7th Circuit Affirms FERC's Decision on Multi-Value Projects, Relying Heavily on Policy of Promoting Wind Development
From my colleague, Andrew Moratzka:
On June 7th, 2013, the United States Court of Appeals for the Seventh Circuit issued an opinion in Illinois Commerce Commission, et al., v. Federal Energy Regulatory Commission, affirming the Federal Energy Regulatory Commission’s approval of the Midcontinent Independent System Operator, Inc. (MISO) Multi-Value Project (MVP) tariff for financing new high-voltage power lines that largely serve remote wind farms.
Six issues were before the court: (i) the proportionality of benefits to costs for MVPs; (ii) the procedural adequacy of the previous proceedings; (iii) the propriety of an energy-cost allocator for MVPs; (iv) whether MISO should be allowed to add an MVP fee to utilities belonging to the PJM Interconnection, LLC (“PJM”); (v) whether MISO should be permitted to assess some costs associated with MVPs; and (vi) whether the Commission’s approval of the MVP tariff violates the Tenth Amendment to the Constitution by invading state rights. The fourth and fifth issues were remanded. And the court quickly dismissed the sixth issue at the outset of the opinion, stating that the arguments amounted to an assertion that the MVP tariff “provides a carrot that states won’t be able to resist eating.” This entry therefore focuses on issues (i) – (iii).
The court addressed issues (i) and (ii) together. There are two important takeaways in this section of the opinion. First, MISO’s burden of establishing rough proportionality of costs to benefits under the Federal Power Act arguably changed in the name of policy. The court stated that “The promotion of wind power by the MVP program deserves emphasis” and that wind power will probably “grow fast and confer substantial benefits on the region.” The court determined there was “no reason to think these benefits will be denied to particular subregions of MISO” and found that other benefits (e.g., reliability) were real, even though they couldn’t be calculated in advance. The court then went on to find that MISO’s and FERC’s efforts to match cost and benefits, even if crude, were sufficient. It is not entirely clear how this aspect of the opinion can be reconciled with the court’s previous opinion in Illinois Commerce Commission v. FERC. But it appears the policy of promoting wind power influenced the decision in this case. Moreover, the court rejected requests for an evidentiary hearing on this issue, on the basis that requiring such proceedings after two years of appeal “would create unconscionable regulatory delay.”
The second takeaway is a comment made by the court in response to a criticism raised by the State of Michigan, which claimed it would not benefit from out-of-state MVPs because a provision in Michigan law forbids Michigan utilities from counting renewable energy generated out of the state to satisfy requirements under the state’s Clean, Renewable, and Efficiency Act of 2008. The court stated that Michigan cannot discriminate against out-of-state renewable energy without violating the commerce clause of Article I of the Constitution. This statement could have significant ripple effects on similar laws around the country that give preference to in-state renewable resources or impose limits on imported generation.
The policy of promoting wind development also seemed to influence issue (iii). The court found that the objection to an energy allocator was refuted by the fact that a primary goal of the MVPs is to increase the supply of renewable energy. It acknowledged that wind production is intermittent and not a reliable source of energy to meet peak demand. But the court concluded that MVP lines will enable plants to serve off-peak demand and stated that “MISO and FERC were entitled to conclude that the benefits of more and cheaper wind power predominate over the benefits of greater reliability brought about by improvement in meeting peak demand.”
My California colleague Kristen Castaños has written an alert about a recent Fresno County Superior Court decision that denied a challenge to Fresno County's cancellation of a Williamson Act contract to accommodate a solar generating project.
The decision is the first time a court has considered the interplay between the Williamson Act, a California statute that seeks to protect agricultural land, and California’s directive to increase reliance on renewable energy in the state. In rejecting the challenge, the court gave the County substantial deference to determine whether the public interest in developing solar projects outweighs the public interest in protecting agriculture.
In September 2012, all new electricity generation came from solar and wind projects, according to the Energy Infrastructure Update (PDF) issued by the Federal Energy Regulatory Commission’s Office of Energy Projects. Five wind projects totaling 300MW and 18 solar projects totaling 133MW came online during the month.
The Energy Infrastructure Update also noted that nearly half (43.8%) of new generating capacity coming online in 2012 through September involve renewables: 77 wind projects (4,055 MW), 154 solar projects (936 MW), 76 biomass projects (340 MW), 7 geothermal projects (123 MW), 10 water power projects (9 MW), and one waste heat project (3 MW).
The looming expiration of the Section 1603 Treasury Cash Grant and the Production Tax Credit (PTC) is likely a significant driver of this end of year surge. See our October 18 post Economists Weigh in on the PTC Extension for our latest on the PTC.
