Legislation

TransCanada renewable lawsuit scores a win in MA

June 11, 2010 09:33
It’s only been about three months since TransCanada Power Marketing Ltd. sued the Massachusetts Department of Public Utilities (DPU), its commissioners, and several other Commonwealth agencies, claiming that Section 83 of the Green Communities Act discriminates against out-of-state renewable energy projects in violation of the U.S. Constitution, but the case has already scored a win for TransCanada. This week, the DPU issued an emergency rule eliminating the in-state requirement from the regulation that mandates electric utilities buy their renewable energy from projects installed in Massachusetts or off-shore wind in the Cape Cod area.  The emergency rule came just 9 days after TransCanada filed a notice of dismissal “with prejudice” to drop its lawsuit against the three named individual commissioners of the DPU. Renewable energy industry insiders were buzzing with talk about this case at the 17th Annual New England Energy Conference in Providence, RI, Monday and Tuesday.  Rumors had it that Commonwealth lawyers and officials were anxious to settle with TransCanada to make this case go away.  And so the emergency rule issued on June 9th takes a major step in that direction.  In fact, the Boston Herald observed this week that the Legislature apparently suspected this provision was unconstitutional when the Green Communities Act was enacted two years ago because the act allowed the DPU to specifically strike down the provision in the event of legal action to challenge it. Without a court decision on the merits of the TransCanada case, however, the question remains how far a state can go in promoting in-state installations of renewable energy projects without running afoul of the Dormant Commerce Clause of the U.S. Constitution. Can a state survive a constitutional attack if it mandates in-state renewable installations in exchange for in-state qualifying renewable energy certificates? While it’s possible the federal court in Massachusetts might get a chance to decide this issue as part of TransCanada’s pending motion for a preliminary injunction, I expect that the rest of the case will get settled quickly as well and the court will not get a chance to issue a decision on the merits.  We will likely have to wait another day for the courts to answer the constitutional questions presented by renewable carve-out provisions.

Climate Change | Legislation | Regulation | Renewable Energy

Climate Change Disclosure at the SEC - A Move for Consistency

January 31, 2010 16:00
by J. Wylie Donald
It has been our view for a number of years that climate change disclosures are not for every publicly traded company. What is for each of those companies, however, is the need to take a close look at the risks and opportunities posed by climate change and to assess their importance for the company's specific circumstances. The Securities & Exchange Commission has now reached a similar conclusion. In a press release this past Wednesday, the SEC announced its decision (3-2 on partisan lines) to provide interpretive guidance on existing SEC disclosure requirements applicable to legal and business developments relating to climate change. As stated in the press release, http://www.sec.gov/news/press/2010/2010-15.htm, the Commission's interpretive releases "are intended to provide clarity and enhance consistency for public companies and their investors." As further stated by Commissioner Schapiro, the application of this guidance to climate change is not an opinion on "whether the world's climate is changing, at what pace it might be changing, or due to what causes." The SEC expressly was not "weighing in" on those topics. Nonetheless, some who are familiar with the SEC's inner workings were surprised and acknowledged that it is a big deal for the SEC to take such a step in confirming its interpretation of the applicable disclosure regulations as they relate to global warming risks. Environmentalists and leading state pension fund investors have long argued that the SEC should issue such guidance and formally requested such action in a peition filed with the SEC in 2007. The guidance identifies various areas where disclosure might be required: 1. Legislation and regulation that may impact a business. (e.g., the effect a carbon tax may have on revenue) 2. International agreements that may impact a business. (e.g., the lapse of the Kyoto Protocol may change the need for carbon credits) 3. Regulation and business trends that may have indirect consquences on a business (e.g., refrigerator manufacturers may need to assess energy efficiency as a business trend) 4. Physical impacts of climate change. (e.g., a shipping company may need to evaluate the effect of a melting icecap and the opening of the Northwest Passage) After reading this list, some will certainly conclude that the guidance offers nothing new. Each of these subjects falls within one of the disclosure requirements already on the books for many years. For example, Item 303 of Regulation S-K requires the disclosure in management's discussion and analysis of circumstances materially affecting one's business. If rising sea levels can be determined to pose a material risk to casino operators on the Atlantic seaboard, then disclosure is required. In similar fashion, brethren in Nevada may need to discuss the impact of perpetual drought in the American southwest. Whether these outcomes are the result of climate change is not relevant to the disclosure obligation. Whether they are material is. Likewise, Item 101 would capture disclosure of legislation and regulation material to one's operations. If a carbon tax or cap-and-trade program has a material impact on one's bottom line, one does not need the new guidance to make disclosure. On the other hand corporate disclosures to date are uneven. The Carbon Disclosure Project, http://www.cdproject.net, has been soliciting disclosure from the world's publicly-traded companies for several years. A review of those reports is striking in the variation of both the scope and detail of the disclosures. As a result of the guidance, however, one can now expect disclosing institutions to be reviewing the disclosures of their peers, in order to assess more precisely what needs to be said. The SEC's decision was not the first regulatory pronouncement on climate change disclosure. Last year the National Association of Insurance Commissioners promulgated rules for their regulated community (insurance companies). We do not expect the SEC's guidance to be the last word either. Regulated entities will do well to pay close attention.

