Regulation

The Clean Power Plan: A View from FERC, Part IV - Economic v. Environmental Dispatch, Please

March 16, 2015 12:31
by J. Wylie Donald
It’s been a long winter in my neck of the woods and not because Punxsutawney Phil saw his shadow.  Pipes froze.  Twice.  Furnace was out overnight.  Broke three shovels.  So I had a particular interest this past Wednesday, March 11, in FERC’s Eastern Regional Technical Conference on EPA’s Clean Power Plan (CPP) and FERC’s and EPA’s takes on reliability issues.   After the introductions EPA Assistant Administrator Janet McCabe led off with the same position she had delivered at the Opening Conference, which is something of a mantra for EPA:  EPA has enforced the Clean Air Act for over forty years and has not impacted reliability.  Commissioner Tony Clark,  however and politely, was not buying it.  To be sure, EPA’s Clean Air Act initiatives had not brought the Grid crashing down.  But he enumerated half-a-dozen facilities where EPA regulations had impacted reliability, including the Presque Isle Power Plant, the Potomac River Generating Station, and the E.D. Edwards Power Station.  Commissioner Clark laid it out plain and simple:  any time there is a “must run” requirement imposed on a plant, that is a reliability issue.  Where operators have made decisions to close because plants are no longer profitable as a result of the cost of environmental compliance, but reliability concerns have compelled the plants to keep operating, that is a case of environmental regulations impacting reliability. Commissioner Moeller asked Ms. McCabe for EPA guidance on how reliability could be ensured under the CPP, the so-called “reliability safety valve” (RSV).  She responded without specifics, saying merely that EPA is prepared to work with everyone.  To that Commissioner Moeller was very plain:  a reliability safety valve needs to be in the final rule. Period. What were the details driving Commissioners Moeller and Clark?  They are set out in great detail in the written comments of the affected generators. A few were stated at the technical conference: New England - RGGI, the Regional Greenhouse Gas Initiative, has put New England in excellent position to meet the CPP goals.  But even with the early mover advantage, New England has substantial concerns. As Commissioner Paul Roberti  of the Rhode Island Public Utilities Commission reported, the independent system operator, ISO-NE, forecasts 8300 MW are to be retired by 2020, to be replaced by 6300 MW, with an additional 1000 MW in efficiency improvements. Even assuming all of that can be built in time and the forecast efficiency is real, New England has gas transmission challenges (as demonstrated by skyrocketing prices and unavailability during the 2013 polar vortex) and electrical transmission challenges (the substantial wind resources identified in northern Maine are 100 miles from the nearest transmission).  As Steve Rourke, a VP of ISO-NE, commented:  even as New England's fuel mix starts to change, those current coal plants are needed on the coldest and hottest days. Duke Energy - Paul Newton, the State President for North Carolina for Duke, stated flatly that EPA's interim compliance deadlines leave no room to ensure compliance can be achieved without compromising reliability.  In February, North Carolina set records for demand at 7 a.m.  Why did he select 7 a.m. to report?  Because that is a time when non-dispatchable generation assets cannot provide power. The Southern Company - Jeff Burleson, System Planning Vice President for Southern, explained how Southern plans for the future.  It looks at each plant (as it must because regional capacity can only be based on individual plant capacity).  EPA predicts that Southern will need to retire 9 GW as a result of the CPP, in addition to 3 GW as a result of MATS (Mercury and Air Toxics Standards).  In response, Southern anticipates needing 5 GW of new gas-fired plants.  There is one small impediment:  current gas pipelines in the region are fully subscribed.  Mr. Burleson also commented that demand response is estimated to be able to shave peak demand by about 10% and that that is already included in Southern's planning. The environmental perspective is that reliability issues are manageable.  As John Wilson, the Director of Research for the Southern Alliance for Clean Energy, commented, "the sky is not falling" and there is plenty of solar and wind energy available.  Energy efficiency will help too.  In sum, the Alliance's studies show that "ensuring reliability can be business as usual."  Johnny Casana of EDP was a little more equivocal, if the suite of low carbon strategies can ensure reliability, then the RSV may not be needed.  Jonathan Peress with the Environmental Defense Fund advised that their studies showed that there is ample pipeline capacity in New England if it is used efficiently.  Some may remain unconvinced.  The solar and wind resources don't meet Mr. Newton's 7 a.m. need.  One might legitimately be skeptical that "business as usual" can possibly apply to something that (to paraphrase Commisioner Moeller) is the most comprehensive and profound rule ever to come out of the Clean Air Act.  EPA's own estimate of over 50 GWs in plant retirements belies that.  As for efficient use of gas pipelines, all are for that.  But theoretical efficiency worked out in an office is not much salve as the temperatures drop and the pipes burst because the gas has not gotten to where it efficiently should.  Mary Walker, representing the Georgia Environmental Protection Division, best summed it all up.  What is needed is “economic dispatch v. environmental dispatch.”  When a state's environmental regulator is talking the language of FERC, it is worth listening to.  As Ms. Walker noted, the environmental regulator in Georgia is being asked to implement energy policy, which it hasn't done before.   A bit of jocularity between Administrator McCabe and Chairman LaFleur puts the issue, we think, in perspective.  Ms. McCabe owned up to her lack of knowledge regarding the sources of unreliability – squirrels, she had been informed by her staff, affect reliability.  The Chairman referred to an apocryphal "throw-down squirrel" that linemen carry on their trucks.  But linemen don't need a throw-down squirrel, squirrel outages are very real.  So what do we have?  One regulator, “learning something new every day;” the other regulator dispensing the wisdom of the ages, so to speak.   As we move forward with what both regulator and regulatee have referred to as the most significant regulation of the Grid ever, we suspect that many will want the people that really know, rather than the people who are picking it up as they go, in charge of keeping the lights on.

