Likely and Potential Impacts of Yesterday’s Energy Independence Executive Order

As a follow up to yesterday’s post, President Trump’s Energy Independence Executive Order (the “Order”) has now been posted on the White House website, a summary of which can be found here.  Over the last week, many pundits and industry insiders have speculated on its contents, with many having a fairly clear crystal ball on the administration’s intent.  This post sets forth initial commentary on the roadmap created by the Order that the Trump administration intends to follow in “ending the war on coal” and putting coal miners “back to work.”

Whether you support or denounce the current administration’s positions on energy-related issues, one cannot argue that the Order is a thorough rebuke of the prior administration’s positions on the same issues. The question that remains, however, is what practical impact the Order will have on America’s future energy production and policy.

On the one hand, 29 states plus the District of Columbia have adopted renewable portfolio standards, all mandating that some percentage of their electrical generation be from renewable energy sources.  Leading examples in the Western United States include recent decisions by Oregon and California to transform their energy generation to 50% renewable portfolios.  These and other state decisions had little to nothing to do with the Clean Power Plan, and instead reflect the understanding that renewable power is increasingly competitively priced when compared to other sources, has less exposure to fuel source price volatility, and renewable energy often creates jobs and new state and local revenue sources. Indeed, the U.S. Energy Information Administration’s Annual Energy Outlook 2017 paints a rather bleak future for coal-fired generation (natural gas and renewables appear to be the biggest gainers by 2040).  Moreover, the investment in renewable energy is by no means a “blue state” phenomena.  Major investment managers are betting heavily on renewable power.  Recently, BlackRock, with its $5-plus trillion dollar fund ($970 million focused on its clean energy fund), reaffirmed that clean energy investments are a core of its assets, with BlackRock’s CEO expressing substantial annoyance with those who would slow the transition to clean energy.  And finally, President Trump’s own “Business Council” is comprised of leaders of companies that are heavily invested in clean energy.

On the other hand, twenty-four states banded together to challenge the Clean Power Plan. Nearly all of those states joined together again for a subsequent lawsuit on the EPA’s carbon rule for newly constructed coal- and gas-fired power plants.

So where does that leave us? Formal rulemaking proceedings, rescinding existing rules and regulations, and the coal-first mantra will undoubtedly spawn extensive litigation on a variety of fronts.  This will likely include suits against and involving EPA.  But the real key to the Order, and why it matters, may lie less in a “coal renaissance” and more in setting a framework for natural gas development that helps ensure a transition to a clean energy future, which many states have already committed to pursuing.  After all, of the twenty-four states suing EPA, ten have renewable portfolio standards.  And the Order made a point to “respect the proper roles of Congress and the States.”  States may therefore continue playing a significant and critical role in developing and implementing our Nation’s energy policy.

Brief Overview of President Trump’s Energy Independence Executive Order

Section 1 of the Order sets forth various policy objectives, many of which (e.g., clean, reliable, affordable, safe energy) are goals that should garner bi-partisan support.  How these policies are interpreted by the various heads of agencies will be one factor guiding America’s energy future.  Another policy factor may be critical, contained in section 1(d), that “all agencies should take appropriate actions to promote clean air and clean water for the American people, while also respecting the proper roles of Congress and the States concerning these matters in our constitutional republic.”  This interplay between various states’ initiatives (and those states’ renewable portfolio standards) and the direction in the Order may impact the overall direction and tone set in the Order.

Section 2 tasks the heads of agencies to review all regulations, orders, policies, etc., of the agency that potentially burden energy production, “with particular attention to oil, natural gas, coal, and nuclear energy resources.” Burden is specifically defined as “unnecessarily obstruct, delay, curtail, or otherwise impose significant costs on the siting, permitting, production, utilization, transmission, or delivery of energy resources.”  The order goes on to set various intermediate and final deadlines for each agency head to plan, draft, and finalize reports to the Vice President, the OMB Director, among others, on what steps the agency plans to minimize the burden on domestic energy production.  Once finalized, the head of the relevant agency is directed to revise, rescind, or commence formal rulemaking procedures consistent with the recommendations.  Consider section 2 to be the catch-all for agency review, with sections 3 through 7 containing the specific targets for review.  But keep in mind all reviews, regulatory actions, etc. are to be consistent with the policy directives in Section 1.  Again, policy interpretation will be important.

