Washington Supreme Court: Executive Privilege Allows Governor To Withhold Documents Under Public Records Act

October 17, 2013

In a milestone decision, the Washington Supreme Court today upheld Gov. Christine Gregoire's assertion of executive privilege to prevent disclosure of documents under the Washington Public Records Act. Concluding that the "cardinal and fundamental" constitutional principle of separation of powers overrides the Public Records Act's "strongly worded mandate for broad disclosure of public records," today's decision permits the Governor to assert executive privilege over documents created in the process of formulating policy and prevent disclosure of those documents under the Public Records Act. The decision effectively creates a new Public Records Act exemption for documents created in the executive branch policy formulation process. It also shifts the burdens of proof that generally apply under the Public Records Act. (Freedom Foundation v. Gregoire, Wa. Sup. Ct. No. 86384-9 (decided Oct. 17, 2013)).

Today's decision arose from a dispute over a half-dozen documents created by Governor Gregoire and her senior advisory staff discussing controversial topics such as replacement of Seattle's Alaska Way Viaduct, the Columbia River Biological Opinion, and medical marijuana legislation. An employee of the Freedom Foundation requested eleven documents on these subjects under the Public Records Act, which generally requires all government documents to be released upon request unless a specific exemption applies. Gov. Gregoire released five of the documents and a redacted version of a sixth. The remaining documents were withheld, but rather than following the usual course of relying on a specific statutory exemption to justify withholding, the Governor's office asserted executive privilege over the documents. The Governor argued that executive privilege is inherent in the separation of powers scheme implied in the Washington constitution, and the documents were subject to executive privilege because they were used by the Governor to formulate policy. The lower court agreed with these arguments and the Supreme Court accepted direct review.

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Does PURPA Wreck RECs? West Virginia Federal Court Rejects QF Claim for REC Payments

October 11, 2013

Renewable Energy Credits ("RECs") are a recent invention, a mechanism devised to aid compliance with state Renewable Portfolio Standards ("RPS"), which have been adopted in many states within the last decade. Both courts and regulators have struggled to determine how RECs should be treated under older energy statutes adopted in the pre-REC era, especially the 1978 Public Utility Regulatory Policies Act ("PURPA"). A recent opinion from the U.S. District Court in West Virginia adds another tile to this complex mosaic, rejecting the claim of a PURPA "Qualifying Facility" that it is entitled to compensation for RECs transferred to a purchasing utility under a pre-PURPA contract. To complicate matters, the court reached this conclusion despite an order from the Federal Energy Regulatory Commission ("FERC") concluding that the purchasing utilities owe compensation for RECs transferred from the QF. (Morgantown Energy Associates v. Public Service Commission of West Virginia, No. 2:12-cv-6327 (issued Sept. 30, 2013)).

Passed as part of package of bills aimed at addressing the energy crises of the 1970s, PURPA requires electric utilities to purchase electricity produced by "Qualfiying Facilities" ("QFs"), which generally include small renewable or cogeneration facilities. The utilities must purchase QF output at "avoided cost" rates. Avoided cost is the cost the utility would have incurred to construct a new generator to provide the same electricity or to purchase it from another source. PURPA's mandatory purchase obligation was the first crack in the edifice of traditional, vertically-integrated electric utilities, and set the stage for the subsequent evolution of the industry toward market-oriented reforms and wholesale competition.

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FERC Files Suit Seeking Market Manipulation Penalties Against Barclays

October 10, 2013

Following last week's announcement that it has found evidence of manipulation in the Western markets by Constellation Energy Commodities Group, the Federal Energy Regulatory Commission ("FERC") yesterday took another major step in its battle to protect the electricity markets from manipulation by unscrupulous traders. Seeking to enforce nearly $500 million in penalties it assessed in July against Barclays Bank and four individual Barclays energy traders, FERC filed a lawsuit in the U.S. District Court for the Eastern District of California. (Case No. 2:13-at-01158, filed Oct. 9, 2013).