Carbon Dioxide | Regulation | Renewable Energy | Utilities

A View from the FERC - Part III - Time to Keep the Lights On

March 16, 2015 09:40
by Tricia Caliguire
Last week, FERC held the eastern regional technical conference on “Environmental Regulations and Electric Reliability, Wholesale Electricity Markets, and Energy Infrastructure.”  The purpose was for the commissioners to hear the specific issues created by EPA’s Clean Power Plan (CPP) relevant to the states, utilities, generators, consumers and transmission operators covered by ISO-New England, Inc., PJM Interconnection LLC, New York Independent System Operator, the Southeastern Regional Transmission Planning, South Carolina Regional Transmission Planning, Florida Reliability Coordinating Council, and the Northern Maine Independent System Administrator.  The overwhelming theme of the morning was that, to effectively comply with the CPP, the states, and state commissions, need more time. Most of the speakers recommended that EPA do away with the interim (2020-2029) compliance goals, complaining that there isn’t time between the likely date of the final rule (mid-summer 2015) and 2020 to plan for retirement of existing resources, and to permit, finance, and construct new natural gas combined cycle plants and the natural gas infrastructure on which these new plants will depend.  James Frauen from Seminole Electric Cooperative noted that the draft rule would require Florida to rely “almost completely” on natural gas, all of which must be imported. According to Frauen, the one new gas pipeline currently proposed to be built in Florida is already 91% subscribed.  (Not to mention that, in regulated markets, the premature retirement of coal plants means stranded assets which must be paid for by the same ratepayers who must finance the new sources.) Mike Kormos, VP of Operations for PJM, frankly stated, “[PJM] needs time and transparency.”  He explained that he couldn’t predict the impact of the CPP on reliability because of the unknowns.  “We don’t know what the final rule is,” he continued, “we don’t know what will be in the state implementation plans, and we don’t know how the market will respond.”  (Note that PJM modeled regional implementation of the CPP using the draft rules though at least one state complained that such modeling was premature.) Which begs the question: what is the rush?  Why not give the states more than one year to propose their SIPs and more than just two years for regional SIPs?  Keep in mind that the Regional Greenhouse Gas Initiative (RGGI) – a voluntary agreement – took close to five years to develop.  The answer may be found in the collision of politics and policy.  That President Obama has made the reversal of climate change, and particularly reduction of greenhouse gas emissions, a cornerstone of his second term should come as no surprise.  Between his 2008 statement that “under my plan. . . electricity rates necessarily would skyrocket,”  and his 2009 pledge in Copenhagen to reduce emissions “17% below 2005 levels by 2020,”  he made his intentions clear.  After failing to get climate change legislation through Congress in 2010, he turned to EPA.  Despite rumors that the rules had to wait until after the 2012 election, it now seems unlikely that they would have been ready before then.  What does seem likely is that the Administration wants to have the rules – and the SIPs – firmly in place before Obama leaves office, in January 2017.  Hence, the rush. When the final rule is issued this summer, as EPA continues to promise it will be, the states will have one year to file their SIPs, unless this requirement is stayed pending litigation.  After EPA reviews the SIPs, the states will have roughly two to three years to begin implementation.  The states will be in the same Catch-22 that they found themselves in with the Affordable Care Act:  Cash-strapped states may waste time and resources planning for a law that could be thrown out or substantially altered by the courts, but otherwise, they risk that the law will survive legal challenge and, by not having a SIP in place, will be subject to a less-flexible federal program.  Senate Majority Leader Mitch McConnell (R-KY) weighed in on the side of delay, warning states that submission of SIPs could subject them to “federal enforcement and expose [states with SIPs] to lawsuits.”  If the states don’t cooperate, McConnell reasons, it will “give the courts time to figure out if [the CPP ] is even legal, and it would give Congress more time to fight back.”  Supporters of the CPP responded that states who fail to design their own compliance plans will be at a “huge disadvantage.”  Meanwhile, the clock is ticking.  As FERC Commissioner Philip Moeller pointed out, “we don’t have a whole lot of time … because summer’s coming.”  

