GTH Energy & Natural Resources Law Blog

The U.S. Court of Appeals for the Ninth Circuit today revived a class-action antitrust case against a large assemblage of natural gas sellers and marketers who were allegedly involved in manipulating Western natural gas prices during 2000-01. Manipulation of gas prices was one factor contributing to the meltdown of Western electricity markets during the same period. The court's decision, entitled In re: Western States Wholesale Natural Gas Antitrust Litigation, limits the extent to which the Federal Energy Regulatory Commission's exclusive jurisdiction under the Natural Gas Act ("NGA") preempts private antitrust claims under both state and federal law.

While the immediate effect of the court's decision is to allow plaintiffs harmed by the alleged gas market manipulation to seek potentially substantial antitrust remedies, the decision is likely to have long-term import well beyond the specifics of the particular facts addressed by the court. This is so because the NGA is one of a family of similar New Deal-era statues which also includes statutes like the Federal Power Act and the Federal Communications Act, and the court's decision turns on language that is common to this family of statutes. Further, the court opens the way for antitrust damage claims that allow injured private parties to seek damages, including treble damages, against market manipulators. These private actions will serve to bolster FERC's recently-intensified battle against energy market manipulation, which extends to the power markets as well as the natural gas markets.

Continue reading "Market Manipulation, Preemption, and FERC Jurisdiction: Antitrust Claim from 2000-01 Crisis Revived By Ninth Circuit" »

In an important victory for users of treated wooden poles, the U.S. Court of Appeals for the Ninth Circuit last week concluded that wooden utility poles are neither a "point source" subject to regulation under the Clean Water Act ("CWA") nor a "solid waste" subject to regulation under the Resource Conservation and Recovery Act ("RCRA"). The decision is an important landmark for electric utilities, telecommunications carriers, and other companies using treated wooden poles. If the court had reached the opposite result, these industries could have been subject to burdensome new regulation under both the CWA and RCRA.

The Ninth Circuit's decision, Ecological Rights Foundation v. Pacific Gas & Electric Co., rejects a lawsuit brought under the citizen suit provisions of the CWA and RCRA by a California environmental organization. The environmental plaintiff claimed that PCP and other wood treating chemicals are washed into the environment by rainwater, resulting in a "discharge" of a pollutant requiring the owner of wood poles to obtain a NPDES permit under the CWA. Relying on the U.S. Supreme Court's recent decision rejecting a similar claim with respect to logging roads, the Ninth Circuit rejected this claim, as well. The court found that wooden poles are not a "point source" subject to CWA regulation. In particular, under EPA's approach to regulation of stormwater discharges, governed by 1987 amendments to the CWA, no NPDES permit is required because wood poles are not "associated with industrial activity," as would be the case at an industrial plant or storage area where rainwater is captured and channeled.

Continue reading "Poles Left Standing: Ninth Circuit Rejects Claim That Utility Poles Must Be Regulated Under the Clean Water Act and the Resource Conservation and Recovery Act" »

Current conventional wisdom in the energy industry holds that the natural gas "fracking" revolution will lead to an era of sustained supply gluts and low prices. Low natural gas prices, in turn, will allow for rapid expansion of gas-fired electric generation, leading to a period of sustained low prices in the electricity markets. According to the conventional wisdom, then, the fracking boom will create a sustained economic headwind for renewable generators forced to compete with low-priced gas generation. But several recent scientific and economic studies suggest that the conventional wisdom might be wrong.

By now, the tectonic changes in energy markets arising from the massive increase in natural gas production brought about by application of horizontal drilling and hydraulic fracturing techniques -- commonly known as "fracking" -- are well known. As usefully summarized in this recent primer by Harvard environmental policy professors Michael McElroy and Xi Lu, fracking reversed a long-term decline in domestic natural gas production, driving prices down as much as 86% from their 2008 highs. Among the many unanticipated results, coal-fired generation has declined precipitously, reaching a record-low of 34% of generation last year. Because gas-fired generation produces only about one-half the carbon dioxide of coal generation, the nation's carbon dioxide emissions have fallen to 1992 levels despite persistent political paralysis on climate issues.