Carbon Emissions | Climate Change | Legislation

16 States Back EPA in Suit Challenging Endangerment Finding

January 26, 2010 07:02
It has only been a month since an organization called the Coalition for Responsible Regulation, Inc. filed suit in the U.S. Court of Appeals for the District of Columbia Circuit challenging the U.S. Environmental Protection Agency’s endangerment finding and, already, 16 states have lined up with the EPA, seeking to intervene in support of the challenged regulation.   The challenged regulation, entitled “Endangerment and Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act” (the “Final Rule”), was published in the Federal Register on December 15, 2009 and was issued by the EPA in response to the U.S. Supreme Court’s landmark decision in Massachusetts v. EPA, 549 U.S. 497 (2007).  The rules regulate emissions of greenhouse gases from new motor vehicles and engines.    In the Final Rule, the Administrator finds that “the body of scientific evidence compellingly supports” her conclusion that “greenhouse gases in the atmosphere may reasonably be anticipated both to endanger public health and to endanger public welfare.” She defines the resulting air pollution referred to in Section 202(a) of the Clean Air Act to be “the mix of six long-lived and directly-emitted greenhouse gases: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O)), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfer hexafluoride (SF6).”  The Administrator concluded that the mix of greenhouse gases from transportation sources contribute to the climate change problem, which is reasonably anticipated to endanger public health and welfare.   The Final Rule triggers the EPA’s statutory duty to promulgate regulations establishing emissions standards for motor vehicles covered by Section 202(a)of the Clean Air Act.   Noting that the Court’s action on the petition for review will affect the public health and welfare of their residents and will also affect a host of global warming impacts that the proposed intervenors are suffering, the following states seek to intervene in support of the EPA: Commonwealth of Massachusetts and the States of Arizona, California, Connecticut, Delaware, Iowa, Illinois, Maine, Maryland, New Hampshire, New Mexico, New York, Oregon, Rhode Island, Vermont and Washington.  The City of New York also filed in support of the EPA.   Notably absent from the Motion for Leave to Intervene as Respondents is the State of New Jersey, from which EPA Administrator Lisa Jackson came as the prior Commissioner of the New Jersey Department of Environmental Protection. New Jersey, which just last week inaugurated new Republican Governor Chris Christie, who unseated Democrat Jon Corzine, formerly supported climate change litigation and was among the states challenging the EPA in Massachusetts v. EPA.  The following states were not in the Massachusetts v. EPA case but joined the fight now in support of the regulations: Arizona, Delaware, Iowa, Maryland and New Hampshire.