Sections 3 and 4 of the Order rescind the CPP and dismantle supporting regulatory guidance and agency actions. To be sure, the Order revokes and rescinds President Obama’s executive orders, memorandums, and reports relating to climate change.  Furthermore, the Order directs the EPA Administrator to immediately take all steps to review, and potentially rescind, the following final or proposed rules: (i) Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units (final rule); (ii) Standards of Performance for Greenhouse Gas Emissions from New, Modified, and Reconstructed Stationary Sources: Electric Utility Generating Units (final rule); and (iii) Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before January 8, 2014 (proposed rule).

Section 5 of the Order disbands the Interagency Working Group (IWG) on the Social Cost of Greenhouse Gases and withdraws a number of documents issued by the IWG as no longer representative of governmental policy. These documents include the Social Cost of Carbon for Regulatory Impact Analysis (and subsequent technical updates in 2013, 2015, and 2016), as well as the application of the Social Cost of Carbon methodology to estimate the Social Cost of Methane and Social Cost of Nitrous Oxide.

Section 6 directs the Secretary of the Interior to amend or withdraw Secretary’s Order 3338 dated January 15, 2016, lift any and all moratoria on Federal land coal leasing activities, and commence Federal coal leasing activities.

Section 7 relates to oil and gas development in the United States. It directs the EPA Administrator to suspend, modify, or rescind the final rule entitled “Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources.”  Section 7 also directs the Secretary of the Interior to review, revise, or commence formal rulemaking on a number of rules relating to hydraulic fracturing, non-federal oil and gas rights, and royalties.  Although the last substantive section, this may not be the least, in terms of importance.

Section 8 concludes with a few general provisions.

President Trump Holds Press Conference and Signs Energy Independence Executive Order

President Trump and four executives of his administration held a press conference this afternoon in the Environmental Protection Agency’s (“EPA’s”) Map Room. Rick Perry (Secretary of Energy), Ryan Zinke (Secretary of Interior), Scott Pruitt (EPA Administrator), and Vice President Michael Pence provided opening remarks, flanked by coal mining representatives.  Secretary Perry started by noting it was an “important day” with an “important opportunity” to execute on government reforms.  Secretary Zinke asserted that America “can’t run on pixie dust and hope” and that the country needs “decisive action.”  Administrator Pruitt noted the significance of holding today’s press conference in EPA’s Map Room, claiming that today’s executive order would provide a map for America’s energy future.  Vice President Pence decisively said the “war on coal is over.”

President Trump then spoke, stating that America loves its coal miners and that “we’re with you 100%.” In no uncertain terms, President Trump stated “We will put our miners back to work.” Consistent with his America First Energy Plan, President Trump outlined the contents of his executive order as including the following: a re-evaluation of the Obama administration’s Clean Power Plan, lifting a moratorium on federal coal leases, reducing the role of climate change in federal regulation (e.g., methane regulations and use of the federal social cost of carbon values), and returning power of energy regulation to the states.  President Trump signed the executive order at approximately 2:28 p.m. EDT.

It remains to be seen what will have a greater impact on America’s energy future – market forces or today’s executive order.  Furthermore, many states have pro-clean energy laws and regulations.  It is therefore unclear whether yielding power to the states will help achieve the intent of today’s executive order.  More coverage to follow when the executive order is posted.  Stay tuned.

Results from California’s First Community Solar RFO

The first round of procurement under California’s community solar program is nearly complete, and the early results suggest that no power purchase agreements (“PPAs”) will be awarded.

Background on the RFO

California’s community solar program is formally known as the Enhanced Community Renewables (“ECR”) program. The ECR program is part of the larger Green Tariff Shared Renewables (“GTSR”) program in California. Together, these programs require the California investor-owned utilities (“IOUs”) to procure 600 megawatts (“MW”) of new renewable energy.

Under the GTSR component of the program, the IOUs procure new renewable energy and retail customers sign up for a new “green tariff” that allows them to pay a premium to obtain higher levels of clean energy. Under the ECR component, customers can enter into agreements directly with third party project developers to purchase new clean energy generated by a project located in their community. ECR projects are limited to sizes between 500 kW and 20 MW.

On August 31, 2016, the IOUs announced the first round of requests for offer (“RFOs”) under the ECR component of the program, seeking to acquire a total of 170 MW of power from community renewables projects. Specifically, Pacific Gas and Electric Company (“PG&E”) and Southern California Edison (“SCE”) each sought 75 MW and San Diego Gas and Electric Company (“SDG&E”) sought 20 MW. The winning bids were scheduled to be announced between mid-March and early April 2017.

Low Developer Turnout

However, on March 10, 2017, SDG&E announced that only two developers submitted bids in its RFO process and neither of these bidders was able to meet all program eligibility rules. The March 24, 2017 edition of California Energy Markets is reporting similar results from PG&E and SCE. As a result, no PPAs have been awarded in the first RFO under the community solar program.