Continue reading "Will The Fracking Revolution Bouy Renewables?" »

Today, POWER magazine, one of the most widely-read electronic publications in the energy industry, published an opinion piece authored by Eric Christensen concerning integration of variable renewable generation resources in the Pacific Northwest.

You can link to the article here.

We've also published the text of the article below:

By
Eric Christensen, Chairman
Energy, Telecommunications & Utilities Practice Group
Gordon Thomas Honeywell, LLP

Mae West said, "Too much of a good thing can be taxing." The Pacific Northwest has a good thing -- plentiful, carbon-free power from its huge wind and hydroelectric fleets. But wind's huge variability can be taxing. The Northwest's scramble to integrate growing wind generation, and the resulting litigation melee, underscore the importance of quickly solving the variable resource integration puzzle.

Over the last decade, wind generation in the Northwest has exploded. Wind capacity has grown from almost nothing to nearly 5,000 MW in the region's largest balancing area, the Bonneville Power Administration. Already, hourly ramps from wind generation regularly exceed 2,000 MW. These rapid ramps will continue to grow with the size of the wind fleet, which Bonneville expects to reach 6,000-7,500 MW by 2017. With its huge carbon-free capacity and flexibility to rapidly adjust output, the Northwest's hydro system is the ideally suited to balance these ramps. But the hydro system is now often taxed to the breaking point to reliably integrate large volumes of wind generation.

The immediate problem stems from Clean Water Act limits on dissolved gases. These limits are designed to protect aquatic creatures, including endangered Columbia River salmon runs, from "gas bubble trauma" - the equivalent of "the bends" in human divers. To avoid violating dissolved gas limits, Bonneville runs water through hydroelectric turbines (which does not increase dissolved gases), rather than spilling water over dams (which adds dissolved gases). But the resulting hydro generation, when it coincides with high wind generation, has periodically exceeded regional demand. Twisting the knife, the Washington State Court of Appeals recently rejected an attempt to increase dissolved gas limits on the Columbia, denying Bonneville an added measure of flexibility to avoid curtailments.

Bonneville has twice proposed solutions to this problem, relying on curtailments to wind generation. Wind producers complain that Bonneville's curtailment policies impose unique burdens on them, causing, for example, lost Production Tax Credits and Renewable Energy Credits, in addition to lost power production. Responding to complaints filed by wind producers, FERC has twice rejected Bonneville's proposed solutions. FERC's decisions raise fundamental legal questions concerning the extent to which Bonneville policy will be dictated by FERC, as opposed to the regional interests that have traditionally held sway at Bonneville, and litigation can therefore be expected to continue for years.

However, the litigation involves trivial amounts of power. Only about 150,000 MWh of wind production have been curtailed over the last two years in a region that consumes roughly 170 million MWh annually. Worse, the litigation has driven a wedge between wind producers and many of its natural allies. The wind boom has breathed new life into struggling rural economies across the region. But those same rural areas are mostly served by publicly-owned utilities that rely on power from the federal hydro system, and many in the rural Northwest view the wind generators' litigation as an attack on this vital resource.

Most importantly, the litigation ignores the Golden Bear in the room -- California's protectionist policies that have effectively walled off its robust renewable energy market from the rest of the West. California's policies are vulnerable legally because, for example, they violate the U.S. Constitution's "dormant" Commerce Clause. Yet, while Northwest renewable energy interests squabble over trivial amounts of power, California's destructive policies have gone unchallenged. And the curtailment issue is merely a symptom of the ultimate problem - even the Pacific Northwest's vast hydroelectric system lacks the capacity to integrate ever-greater amounts of variable wind generation.