The case will blaze new legal ground because it is the first time FERC has used its power under Section 823b(d) of the Federal Power Act to enforce civil penalties against a power trader accused of market manipulation. Under those procedures, the District Court will conduct a review de novo of the law and facts found by FERC in its July order. Section 823b(d)'s de novo review standard is considerably more stringent that the "arbitrary and capricious" standard ordinarily applied by the courts when reviewing FERC orders.

If you have any questions about the lawsuit against Barclays and its traders, FERC's market manipulation rules, or other matters involving the energy industry, please contact a member of GTH's Energy, Telecommunications, and Utilities practice group.

FERC Announces New Allegations of Western Electricity Market Manipulation

October 9, 2013

On October 4, the Federal Energy Regulatory Commission ("FERC") issued a terse announcement of its preliminary determination that Constellation Energy Commodities Group ("CECG") improperly manipulated the Western electricity markets. FERC issues such notices after its investigative staff has completed a non-public investigation of alleged misconduct, the subject of the investigation has had an opportunity to respond in writing, and FERC staff has considered that response. Hence, the notice is not a definitive statement that improper conduct has occurred, but it indicates that the staff is sufficiently confident in the evidence to announce its preliminary conclusions publicly.

The notice provides almost no details of the allegations against CECG. However, the nature of the violation specified in the notice, combined with a previous investigation resulting in a then-record fine against CECG, suggests that CECG may have been manipulating the California ISO's physical market prices to artificially benefit its financial positions in those markets.

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Revised Draft I-937 Rules Suggest Significant Changes in Energy Conservation Compliance

October 8, 2013

On October 4, the Washington Department of Commerce's Office of Energy issued a "Stakeholder Discussion Draft" of revisions to the Washington Administrative Code provisions governing compliance with Initiative 937 ("I-937") for Washington's consumer-owned electric utilities. While many of the revisions are intended simply to update the regulations to reflect recent statutory changes, the Office of Energy also proposes several changes that could complicate compliance for utilities attempting to demonstrate that they have met I-937's strict energy conservation requirements. Comments are due on the Stakeholder Discussion Draft by October 25 and a workshop will be held on October 29. Although no specific deadline has been set, it is anticipated that final regulations will be issued by the end of 2013.

In addition to creating a Renewable Portfolio Standard for all Washington utilities with more than 25,000 customers, I-937 also requires those utilities to identify all "achievable cost-effective conservation potential," and to publish a plan every two years that identifies a conservation target and achieves that target. Washington's consumer-owned utilities must then submit to periodic audits demonstrating that they have achieved their conservation targets. The proposed regulations, if adopted, would create two potentially far-reaching changes to the regulations governing calculation of conservation goals and achievements.

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Federal Court Decision Illustrates Hazards of FERC-Jurisdictional Markets in the Pacific Northwest

October 7, 2013

The U.S. District Court for the District of Maryland last week issued an opinion striking down a "contract for differences" designed to ensure an adequate long-term power supply. The decision underscores some of the pitfalls that may be arise from creation of an "Energy Imbalance Market" ("EIM") or similar FERC-jurisdictional "centralized" markets here in the Pacific Northwest. PPL Energy Plus, LLC v. Nazarian, D. Md. No. MJG-12-1286 (issued Sept. 30, 2013).

The case arises from the struggles of the Maryland Public Service Commission ("MPSC") to address long-term power supplies in Maryland, particularly in constrained areas of the PJM market. The MPSC was concerned that in PJM -- the regional transmission organization ("RTO") that operates electric markets in the mid-Atlantic region, where prices are set based upon fluctuating Locational Marginal Price -- fails to provide adequate incentives for construction long-term power supplies. To address this problem, the MPSC approved a "contract for differences" between the local supplier and a generation developer. The contract creates a mechanism that effectively ensures a stable long-term price for generation by compensating the generation owner when short-term locational prices fall below the long-term guaranteed price.