Results Point to Structural Issues with the Community Solar Program

What was driving such low participation levels in the RFO process? Developers are saying that PPA prices under the community solar program are too low to enable these projects to be built. Under program rules, developers receive a PPA containing the wholesale energy price available in California’s renewable auction mechanism. These PPA payments are assigned to the community solar customers who subscribe to the project, with each customer receiving a monthly bill credit equal to the value of their share of the project’s monthly energy production. Currently, that value is around 6.8 cents per kilowatt-hour (“kWh”). These customers, in turn, sign subscription agreements with the project developers, under which the customers agree to pay the developer for their share of the project’s energy production.

As a result, for customers to save money, they need to be paying less than 6.8 cents per kWh to the project developer. Unfortunately, developers are saying this is just too low to cover their project costs, especially in light of the unique costs needed to acquire hundreds (if not thousands) of retail solar customers and manage those customers for the duration of the 10- to 20-year lifetime of the project.

In addition to pricing pressures, the program places some notable pre-qualification and ongoing compliance obligations on developers. In particular, developers need to submit their customer outreach and marketing materials to the applicable IOU for pre-approval. Developers cannot go out and market their projects to customers until these materials are approved. The problem is that developers are required to make a showing of customer interest in their project within 60 days of their project being granted a PPA. These must take the form of “expressions of interest” covering at least 51% of the project capacity, or actual customer commitments covering at least 30%. The additional step of getting pre-approval in advance of marketing the project has caused some developers to miss the 60-day deadline for submitting these customer participation deliverables.

Next Steps

For developers looking to participate in California’s community solar program, it is probably unlikely that any major program revisions will be made in 2017. It will probably take at least one more RFO showing low participation levels before the stakeholders reach a consensus around the need for program reforms. The IOUs are required to hold two RFOs per year, with the next round just getting underway now. The results will be announced this summer.

Oregon selects 15 solar projects for development under Solar Development Incentive program

At least 116 megawatts of new solar energy development will soon be underway in Oregon, supported by the state’s Solar Development Incentive (SDI) program.

Oregon’s SDI program was approved by the 2016 legislature, and is intended to encourage utility-scale solar development in the state.  Through a one-time application process, the program provides solar developers of approved projects with a cash incentive of $0.005 per kilowatt-hour of solar electricity generated for a period of five years.  Oregon expects that the SDI program will cost the state approximately $8.2 million over the life of the program.

To be eligible for the program, each project must be between 2 and 10 megawatts in size, and no single developer can enroll more than 35 megawatts of solar generation capacity. 

Although enrolled capacity is capped at 150 megawatts, Business Oregon – the state economic development agency charged with overseeing the SDI program – received 55 applications representing 293 megawatts of solar capacity. 

So far, 15 projects owned by eight developers have been selected for participation in the SDI program, for a total of 116 megawatts of new solar energy generation in the state.  The projects are located primarily in central, southern, and eastern Oregon. 

Award announcements for additional projects are expected in the weeks ahead. 

 

New Report Identifies Cleantech Market Opportunities in Southern California

If you’re looking for a new cleantech startup idea, the San Diego Regional Energy Innovation Network (SD-REIN) recently released a report that identifies cleantech market opportunities in the Southern California region.

The report, entitled “Regional Energy Technology Priorities and Needs,” was presented at an SD-REIN meeting on March 9, 2017. It will be used to guide the admission of new startup companies into the SD-REIN accelerator program. As such, it contains a useful perspective on new energy opportunities from the perspective of many would-be partners, customers, and investors of new cleantech companies.

The report identifies a number of trends in the Southern California region and then explains how those trends will drive the need for new clean energy technologies. Here is a short summary:

  • High penetration of distributed solar: San Diego County has installed over 700 MW of distributed solar and the level is growing rapidly. Continuing this expansion will require more efficient solar modules and smart inverters, plus new ways to integrate these system through energy storage and energy management software.
  • Need for more electric vehicles: California is on pace to reach 620,000 electric vehicles by 2025, which is short of the Governor’s goal of 1.5 million by that date. To get there, the state needs new advances in electric vehicle batteries and expansion of electric vehicle charging infrastructure.
  • Increasing inland populations: As the population increases in these warmer, dryer regions, the state will need more energy efficiency and demand management solutions.
  • Large military footprint: The Department of Defense has been an early adopter of new energy technologies, and presents opportunities for partnering around things like distributed energy resources and microgrids, for example.