To solve the wind integration problem, the Northwest needs to attack counterproductive policies like California's. It also needs grow the regional capacity pie. The region is already exploring improved coordination between balancing authorities and other short-term measures that will marginally improve its ability to integrate variable resources. Additional physical storage capacity is also critical. Hence, the region needs to explore major investments in proven technologies like pumped storage, as well as cutting-edge storage technologies like advanced batteries. Electrification of the regional transportation system coupled with "smart grid" technology may allow electric car batteries to become a major storage resource. The region also needs to improve transmission links to the major storage reservoirs in British Columbia and to expand the footprint of its wind fleet so that the fleet's output is more diverse and therefore easier to integrate. Finally, the region needs to encourage greater use of non-variable renewables like geothermal.

Following this path, the region can continue developing its diverse renewable energy resources. If it does so, it may find, as Mae West also said, that "too much of a good thing can be wonderful!"

Yesterday, the Commodities Futures Trading Commission ("CFTC") issued two final rules that clarify the regulatory landscape for public power and other utilities attempting to comply with the Dodd-Frank Act. The first rule exempts energy-related transactions between public power and cooperative utilities from most Dodd-Frank requirements. The second exempts most transactions entered into in centralized RTO or ISO markets governed by FERC-approved tariffs. Together, the orders offer welcome guidance to electric utilities struggling to comply with Dodd-Frank requirements that have often raised more questions than answers.

The first rule concerns transactions between public power entities, including municipal and government-owned utilities and cooperatives. The rule provides that transactions between "Exempt Entities" involving "Exempt Non-Financial Energy Transactions" will be exempt from most requirements of the Dodd-Frank Act. "Exempt Entities" include municipal utilities, government-owned utilities, tribal utilities, and cooperatives that are tax-exempt under Section 501(c)(12) of the Internal Revenue Code. "Exempt Non-Financial Energy Transactions" include transactions involving delivery of electric energy, generation capacity, transmission services, fuel deliveries, and environmental attributes (such as "Renewable Energy Credits") if entered into for purposes of managing supply or price risks associated with the utility's obligation to deliver electric energy to its customers. Hence, if a transaction is between two publicly-owned utilities or cooperatives and involves delivery of commodities or services required to serve end-use customers, the transactions will be exempt from the most burdensome requirements of the Dodd-Frank Act, such as exchange-trading and collateralization obligations. Notably, both parties must be publicly-owned or cooperative utilities for the exempt to apply, and the exemption does not apply to interest rate, credit, or other kinds of non-energy transactions.

Continue reading "CFTC Issues Two Final Rules Exempting Certain Public Power and RTO Transactions From Most Dodd-Frank Requirements" »

Fulfilling a promise made in a November order, the Federal Energy Regulatory Commission ("FERC") on March 22 filed suit against the Idaho Public Utilities Commission ("IPUC"), asserting that the IPUC violated FERC rules under the Public Utility Regulatory Policies Act ("PURPA"). The lawsuit follows on the heels of a March 15 FERC order (Grouse Creek Wind Park LLC, EL13-39-000), in which FERC found another IPUC PURPA violation, meriting a second enforcement action against the IPUC. FERC's actions are extraordinary, marking the first time FERC has exercised its PURPA enforcement authority directly against a state commission.

PURPA, passed in 1978, was the first blow struck against the traditional industry model of regulated, vertically-integrated utility monopolies. Passed in response to the energy crises of the 1970s, PURPA was intended to open the generation market to small, independent producers. Thus, PURPA mandates that utilities purchase power from "Qualifying Facilities" ("QFs") -- generally, smaller, independently-owned renewable generation facilities -- at "avoided cost" rates, equal to the cost of the marginal resource the utility would have to purchase if it did not buy from the QF. This purchase obligation lies at the heart of the FERC-IPUC controversy.

Continue reading "New Front In Western Wind War: FERC Files Suit Against Idaho PUC, Finds Second PURPA Violation " »

Please join us on May 20 and 21, 2013, for the Second Annual Electric Transmission in the West conference. The conference brings together leading energy attorneys, expert consultants, industry executives, government officials, and many others to discuss the legal, financial and policy barriers that inhibit transmission expansion in our region, as well as the progress that has been made in overcoming these barriers.

