U.S. EPA Moves to Repeal Clean Power Plan

In a much-anticipated move, the U.S. Environmental Protection Agency (EPA) is proposing repeal of the Clean Power Plan (CPP).  The draft proposed rule outlines EPA’s revised interpretation of its authority under Clean Air Act section 111(d) to regulate greenhouse gas (GHG) emissions from power plants only within the fenceline.  EPA concludes in the proposed rule that the CPP “system of emission reduction” for GHGs is inconsistent with section 111(d), given that only one of the three “building blocks” of the CPP directly applies to or at fossil fuel-fired power plants themselves, rather than to the owners or operators of plants, who could take action outside the fenceline to meet the CPP GHG performance standards.

To arrive at the revised interpretation, the proposed rule looks to how certain terms and phrases in section 111, particularly ‘application of the best system of emission reduction’ and similar terms, are used in other sections of the Clean Air Act and related legislative history of the language.  The proposed rule also takes stock of the Agency’s prior “understanding” of section 111 as applying to physical or operational changes to a source, reflected in previous regulatory actions.  EPA noted that the revised interpretation will avoid illogical results in light of other provisions of the Clean Air Act and avoid a policy shift in the relationship between federal and state government and conflicts with other federal legislation and the jurisdiction of the Federal Energy Regulatory Commission.  The proposed rule’s Regulatory Impact Analysis provides a revised accounting of the costs and benefits of the CPP, versus its repeal.  EPA has also proposed the express rescission of the legal memorandum that detailed the Agency’s previous legal analysis in support of the CPP.

Anticipating criticism of its about-face in the legal arguments underpinning the CPP, the proposed rule notes judicial precedent, including Chevron v. NRDC, in support of reconsidering prior decisions “on a continuing basis.”  The draft proposed rule directly addresses several perceived legal flaws with the CPP as it was adopted, but this will not head off legal challenges to the final rule, assuming the repeal goes forward as proposed.  Multiple states, as well as environmental groups that stepped into the fray in the current litigation over the CPP, are expected to bring suit once a final rule is adopted.  Opponents would likely challenge the repeal based not only on the arguments EPA advanced in 2015 on why the Agency is required under the Clean Air Act to regulate GHGs from existing power plants, but they are also expected to take issue with EPA’s unabashed change in stance driven by policy preferences rather than a legislative change or new scientific evidence.  The revised Regulatory Impact Analysis is another anticipated target for lawsuits.  With the likelihood that the Supreme Court would eventually hear any lawsuits challenging a repeal, in one twist of interest to SCOTUS watchers, Justice Gorsuch, the newest member of the Court appointed by President Trump and a strident critic in his appellate decisions of deference to agency action under Chevron, could hear arguments from EPA underpinned by Chevron deference.

EPA is not proposing or taking comment on a CPP replacement, but is considering whether to propose a new rule under section 111(d) to address GHGs from existing fossil fuel-fired power plants.  Per the draft proposed rule, EPA intends to solicit information on systems of GHG emission reductions that would be consistent with EPA’s revised interpretation of section 111(d) in a forthcoming Advanced Notice of Proposed Rulemaking.

The proposed rule notes that the New Source Rule issued under Clean Air Act section 111(b) – that is, the regulation of GHGs from new and modified power plants – is also undergoing review and reconsideration pursuant to President Trump’s March 28, 2017 Executive Order that launched the reexamination of the CPP.

Tax Equity Investors Wave Goodbye to FPA Section 203

Tax equity investments, and potentially other passive investments, in renewable energy just became that much easier to make.  Today, in response to a petition for declaratory order filed in January 2017 by a coalition of investors and project sponsors, FERC ruled that tax equity investments in public utilities does not trigger section 203 of the Federal Power Act provided the interests acquired by investors are “passive” according to the test set forth in FERC’s AES Creative Resources order.  But other investments are equally passive, at least according to the AES Creative Resources standard, and so today’s decision would arguably relieve those transactions of having to seek FERC’s approval.

Today’s order is available here.  Ad Hoc Renewable Energy Financing Group

DOE Directs FERC to Enact Special Compensation Rule for Coal Power

By a notice issued yesterday, September 28, Rick Perry, the Secretary of Energy, utilized section 403 of the DOE Act to require FERC to cause organized energy market operators (ISOs/RTOs) to compensate “fuel secure generation”, i.e., coal power, for grid “resiliency”–something that apparently puts Americans at risk despite statements by NERC to the contrary or the existence of RMR resources.  (The term “fuel secure generation” could also include nuclear power, but who are they kidding?  It’s crafted for coal.)  The notice surgically carves natural gas generators out of the money by referring to the natural gas shortages that affected power generation during the Polar Vortex.  This rare action by DOE gives FERC only 60 days to take final action or to issue the proposed rule as an interim final rule.  This of course means the timeline for FERC to solicit feedback is quite short–perhaps intended to allow Interim Chairman Chatterjee and Commissioner Powelson to take action on this notice alone before FERC has a full set of commissioners.  This morning, former NARUC President Travis Kavulla called the notice, if adopted, “the largest change to electricity regulation in decades.”