Via my colleague Thomas Braun:
Earlier this week, the Minnesota Court of Appeals weighed in on a long-running dispute between the City of Orono and city resident Jay Nygard over the installation of a small wind turbine on Mr. Nygard’s property. The dispute began two years ago when the city denied Mr. Nygard a permit on the ground that wind turbines are not listed as a permitted, accessory or conditional use in the city’s zoning ordinance. Despite the denial of his permit application, Mr. Nygard proceeded to construct the wind turbine anyway. After discovering the turbine, the city commenced an action in the district court for a declaratory judgment that the wind turbine did not comply with the city’s zoning ordinance. Mr. Nygard followed with his own action challenging the city’s denial of his application. The district court ruled in favor of the city and concluded that the city’s zoning ordinance unambiguously set forth an exhaustive list of lawful accessory uses, which does not include wind turbines. Mr. Nygard appealed.
In its ruling, the Minnesota Court of Appeals disagreed with the district court’s interpretation of the city ordinance. The court held that the language of the ordinance was not definitive as to whether the list is exhaustive and, since the city has allowed numerous uses in the past that are not expressly mentioned in the city ordinance, such as flagpoles, basketball hoops, and clotheslines, the city could not single out wind turbines. Thus, the court held that the city erred in denying Mr. Nygard’s permit application.
This decision is the latest saga in the debate in Minnesota over wind energy siting standards and setbacks. This case demonstrates the particular challenges of siting wind turbines (even small ones) in a an urban area without the benefit of an ordinance that provides clear standards.
California Governor Jerry Brown recently signed a new law that could significantly expand virtual net energy metering in California. Since 1996, California utility customers owning renewable energy systems have been able to offset their electricity bills with credits earned by feeding power generated by their systems back to the utility. SB 594 amends California’s net metering law to allow customers to aggregate energy consumed at multiple meters located on their property (or on their contiguous property) and net that use against the power produced by the customer’s renewable facility on the same site.
Meters on contiguous properties must be solely owned, leased, or rented by the eligible customer-generator to be included. Parcels divided by a street, highway, or public thoroughfare are considered contiguous provided that they are otherwise contiguous and under the same ownership. The customer-generator will be able to use the sum of the load of the aggregated meters for purposes of establishing the maximum size renewable generation system to be used for net metering purposes. However, the existing maximum size limit (1 MW) for net-metered generation facilities will apply to customer-generators aggregating multiple meters. Overall, expanded virtual net metering would provide a way for many customers with multiple meters to use on-site generation more efficiently and economically.
Implementation of SB 594 is contingent upon the California Public Utilities Commission (CPUC) making a determination that the expanded virtual net metering program established by the bill will not result in costs being shifted to non-participating ratepayers. The CPUC is required to make this determination by September 30, 2013.Continue Reading...
Our colleague Tom Wood has prepared a helpful summary of the DC Circuit opinion, released this morning, that upheld the EPA’s approach to regulating greenhouse gases under the major new source review program, the Title V program and the vehicle emission standards program.
The lawsuit had challenged three separate rulemakings: (1) EPA’s “Endangerment Finding” in which it determined that greenhouse gases may “reasonably be anticipated to endanger public health or welfare,” (2) EPA’s “Tailpipe Rule,” which set emission standards for cars and light trucks, and (3) EPA’s “Timing and Tailoring Rules” which set alternate applicability standards and phase-in provisions for regulating greenhouse gases under new source review and Title V. The DC Circuit said that EPA acted reasonably in issuing the Endangerment Finding and the Tailpipe Rule. The DC Circuit dismissed all petitions challenging the Timing and Tailoring Rules for lack of jurisdiction. The decision is a huge win for EPA.
On Friday, March 30, 2012, the Federal Energy Regulatory Commission (the "Commission") conditionally approved a proposal from the Midwest Independent System Operator ("MISO") to change its generator interconnection queue procedures to address backlogs and late-state terminations of generation interconnection queue agreements (FERC Docket No. ER12-309-000). The new procedures are effective January 1, 2012. The reforms approved on Friday are MISO's third set of significant queue reforms since 2008 as MISO has continued to shift its procedures for processing interconnection applications from a "first-come, first-served" approach to a "first-ready, first-served" approach.
For developers, the most critical changes are the new cash-at-risk milestones required for projects to enter the Definitive Planning Phase and after execution of a Generator Interconnection Agreement ("GIA"). The purpose of these new milestones is to require interconnection customers to put more money at risk earlier in the process so that projects that advance through MISO's queue to the Definitive Planning Phase will be more likely to reach commercial operation. Other important changes include revised timelines, new study procedures, and Net Zero Interconnection Service.
