groups such as health care companies and financial intermediaries  may be required to separate data bases that are subject to HIPPA or Title V of GLBA from data bases that are subject to the CCPA.
29 These exemptions were clarified by S.B. 1121 and are discussed below.
30 The CCPA creates a new “Consumer Privacy Fund” to fund enforcement, with the proceeds from settlement and the collection of penalties being required to be deposited into that fund.
31 While beyond the scope of this Alert, it should be noted that it is unclear whether measurement of damages would be based upon a single data breach or the number of data breaches measured (and multiplied by) each affected consumer. (If the latter interpretation is correct, this multiplier effect significantly increases the liability for the failure to maintain adequate security for a consumer’s personal information.)
32 Due to the highly technical nature of data capture, use and transfer, the California Attorney General may face a rule-making process that will strain governmental expertise.
33 For purposes of liability for a data security breach brought by a private party, Section 1798.150(a)(1) adopts a narrower definition of “personal information,” which is set forth at Section 1798.81.5 of the California Civil Code.

Firm Highlights

Insights

SEC Proposes Expansion of Investment Adviser Performance-Based Compensation Rule

On September 30, 2026, the Securities and Exchange Commission (the “SEC”) proposed amendments to Rule 205-3 under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), which provides an exemption from the general prohibition under Section 205(a)(1) of the Advisers Act on registered investment advisers receiving performance-based compensation (the “Proposal”) so long as performance-based compensation is limited to “qualified clients”.1 Most notably for private fund sponsors, the Proposal would expand the definition of “qualified client” to include any investors that satisfy the “accredited investor” definition under Regulation D. The Proposal may also have implications for private fund managers that rely on exemptions from investment adviser registration under state law because certain state-level investment adviser registration exemptions incorporate or otherwise reference the federal qualified client definition. Expansion of the Qualified Client Definition Under the current Rule 205-3, an investor generally may qualify as a qualified client if, among other alternatives, the investor has at least $1.4 million under management with the adviser or has a net worth exceeding $2.7 million. These thresholds are higher than the financial thresholds applicable to many accredited investors under Regulation D. As a result, an investor may currently qualify as an accredited investor for purposes of investing in a private offering without qualifying as a qualified client for purposes of paying performance-based compensation. The Proposal would expand the qualified client definition to include any natural person or legal entity investor that satisfies the accredited investor definition under Regulation D. The Proposal would also remove the assets under management and net worth thresholds under the current Rule 205-3 qualified client test. For private funds relying on Section 3(c)(1) of the Investment Company Act of 1940, this change could reduce the need to apply a separate qualified client standard to investors that already qualify as accredited investors. Dorsey Observations and Next Steps If adopted as proposed, the expanded qualified client definition could be particularly significant for private fund managers. Most private fund offerings are already limited to accredited investors under Regulation D. However, the Proposal could expand the pool of prospective investors available to emerging private fund managers while reducing the regulatory burden associated with complying with Rule 205-3. The Proposal could also benefit advisers operating below the SEC registration threshold that rely on a state private fund adviser exemption. A number of states have adopted exemptions modeled on the North American Securities Administrators Association (“NASAA”) private fund adviser exemption, which may condition relief for advisers to certain funds relying on Section 3(c)(1) on each beneficial owner satisfying the federal qualified client definition. However, state requirements vary, and any effect of the Proposal would depend on the text of the applicable state exemption and how it incorporates Rule 205-3. Many emerging private fund managers may have a larger network of accredited investor relationships than qualified client relationships during the early stages of their investment advisory business. Currently, under Rule 205-3, private fund managers may receive performance-based compensation from investors who do not satisfy the qualified client definition if those investors were admitted to their private funds prior to registration with the SEC. Following registration with the SEC, however, managers may continue to permit investors that are not qualified clients to invest in future private funds but may not receive performance-based compensation from those investors with respect to such investments. In addition, because the net worth and assets under management thresholds for qualified client status are adjusted for inflation every five years, the pool of qualified client investors may diminish over time as previously eligible investors no longer satisfy the applicable thresholds. The Proposal could provide the dual benefit of greater flexibility for private fund managers to establish and maintain relationships with accredited investors as their businesses scale and they become registered with the SEC, and greater flexibility for certain accredited investors to participate in investment strategies that historically have been restricted to much larger institutional investors. Unless and until the Proposal is adopted, investment advisers should continue to comply with the existing qualified client requirements. If the Proposal is adopted, private fund sponsors should consider whether corresponding changes are appropriate for their subscription documents, investor questionnaires, and other offering materials. Advisers that are state-registered or rely on a state-level exemption should also consult the laws and regulations of each relevant jurisdiction before changing investor eligibility standards or performance-based compensation practices, because adoption of the federal amendments may not automatically modify state requirements. Comments on the Proposal will be due 60 days after publication in the Federal Register. 1 Investment Adviser Performance-Based Compensation Modernization, Investment Advisers Act Release No. IA-7022 (Sept. 30, 2026), available at https://www.sec.gov/rules-regulations/2026/09/s7-2026-28#33-11443proposed.