On May 20, Eric Christensen, Chairman of GTH's Energy, Telecommunications and Utilities practice group will present a lecture on the topic of progress, or lack thereof, on optimization of transmission in the region. Mr. Christensen will discuss recent state and federal initiatives to encourage transmission expansion, and suggest new approaches that will encourage greater investment in critically-needed transmission assets.

On March 20, the U.S. Supreme Court ruled that the discharge of channeled stormwater runoff from logging roads is not a "point source," and logging operators therefore are not required to obtain a permit from the Environmental Protection Agency ("EPA") under the Clean Water Act ("CWA"). Although important to a key Northwest industry, the decision is not unexpected. Under its "Silviculture Rule" (40 C.F.R. Sec. 122.27(b)(1)), an administrative interpretation of the "point source" requirement, EPA has long held that stormwater runoff from logging roads is not a point source, and timber harvesters are therefore not required to obtain an NPDES permit before constructing roads. The decision, Decker v. Northwest Environmental Defense Center, also follows a pattern that has become almost routine in recent years -- the Supreme Court reversing the Ninth Circuit in an environmental case where the Ninth Circuit embraces a novel reading of the relevant statute. In fact, as previously noted here, the Supreme Court this term has already reversed a Ninth Circuit decision on the "point source" question in a case with strong implications for operators of dams, flood control facilities, canals, and other kinds of water works.

More surprising are strong suggestions in the concurring and dissenting opinions that the Court's conservative wing may be ready to re-examine one of the foundational principle of administrative law -- that an agency's interpretation of its own regulation is entitled to deference from the courts. Justice Scalia's dissent in Decker attacks this rule as an affront to "a fundamental principle of separation of powers -- that the power to write a law and the power to interpret it cannot rest in the same hands." Stepping past the EPA's interpretation, Justice Scalia sides with the environmental plaintiffs (and the Ninth Circuit), concluding that runoff from logging roads that is channeled into ditches and culverts is a "point source" under the statutory definition, which includes any "pipe, ditch, channel, tunnel, [and] conduit."

Continue reading "U.S. Supreme Court Rules That Logging Roads Do Not Require NPDES Permits; Scalia Dissent Suggests Major Change Afoot in Administrative Law" »

On Monday, the Washington House of Representatives passed ESSB 5802, which creates a "Climate Legislative and Executive Work Group" to study the state's options for achieving significant reductions in greenhouse gases. The bill, which is the first of Gov. Inslee's legislative requests to pass both houses of the legislature, will set the stage for more substantive legislative action on climate change in next year's legislative session.

ESSB 5802 is intended to jump-start the debate on greenhouse gas reduction in the 2014 legislative session by delivering a set of recommended policies to the legislature by the end of 2013. The first step in this process calls for the Climate Legislative and Executive Work Group to retain a politically neutral consultant to carry out a comprehensive study of the policy options for reducing Washington's greenhouse gas emissions, including a baseline assessment of current GHG emissions by sector, a review of programs adopted by the federal government and by other states and neighboring provinces of Canada, and an analysis of the costs and benefits of the various policy options. The study must also examine a range of specifically-designated policies, including, for example, a Renewable Fuels Standard, emissions performance standards, and policies to encourage greater energy efficiency. This initial evaluation will be delivered to Gov. Inslee by October 15, 2013.

Continue reading "Gov. Inslee's Climate Change Study Bill Is The First Energy Legislation to Clear the Washington Legislature" »

On Friday, the U.S. Court of Appeals for the D.C. Circuit concluded that the Federal Energy Regulatory Commission ("FERC") lacks jurisdiction to enforce a $30 million fine against accused natural gas market manipulator Brian Hunter. The D.C. Circuit's opinion provides some needed clarity to the lines of regulatory jurisdiction where manipulation involves both physical natural gas and electricity markets and forward commodity futures markets. In such cases, the D.C. Circuit's opinion makes clear that FERC's jurisdiction is limited to the physical markets, while the Commodity Futures Trading Commission's ("CFTC") exclusive jurisdiction extends to the energy commodity futures markets.