Carbon Dioxide | Climate Change | Legislation | Regulation | Greenhouse Gases

NJ Proposes Net Metering Rule Change, Expanding On-Site DG

January 11, 2010 04:44
By Shawn Smith McCarter & English, Hartford Office The New Jersey Board of Public Utilities (BPU) recently proposed an amendment to its net metering rule that will create an even greater economic incentive for utility customers to develop on-site renewable energy, especially solar energy systems.   The proposed amendment would eliminate the 2 megawatt (MW) limit on the size of renewable energy systems eligible for net metering, which would lift an obstacle for large-scale solar projects.  This gives customers the opportunity to develop larger renewable energy systems to generate renewable energy and offset their electric bills.  By developing new systems or expanding upon existing ones, customers can take advantage of the economic and environmental benefits of net metering.   The net metering rules allow customers which generate on-site electricity using Class I renewable energy sources, such as solar, to connect with the local electric distribution company (EDC) and generate electricity on the customer’s side of (or “behind”) the meter.  The net meter virtually “spins both ways,” meaning that the EDC will either charge the customer for electricity supplied in excess of that generated on site by the renewable project, or credit the customer for purchases resulting from excess energy generated by the renewable energy source.  Under the existing net metering rules, a renewable energy system cannot (1) generate more than 2 MW of electricity, or (2) exceed the annual amount of “electricity supplied by the electric power supplier or basic generation service provider to the customer.”  The 2 MW restriction created a ceiling that limited the ability for larger commercial customers to take advantage of net metering.   By proposing to lift the ceiling, the BPU is inviting customers (or third-party developers using power purchase agreements, for example) to invest in larger renewable energy systems that generate more than 2 MW of electricity.  Such a policy shift helps the state to achieve its ambitious objectives set forth in the Energy Master Plan of  achieving 22.5% of renewables, including a renewable portfolio standard target of 2.12% of all energy sold in NJ coming from solar generation.   Despite arguments from some owners of large warehouses and developers seeking to build utility-scale solar projects on vacant property sites, the BPU rejected calls to revise the second net metering condition, which requires that a renewable energy system’s generating capacity be equal to or less than the average amount of electricity consumed by that customer on site either from that supplied annually by an electric power supplier or the EDC in the form of basic generation service.  Nevertheless, the potential economic payoff for customers investing in renewable energy projects is clear--the larger the renewable energy system, the lower their electric bill.   When the net metering rule is combined with other New Jersey regulatory incentives that promote solar projects, especially as the available federal investment tax credits and accelerated depreciation credits provide enhanced opportunities to support solar projects, the solar industry is expected to continue to focus its business development efforts on NJ and larger-scale sites can expect the solar industry to come knocking.    The proposed amendment provides a particularly significant opportunity for commercial customers to develop or expand upon solar energy systems to take advantage of the substantial market incentives for solar that exist in New Jersey.  New Jersey has encouraged the development of solar energy through its Energy Master Plan (EMP) and the market for Solar Renewable Energy Certificates (SRECs). New Jersey’s solar market, which is the second-largest in the United States (second only to California), continues to grow as a result of these efforts.    The BPU is soliciting comments on the proposed amendment to the net metering rule through March 5.  Anyone interested in submitting comments is free to do so.   Another notable proposal of the BPU concerns New Jersey’s “Prevailing Wage Law,” which requires the BPU to adopt regulations to ensure that the prevailing wage rate be paid to workers “employed in the performance of certain contracts for construction undertaken in connection with board [BPU] financial assistance.”  Renewable energy projects constructed with BPU’s financial assistance will soon be subject to the prevailing wage requirements if the BPU proposal is adopted.  The BPU is soliciting comments on the prevailing wage law through March 5.  Anyone interested in submitting comments is free to do so.   Finally, in yet another effort to expand renewables, the BPU opened the door for renewable energy projects located outside of New Jersey, other than solar, to qualify for New Jersey RECs.  Previously, only on-site renewable energy facilities directly connected to a New Jersey EDC’s distribution system could qualify for RECs.  Now, pursuant to the new regulation adopted recently, the BPU is allowing qualifying renewable projects located outside of New Jersey, except solar, to obtain New Jersey RECs provided these projects are connected to the PJM Interconnection, L.L.C.’s (PJM) generator information system for tracking renewable energy.  PJM is a non-profit regional transmission organization that coordinates the movement of wholesale electricity in all or parts of 13 states and the District of Columbia, including Pennsylvania, New Jersey and Maryland.