Insights

Energy Law: Month in Review - September 2026

Welcome to Dorsey’s Energy Law: Month in Review. We provide this update to our clients to identify significant developments in the previous month. Please reach out to any of the authors, listed above, to discuss these issues. Regulatory Developments Massachusetts Ratchets Up State and Local Regulation of AI Data Centers In early September, Governor Maura Healey of Massachusetts signed an executive order requiring that artificial intelligence data centers secure the approval of local communities as a precondition to proceeding with a given project. According to the terms of the order, data center developers will need to secure a “community benefits agreement” as a precondition to receiving permits from numerous state agencies, including the Department of Environmental Protection, the Energy Facilities Siting Board, and the Massachusetts Environmental Policy Act Office. Beyond requiring community benefits agreements, the order also mandates that developers mitigate utility costs to consumers, prohibits the use of nondisclosure agreements, and requires various state agencies to develop measures to limit data center impacts on the environment. North Carolina Regulators Decline Approval of Duke Energy Gas Turbine On September 18, 2026, North Carolina Utilities Commission (NCUC) denied Duke Energy’s application for a certificate of public convenience and necessity required to construct a gas-fueled combustion turbine at its Smith Energy Complex in North Carolina. The NCUC objected strongly to the $584 million price tag and noted that Duke appeared to be constructing the facility “based on anticipated data center customer additions.” The NCUC rejected that anticipated growth as “insufficiently reliable for the Commission to act at this point.” In rejecting Duke’s application, the NCUC also noted that Duke had signed the White House Ratepayer Protection Pledge, in which it represented that it would not shift data center costs to consumers. The NCUC observed that the record did not demonstrate how Duke “intends to adhere to its commitments under the Ratepayer Protection Pledge with regard to the Proposed Facility.” Notably, commission staff had actually supported the construction of the turbine, citing concerns about Duke’s reserve margins. The NCUC noted that it “understands the Public Staff’s expressed concerns,” but those concerns were outweighed by the NCUC’s reservations, including questions of demand. Department of Energy Approves Funds for Grid Improvement The U.S. Department of Energy (DOE) recently announced that it would fund 31 grid-improvement projects in 26 states. The funding initiative is part of the DOE’s “SPARK” initiative. The funding will include $1.9 billion in federal funding from DOE and $3.35 billion in recipient cost-sharing funding. The funds will go to projects designed to improve grid reliability and lower electricity costs. Recipients plan to reconductor over 1,500 miles of transmission lines and will deploy grid-enhancing technologies across approximately 21,000 miles. DOE stated that this initiative will make available over 23 additional gigawatts of electricity. Texas Moderates Rules Governing Data Center Interconnection The Texas Public Utility Commission adopted new regulations governing large-load interconnections. The rules impose a flat study fee of $100,000 for all proposed interconnections, which departs from the initial proposal to impose study fees using a tiered system based on project size. Additionally, the final rule eliminates the PUC’s previous proposal to impose a non-refundable interconnection fee of $50,000 per MW of contracted peak demand. The final rule also moderates the initially proposed regulations governing Electric Reliability Council of Texas (ERCOT) notifications for large-load customers’ non-utilized capacity. The proposed rules would have required notifying ERCOT within 30 days of missing a scheduled energization milestone by six months. The final rules, however, do not require informing ERCOT unless a scheduled energization milestone is missed by 24 months. FERC Denies TransAlta 202(c) Cost-Recovery Plan The Federal Energy Regulatory Commission (FERC) recently rejected TransAlta’s plan to recover $19.9 million in expenses stemming from a DOE order in which DOE prohibited TransAlta from retiring its coal-powered Centralia power plant. TransAlta had previously intended to retire the facility at the end of 2025. TransAlta’s cost recovery plan proposed spending an additional $23 million on repairs to continue operating the unit. FERC’s main objection had to do with geographic scope. TransAlta’s recovery plan called for recovering costs from California Independent System Operator (CAISO) and the Southwest Power Pool (SPP), but the DOE’s order requiring operation of the plant was designed to ensure reliability in the Northwest assessment area (Montana, Oregon, Washington, and parts of northern California and northern Idaho). Accordingly, FERC was unwilling to allow cost recovery from CAISO and SPP when the order that precipitated the additional costs only related to the Northwest assessment area. FERC informed TransAlta that it would only approve cost recovery from load-serving entities in the Northwest assessment area. FERC’s decision comes amid a rush of DOE emergency orders requiring the continued operation of coal-fired generating units. Litigation Appeals Court Upholds Washington Hydropower Plant With Caveats In a September 21, 2026, opinion, the Washington Court of Appeals largely upheld a Clean Water Act water quality certification by the Washington Department of Ecology for the Goldendale Energy Storage Project, a proposed pumped-water storage hydropower system adjacent to, but off-stream from, the Columbia River. A nonprofit (Columbia Riverkeeper) and the Confederated Tribes and Bands of the Yakama Nation appealed the certification, contending that it failed to impose necessary conditions and monitoring requirements to protect the water quality of the Columbia River. Most saliently, the plaintiffs argued that the project had the potential to leak 100 acre-feet of water per year into tributaries of the Columbia River. The Court of Appeals broadly rejected plaintiffs’ challenge to the state’s conclusion that “the project was designed not to leak.” That said, the Court of Appeals did reverse on one narrow issue. Specifically, the court determined that the state’s conclusion that “leakage from the project’s tunnels would be monitored and reported” was not supported by the evidence because the certification “does not explicitly require monitoring and reporting to determine whether there is any leakage.” Accordingly, the court remanded the matter to the state to impose monitoring and reporting requirements but otherwise affirmed the certification. Legislative Developments California Legislates Restrictions on Data Center Energy Use and Grid Costs On September 21, 2026, California Governor Gavin Newsom signed seven bills broadly regulating data centers in the state. SB 1168 directed the California Public Utilities Commission to assess the energy used by data centers. It also requires the PUC to pass costs of transmission and distribution upgrades and load increases on to data centers, rather than customers. SB 886 and SB 887 compel data centers to pay for infrastructure upgrade and generation costs, and wildfire mitigation costs, in addition to imposing environmental review. The statutes additionally increase local oversight of data centers. AB 1577 imposes a monthly reporting requirement that requires data centers to supply energy consumption and efficiency data to the California Energy Commission. AB 2383 contains incentives for data centers to use onsite clean energy generation. Finally, AB 2469 and AB 2619 require data center developments to assess water supply and develop a water scarcity plan. The statutes also mandate statewide water reporting as a precondition to obtaining and renewing business licenses.