As reported in more detail previously, the case arose from alleged manipulation of the NYMEX futures market for natural gas by Brian Hunter, then a trader for the Amaranth hedge fund. According to FERC's investigation, Hunter "shorted" his position in the natural gas market, then sold very large volumes of gas futures contracts during the February, March and April 2006 NYMEX settlement periods. The sales of commodity futures were intended to artificially depress natural gas prices, thus artificially benefitting Hunter's short position in the physical markets. In 2007, both FERC and the CFTC launched investigations of Hunter's activities, resulting in competing jurisdictional claims.

Continue reading "D.C. Circuit Rejects FERC Jurisdictional Claims Over Natural Gas Commodity Market Manipulation" »

One of the most difficult questions in energy regulation is how best to encourage technological innovation in the an electric industry still dominated by comprehensively-regulated utility monopolies. Because new technologies carry with them significant risks and generally lack solid data upon which to establish ratepayer benefits, regulators are loath to approve investments in new technology and regulated utilities therefore tend to shy away from such technologies. But a range of new technologies now on the horizon promise to revolutionize the electric utility industry. How best to pave the regulatory path for technological innovation is therefore one of the most important questions facing the industry today.

The "Smart Grid" (best thought of as a range of new digital technologies that can provide benefits in all phases of generation and delivery of power) demonstrates the enormous stakes at issue in properly answering this question. The Smart Grid promises to revolutionize the electric system as completely as digitization, the internet, and cellular technology have revolutionized the telecommunications industry. But the state-federal system of utility regulation raises a variety of barriers to adoption of this new technology. In an article published in the most recent Harvard Environmental Law Review, Joel B. Eisen, Professor of Law at the University of Richmond, offers an important and intriguing solution to this regulatory puzzle.

Continue reading "The Smart Grid and "Cooperative Federalism": The Path Forward for Technological Innovation in the Electric Utility Industry?" »

Yesterday, the Federal Energy Regulatory Commission ("FERC") and the U.S. Coast Guard ("USCG") released a Memorandum of Understanding ("MOU") designed to simplify and expedite the process of licensing hydrokinetic projects. Hydrokinetic technology, described by FERC Chairman Jon Wellinghoff as an "up and coming resource," includes projects designed to capture the energy of waves, tides, currents, and the free-flow of rivers and streams. The MOU will help coordinate the FERC licensing authority for non-federal hydropower projects with the USCG's authority to over navigation safety, maritime security, and stewardship of marine environmental resources.

The MOU requires applicants for a preliminary FERC hydrokinetic permit to notify the USCG, among other agencies. The USCG will then become a participant in FERC's pre-filing process, and will provide comments to the FERC and the applicant setting forth any concerns it has with a proposed project and identifying any needed studies. If a NEPA process is undertaken, FERC will be the lead agency, with the USCG providing input on, for example, scoping, as well as identifying any USCG concerns a regarding the project that should be considered in the environmental analysis process. The MOU also provides that, by participating in the NEPA process, the USCG agrees not to become a party to the licensing process.

Yesterday's MOU, along with guidelines issued jointly by FERC and the Bureau of Ocean Energy Management, Regulation & Enforcement last year for hydrokinetic projects on the Outer Continental Shelf, demonstrate that FERC intends to encourage hydrokinetic resources by reducing regulatory barriers to new hydrokinetic technologies.

If you have any questions about the MOU, FERC licensing, hydrokinetic technology, or other matters involving the development of renewable energy projects, please contact a member of GTH's Energy, Telecommunications, and Utilities practice group or Environment & Natural Resources practice group. These practice groups are consistently recognized as among the best, both nationally and in the Pacific Northwest.