Carbon Dioxide | Carbon Emissions | Climate Change | Regulation | Utilities

Community Solar - A New Path in Illinois

March 5, 2015 14:55
by Tricia Caliguire
This week, the Chicago Tribune reports that the Citizens Utility Board (CUB) and the Environmental Defense Fund (EDF) filed a petition with the Illinois Commerce Commission (ICC) to require Commonwealth Edison Company (ComEd) to offer its customers the opportunity to participate in a three-year "community solar" pilot program. Just to get the players straight: ComEd is a regulated electric utility which services close to four million customers in northern Illinois. The CUB is the statutory representative of Illinois utility customers in all proceedings before the commission and federal agencies regulating the utility industry. (These organizations are more often called consumer or ratepayer advocates). On its website, EDF describes itself as a non-profit environmental advocacy and research organization whose mission is to "preserve the natural systems on which all life depends." The ICC is the state agency directed by statute to balance the interests of consumers and service providers "to ensure the provision of adequate, efficient, reliable, safe and least-cost public utility services." Community solar is also known as "shared renewables," "solar gardens" or, sometimes, "virtual net metering." Essentially, in a community solar program, multiple electric utility customers invest in a solar project and share in the financial proceeds, whether that is from the sale of excess power to the grid and/or renewable energy credits, based on their level of investment. Most, if not all, of the customers will not actually be physically connected to the solar facility. The benefits of community solar include reducing the level of investment required of the host residence or business and providing a means for all electric customers to experience the economic (and intrinsic) benefits of solar, even those who would otherwise be unable to install solar on their own residences or businesses (e.g., rented properties; shaded or otherwise unsuitable roofs). On the other hand, the soft costs of marketing and administering a program to multiple small investors can be significant, reducing those economic benefits. Community solar has also met resistance with regulators; while working in government, I heard concerns about soliciting of consumers, particularly seniors, to "go green" without hosting a solar system. (An Arizona solar company was recently fined for deceptive sales tactics, including targeting of senior citizens and making false claims about potential savings, though not related to a community solar product.) Electricity pricing can be confusing for consumers, even when dealing with their local utilities. Regulators are still sorting through the complaints and litigation resulting from the large numbers of electric and gas customers who switched to third-party suppliers over the past couple years, enticed by low natural gas prices and what they thought were fixed-price contracts, but who then faced bills two and three times higher than "normal" as a result of price hikes during the polar vortex events of 2013-14. The other major challenge for community solar has been to bring the utilities on board. Solar, like any form of distributed generation, will reduce the utilities' revenues. Here is where the Illinois proceeding may pave the way for community solar programs nationwide. In any such proceeding, the utility will be able to argue for recovery of administrative costs and fixed distribution costs, as well as for a return on the company's investment. In a twist on traditional community solar, California utility PG&E will begin later this year to offer its customers a stake in solar energy purchased from facilities within the PG&E service territory. Customers will see the extra costs of the solar energy they consume, plus related program costs, with a credit for standard generation that is avoided, on their monthly bills. And, avoiding a frequent criticism of subsidized clean energy programs, the rate structure ensures that customers who don't participate in the program will not share in the costs.

Regulation | Solar Energy | Utilities

The Keystone XL Pipeline Veto: Much Ado ...

February 27, 2015 21:39
by J. Wylie Donald
When one talks of pipelines in recent days one hears nearly an incessant buzz about Keystone XL, as if that is where the real action is. But it isn't, notwithstanding the histrionics over President Obama's veto of S.1, the Keystone XL Pipeline Approval Act. The real action lies not with an 850,000 barrel per day oil pipeline, but instead with the natural gas pipelines that are needed to supply the natural gas electricity generating plants that will be required to replace, in part, 103 gigawatts of coal powered generation. What are we talking about? Building Block 2 of EPA's Clean Power Plan posits the replacement of coal-fired generation with cleaner natural gas-fired plants. Natural gas plants are also part of the solution to compliance with the strict Mercury and Air Toxics Standards, which are also driving coal plants off the grid. But to get and keep those natural gas plants on-line, the natural gas needs to get there and to do that it needs a means of transportation, which for natural gas, means pipelines. How many miles of pipelines are needed? EPA concluded: "the power industry in aggregate can support higher gas consumption without the need for any major investments in pipeline infrastructure." But the Nation's reliability watchdog, the North American Reliability Corporation, politely disagrees. In its November 2014 review, Potential Reliability Impacts of EPA's Clean Power Plan, NERC noted EPA's position, but then commented: "there are a few critical areas that likely will need additional capital investments. As an example, current and planned pipeline infrastructures in Arizona and Nevada are inadequate for handling increased natural gas demand due to the CPP. Pipeline capacity in New England is currently constrained, and more pipeline capacity additions will be needed as more baseload coal units retire." And that was not the end of it. NERC concluded that more pipeline capacity was needed independent of Clean Power Plan retirements. Further, as should be obvious, pipeline construction will not occur in an instant. NERC points out that "it takes three to five years to plan, permit, sign contract capacity, finance, and build additional pipeline capacity." In other words, planning and permitting of new pipelines is required now if the EPA's initial 2020 compliance date is to be met. But as we reported in a recent post, States aren't even drafting their implementation plans, much less making determinations about what plants to shut down and where pipelines need to be built.Which suggests that we should ask the miles-of-pipeline-needed question again. We have not seen that number but NERC reports that, based on EPA's own estimates for plant retirements due to the Clean Power Plan and other regulatory requirements (primarily the Mercury and Air Toxics Standard), "the power industry will need to replace a total of 103 GW of retired coal resources by 2020, largely anticipated to be natural-gas-fired NGCC and CTs. We tried to compare 103 gigawatts to Keystone XL's 850,000 barrels of oil per day. We came up with a rather stunning number: the energy needed to replace the to-be-retired coal plants is almost 2000 times more than Keystone XL can deliver.* Which leads us back to the beginning of this post: the real action in pipeline permitting is going to be in natural gas. *A barrel of oil contains about 1700 kW-h of energy. So Keystone XL will deliver 850,000 bbl x 1700 kW-h or 1.445 x 10e9 W-h in one day. 103 GW of coal plants operating for 24 hours yields 2472 x 10e9 W-h.