As you can see, this is a helpful guide to new clean energy market opportunities in the Southern California region. New startups and new innovation will be needed in all of these sectors in order to facilitate the state of California meeting its various climate change goals. Check out the full report for a complete discussion of these opportunities.

California Energy Related Bills Introduced in the 2017-2018 Legislative Session

February 17, 2017 marked the deadline by which legislators had to introduce bills for the first half of the 2017-2018 Legislative Session. The Stoel Rives’ Energy Team has been and will continue to monitor bills throughout the two-year session and will provide periodic updates as to the status of those bills. Most noteworthy here is SB 584 which would require 100% of all electricity sold in California at retail to be generated by eligible renewable energy resources by December 31, 2045. A summary of SB 584 is provided below, in addition to the status and summary of other energy related bills Stoel Rives is monitoring, starting with a set of bills related to energy storage.

Please also reference our Oil & Gas post summarizing bills related to oil and gas law here.

SB 584 (De León). California Renewables Portfolio Standard Program.

Under existing law, the California Public Utilities Commission (“CPUC”) has regulatory authority over public utilities, including electrical corporations, while local publicly owned electric utilities, as defined, are under the direction of their governing boards. The California Renewables Portfolio Standard Program requires the CPUC to establish a renewables portfolio standard requiring all retail sellers, as defined, to procure a minimum quantity of electricity products from eligible renewable energy resources, as defined, so that the total kilowatt-hours of those products sold to their retail end-use customers achieves 25% of retail sales by December 31, 2016, 33% by December 31, 2020, 40% by December 31, 2024, 45% by December 31, 2027, and 50% by December 31, 2030. The program additionally requires each local publicly owned electric utility, as defined, to procure a minimum quantity of electricity products from eligible renewable energy resources to achieve the procurement requirements established by the program. The Legislature has separately declared that its intent in implementing the program is to attain, among other targets for sale of eligible renewable resources, the target of 50% of total retail sales of electricity by December 31, 2030. This bill would revise those legislative findings and declarations to state that the goal of the program is to achieve that 50% target by December 31, 2025, and for all electricity sold at retail to be generated by eligible renewable energy resources by December 31, 2045.

Bills Related to Energy Storage

AB 914 (Mullin, D): Transmission planning: energy storage and demand response.
STATUS: Introduced February 16, 2017; awaiting referral.

Existing law vests the CPUC with jurisdiction over the delivery of electrical services, provides for the establishment of an Independent System Operator (“ISO”) as a nonprofit public benefit corporation and requires the ISO to make certain filings with the Federal Energy Regulatory Commission (“FERC”) and to seek authority from FERC to give ISO the ability to secure generating and transmission resources necessary to guarantee achievement of planning and operating reserve criteria no less stringent than those established by the Western Electricity Coordinating Council and the North American Electric Reliability Council. If passed, this bill would require the CPUC, in its participation in the ISO’s transmission planning process, to promote the consideration of the use of energy storage systems and demand response as means to address the state’s transmission needs before the use of transmission wires.

AB 1030 (Ting, D): Energy storage systems.
STATUS: Introduced February 16, 2017; awaiting referral.

Existing law requires the CPUC to open a proceeding to determine appropriate targets, if any, for each load-serving entity to procure viable and cost-effective energy storage systems to be achieved by December 31, 2015, and December 31, 2020. If determined to be appropriate, the CPUC is required to adopt the procurement targets and to reevaluate all of these determinations not less than once every three years. AB 1030 would require the CPUC to establish a program to incentivize residential and commercial customers to adopt energy storage systems.

SB 356 (Skinner, D): Energy storage systems.
STATUS: Introduced February 14, 2017; awaiting referral..

Under current law, the CPUC has regulatory authority over public utilities, including electrical corporations. Current law requires the commission to open a proceeding to determine appropriate targets, if any, for each load-serving entity, as defined, to procure viable and cost-effective energy storage systems to be achieved by December 31, 2015, and December 31, 2020. This bill would make a non-substantive change in legislative findings and declarations adopted with the above-described energy storage system requirements.

