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Energy, Environment and Resources Update

Issue 14 | June 2016

Approved Jurisdictional Determinations Now Subject to Appeal

By Seth v.d.H. Cooley

In a game-changing decision for the world of wetlands law and beyond, the United States Supreme Court has held that U.S. Army Corps of Engineers-approved “jurisdictional determinations” (commonly referenced as “JDs”) constitute “final agency action” and can be appealed by property owners prior to any subsequent governmental enforcement or permitting action. United States Army Corps of Engineers v. Hawkes Co., Inc., No. 15-290 (May 31, 2016).

Upholding the determination of the Court of Appeals for the Eighth Circuit, the eight-member Supreme Court—perhaps influenced by the memory of the late Justice Scalia’s strong views on the intersection of individual property rights and the Clean Water Act—unanimously held that a Corps-approved JD is of such practical legal and economic significance that the owner of the affected property should be entitled to seek judicial review without awaiting regulatory or judicial action by the government (e.g., a penalty assessment for dredging alleged “waters of the United States” without a permit).

The Court’s ruling, while facially limited to JDs approved by the Corps, is rightly being viewed as landscape altering for any number of other areas of administrative regulation, as the core principle underlying the ruling is that a “pragmatic” approach should be taken by the courts when considering whether a given regulatory agency determination is “final” and therefore appealable. Needless to say, practitioners in myriad fields of regulated commerce are more than familiar with the nearly ubiquitous regulatory refrain that “this is not a final action and it may not be appealed,” no matter how consequential the determination might actually be.

PJM Capacity Auction Results Trending Lower

Wholesale capacity prices are trending down in the mid-Atlantic region. The region’s wholesale market operator, PJM Interconnection (“PJM”), has announced the results of its May 2016 capacity auction for Delivery Year 2019/2020, which are down from the August 2015 auction for Delivery Year 2018/2019. The May 2016 auction cleared 167,305.9 MW and set the price for Capacity Performance Resources in non-constrained areas at $100/MW-day. By comparison, the August 2015 auction cleared 166,836.9 MW and set the price for Capacity Performance Resources in non-constrained areas at $164.77/MW-day. These results are important because they follow the implementation of PJM’s Capacity Performance program, which is intended to ensure resource performance characterized by sustained and predictable operation when needed. The Federal Energy Regulatory Commission (“FERC”) accepted PJM’s proposal in June 2015. In addition to Capacity Performance Resources, the auction includes Base Capacity Resources, which can consist of generation, demand response or energy efficiency resources. Capacity Performance Resources that do not operate when needed are subject to non-performance charges.

According to PJM, the May 2016 auction results were lower than some had anticipated due to market fundamentals that included a lower load forecast and the availability of new natural gas-fired generation. One takeaway from the results highlighted by PJM is a demonstrated confidence in the competitiveness of natural gas-fired generation and natural gas fuel prices. Before the inclusion of Capacity Performance Resources, the capacity price for Delivery Year 2017/2018 for non-constrained areas was $120/MW-day. While the future retirement of coal-fired generators may have an impact on the pool of available resources, in a world with little to no load growth and new natural gas generation, steady capacity prices could be around for a while. 

Court Addresses Limits of Coverage for Faulty Rooftop Solar Installation

A Michigan appellate court recently addressed what coverage, if any, was available under a general liability insurance policy for damage caused by the improper installation of rooftop solar panels. Mid-Michigan Solar LLC (“MMS”) was contracted to install photovoltaic solar power systems at a customer’s property. Shortly after installation, problems arose, including a solar panel array shifting out of place. The problems were attributed to faulty installation on the part of MMS. After MMS settled an action against it for approximately $1 million, its insurer, Employers Mutual Casualty Company (“EMC”), denied that it had an obligation to defend or indemnify for losses that were limited to problems with the solar equipment that MMS installed.

In upholding the trial court’s grant of summary judgment in favor of EMC, the Michigan Court of Appeals agreed that the damage was not covered within the limitations of the policy and, accordingly, that there was no duty on the part of EMC to defend or indemnify MMS. The court held that “when the damage arising out of [MMS’] defective workmanship is confined to [MMS’] own work product, [MMS] is the injured party, and the damage cannot be viewed as accidental within the meaning of the standard liability policy.” Furthermore, the court found that “damage resulting from negligence or breach of warranty would constitute an occurrence triggering the policy’s liability coverage only if the damage in question extended beyond [MMS’] work product.”

With the increasing use of rooftop solar across the country, issues arising from faulty installation will likely remain a concern for developers, manufacturers, contractors and property owners who contract for installation either through a lease or direct ownership. As this case demonstrates, all parties should take care to understand the scope of insurance coverage on work being contemplated.

The case is Employers Mutual Casualty Co. v. Mid-Michigan Solar, LLC, Case No. 325082, Michigan Court of Appeals.

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