Insights

EPA Limits Title V Re-Litigation of NSR Permits

Overview On September 25, 2026, the U.S. Environmental Protection Agency (“EPA”) published a final rule that significantly limits the ability of third parties to use the Clean Air Act (“CAA”) Title V permitting process to revisit New Source Review (“NSR”) permitting decisions years after those decisions were made. The rule establishes that NSR permitting determinations generally must be challenged during the original permitting proceeding, thereby providing regulated sources with greater permitting certainty and finality for major capital projects. Published in the Federal Register titled Clarifying the Scope of “Applicable Requirements” Under State Operating Permit Programs and the Federal Operating Permit Program (Docket ID No. EPA-HQ-OAR-2023-0401), the rule amends 40 C.F.R. Parts 70 and 71 to codify EPA’s interpretation regarding when requirements established under other CAA programs may be reviewed, modified, or implemented through the Title V operating permit program. The rule becomes effective 30 days after publication. The rule addresses two principal issues: (1) the relationship between NSR preconstruction permitting and Title V operating permits, and (2) the treatment of the General Duty Clause under CAA section 112(r)(1). Most significantly, the rule provides greater certainty for sources navigating the NSR permitting process. EPA’s amendments are intended to ensure that NSR permitting decisions made through an approved public process are generally not revisited later through Title V permit proceedings. The rule responds to a circuit split between the U.S. Courts of Appeals for the Fifth and Tenth Circuits. In Environmental Integrity Project v. EPA, 969 F.3d 529 (5th Cir. 2020), the Fifth Circuit upheld EPA’s interpretation, concluding that it was consistent with the text, structure, and purpose of Title V. In contrast, the Tenth Circuit reached the opposite conclusion in Sierra Club v. EPA, 964 F.3d 882 (10th Cir. 2020), finding that the then-existing regulatory definition of “applicable requirement” did not support EPA’s position. By amending the regulatory language on which the Tenth Circuit relied and codifying the interpretation approved by the Fifth Circuit, EPA has established a nationwide framework governing the interaction between NSR and Title V. NSR and Title V: EPA Establishes a Uniform Nationwide Framework At the core of the rule is EPA’s effort to define the respective roles of NSR and Title V. The rule codifies the approach EPA has applied since 2017: once a source obtains an NSR permit under an EPA-approved permitting program, and that permit was issued following public notice with an opportunity for comment and judicial review, the permit establishes the NSR-related “applicable requirements” of the State Implementation Plan (“SIP”) or Federal Implementation Plan (“FIP”) for Title V purposes. Under this framework, Title V is not a vehicle for re-examining underlying NSR permitting decisions. EPA does not intend to use the Title V process to revisit applicability determinations, emissions calculations, control technology determinations, permit conditions, or other issues resolved through the NSR permitting process. This principle applies regardless of the stage of the Title V proceeding; whether the NSR permit was issued pursuant to a SIP or FIP; the type of NSR issue involved; or whether the NSR permit is incorporated into Title V sequentially or concurrently. Limited Exceptions EPA recognizes several circumstances in which NSR issues may still be reviewed through the Title V program: No NSR permit was issued at all; The permit was issued without public notice and an opportunity for comment and judicial review; or The issue involves substantive overlap between Title V and NSR requirements, such as the adequacy of monitoring provisions. As a result, the rule does not insulate unpermitted projects or foreclose review of matters that independently arise under Title V. Key Regulatory Amendments The rule revises the definition of “applicable requirement” in 40 C.F.R. §§ 70.2 and 71.2. Paragraph (1): Where an NSR permit is issued with public notice and an opportunity for comment and judicial review, the permit establishes and defines the applicable SIP or FIP requirements for Title V purposes. Paragraph (2): All NSR permit terms, including terms contained in minor NSR permits, constitute applicable requirements that must