Climate Change | Legislation | Renewable Energy | Solar Energy

AbCDE - Thoughts on an "Absolute" Carbon Dioxide Exclusion

October 27, 2009 17:28
by J. Wylie Donald
We trust that those of you following climate change litigation have heard the veritable tap dance of decisions emanating out of the federal courts in the last month.  First, Connecticut v. American Electric Power was reversed by the Second Circuit.  That was followed by the District Court for the Northern District of California dismissing Native Village of Kivalina v. ExxonMobil and rejecting the Second Circuit’s analysis.  The Fifth Circuit, not to be outdone, reversed the Comer v. Murphy Oil decision, but also provided a special concurring opinion where the judge advised that he would have affirmed on alternative grounds.  All of these cases are thoroughly discussed in the blogosphere. What has been less thoroughly ventilated, however, are the implications for insurance coverage for climate change liability claims.  We have discussed before the Steadfast v. AES coverage case filed in Virginia where the insurer seeks to avoid coverage for the Kivalina suit.  We thought originally that Kivalina’s dismissal might have made that suit go away.  However, with two climate change suits now headed back to the trial court (barring further appeal), we will be surprised if Kivalina is not appealed, and further surprised if Steadfast does not provide some law on climate change coverage. One subject that will not be addressed in Steadfast, however, is the efficacy of an "absolute"1 carbon dioxide exclusion.  Yes, you heard that correctly:  the AbCDE.  I regularly ask my insurer colleagues about their thinking on this and just as regularly am told that it is not in the works or even discussed.  The spoken reason is fairly straightforward:  if carbon dioxide is a pollutant under the terms of the policy, and damage from pollution is excluded, then claims arising from carbon dioxide emissions are already excluded by the so-called absolute pollution exclusion and the AbCDE is not needed.  The unspoken reason reflects the converse:  if a carbon dioxide exclusion is necessary, it must be the case that a policy without such an exclusion provides coverage for carbon dioxide liability - even if it has a pollution exclusion.  From an insurer’s perspective, that could be an expensive outcome and suggests a reason to avoid implementing the AbCDE.  History and policyholder experience suggest, however, a different outcome.  Many will recall the time when coverage for asbestos-related loss was hotly debated.  Where insurers lacked express asbestos exclusions, they sought refuge in pollution exclusions.  Success was mixed.  The New York Court of Appeals’ decision in Continental Casualty Co. v. Rapid-American Corp., 593 N.Y.S.2d 966 (N.Y. 1993), is typical.  Although the court concluded that asbestos could be a pollutant, irritant or contaminant within the meaning of the liability policy, it determined the policy’s pollution exclusion to be ambiguous in context and coverage for asbestos loss was found.  Ultimately, the insurance industry recognized the solution to its asbestos problems and decisions like Rapid-American was to adopt universally what is referred to by some as an absolute asbestos exclusion.  Just as with asbestos, there are infirmities in the pollution exclusion as applied to carbon dioxide (such as the doctrine of reasonable expectations, whether carbon dioxide is reasonably understood to be an irritant or contaminant, whether an agency’s classification of carbon dioxide as a “pollutant” has any relevance to a contract between two private parties, among others).  Indeed, one state supreme court has found that exhaled carbon dioxide was not a pollutant, and thus was not excluded by a comprehensive general liability policy’s absolute pollution exclusion.  Donaldson v. Urban Land Interests, Inc., 564 N.W.2d 728, 732 (Wis. 1997).  Unless carbon dioxide liability suits disappear (and the last month is not auspicious in that regard), it is inevitable that more coverage disputes will unfold and that policyholders will secure coverage victories in some cases.  Against the backdrop of those victories, can it be doubted that a carbon dioxide exclusion will take shape? 1We note that the term “absolute “ is somewhat of a misnomer for any exclusion.  A valuable discussion of this can be found at Ira Gottlieb, The Decline of the So-Called ‘Absolute’ Pollution Exclusion, Mealey’s Litig. Rep. (Feb. 12, 2002).

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