Carbon Dioxide | Legislation | Regulation | Utilities

The Clean Power Plan: A View from FERC, Part II - Infrastructure

February 26, 2015 15:54
by Tricia Caliguire
Because I had a seat inside the meeting room at FERC's Clean Power Plan Overview last Thursday, I got a close-up view of the protesters.  Most were older (as opposed to the college-student variety), they carried signs, wore matching red t-shirts and, after the first panel concluded, began to chant, “gas is dirty.”  Though none of them explained what they meant, and the speakers so far had not focused on Building Block 2 (shifting dispatch from coal to natural gas combined-cycle generators), most of the rest of the crowd understood that they were protesting the Clean Power Plan (CPP) reliance on natural gas-fired power plants to reduce greenhouse gas emissions.  Given that the temperature outside was in the single digits, I wanted to ask the group if they knew how the building was heated sufficient for them to wear only t-shirts, but that would have meant risking my seat, so I demurred. The red shirts would have been pleased to hear, later in the day, that the US Department of Energy (DOE) recently completed a study titled “Natural Gas Infrastructure Implications of Increased Demand from the Electric Power Sector,” which found that compliance with the CPP would not require much additional spending for natural gas pipelines.  Commissioner LaFleur “questioned [the study’s] conclusions,” including that increased demand for gas can be satisfied by better or more strategic utilization of existing pipeline capacity.  Commissioner Clark was more blunt, pointing out that DOE gives the “false impression” that siting of pipelines will be easier than experience – particularly in the northeast – has proven it to be. As if to prove him prescient, last night, FERC staff held a scoping meeting for the PennEast pipeline project, proposed to traverse six, mainly suburban and rural, counties over a 114-mile route in northeast Pennsylvania and west-central New Jersey.  Hundreds turned out at the Ewing, New Jersey hearing (the first in New Jersey); most strongly opposed the pipeline; and many spoke in favor of the “no build” alternative.  The director of the New Jersey chapter of the Sierra Club, compared the natural gas companies to the British and Hessian invaders who tried “to take our land” in the 1700s (though some might argue that the land more precisely belonged to the British at that point).  “This pipeline turns 50 years of public policy and change on its head,” he continued. Supporters of the pipeline included union members (who need jobs) and the gas companies.  Though they spoke of the increased reliability of supply for their customers, some of which are power plants, they did not discuss the significant CPP compliance obligations of Pennsylvania and New Jersey and the role that natural gas-fired generation will likely play in meeting those obligations. Which brings us back to the meeting room at FERC.  Toward the end of the afternoon, an Environmental Council of the States (ECOS) representative conceded that not all environmental policies align.  Nuclear is carbon free, but it is nuclear.  Wind and solar are expensive, intermittent, take up lots of space, and interfere with (even kill) birds and bats.  The best wind resources are far from load and transmission lines are unsightly and may traverse protected areas.  Natural gas plants are cleaner than coal and oil, but the gas has to be brought to the surface and transported, whether by pipeline or tanker truck or train. And, as the red shirts made clear, some think gas too is dirty.  To meet the CPP goals in 2030, some policies will have to give.