This is a big deal.  For those interested, the notice is found here:  DOE Grid Resiliency Notice.

5 Things Reflected in the ITC’s Suniva Injury-Phase Vote and What Comes Next

The U.S. International Trade Commission (ITC) voted unanimously on September 22, 2017, for an affirmative determination of injury to U.S. producers of crystalline silicon photovoltaic (CSPV) products, such as solar cells, modules and panels, from increased imports of those products into the U.S. market.  The vote concludes the “injury phase” of the investigation which began on May 17 with the acceptance of a petition for relief from imported CSPV products filed by solar manufacturer Suniva, Inc. (later joined by SolarWorld Americas, Inc.) pursuant to Sections 201-202 of the Trade Act of 1974.  As we reported in an earlier blog post, the ITC held a public injury-phase hearing on August 15, 2017, in which the Commissioners heard testimony and received statements and briefs from petitioners and their supporters and opponents of the petition.  Meanwhile, ITC staff was busy summarizing and analyzing data collected during the investigation, which efforts produced an injury phase report (Staff Report) that runs more than 500 pages.  Here are five key things reflected in the September 22 vote.

1.  The ITC’s Vote Was Directed Toward 13 Existing U.S. Producers – The ITC collected data from the five-year period from 2012 through 2016 and identified 13 operating domestic producers of CSPV cells, including petitioners Suniva and SolarWorld.  The Staff Report noted that three domestic producers, tenKsolar,  Motech and Silicon Energy, had ceased operations during the period.  The Staff Report stated that these 16 (13+3) producers accounted for 100% of domestic CSPV cell production, and 63.9% of domestic CSPV module production during 2015. (See Report pages I-53 to I-55) The remaining domestic module production was contributed from various assembly operations and excluded modules made from imported CSPV cells. (See Report page III-33) U.S. producers are defined as companies with production facilities in the U.S. territory; foreign ownership or control, financial solvency and volume of production are irrelevant for defining U.S. producers under the statutory language.  Further, other industry players are irrelevant to the injury analysis, including investors, utilities, state and local interests, installers and those employed in these downstream and supporting sectors.  Only domestic producers and those directly working for them are protected parties in the injury phase.

2.  Statutory Language Matters – ITC trade investigations are not subject to creative statutory interpretation. The Commission reads and follows the relevant statutory language.  Here, the statute is straightforward.  The ITC mandate is to investigate “whether an article is being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry producing an article like or directly competitive with the imported article.”  The statute further defines domestic industry as “the producers as a whole of the like or directly competitive article or those producers whose collective production of the like or directly competitive article constitutes a major proportion of the total domestic production of such article.”  The “article” is the merchandise defined in the petition and deemed to be the scope of the investigation, which was published in the ITC’s notice of initiation of the Section 201 investigation on June 1 (82 FR 25333 2017).  A “substantial cause” is “a cause which is important and not less than any other cause.”  Finally, “serious injury” is “a significant overall impairment in the position of a domestic industry.”   Unlike some statutes with general or undefined language that allows a court or agency significant room for interpretation, Congress provided specific guidance to ITC in this one.  The Commissioners have little room for creative interpretation. Continue Reading

Transaction Structuring Matters: North Carolina Rejects Third-Party Rooftop Solar Power Purchase Agreements

A North Carolina appeals court has reminded energy developers in the state of the importance of structuring a transaction so as not to trigger the state’s utility franchise laws. For one unfortunate developer, that reminder came in the form of disgorged revenues and potential monetary penalties.

