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Client Alert

The Trump Administration’s (De)Regulatory Program: What It Means for Business

February 23, 2017

by Creighton R. Magid

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    The Trump Administration has, through executive action, sought to bring far-reaching changes to the nation’s regulatory infrastructure. These efforts may be cheered by those who view the country as being over-regulated, and met by concern by those who view regulation as an essential means of protecting health, safety, the environment, and other public objectives. Regardless of one’s view of the new Administration’s approach to regulation, it is important for business to understand what is taking place and the opportunities and threats arising from the White House’s actions.

January 20 Regulatory Freeze Memorandum

    One of the first actions of the new Administration was the issuance of a memorandum by Chief of Staff Reince Priebus to the heads of executive departments and agencies, directing the agencies and departments to suspend transmittal of any newly proposed or final rules for publication in the Federal Register until the new Administration had an opportunity to review them. The memorandum also directed agencies to withdraw any proposed or final regulations that had been sent for publication but not yet published in the Federal Register and to postpone by 60 days (from January 20th) the effective date of any rules that had been published but were not yet effective as of January 20th. The Memorandum did give agencies the discretion to determine if any regulations should be excluded, and specifically exempted “emergency situations” or “urgent circumstances relating to health, safety, financial or national security matters.” The Memorandum also exempted regulations subject to statutory or judicial deadlines.

    The White House’s request was not unusual; similar freezes were issued by several prior administrations to allow incoming administrations to put new appointees in place to review and potentially change not-yet-effective rules, including so-called “midnight regulations” issued at the very end of a prior administration.

    As a result of the January 20 regulatory freeze, agencies have held up proposed and final rules subject to the freeze, including regulations actively supported by businesses (to, for example, preempt more draconian state regulation).

    In addition to the White House’s administrative freeze, efforts are underway in Congress to strike down a number of regulations in the environment and financial under the Congressional Review Act (“CRA”), which provides Congress a legislative approach to rescinding prior regulations finalized as far back as June 2016.

January 30 “2 for 1” Executive Order and February 2 Interim Guidance

    On January 30, President Trump issued an Executive Order quickly nicknamed the “2 for 1 Order” because it requires executive departments and agencies to eliminate two existing regulations for every new regulation issued. The Order actually is considerably broader than the nickname implies. In addition to the “2 for 1” requirement, the Order requires that the incremental “costs” of any new regulations be offset by the cost savings of regulations being eliminated. For the remainder of the current fiscal year, the cost savings or repealed regulations must equal or exceed the costs of any new regulations. For each fiscal year beginning with FY2018, the White House’s Office of Management and Budget (“OMB”) will establish an “incremental cost allowance” for each agency and department; the budget may allow an agency
or department to implement new regulations that, in total, have a greater cost than the total cost reductions from eliminated regulations, or it may require an agency or department to realize cost savings from repeal of regulations that exceed the cost of new regulations.

    The 2 for 1 Order also authorizes OMB to approve each regulation for inclusion in the Unified Regulatory Agenda, a prerequisite to issuance in the Federal Register, and to allow agencies to exceed their yearly budget allowance under certain circumstances. OMB has therefore become a far more significant player in the regulatory process than it was previously and has been further inserted into the strategic operations of federal agencies.

    There are major exceptions to the 2 for 1 Order. It does not apply to regulations issued with respect to the military, national security, or foreign affairs, or to regulations concerning internal agency organization, management or personnel. The Order also allows OMB to exempt other categories of regulations. In addition, the 2 for 1 Order does not purport to change statutory law, including the Administrative Procedure Act (“APA”). Agencies will still need to issue – or keep – regulations as required by statute and could not repeal prior regulation except in accordance with that law or the APA.

    Interim Guidance issued by OMB on February 2 helped to put some meat on the bones of the January 30 Executive Order, at least with respect to FY2017. (The Interim Guidance promises further guidance for FY2018 and beyond “soon.”)
  

    The Interim Guidance clarifies that the 2 for 1 Order only applies to “significant regulatory actions,” defined by a Clinton-era executive order to mean regulatory actions that have an annual effect on the economy of at least $100 million; have material added impacts on the economy, jobs, the environment, public health or safety, or on state, local or tribal communities; or that raise novel legal issues. Emergencies addressing critical health, safety or financial matters may qualify for a waiver for some or all of the requirements.

    New guidance or interpretive documents (such as industry guidance documents issued by the Food and Drug Administration (“FDA”) for labeling medical products or foods) may or may not be considered “regulations” subject to the Executive Order; the Interim Guidance says that such documents “will be addressed on a case-by-case basis.”

    Importantly, the Interim Guidance explains how “costs” are to be calculated when determining offsets for new regulations. Costs are to be measured as the “opportunity cost to society,” based on analyses already required by OMB Circular A-4. This means measurement of costs beyond direct administrative burdens and includes more indirect costs of compliance, such as time and expense of operating equipment. “Meaningful burden reductions,” such as repeal or streamlining of mandatory reporting, recordkeeping or disclosure requirements could qualify. On the other hand, consumer cost savings or other benefits of new or repealed rules – for example, energy efficiency cost savings – are not to be considered for offsets. Nor can agencies include in cost saving calculations the “sunk costs” – those already incurred by regulated entities – of repealed rules. This means that previously incurred costs, such as the cost of installation and operation of safety or pollution control equipment prior to repeal, cannot be used to offset the costs of new regulations. Benefits of regulations – whether energy cost savings, improved health, or more pristine rivers – are not considered in the calculus.

    The Interim Guidance also clarifies that independent regulatory agencies such as the Consumer Product Safety Commission, Federal Communications Commission and the Federal Energy Regulatory Commission (“FERC”), which are not required to submit major rules to OMB, are exempted from the 2 for 1 Order. Nevertheless, they are “encouraged” to identify existing regulations that, if repealed or revised, would fully offset new significant regulatory measures.