Carbon Emissions | Regulation | Utilities

The Clean Power Plan: A View from FERC

February 19, 2015 22:30
by J. Wylie Donald
It is innocuous enough: Conference on Environmental Regulations; but the plainness of title belies what is going on at the Federal Energy Regulatory Commission today. Today is the first public forum at FERC on EPA's Clean Power Plan. It is playing to overflow crowds. Notwithstanding arriving an hour early, I didn't even get to see the Commission, except remotely. One of the panelists characterized the implications of the Clean Power Plan as the most significant transformation of the bulk power system ever. While some might not agree, none would disagree that EPA's involvement in the electricity grid is unprecedented. This tension was evidenced repeatedly. Reliability and affordability are paramount - where are they referenced in EPA's plan? States and FERC regulate power supply and distribution - how is EPA directing States to prefer one source over another? Citizen suits regularly seek to compel compliance with Clean Air Act requirements - who will be the target when a State plan incorporates voluntary initiatives like fluorescent light bulbs or efficiency planning?So that all have the basics: EPA issued its proposed rule last summer. Comments were due in the fall. A final rule is predicted in early summer. EPA has proposed a broad and flexible plan (EPA's terms) to allow the United States to reduce its carbon dioxide emissions 30% below its 2005 emissions. Each State has been given targets with wide flexibility on how it will get there. EPA has identified four building blocks: improvements in fossil fuel plant efficiency, expansion of renewable energy and nuclear power sources, replacement of coal plants with natural gas, and improvements in system efficiencies. State plans are required by 2016, which can be extended to 2017 and even 2018. Requirements kick in by 2020 with the plans fully implemented by 2030. The Commission is holding fora on the subject over the next 45 days. Besides today's National Overview conference, upcoming regional meetings are scheduled for Denver (2/25), DC (3/11) and St. Louis (3/31).The conference opened with FERC Chairman Cheryl LaFleur explaining the Commission's goals. FERC wants to move beyond rhetoric and ideology. There will be three panels focusing on reliability (which is all we will address in this blog), infrastructure and markets. The goal is to identify concrete facts and suggestions to move things forward. The other commissioners lent their views as well. Commissioner Moeller pointed out that the role of wholesale markets has expanded over the last several decades. In so doing, the grid has provided unprecedented reliable and affordable power to consumers. The Clean Power Plan cannot upset those markets. Commissioner Clark stated that the "rubber meets the road" issue is reliability, and responsibility for that falls squarely on State regulators and FERC. There needs to be a granular and technical analysis to make this happen, which will require the permitting of a lot of infrastructure. The analysis will be two-fold: what does the reliability analysis need to look like (things like voltage support, market impact, SIP integration) and how can FERC leverage its expertise to assist EPA. Commissioner Bay echoed the concerns about challenges and FERC assistance; he also emphasized the importance of addressing infrastructure and market operation. Commissioner Honorable likewise saw the exercise as a job of constructively and thoughtfully solving the problem, and in so doing providing assistance to EPA. Acting EPA Assistant Administrator Janet McCabe spoke for EPA. She acknowledged that reliability is absolutely critical and offered that in the last forty years of Clean Air Act activity, at no time have EPA actions affected reliability. Anticipating a topic raised by other speakers, Ms. McCabe was confident that the EPA proposal could be implemented by 2030, but she seemed to be offering flexibility on the interim deadlines; EPA is listening to the States' and industry's concerns about the short term planning horizons. Another anticipated topic was the reliability safety valve (RSV), although EPA did not call it by that name. Ms. McCabe offered that experience with the Mercury, Air Toxics Standards (MATS) demonstrated that compliance could be melded with reliability. Chairman LaFleur commented that her review of the written comments identified five different RSVs that people were considering: 1) a fixed process identified in the rule, 2) a dynamic process that can take account of changing conditions, 3) a rule that takes into consideration the mutual achievability of all state plans, 4) exceptions for particular plants, 5) exceptions for particular evolving circumstances (i.e., a hotline). There was no consensus on what should be written into the rule. The panelists did not see it exactly like EPA did. Focusing on just these two topics (timeline and RSV) one heard the following:TIMING States are not working on their implementation plans because the proposed rule is too uncertain (Environmental Council of the States - Alexandra Dunn, Edison Electric Institute member companies - Gerard Anderson) The timing to build plants, pipelines, and infrastructure is all five years or more - the interim deadline of 2020 is simply not achievable; a longer "glide path" to 2030 is needed (EEI) A longer timeline is necessary (American Public Power Association - Sue Kelly) The deadlines are not realistic - we are facing a short-term "cliff" (National Rural Electric Cooperative Association - Jay Morrison) There is no short-term cliff; PJM has demonstrated this (Sustainable FERC Project - John Moore)Pushing out the interim deadline and easing the "glide path" would make achieving EPA's goals a lot easier (EEI, Environmental Council of the States) RELIABILITY SAFETY VALVE All the contingencies cannot be seen now so there has to be an RSV "baked into the rule" (National Electricity Reliability Corporation (NERC) - Gerry Cauley)No one has defined what a reliability safety valve is so the ISO/RTO Council did and provided specifics in its written comments. Key is that the process for invoking the RSV needs to be written into the rule (Independent System Operator/Regional Transmission Organizations Council - Craig Glazer) The RSV needs to be dynamic - able to adjust based on changing resources over the 15 year implementation period and beyond (NRECA)The need for the RSV is overstated, but if it is available it needs to be tightly written (Sustainable FERC Project)The RSV needs to be available for entities that have approved operations but then find that things go awry (APPA) The EEI companies have not reached agreement on what the scope of the RSV should be (EEI). Other topics that bear paying attention to included: EPA involvement may interfere with the exclusive jurisdiction of the state utility commissioners (National Association of Regulatory Utility Commissioners (NARUC) - Lisa Edgar) Intermittent sources may compromise reliability (NARUC, NERC)The patchwork of state plans may not work together effectively (NERC) Need better coordination of electricity and gas sectors (APPA)EPA did not consider the value of fuel diversity (NRECA)States will be reluctant to bring their voluntary programs into a federally mandated implementation plan (Environmental Council of the States) As can be seen, there are a lot of topics for discussion. We expect the dialog will be intense over the next several months. On one thing there was unanimity, however; all of the panelists wanted FERC to be more than a potted plant. As Sue Kelly of APPA put it, EPA has swept FERC into the maelstrom, FERC cannot be chopped liver.