After years of uncertainty, the Wisconsin legislature allowed statewide wind energy siting rules to go into effect today. The new rules (known as “PSC 128”) require wind turbines to be located at least 1,250 feet from the nearest residence and at a distance 1.1 times the height of the wind turbine from the nearest property line. Cities, villages, towns, and counties are prohibited from enacting an ordinance imposing more restrictive requirements than the statewide rules.
In 2009, the legislature directed the Wisconsin Public Service Commission (“PSC”) to develop rules that limit the restrictions local governments may impose on wind energy projects. The purpose of these rules was to ensure consistent local procedures and regulation of wind energy. On December 27, 2010, the PSC adopted the final wind energy siting rules (Wisc. Admin. Code Ch. PSC 128). But on March 1, 2011, the day the rules were to take effect, the legislature’s Joint Committee for the Review of Administrative Rules voted to suspend PSC 128. This year, the legislature considered a proposal to indefinitely suspend the rules, but adjourned yesterday without taking action. As a result, PSC 128 automatically became effective today.
While PSC 128 was in limbo, the legislature considered a proposal that would have imposed much more stringent setback requirements (1,800 feet from the nearest property line). The American Wind Energy Association said that these setbacks essentially would have killed the commercial wind industry in Wisconsin. News reports suggest that the uncertainty over siting rules caused several wind projects in the state to be suspended or cancelled over the last year. But with PSC 128 now in effect, Wisconsin appears to be open for wind energy business again.
Two new energy storage studies are getting underway this summer in the Midwest Independent System Operator (MISO) footprint: the Energy Storage Study and the Manitoba Hydro Wind Synergy Study. At MISO’s Energy Storage Workshop held on June 29, 2011, MISO explained that its goals are to explore the potential reliability, market, and planning benefits of energy storage technologies and estimate the price inflection point where energy storage provides benefits to MISO markets.
The Energy Storage Study will focus on battery technology, compressed air, and pumped storage. The first phase of the study will be completed in November 2011 and a second phase by the end of June 2012. MISO’s new Energy Storage Technical Review Group will meet for the first time on August 3, 2011, when it will consider the Draft Energy Storage Study Scope. The Manitoba Hydro Wind Synergy Study will focus on Manitoba Hydro’s capabilities as essentially a “super-sized pumped storage plant.”
These studies are the next steps in MISO’s efforts to incorporate long-term storage into its markets. In February 2008, a FERC Order on Ancillary Market Services directed MISO to evaluate operational and procedural adjustments to remove barriers to the comparable treatment of new technologies (Docket No. ER07-1372). In a December 31, 2009 Order, FERC conditionally accepted MISO tariff provisions for Stored Energy Resources (Docket No. ER09-1126), finding that the operating requirements and compensation for Stored Energy Resources would be comparable to other resources providing regulating reserves. Pursuant to the December 31, 2009 Order, MISO also submitted an informational report to FERC on March 1, 2010 describing its efforts to incorporate long-term storage resources into the market. The two energy storage studies starting this summer move these efforts to a formal study phase.
Last year, we reported on the resolution of a longstanding dispute between Xcel Energy and 46 renewable energy generators about the ownership of Renewable Energy Credits (RECs) when the Power Purchase Agreement (PPA) is silent. In an Order released September 9, 2010, the Minnesota Public Utilities Commission decided that 1) generators own the RECs produced under PPAs signed under the 1978 federal Public Utilities Regulatory Policy Act (PURPA) and 2) Xcel owns the RECs produced under PPAs signed under Minnesota’s 1994 wind and biomass mandates, unless the generator could demonstrate that the PPA was not silent. Today, the Commission released an Order offering more clarity to PPAs in the latter category.
Following the September 2010 Order, two generators (St. Paul Cogeneration LLC and Mission Funding Zeta) with contracts under the wind and biomass mandates sought to demonstrate to the Commission that their PPAs were not silent on REC ownership. Both PPAs at issue contained language allocating to the generator the benefit of “any tax credits, allowances or other credits” related to the generation facility. In today’s order, the Commission determined that this language unambiguously includes RECs. As a result, the Commission found that St. Paul Cogeneration and Mission Funding Zeta own the RECs under the terms of their PPAs. The Commission also found that Xcel owns the RECs under any remaining unsettled wind and biomass mandate PPAs, unless the generator demonstrates that the PPA is not silent within 30 days.