Earlier this month, on September 19, 2017, a North Carolina appeals court (in a 2-1 decision) upheld a decision of the North Carolina Utilities Commission (“NCUC”), which found that an environmental non-profit organization (NC WARN) was impermissibly operating as a North Carolina “public utility” when NC WARN entered into a power purchase agreement to own and operate solar panels on a church’s property and to charge the church based on the amount of electricity generated by the solar panels. (State of North Carolina ex rel. Utilities Commission et al. v. North Carolina Waste Awareness and Reduction Network, Case No. COA16-811). The North Carolina court found that such service by NC WARN infringed on the franchised utility’s electric service territory, contrary to North Carolina’s policy prohibiting retail electric competition and establishing regional monopolies on the sale of electricity. According to the court, NC WARN’s activities (in owning and operating the solar panels on the church’s roof and selling electricity from those solar panels to the church) were in direct competition with the franchised utility’s services as both entities were selling electricity to the franchised utility’s customer.   Continue Reading

Updates to Energy Related Bills in the 2017-2018 California Legislative Session

Stoel Rives’ Energy Team has been monitoring and providing summaries of key energy-related bills introduced by California legislators since the beginning of the 2017-2018 Legislative Session. Legislators have been busy moving bills through the legislative process since reconvening from the Summer Recess. For any bill not identified as a two-year bill, the deadline for each house to pass the bill and present it to the Governor for signature or veto was September 15, 2017. Below is a summary and status of bills we have been following.

An enrolled bill is one that has been through the proof-reading process and is sent to the Governor to take action. A two-year bill is a bill taken out of consideration during the first year of a regular legislative session, with the intent of taking it up again during the second half of the session.

  • Of particular note here is SB 100, California’s pitch for 100 percent renewable energy, failed to move to the next stage of the process and is kicked to next year.
  • Our next blog post, after October 15, will provide an update on whether those bills sent to Governor Brown were signed or vetoed.

Continue Reading

Recent Federal Actions to Streamline the NEPA Process

There has been a string of actions in the past few weeks addressing the federal government’s policy goal of streamlining the NEPA review process.  Although a number of actions have been taken, it presently boils down to this:  the federal government seems to genuinely be pursuing ways to make the NEPA process for infrastructure projects (including energy projects) faster, more predictable, and more efficient.  Whether and how this will be implemented in practice remains to be seen.  The Dept. of Interior and CEQ have been the first to take (aspirational) actions to implement this policy.  The following summarizes the recent actions.

President Trump issued Executive Order 13807, titled “Establishing Discipline and Accountability in Environmental Review and Permitting Process for Infrastructure Projects. Among other things, EO 13807 directs the following:

  • Development of a “performance accountability system” to track milestones and deadlines “major infrastructure projects,” score agencies’ ability to meet those deadlines, establish best practices for the permitting/review of infrastructure projects.  Projects would also be tracked through a “dashboard” that is updated monthly.
  •  Implement “One Federal Decision” for major infrastructure projects.  Under “One Federal Decision,” a project would have a single lead agency that will coordinate all necessary federal approvals and issue a single record of decision to address all those approvals.
  • The completion of all permit decisions should occur within 90 days of the ROD, and “not more than an average of approximately 2 years” after issuance of the notice of intent to prepare an EIS.
  • CEQ’s development of a list of initial actions that it will take to modernize the federal environmental review process, which can include issuing new regulations, guidance, and other directives.

For purposes of the EO, “major infrastructure project” essentially includes energy, water, and transportation projects for which multiple federal authorizations are required and for which an EIS is required.  The EO is fairly general and ambiguous and leaves room for exceptions to just about all of its directives.  The EO can be viewed here:  https://www.whitehouse.gov/the-press-office/2017/08/15/presidential-executive-order-establishing-discipline-and-accountability.

CEQ responded by issuing a notice listing the actions it plans to take to implement EO 13807, as follows: Continue Reading

ITC Prepares to Vote on the Suniva/SolarWorld proceeding re Crystalline Silicon Photovoltaic Cells

As we approach the critical September 22  vote of the U.S. International Trade Commission (ITC) for the U.S. solar industry, here is a brief review of how we arrived at this point and what to expect.  This vote will constitute the injury determination in the ITC global safeguard investigation into the effect of imported crystalline silicon photovoltaic (CSPV) products on the U.S. domestic solar manufacturing industry.

Overview

As reported widely in the solar industry press, on August 15, 2017, the ITC in Washington D.C. conducted a public hearing for the injury phase of the trade investigation (Inv. No. 201-075) into CSPV product imports.  The hearing generated more than 400 pages of hearing transcript and thousands of pages of briefing materials and statements submitted both in support and in opposition of the need for trade protection remedies to  support the U.S. domestic solar manufacturing industry.  A public version of some hearing testimony is available here.  The stakes are high.  This investigation could lead to  increased tariffs, quotas, or both, against all U.S. imports globally of CSPV cells whether or not partially or fully assembled into other products. CSPV cells are the most common form of raw power-generating material used in solar panels.  This investigation is being conducted pursuant to U.S. trade statutes and U.S. obligations under the World Trade Organization (WTO) terms of the Agreement on Safeguards. Continue Reading

What is FPA Section 203(a)(1)(B)? American Transmission Company Reminded Us.

