Alerts and Updates
Energy, Environment and Resources Update
Issue 7 | January 2016
Motions to Stay Clean Power Plan Regulations Denied
On January 21, 2016, the U.S. Court of Appeals for the District of Columbia Circuit denied a series of motions for stay that had been filed by opponents of EPA’s recently finalized Clean Power Plan regulations. Twenty-seven states (or at least some representative of those states’ governments, such as an attorney general) are among the opponents, along with a number of industry groups. The motions were based on arguments that the regulations are unlawful because, among other things, they impermissibly treat an entire economic sector (the electric power generation sector) as a single Clean Air Act “source,” and establish EPA as an electricity czar armed with market-restructuring power that Congress never intended to provide.
The court did not issue an opinion, and therefore, its specific reasoning was not revealed (beyond the concise statement in its per curiam order that “Petitioners have not satisfied the stringent requirements for a stay pending court review.”). However, implicitly, and necessarily, it rejected some or all of the contentions that the states and other petitioners had made, i.e., that they or their constituents are being immediately and irreparably harmed, that a stay would cause no harm, that the public interest favors granting a stay, and that the petitioners are likely to prevail on the merits. The court also ordered that consideration of the proceedings on the merits be expedited, with final briefs to be filed by April 22, 2016, and oral argument to be held on June 2, 2016.
Mid-Atlantic Region Sees Energy Infrastructure Investment
The Mid-Atlantic region might experience a significant energy infrastructure build-out, ranging from natural gas pipelines to electric generation facilities, if the projects proposed for the region come to fruition. On December 30, 2015, Columbia Gas Transmission, LLC, filed an application with the Federal Energy Regulatory Commission (FERC) to construct certain natural gas pipeline facilities in West Virginia and Virginia, which will be known as the WB Xpress Project. In total, the project will include 29 miles of new pipeline, two new compressor stations and the modification of seven existing stations, resulting in additional pipeline capacity of approximately 1.3 billion cubic feet per day (Bcf/d). A second natural gas pipeline project application was filed with FERC in August 2015 by Atlantic Coast Pipeline, LLC, which is owned in part by Dominion Resources, Inc. The Atlantic Coast project consists of 564 miles of new pipeline and three new compressor stations located in West Virginia, Virginia and North Carolina with an expected capacity of 1.5 Bcf/d.
In addition, on January 12, 2016, Dominion Virginia Power announced plans to make significant investments in electric grid and generation facilities throughout its footprint in Virginia and North Carolina. Dominion intends to spend $2 billion per year through 2020 to construct and upgrade electric distribution and transmission facilities, as well as solar and other generation facilities. According to Dominion, these investments, totaling $9.5 billion, are intended to “meet growth, enhance reliability and promote cleaner air and water.” Dominion also states that using natural gas in lieu of coal for electric generation is a key component of its planned compliance with EPA’s Clean Power Plan.
FERC Declines to Resolve PURPA Dispute
On January 8, 2016, FERC declined to initiate an enforcement action under the Public Utility Regulatory Policies Act of 1978 (PURPA) in a matter involving a solar developer’s access to Connecticut’s renewable energy procurement program. Allco Renewable Energy Limited (Allco) argued that the Connecticut Department of Energy and Environmental Protection and the Connecticut Public Utilities Regulatory Authority’s implementation of the state’s renewable energy procurement law violated FERC’s exclusive authority to regulate wholesale electricity sales. Under PURPA, states are allowed to regulate sales that involve small-scale generation projects known as Qualifying Facilities (QFs). However, Allco argued that the Connecticut agencies compelled Connecticut utilities to enter into contracts with a 250-megawatt wind farm, too large to be considered a QF, and prevented QFs like Allco from being selected. Allco also contended that Connecticut is planning another procurement under a new state law setting a minimum 20-megawatt size for generation, virtually excluding all QFs from participation.
Connecticut argued that because the renewable procurement law is not implemented under PURPA, PURPA cannot be violated. Connecticut noted that PURPA does not prohibit state renewables programs that are different than, or supplemental to, a state-compliant PURPA program. Connecticut also argued that it had not acted in any way that would intrude on FERC’s wholesale authority. Connecticut asserted that its renewables program is permissible because (i) the utilities purchase their proportionate share of actual output from the renewable generator; (ii) the agreements do not require the renewable resource to participate in the regional capacity market; and (iii) it provides for the creation of renewable energy certificates to be used for compliance with state requirements.
While Connecticut requested both a favorable ruling and substantive guidance from FERC, such as a declaratory order, FERC simply issued a notice declining to initiate any action. Additionally, FERC stated that its decision does not preclude Allco from bringing its own action against the Connecticut agencies. Allco has since stated that it intends to file an enforcement action in federal court, ensuring that this issue will remain unresolved for the foreseeable future.
PACE Program Emerges as a Finance Tool in New York
PACE (Property Assessed Clean Energy) is an innovative financing tool that utilizes private capital to finance energy efficiency and renewable energy projects. PACE is a public/private initiative, whereby a local taxing authority utilizes its special assessment and tax lien powers to provide security to private funders. This mechanism provides senior lien status so that some private funders will make financing available for efficiency and renewable projects (when they otherwise would not) for longer amortization periods of up to 20 years. This means lower annual payments and greater affordability. Underwriting is tied to the value of the real estate, not the credit of the developer/owner. Amortization payments are made via the tax bill collected by the local taxing authority, which then passes them along to the private financing source.
In New York, PACE is administered by the Energy Improvement Corporation, a New York state nonprofit development corporation, sponsored in part by the New York State Energy Research and Development Authority (NYSERDA). PACE financing is available for use in buildings owned by both commercial and nonprofit entities, including multifamily properties. Improvements eligible for PACE financing also comprise, to some degree, various work done in most building rehabilitations. Utilizing PACE as a part of the capital stack in these projects would provide a developer with a source of gap financing at approximately 4 percent to 6.5 percent. A special program currently exists in much of Westchester County, whereby nonprofit and/or affordable housing developers can qualify for rates in the 2 percent to 3 percent range.
Pennsylvania Announces Planned New Methane Rules
On January 19, 2016, Pennsylvania Governor Tom Wolf announced a “nation-leading strategy” to reduce emissions of methane associated with natural gas production, processing and transmission. Citing the fact that Pennsylvania is the second-largest producer of natural gas in the nation (behind Texas), Governor Wolf said that the Department of Environmental Protection (DEP) will engage in rulemaking designed to require use of best practices to reduce leaks and other emissions of methane.
According to Governor Wolf’s press release, industry reported more than 5 million mcf (thousand cubic feet)—almost 115,000 tons—of methane emissions from unconventional wells and mid-stream operations in Pennsylvania in 2014 (an amount that is believed by the Wolf administration to be low). Also noted were federal government estimates that the natural gas and oil industries account for one-quarter of U.S. methane emissions, and that methane has 24 to 36 times more warming potential than carbon dioxide. These statistics were cited as justification for targeting the unconventional natural gas industry (much as EPA has targeted coal fired power plants via its Clean Power Plan).
The key points of the plan are to require best available technology (BAT) for equipment and processes, better record-keeping and quarterly monitoring inspections, as well as to apply more stringent leak detection and repair (LDAR) requirements. These requirements will be imposed through regulations applicable to new and existing sources, and through permitting requirements. For more information, read DEP’s explanatory white paper.
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