Carbon Emissions | Regulation | Utilities

A Provisional Winner of an Offshore Wind Lease is Announced and that Means the Goal Line is Still Far Off

August 24, 2014 23:23
by J. Wylie Donald
Offshore wind took another small step forward last week when US Wind was announced as the provisional winner of the US Bureau of Ocean Energy Management's August 19 auction of development rights to nearly 80,000 acres off of Maryland.  The price?  $8.7 million. According to the BOEM press release, and other reports the few million to be ponied up by US Wind (or by its Italian parents, Renexia and Toto S.p.A.) is more than was bid for offshore leases in Virginia and Massachusetts and apparently is justified by the substantial financial carrot established by the O'Malley administration: $1.7 billion in construction subsidies. So what does it mean to be a provisional winner? It means the Attorney General and the FTC have 30 days to complete an antitrust review, following which US Wind can sign the lease, file the required financial assurance and pay the balance of the lease bid.  And then it's all downhill, right?  Well, not so fast.  First, a lot has been done to get to this point: November 2010 – BOEM issued Request for Interest to gauge industry’s interest in obtaining offshore Maryland commercial wind leases.  Commercial interests, for example, showed no interest in offshore Maine.  February 2012 - BOEM published a Call for Information and Nominations to solicit lease nominations and request public comments.February 3, 2012 - BOEM published in the Federal Register a Notice of Availability of an Environmental Assessment, and a Finding of No Significant Impact (FONSI) for “commercial wind lease issuance and site assessment activities on the Atlantic OCS offshore New Jersey, Delaware, Maryland, and Virginia.” June 2012 - BOEM published a Finding of No Historic Properties Affected.December 18, 2013 - BOEM published a Proposed Sale Notice and took comments.July 3, 2014 –BOEM  published a Final Sale Notice scheduling the August 19, 2014 sale.  These steps have completed the first two phases of BOEM’s program for outer continental shelf leasing:  (1) planning and analysis, (2) lease issuance.  So in a little over 3 and a half years an entity interested in pursuing an offshore wind project, is poised, but poised for what?  It is poised for phases 3 and 4, site assessment, and construction and operations, as BOEM further explains in its fact sheet.  There is an ominous word in the fact sheet, however:  “BOEM conducts environmental and technical reviews of SAP [Site Assessment Plan], eventually deciding to approve, approve with modification, or disapprove” (emphasis added).  A Site Assessment Plan “describes the activities (installation of meteorological towers and buoys) a lessee plans to perform for the assessment of the wind resources and ocean conditions of its commercial lease area.”  That BOEM will eventually complete its review, does not suggest alacrity, or even timeliness.  Once the SAP is approved, another plan must be submitted, the COP, the construction and operations plan. The same ominous term, "eventually," shows up as well in the description of the approval process of the COP. And then, only after the COP is approved, can construction begin. What struck us as we reviewed all of this is that at least four sessions of Congress will have passed from when BOEM’s 2010 Request for Interest emerged before a single joule of energy will make its way from some mid-Atlantic zephyr into a Maryland household.  And it would not surprise us if it were six or eight sessions.  In other words, success in offshore wind may depend nearly as much on the political winds, as the meteorological ones. 

Regulation | Renewable Energy | Wind Energy

Top 6 at 6: Highlights of the Top Climate Change Legal Stories in the First Half of 2014