be incorporated into Title V permits. Paragraph (4): CAA section 112(r)(1) (the General Duty Clause) is expressly excluded from the definition of “applicable requirement,” while section 112(r)(7) Risk Management Program requirements remain included. EPA also amended 40 C.F.R. §§ 70.8 and 70.12 to clarify that alleged defects in requirements established outside the Title V process generally do not provide a basis for EPA objection to a Title V permit or for a Title V citizen petition. General Duty Clause Exclusion The rule also codifies EPA’s longstanding position that the General Duty Clause in CAA section 112(r)(1) is not an “applicable requirement” for Title V purposes. EPA points to several considerations supporting that conclusion, including the distinction between the General Duty Clause and Title V permit terms, the provision’s origins in the Occupational Safety and Health Act’s general duty clause, and the different enforcement structures applicable to the General Duty Clause and Title V permit requirements. Importantly, excluding section 112(r)(1) from the definition of “applicable requirement” does not eliminate EPA’s authority to enforce the General Duty Clause independently of the Title V program. The final rule instead clarifies that the General Duty Clause need not—and should not—be incorporated into Title V permits as an applicable requirement. Practical Implications for Regulated Sources Greater Finality for NSR Permits  For projects requiring PSD, nonattainment NSR, or minor NSR permits, the permitting process becomes the primary forum for resolving disputes regarding applicability determinations, emissions calculations, control technology requirements, offsets, and permit conditions. Once an NSR permit is issued through a qualifying public process, regulated sources should face substantially reduced risk that those same issues will be challenged years later through Title V permit proceedings. Reduced Risk of Collateral Permit Challenges Stakeholders have sometimes sought to use Title V permit issuance, renewal, revision, or citizen-petition proceedings to challenge underlying NSR determinations. The final rule makes clear that Title V is not the appropriate vehicle for challenging whether an applicable requirement was correctly established in the first instance. This should reduce the risk of permit delays and uncertainty associated with collateral challenges to previously issued NSR permits. The rule does not, however, eliminate all Title V challenges relating to an NSR permit. Challenges concerning the Title V permit itself—including whether it appropriately incorporates applicable requirements or contains adequate compliance provisions—remain possible. Increased Importance of the Initial NSR Proceeding Because Title V generally will not provide a second opportunity to challenge the substantive validity of an NSR determination, the administrative record developed during the NSR process becomes increasingly important. Permit applicants should ensure that applicability analyses, emissions calculations, control technology evaluations, modeling demonstrations, and supporting technical documentation are thoroughly developed during the original permitting proceeding. For significant projects, applicants may therefore have an additional incentive to identify and resolve potential permitting issues before the NSR permit is issued rather than assuming that unresolved issues can be addressed during a subsequent Title V proceeding. Potential Incentive for Broader Public Participation EPA also notes that permitting authorities may choose to provide public notice and an opportunity for comment for a broader range of NSR permits because permits issued through a qualifying public process receive the benefit of the finality framework established by the rule. Some permitting authorities may conclude that greater public participation at the NSR stage is preferable to uncertainty during subsequent Title V proceedings. Conclusion The final rule is principally a permitting-certainty measure. For sources that obtain NSR permits through a public process, EPA has substantially limited the ability of third parties to revisit underlying NSR determinations through the Title V program. As a result, regulated entities should benefit from greater finality regarding key permitting decisions, reduced risk of collateral permit challenges, and increased certainty when planning and implementing capital projects.