    While the 2 for 1 Order suggested that it may not cover regulations required in accordance with law or judicial order, the Interim Guidance indicates that the 2 for 1 Order does, indeed, apply to those mandated by law. However, the Interim Guidance exempts those regulations issued under “imminent” statutory or judicial deadline from immediately identifying two deregulatory offsets at the time of issuance. Rules struck down by court after January 20 generally will not qualify for offsets, while those resulting from Acts of Congress, such as through the CRA process, are considered the equivalent to agency deregulatory actions, and can be considered for offsets.

    Cost savings from repeal of a rule by one agency component may offset costs of a new regulation issue from another component. OMB may approve transfer of cost savings across agencies. All actions to be repealed and their offsetting costs are to be identified no later than the date of issuance. Cost caps have no effect on consideration of regulatory benefits in making regulatory decisions, which agencies must still consider other their respective mandates.

The Interim Guidance also made it clear that agencies cannot use previous regulatory cost impact analyses in determining the cost of regulations, meaning that the time and effort required may, in itself, stymie the issuance of new regulations.

    While the Interim Guidance did clarify some issues regarding the implementation and scope of the 2 for 1 Order, it left many issues unresolved. These include:

  • How broadly will the exemption for military and national security regulations be construed? For example, are all Defense and Homeland Security regulations exempt? Are cybersecurity and privacy regulations, or critical infrastructure regulations exempt as pertaining to national security?
  • What constitutes public health and safety “emergencies” for purposes of an exemption? For example, are food safety or vehicle safety regulations exempt?
  • How will the White House “encourage” independent regulatory agencies to identify and repeal existing regulations to offset new regulations?
  • Does the 2 for 1 Order apply to independent non-regulatory agencies, such as NASA?
  • Will OMB attempt to establish a consistent way for all agencies to measure costs for all programs?
  • Will OMB determinations regarding agency budgets and requests for exemptions follow objective and established criteria, or will all such determinations be ad hoc?

    There also remains uncertainty as to whether the 2 for 1 Order will be modified by the White House – or even if it will survive repeated challenges. On February 8, for example, Public Citizen, the Natural Resources Defense Council, and the Communications Workers of America filed suit alleging that the 2 for 1 Order, by not allowing agencies to consider consumer cost savings or public benefits of new or repealed rules as offsets to regulatory costs incurred or to count the “sunk” costs of repealed regulations, is inconsistent with Congress’s directive in the APA regarding the decision-making process to be used in promulgating new rules. While that particular lawsuit faces considerable hurdles with respect to ripeness and justiciability, it indicates that critics of the 2 for 1 Order will be challenging every aspect of agency implementation.

The Implications for Business

    The White House’s actions almost certainly will slow the pace of new regulations. Even apart from the time that will be required to identify regulations that might potentially be repealed, agencies and departments will have to conduct entirely new cost analyses. This will require time and administrative resources that might otherwise be devoted to promulgating new regulations or guidance. Some might be cheered by a regulatory slowdown (or even regulatory paralysis), but businesses seeking regulatory intervention (regulatory action often either preempts or removes the basis for lawsuits, for example, or is useful in putting competitors at a competitive disadvantage) will have to become more patient.

    The directive to eliminate regulations and to condition the issuance of new regulations on offsetting cost reductions expands the strategic chessboard. Previously, businesses could weigh in on behalf of or in opposition to a specific proposed regulation. Now, companies seeking regulatory action will not only have advocate for a new regulation, but also identify potential regulations that could be eliminated. (Business might think, too, about providing assistance to agencies in calculating costs.) On the flip side, companies flourishing because of existing regulations will need to advocate for the retention of their preferred regulations, lest those regulations be targeted for elimination as cost offsets. (In short: welcome to the new Regulatory Hunger Games.)

    Washington being Washington, it is also likely that agencies (at least at levels below those filled with political appointees) will become increasingly creative in attempting to deal with the White House’s de-regulatory bent. Expect an increasing array of regulations to be characterized as being related to “national security” or “foreign affairs” (and thus exempt from the 2 for 1 Order). Also expect agencies to take action unofficially, through such mechanisms as agency-industry working groups. Already, the FDA has issued a “Constituent Update” suggesting that the food industry should work with the FDA to develop “industry” guidance documents to assist in compliance with food laws and regulations.

    The 2 for 1 Order also makes clear that OMB will wield enormous power over agencies and departments. Therefore, businesses seeking to have a say in new regulations (or the elimination of existing ones) should pay attention not only to the agency promulgating the regulations, but also OMB.

Other Considerations

    The regulatory freeze and the 2 for 1 Order are not the only sources of regulatory slowdown. In some cases, resignations and/or unfilled vacancies leave agencies without a quorum for taking action. (For example, FERC, an independent agency charged with regulating the interstate transmission of natural gas, oil and electricity, as well as natural gas and hydropower projects, has only two of 5 commissioners in place, with one of the remaining two scheduled to depart on June 30. Until at least three commissioners are in place, FERC will be unable to authorize the construction of natural gas infrastructure, resolve contested rate proceedings, or engage in rulemaking.)

    Congress, too, seems anxious to get into the act of reducing regulation. In early January, the House passed the Regulatory Accountability Act, which would amend the APA to require agencies to evaluate several additional criteria during the rulemaking process. The Act also would reverse the so-called Chevron doctrine compelling courts to defer to agency interpretations of its own regulations. The Act is likely to be introduced in the Senate soon.

    Of course, everything in this paper is subject to an important caveat: the new Administration remains highly unpredictable, and many issues have yet to play out. For business, developments in the regulatory arena are well worth watching. Stay tuned.

Firm Highlights

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?

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

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.