July 7, 2014 09:10
by J. Wylie Donald
Our semi-annual look at the top climate change legal stories is keyed on EPA.  You hardly have to have been awake to be aware of the Clean Power Plan and UARG v. EPA.  But other things have stirred the pot as well:  three reports – two by the Intergovernmental Panel on Climate Change and the other by Standard & Poor’s, and two climate change lawsuits – one by Illinois Farmers Insurance Company and the other by Biscayne Bay Water Keeper.    1.  The Clean Power Plan - On June 6 EPA issued a 600+ page proposal directed at controlling carbon dioxide emissions from operating power plants.  By June 2016 States are required to submit plans for such control (there is also an option for extending the due date if more time is needed).  EPA’s press release summarizes what is supposed to happen:   The Clean Power Plan will be implemented through a state-federal partnership under which states identify a path forward using either current or new electricity production and pollution control policies to meet the goals of the proposed program. The proposal provides guidelines for states to develop plans to meet state-specific goals to reduce carbon pollution and gives them the flexibility to design a program that makes the most sense for their unique situation. States can choose the right mix of generation using diverse fuels, energy efficiency and demand-side management to meet the goals and their own needs. It allows them to work alone to develop individual plans or to work together with other states to develop multi-state plans.    Thus, the learning that has gone on over the past several years as embodied in RGGI, AB 32, RPSs and other state initiatives is going to have an opportunity to prove itself. 2. UARG v. EPA - The Supreme Court has now weighed in on climate change three times:  Massachusetts v. EPA, Connecticut v. American Electric Power and, this past month, Utility Air Regulatory Group v. EPA. – Readers will remember the D.C. Circuit’s 2012 ruling in favor of EPA defeating challenges to the Endangerment Finding, the Tailpipe Rule, the Timing Rule and the Tailoring Rule.  UARG was a limited appeal of that decision and accomplished nearly all that EPA required.  At the end of June the Supreme Court affirmed EPA’s greenhouse gas regulatory program, with the exception of rules focused on a small group of emitters.  How small?  Before UARG EPA estimated its rules would reach 86% of GHG emissions.  After UARG EPA can reach only 83%.  In a nutshell, EPA has authority under the Clean Air Act to impose GHG emission regulations on major emitters already subject to regulation.  This bodes ill for those seeking to challenge the Clean Power Plan. 3. Climate Science - The science continues to mount demonstrating the effects of climate change.  In two more contributions from the Intergovernmental Panel on Climate Change, Working Group II lays out in Climate Change 2014: Impacts, Adaptation, and Vulnerability “how patterns of risks and potential benefits are shifting due to climate change.”  The report also assesses how “impacts and risks related to climate change can be reduced and managed through adaptation and mitigation.”  In Climate Change 2014:  Mitigation of Climate Change Working Group III “respond[ed] to the request of the world's governments for a comprehensive, objective and policy neutral assessment of the current scientific knowledge on mitigating climate change." The two reports complement Working Group I’s report released last year, which concluded:  “It is extremely likely that human influence has been the dominant cause of the observed warming since the mid-20th century.” 4.  Climate Risk - It has been a common theme for this blog that acceptance of climate change will occur not because of science, but because of the responses of business entities that recognize that climate change denial is not in their best interest.  But it is also a theme that until there is an actual identified business reason to take an action, businesses will not go out on a limb.  Standard & Poor’s exemplifies our thinking.  In March it issued a short report, Climate Change is a Global Mega-Trend for Sovereign Risk.  In the report S&P concludes “the evidence suggests that it is probably safe to expect that for most national economies, other things being equal, climate change will negatively impact national welfare and economic growth potential.  Observations corroborating this expectation could lead Standard & Poor’s to lower sovereign ratings on the most affected sovereigns.”  That is, “we see a potential problem but we aren’t ready to act just yet.”  Notwithstanding S&P's failure to move today, this pronouncement does communicate to the buyers of sovereign debt that they had better pay attention to climate change as it may be material to their investment. 5.  Illinois Farmers Insurance Co. v. The Metropolitan Water Reclamation District of Greater Chicago  - It didn’t take Illinois Farmers long (less than 60 days) to drop its lawsuits against dozens of municipalities and other government entities alleging negligent management of stormwater.  The central feature was the claim that the government entities were on notice of the effects of climate change and did not incorporate them into their stormwater planning.  We presume the entities’ sovereign immunity defense persuaded Illinois Farmers to go quietly in the night.  But the insurance company has competent lawyers and sovereign immunity surely was no surprise.  So, was this the proverbial shot across the bow, putting government, and the entities that serve government – the design and engineering firms – on notice that climate change had better enter into their forecasts or they will be pursued for negligence?  Time will tell.  6. U.S. v. Miami-Dade County - Miami-Dade’s sewer insfrastructure is falling apart and EPA compelled the city into a consent order under the Clean Water Act to get things cleaned up.  Enter the intervenor, Biscayne Bay Waterkeeper, who insisted that the consent decree was improper as it did not take rising sea levels caused by climate change into effect.  Federal district court judge Federico A. Moreno considered the consent decree and rejected it because it lacked sufficient incentive for the county to abide by the decree.  The court did not mention BBWK’s concern.  Nevertheless, Miami-Dade appears to have gotten the message that it needs to be paying attention.  The county has a task force devoted to sea level rise and it is preparing a report with recommendations.  This is from the April 28 minutes of the task force:    Chairman Ruvin said that sea level rise was inevitable, and to ensure that the community remained insurable, it was important to begin implementing a plan to address this issue. … Chairman Ruvin noted the Task Force members had heard enough information to understand the necessity of developing a plan to address sea level rise.  He said that there were global engineering firms with entire divisions devoted to sea level rise, and suggested that the County conduct a competitive process to retain the services of some of these firms to develop this plan. It remains to be seen, of course, whether the task force's recommendations will be accepted.

Carbon Emissions | Climate Change Litigation | Regulation | Rising Sea Levels | Supreme Court | Year in Review

Is RGGI in New Jersey's and Pennsylvania’s Future?

June 14, 2014 11:02
by John McAleese
With the release of EPA’s proposed regulation of CO2 from existing sources on June 2, there has been a lot of speculation that states will look to cap-and-trade schemes as a means of complying with EPA’s mandate that the states reduce CO2 emissions by 30% of 2005 levels by 2030. The Regional Greenhouse Gas Initiative (RGGI) provides an existing market-based framework for states in the northeast, and maybe nationwide, to implement cap-and-trade on an interstate basis. RGGI is currently a voluntary, interstate greenhouse gas emissions trading platform among Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island and Vermont. For New Jersey, which was in RGGI at one time but withdrew under the Christie administration, the new EPA regulations, assuming they become final in substantially the same form, give it the opportunity to re-think its decision to withdraw several years ago. So far, the New Jersey regulators have indicated that they are not willing to re-join RGGI, even as means of complying with the new EPA regulations. There are certainly other means for the state to achieve the emissions reductions called for by the EPA regulations such as limits with no trading, or mandates on use of non-CO2-emitting generation such as solar, wind and nuclear. However, the cap-and-trade structure provided by programs like RGGI offers sources the economic incentives for voluntary reductions even beyond what is called for by the EPA regulations. Time and pressure from the regulated community may change this position over the next several years – wait and see. Pennsylvania’s situation is even more intriguing. There is a Pennsylvania gubernatorial election this November. Pennsylvanians will vote either to keep the incumbent Republican, Tom Corbett, or to replace him with Democratic candidate, Tom Wolf. At the Pennsylvania Environmental Council’s Annual Philadelphia Dinner on Wednesday night, both candidates spoke to the mixed crowd of representatives of environmental groups, government and industry. Governor Corbett did not mention either RGGI or the proposed EPA CO2 emissions regulations, but he did signal his continuing support for natural gas production in the Commonwealth through fracking as a means to provide cleaner energy for Pennsylvania, and his belief that environmental stewardship is important but must be “balanced” with economic considerations. Mr. Wolf, on the other hand, unequivocally stated that, if elected Governor, he will “bring RGGI to Pennsylvania!” Several members of the crowd clapped enthusiastically, while everyone else remained quiet in anticipation of the dinner which had yet to be served. It will be interesting to see whether this limb that Mr. Wolf climbed (jumped) out on will sustain the weight of five more months of what is sure to be a heated campaign. There is a very good potential that this issue will become an important hot button in the election.