Bonneville Power Administration ("BPA") and the Pacific Northwest's wind producers have been frequent and intense antagonists in the region's ongoing wind wars. But a tariff filing last week by one of the primary antagonists, Iberdrola Renewables, LLC, provides one avenue for relieving the pressure on BPA to integrate the region's large and growing wind fleet. And, because the difficulties of integrating the wind fleet are the ultimate cause of the wind wars, the Iberdrola tariff suggests the problem may be soluble without pursing litigation to the bitter end.

Iberdrola's proposed tariff (FERC Docket No. ER13-1058) would allow it to supply wind balancing services to third parties. The proposed wind balancing service is based on a successful pilot program Iberdrola has used to balance its wind resources since 2011 using its own natural gas resources, in addition to contracted resources owned by TransAlta Corp. and Grant County PUD. Iberdrola now proposes to expand this service by offering wind balancing services to other wind producers. The new service is being encouraged by BPA, which is now allowing third parties to supply wind balancing services.

Continue reading "Iberdrola's Proposed Wind Balancing Tariff May Offer A Path Out of the Wind Integration Woods" »

The Washington Supreme Court today rejected tort claims based on exposure to Electromagnetic Fields ("EMF") from a utility substation. The Court's rejection of the EMF claim, which is consistent with similar conclusions reached by, for example, the California Supreme Court, is perhaps the final brick in the wall for EMF claims against electric utilities. The decision is therefore an important milestone in the effort, played out over the last several decades, to protect electric utilities from EMF claims with dubious scientific support. In addition, the Court rejected an inverse condemnation claim against the City of Kirkland, broadly protecting local land use decision-makers against tort liability.

The case, entitled Lakey v. Puget Sound Energy, arises from Puget Sound Energy's ("PSE") routine upgrade of an electric substation in a Kirkland, Washington neighborhood. Because the upgrade required relatively minor variances from the local zoning code, PSE sought variances from the City of Kirkland. Neighboring property owners unsuccessfully fought the variance. They then sued PSE, seeking damages for exposure to EMF from the substation and the City of Kirkland under an inverse condemnation theory. The trial court rejected both claims. After a Frye hearing, the trial court rejected the plaintiffs' expert scientific testimony as unreliable. And it rejected the inverse condemnation claim on legal grounds. The Court of Appeals certified the case for direct appeal to the Washington Supreme Court, which heard argument on October 18, 2012.

Continue reading "Washington Supreme Court Rejects EMF Damages Claim Against PSE and Kirkland, Relieving Major Liability Concern" »

In a decision with strong overtones for climate policy and federal permitting of projects that release greenhouse gases, the U.S. Court of Appeals for the D.C. Circuit today affirmed the U.S. Fish & Wildlife Service's ("FWS") decision to list the polar bear under the Endangered Species Act ("ESA"). The FWS decision, which is based on the danger to polar bear populations caused by declining sea ice in the Arctic, is one of the first major federal policies to address the consequences of climate change. Further, the decision means that projects releasing major quantities of greenhouse gas emissions may run afoul of the ESA, and that consultation with FWS under the ESA may become a routine regulatory requirement for such projects.

Legally, the decision is rather unremarkable. The petitioners, a group of industries, states, and aligned interests, challenged the FWS's listing decision on a number of technical grounds. But, as the D.C. Circuit observed, the challenges amount to "nothing more than competing views about policy and science." Under the familiar "arbitrary and capricious" standard of review for decisions of administrative agencies, such disagreements are insufficient to overturn an agency decision. Rather, as long as the agency has considered all the evidence, adequately explained its decision, and acted within the law, its decision, even if controversial, is not arbitrary and capricious. The D.C. Circuit concluded that the FWS did not act arbitrarily in the face of numerous challenges to its listing decision.

Continue reading "D.C. Circuit Upholds Endangered Species Act Listing of Polar Bear" »