Alerts and Updates
Energy, Environment and Resources Update
Issue 9 | February 2016
WOTUS Rule to be Considered by the Sixth Circuit
On February 22, 2016, a three-judge panel of the U.S. Court of Appeals for the Sixth Circuit ruled (2-1) that the Sixth Circuit, not the District Court below, was the appropriate venue for consideration of challenges, by both state and private-sector petitioners, to the “Waters of the United States” (WOTUS) final rule (aka “Clean Water Rule”) published by EPA and the U.S. Army Corps of Engineers in June 2015 (80 Fed. Reg. 37,054) (effective August 28, 2015). The WOTUS rule represents the agencies’ most recent effort at defining, by regulation, those waters and wetlands that fall within the reach of many essential Clean Water Act provisions (e.g., provisions relating to permitting and state water quality certification), and those that do not. This decision concerning venue ends a four-month period during which the final rule has been stayed, but its merits have not been considered.
The two judges who ruled in favor of the case proceeding in their court are the same ones who had ruled in favor of imposing the stay. Their decision to order a stay reflects their conclusion that the challengers had demonstrated a likelihood of success on the merits. The merits will now be heard by the same three-judge panel (absent rehearing, en banc, of the panel’s decision on venue). If, as some speculate to be likely, the substance of the WOTUS rule is invalidated by the panel, there is the possibility—arguably, given the stakes, the probability—of rehearing en banc before the entire Sixth Circuit. Once finally decided by the Sixth Circuit, the case is likely to make its way to the U.S. Supreme Court, the composition of which, at this time, is its own question. It would be reasonable to speculate that the final word of the Sixth Circuit will arrive prior to the confirmation of a new justice of the U.S. Supreme Court, but equally reasonable to guess that the Sixth Circuit might need more time, or just take its time, in reaching an ultimate conclusion.
California Water Board Extends Regulations for Water Conservation
On November 13, 2015, California Governor Jerry Brown issued an executive order directing the State Water Resources Control Board to extend the current emergency water conservation regulation, mandating a statewide reduction in potable urban water use of 25 percent, if drought conditions persisted through January 2016. Under the emergency water conservation regulation, urban water suppliers had been assigned mandated conservation reductions ranging between 8 percent and 36 percent.
Despite recent precipitation, on February 2, 2016, the State Water Resources Control Board adopted an extended and revised emergency water conservation regulation that continues restrictions on potable water use through October 2016. The revised regulation continues prohibitions on customer end-uses of water, such as the application of potable water to driveways and sidewalks and the irrigation of turf on public medians, among other uses. As revised, the regulation creates penalties for homeowners’ associations and community service organizations that impede homeowners from reducing or eliminating outdoor watering. Most significantly, the revised regulation continues the mandated reduction targets on urban water suppliers but provides for adjustments to a supplier’s calculated conservation standard that takes into consideration differences in climate (evapotranspiration rates), water-efficient growth since 2013, and the significant investments made by some urban water suppliers in creating new, local drought-resilient sources of potable water (e.g., desalination). If applicable, such adjustments range from 2 percentage points to a maximum allowable reduction of 8 percentage points in an urban water suppliers’ assigned conservation standard.
Further information on urban water conservation can be found on the State Water Resources Control Board website.
FERC Seeks Comment on Primary Frequency Response
On February 18, 2016, the Federal Energy Regulatory Commission (FERC) issued a notice of inquiry (NOI) concerning the ability of new types of generation resources to maintain a balance between generation and load. Balance is necessary in order to maintain a scheduled electricity frequency of 60 Hz within the bulk power system. Generators maintain that balance by providing frequency control services, which include inertial response, and primary and secondary frequency response. Conventional, fossil fuel fired generation facilities have been a reliable source of frequency control services. In contrast, variable energy resources (VERs) generally do not offer the capability to provide frequency control services. As VERs make up a greater share of the generation resource mix, frequency control services could diminish, thus leading to reliability challenges within the bulk power system.
The Commission’s overall goal of the NOI is to ensure that frequency response is maintained at reliable levels throughout the bulk power system while seeing increasing levels of participation by VERs. In response to its overall goal, the Commission is inviting comments on the need for changes to its rules and regulations regarding frequency response. More specifically, the Commission seeks comment on: (1) possible changes to generator interconnection agreements that would mandate primary frequency response requirements for new generators; (2) possible regulations requiring primary frequency response capability for existing generation resources; and (3) compensation for generators that provide primary frequency response. Given the early stages of this proceeding, the impact on generators, and VERs in particular, is not clear-cut. Nevertheless, the fact that some balancing authorities are implementing frequency response requirements implies that VERs may need to adapt to a more rigorous set of frequency response requirements, which could mean increased design and construction costs. Comments are due to the Commission within 60 days of publication in the Federal Register. Publication occurred on February 24, 2016, with comments due by April 25, 2016.1 The NOI is available in Docket No. RM16-6-000.
1 Essential Reliability Services and the Evolving Bulk-Power System—Primary Frequency Response, 81 Fed. Reg. 9182 (Feb. 24, 2016); 154 FERC ¶ 61,117 (2016) (issued Feb. 18, 2016).
Mexico Successfully Launches Wholesale Electric Market
On January 27, 2016, Mexico launched its wholesale electric market, with day-ahead pricing. The market initially opened only in the northern Baja peninsula region but has gradually expanded elsewhere. Additionally, real-time pricing has been added and the first electric power generation auction is scheduled for March 31. Centro Nacional de Control de Energía (CENACE), the independent transmission operator, is also planning to hold auctions for financial transmission rights and capacity in late 2016 and early 2017, respectively. All of these changes are part of Mexico’s ongoing efforts to reform its energy sector with market liberalization and private investment.
While early, the initial results of the wholesale market have been generally well-received. Published prices are, in many cases, lower than the traditional generating costs of the Mexican state utility, Comisión Federal de Electricidad (CFE), and consistent with marginal costs. Many outside experts believe the successful launch of the wholesale market is an essential step in encouraging the private investment necessary to increase Mexico’s generating capacity. According to the Mexican Energy Ministry, the country will need to add 7,533 MW of generating capacity by 2040, most of it in the form of public-private partnerships with CFE, which currently lacks the capital and technical knowledge to develop the electric market on its own.
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