Carbon Emissions | Greenhouse Gases | Legislation | Regulation

Negligent Operation of a Storm Sewer: A New Theory of Climate Change Liability

May 2, 2014 00:08
by J. Wylie Donald
We have written many times about the flawed design of the nation's flood maps in an era of climate change.  And spoken about the potential for claims against professionals for failure to consider the effects of climate change in what they do.  On April 16, 2014 those two ideas manifested in a 143 page lawsuit filed in Cook County, Illinois asserting that local governments are at fault for flood damage that insurance companies had to pay for.  Illinois Farmers Insurance Co. v. The Metropolitan Water Reclamation District of Greater Chicago (attached).  Let us explain. Flood maps are based on the historical record. Lots and lots of data over lots and lots of years, with one major underlying assumption:  the past is a reasonable basis for predicting the future. But what if it is not?  In that case a 100-year flood plain may actually be a 50-year or 25-year flood plain, or perhaps a 200-year flood plain. One can't know, absent some effort to predict the future. This issue is not limited to FEMA flood maps. Storm water systems are sized based on the predicted 20-year or 50-year or even 100-year storm event. We have seen that terminology before and it signifies a similar result:  culvert sizing and flood protections suffer from the same defect as flood plain mapping - a retrospective view is not enough.  One might theorize that civil engineers, planners, and others involved in the design, construction and operation of stormwater systems have a duty to recognize this state of affairs and incorporate climate change effects into their activities. On April 18 and 19, 2013 heavy rains in Cook County and elsewhere resulted in flooding.  Insurance companies paid millions on the claims.  Now Illinois Farmers Insurance Co. and others are seeking to recover those millions in the form of a class action on behalf of other insurers and property owners against the water reclamation district and municipal and county governments.  Of itself, that would not be particularly interesting.  But the allegations vault this case, and six other similar cases, to the top of the climate change litigation pantheon.  The central theme in the complaint is that the local governments are at fault for flooding caused by mis-operated stormwater systems:  the “common, central and fundamental issue in this action is whether the Defendants have failed to safely operate retention basins, detention basins, tributary enclosed sewer and tributary open sewers/drains for the purpose of safely conveying storm water within Defendants' territorial jurisdictions"  ¶ 27.  The defendant governments allegedly knew their systems were undersized.  In anticipation of heavy rains, they would pump down reservoirs and tunnels.  Climate change set the context:   "During the past 40 years, climate change in Cook County has caused rains to be of greater volume, greater intensity and greater duration than pre-1970 rainfall history evidenced, rendering the rainfall frequency return tables employed by the Reclamation District and each Named Municipal Defendant inaccurate and obsolete." ¶ 48. Plaintiffs assert that the climate change effects are admitted:  "In or around 2008, the Reclamation District, the County of Cook, the City of Chicago and other Municipal Defendants adopted the scientific principle that climate change has caused increases in rain fall amount, intensity and duration during a rain in Cook County as evidenced by their adoption of the Chicago Climate Action Plan. " ¶ 49.   Next comes the allegation of knowledge of the specific hazard:  "This defendant knew that because of climate change causing increased rainfall, this defendant had to increase stormwater storage capacity of its stormwater sewer system(s) to prevent sewer water invasions." ¶ 51.  Thus, the local governments were alleged to be on notice that their infrastructure was insufficient to prevent harm to individuals and businesses.  The final point was that, notwithstanding this notice, in the face of a heavy rain (heavy, but not out of the ordinary based on either the historical record or a climate model), the governments failed to take steps to remedy the defect (i.e., the lack of storage capacity and conveyance capacity to address the rainfall). With that prelude, plaintiffs allege three counts:  negligent maintenance of the stormwater system by failing to utilize temporary stormwater protection systems, failure to remedy a known dangerous condition (where stormwater invasions had occurred before), and an unlawful “taking” in that the governments had (it is alleged) appropriated the property of others for diversion and retention basins, etc. This is a complaint we knew was coming, although we will candidly admit that we did not anticipate the plaintiffs. An insurance company as the plaintiff raises an interesting question.  Is the insurance industry intent on cannibalizing itself?  If Illinois Farmers prevails, it will start to establish a standard of care for both design professionals whose work is impacted by climate change, and for those who rely on such professionals.  Third parties injured by the failure of a stormwater system may bring claims against entities responsible for the systems.  So we will have theories of liability that will trigger liability policies, errors and omissions policies, and even directors and officers policies.  If all of them subrogate, like Illinois Farmers did, it takes no imagination to see the mess that will be created.  Even without subrogation, if the theory is successful, it will cut wide and deep.  It is surprising that an insurer would advocate for it.     20140416 Illinois Farmers Ins. v. Metro. Water Reclamation Dist. of Greater Chicago.pdf (4.58 mb)

Climate Change Effects | Regulation

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