Insights

The Supreme Court Update - October 8, 2026

On September 29, 2026, the Supreme Court granted certiorari in one case: Department of Homeland Security v. D.V.D., No. 26-426: This case concerns the Trump Administration’s “third-country removal” procedures, where immigrants are deported to countries not listed in the removal orders. In granting certiorari, the Court granted the Government’s application to stay a lower court decision halting the practice, which will allow third-country removals to continue pending resolution of the case. The issues presented are: (1) Whether the district court had jurisdiction over respondents’ claims; (2) whether the district court had authority to enter class-wide declaratory relief and APA vacatur under 8 U.S.C. § 1252(f)(1); (3) whether the Government’s guidance on third-country removals is unlawful under 8 U.S.C. § 1231(b), the due process clause, or FARRA/CAT and its implementing regulations; and (4) such other questions that the Government determines are appropriate for the proper disposition of the case. On October 1, 2026, the Court granted certiorari in three additional cases: Rhoney v. Barbosa da Cunha, No. 26-104: Immigration officials detained Ricardo Aparecido Barbosa da Cunha—a Brazilian citizen who had lived in the United States for approximately twenty years after entering without inspection—and denied him a bond hearing under 8 U.S.C. § 1225(b)(2)(A). The Second Circuit held that his detention was instead governed by § 1226(a), which permits release on bond, because § 1225(b)(2)(A)’s mandatory-detention requirement applies only to noncitizens apprehended while entering the country or shortly thereafter. The question presented is: Whether 8 U.S.C. § 1225(b)(2)(A) mandates the detention pending removal proceedings of aliens who, like Barbosa da Cunha, are present in the United States without having been admitted. Missionaries of St. John the Baptist, Inc. v. Frederic, No. 25-113: A Catholic religious organization sought to build a shrine to the Virgin Mary on land the organization owned adjacent to its church in Park Hills, Kentucky. Local zoning restrictions prohibited the proposed construction. The question presented is: Whether a land-use regulation that prohibits a religious institution from building a religious structure on its own property constitutes a “substantial burden” on religious exercise under the Substantial Burden Provision of the Religious Land Use and Institutionalized Persons Act, 42 U.S.C. § 2000cc(a). Marschner v. Marschner, No. 25-1349: Under the Uniformed Services Former Spouses’ Protection Act (“USFSPA”), a veteran’s longevity-based retirement pay can be divided in a divorce, but retirement pay based on disability and retirement pay that was waived to receive disability pay are indivisible. The question presented is: Does the USFSPA require state courts to refuse enforcement of indemnification provisions in a divorce settlement agreement?