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FERC Revises Delegation Authority While It Lacks a Quorum

Today is Commissioner Norman Bay’s last day on the job at the Federal Energy Regulatory Commission (FERC), which means that on Monday, FERC will no longer have the quorum of 3 commissioners that is necessary for it to do much of its business.  (Two other vacancies have gone unfilled for months.)  Earlier today, Acting Chairman Cheryl LaFleur announced that the authority normally delegated to FERC Staff has been modified so that some business may continue until a quorum is re-established.  The order on delegated authority becomes effective tomorrow, February 4, 2017, and will remain in place until shortly after new commissioners arrive at FERC (which requires Senate confirmation).  Staff’s temporary delegated authority is as follows:

  • Rate and other filings: The Director of the Office of Energy Market Regulation (OEMR) can accept and suspend rate filings, and make them effective subject to refund and further order of the Commission, or accept and suspend them, make them effective subject to refund, and set them for hearing and settlement judge procedures. For initial rates or rate decreases submitted under section 205 of the FPA, for which suspension and refund protection are unavailable, FERC staff is granted authority under section 206 to institute proceedings in order to protect the interests of customers.
  • Extensions of time: FERC staff can extend the time for action on matters where it is permitted by statute.
  • Waiver requests: The Director of OEMR can take appropriate action on uncontested filings under the NGA, FPA and ICA, seeking waivers of the terms and conditions of tariffs, rate schedules and service agreements, including waivers related to capacity release and capacity market rules.
  • Uncontested settlements: The Director of OEMR has authority to accept settlements not contested by any party or participant, including Commission trial staff.

But despite these revisions to Staff’s delegated authority, much of the business before FERC will await a quorum.   And with the apparent priorities in the White House and in Congress these days, we may be waiting a while for FERC to resume business as usual.

Wyoming: Partying Like It’s 1899

Wyoming has one of the nation’s best wind resources.  But if a contingent of state senators and representatives there have their way, electric utilities located in the state will be slapped on the wrist for using it (or other renewables, for that matter).  Senate File 71, which has been introduced in the Wyoming State Senate and was referred to the Corporations Committee this week, would impose an “Electricity Production Standard” on the state’s electric utilities, requiring them to procure 95% of the energy used for load from “eligible generating resources” in 2018 and 100% in 2019.  The catch is that “eligible generating resources” are limited to coal, hydro, natural gas, net metering (limited to 25 kW), nukes, and oil.  Wind, solar, geothermal, etc. are mysteriously absent…  The legislation would also cause electric utilities to demonstrate their compliance through “energy credits” obtained from “eligible generating resources”–“not-RECs” perhaps?–and shortfalls could cost utilities a penalty of up to $10/MWh.

And Wyoming is not the only state where wind energy is under attack.  A North Dakota state legislator is proposing to impose a “$1.50/MWh generated” tax on wind farms, as well as an additional tax equal to 10% of the production tax credit.  Representative Roscoe Streyle describes the proposal as leveling the playing field for coal.

One step forward, a century of steps back.

California Cap-and-Trade Lawsuit Hits Milestone with Oral Argument at the Court of Appeal

Yesterday, California’s Third District Court of Appeal heard oral argument in the related cases California Chamber of Commerce v. California Air Resources Board and Morning Star Packing Co. v. California Air Resources Board.  The three-justice panel actively questioned both sides as lawyers for the State, the Chamber, Morning Star, and Environmental Defense Fund made their arguments.  One news outlet has forecast the justices’ leanings, based on the questions asked.  As arguments were heard, across the street in the Capitol, Governor Brown highlighted in the annual State of the State address California’s actions to reduce greenhouse gas emissions.  While the pending CalChamber/Morning Star lawsuit is important, it is only one of several moving parts in play this year affecting greenhouse gas regulation in California.  SB 32, effective January 1, 2017, extends and deepens the state’s greenhouse gas reduction goals to 40% below 1990 emission levels by 2030, codifying Governor Brown’s Executive Order No. B-30-15.  But SB 32 is silent on cap and trade, and the question of whether AB 32 — the original statutory greenhouse gas reduction mandate enacted in 2006 — authorizes cap and trade past 2020 (see the Legislative Counsel’s letter) means that additional legal challenges to the cap and trade regulation are virtually guaranteed unless legislation clears up the ambiguity.  To that end, in his recent budget proposal, Governor Brown called for urgency legislation to confirm the Air Resource Board’s authority to continue cap and trade beyond 2020.  If passed by the Legislature as an urgency measure, the bill would be adopted with a two-thirds supermajority.  This would moot going forward the main contention before the Court of Appeal – that cap and trade auctions authorized under AB 32 constitute an unconstitutional tax, passed without the requisite legislative supermajority.  Meanwhile, the Air Resources Board is moving forward with implementation of SB 32 and the extension of cap and trade through 2030, with the release of the draft 2017 Climate Change Scoping Plan Update on January 20, 2017 and a vote expected on cap and trade amendments in the spring.  As for the fate of allowance auctions under the current cap and trade program, we’ll have a decision from the Court of Appeal within 90 days.  Regardless of the outcome, expect an appeal to the California Supreme Court, keeping this piece of the California greenhouse gas puzzle in play.

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