The US Treasury will soon be $205,000 richer due to the payment of a civil penalty by American Transmission Company (ATC) related to violations of sections 203 and 205 of the Federal Power Act.  ATC’s compliance failure stems from 21 transactions for which it had failed to file for authorization under section 203 and 29 agreements that ATC failed to file under section 205.  Without diving into the details of the individual transactions or agreements, what is clear to this observer is that ATC stumbled over two oft-misunderstood (and in one case, seldom-used) sections of the Federal Power Act and how they apply to these situations.

To begin, Section 203(a)(1)(B) requires that a public utility must obtain FERC’s prior approval before it “merge or consolidate, directly or indirectly, such facilities or any part thereof with those of any other person, by any means whatsoever.”  (I know–exciting!)  This rarely-used subpart of section 203 has generally been known as the “acquisitions section” and it requires a public utility to obtain FERC approval before acquiring the jurisdictional facilities of another public utility.  At least one of ATC’s acquisitions had a price tag of slightly over $1,000, but that didn’t matter here as there is no value threshold for section 203(a)(1)(B).  Any transaction, no matter how small, can trigger it (as ATC discovered).  The lesson to be learned here is that section 203(a)(1)(B)’s “merge or consolidate” language doesn’t mean exactly just that; it means “acquire.”

ATC’s second misstep was caused by the failure to file 29 agreements under section 205.  The energy industry is closely familiar with section 205 but primarily with respect power sales and transmission services.  In ATC’s case, it failed to file Common Facility Agreements for the shared use of substations and agreements to share transmission poles by double circuiting.  (Yes, they fall under FERC’s jurisdiction.  Surprise!)  These agreements are anything but your typical everyday contracts that one would expect to trigger section 205, and unfortunately there has been little clarity, if any, from FERC over the past decades regarding how section 205 may apply on its margins.

The penalty’s $205,000 amount is surprising given the nature of the violations, and it is made even more so given that ATC self-reported its violations to FERC.  (Not exactly encouraging for those considering it.)  But, on the positive side, we can all thank FERC’s Office of Enforcement (at ATC’s expense) for reminding us about these lesser-known applications of federal law.

California Extends Cap-and-Trade Through 2030

On July 25, 2017, California Governor Jerry Brown signed legislation extending the state’s cap-and-trade program through 2030. The signing ceremony for Assembly Bill (AB) 398 included former California Governor Arnold Schwarzenegger, who signed the first state statute authorizing cap-and-trade in 2006, AB 32.  The ceremony cemented the deal that Governor Brown struck with California lawmakers, passing AB 398 with bi-partisan support and a two-thirds majority of the Legislature.  In contrast to the passage of Senate Bill 32 in 2016, which extended California’s greenhouse gas reduction (GHG) targets through 2030 with the enactment of one simple sentence into statute, AB 398 stretched for pages.  AB 398 provided many details to be incorporated into the cap-and-trade regulation by the California Air Resources Board (ARB), the agency in charge of implementing cap-and-trade, and laid out requirements to mitigate the impacts of GHG regulation on regulated industry and increase in-state benefits.

Among the more note-worthy provisions of AB 398 were (1) a price ceiling on cap-and-trade allowances, (2) limitations on the use of offsets, particularly from out-of-state projects, and (3) a continuation of previous allowance allocations to vulnerable industries. ARB will also report to the Legislature by the end of 2025 on statutory changes needed to reduce leakage, including a potential border carbon adjustment.  Outside of the cap-and-trade regulation itself, the bill provides support to regulated entities with relief from sales and use taxes and prohibits local air districts from enacting additional GHG emissions reduction requirements.

In crafting the AB 398 deal, proponents of the bill wisely secured the votes necessary to pass the bill with a two-thirds majority and avoid the question whether cap-and-trade auctions post-2020 would be an unlawful tax under Proposition 26. The most recent cap-and-trade litigation in California Chamber of Commerce v. ARB and Morning Star Packing Co. v. ARB avoided this question, given that the original statute authorizing cap-and-trade, AB 32, was passed before Proposition 26 was voted in.  Proponents also secured support from sources as disparate as the California Chamber of Commerce, California Manufacturers and Technology Association, Natural Resources Defense Council, and Environmental Defense Fund.  Nevertheless, I would not rule out further judicial tangles on the implementation of AB 398 with amendments to the cap-and-trade regulation. Continue Reading

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