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Minimum Streamflows: Washington Supreme Court Rejects Claim of Broad Authority to Override Minimum Streamflow Requirements

October 3, 2013

The Supreme Court of Washington today issued an opinion sharply limiting the Department of Ecology's authority to limit minimum streamflow requirements to serve "overriding considerations of the public interest." Today's decision, arising from a long-running conflict concerning minimum streamflows on the Skagit River, finds that this statutory language is "very narrow" and Ecology can override minimum streamflows only in "extraordinary circumstances." The Court therefore rejects Ecology's conclusion that it is authorized to make exceptions to minimum flow requirements on a demonstration that net economic benefits will result. As a result, it will be much more difficult for Ecology to accommodate new water withdrawals to support economic development in those basins where withdrawal limits imposed by minimum streamflows have been reached. (Swinomish Indian Tribal Community v. Department of Ecology, No. 87672-0 (issued Oct. 3, 2013)).

In 1969, the legislature adopted a minimum streamflow statute authorizing Ecology to implement minimum streamflows to protect fish, wildlife, water quality, and aesthetic values of the state's streams and rivers. A minimum streamflow is functionally equivalent to any other water right in that it is subject to the venerable "first in time, first in right" principle of Western water law. That is, water users with rights arising after the minimum streamflow is established cannot withdraw water if the withdrawal would impair the minimum streamflow. Today's Supreme Court decision defines the scope of Ecology's authority to authorize water withdrawals that conflict with minimum streamflows "only in those situations where it is clear that overriding considerations of the public interest will be served." RCW 90.54.020(3)(a).

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How the Federal Shutdown Affects Federal Energy Agencies

October 2, 2013

With the opposing sides entrenched in inflexible positions, it appears that the shutdown of the federal government won't end anytime soon. Because of differences in how the agencies are funded, a couple of energy-related agencies are operating normally for the time being. Here is a quick summary of how the federal shutdown will affect federal agencies of concern to the energy industry:

1. Power Marketing Agencies: By virtue of the fact that it is self-funded, the Bonneville Power Administration will continue to operate as normal. The Bonneville Fund, a permanent revolving fund created by the Federal Columbia River Transmission Act of 1974, allows BPA to operate without the necessity of annual Congressional appropriations. Even other federal power marketing agencies are not so lucky. For example, the Western Area Power Agency will operate with only 77 employees, retained to perform functions related to the protection of human life and property.

2. Federal Energy Regulatory Commission: For the time being, FERC will operate normally, relying on funds collected from filing fees and other types of user fees that do not require Congressional appropriations. Once those funds are exhausted, FERC will drastically curtail its operations. According to press reports, Chairman Jon Wellinghoff has estimated that FERC may continue to operate for somewhere between two weeks and one month before available funds run dry.

3. Environmental Protection Agency: Like most federal agencies, EPA has furloughed a large majority of its employees. Hence, permitting and rulemaking activity is on hold for the duration of the shutdown.

4. Department of Energy: With the exception of employees involved in nuclear safety, nearly all Department of Energy employees have been furloughed, including, for example, all but two employees at the Pacific Northwest National Laboratory. In fact, the DOE's website has been taken offline except for a detailed statement about the Department's furlough policy.

In short, with the exception of the BPA and FERC, nearly all federal activity related to energy and environmental protection has come to a halt. FERC will enjoy a short reprieve from the shutdown, but the reprieve will last only a few weeks, perhaps less.

If you have questions about the federal shutdown, the affected agencies, or other questions related to energy or environmental law, please contact a member of GTH's Energy, Telecommunications, and Utilities practice group or Environment & Natural Resources practice group. We are proud that our partner Jim Waldo was recently named 2013 Lawyer of the Year for Energy and Natural Resources Law, and practice group members Don Cohen, Bill Lynn, and Brad Jones were all named among Seattle's Best Lawyers.

Come To The 4th Annual Washington Future Energy Conference

September 27, 2013

Please join us at the Washington Future Energy Conference on October 30. Gordon Thomas Honeywell is proud to be a premier sponsor of this event. Now in its fourth year, the Future Energy Conference brings together energy innovators, utilities, scientists, investors, and many others to discuss the future of the energy industry in our state. The conference will feature keynote addresses from Washington Gov. Jay Inlsee and Graham Richard, CEO of Advanced Energy Economy, a business coalition advancing secure, clean and affordable energy.

Speakers also include GTH partner Eric Christensen, who will discuss the current state of the renewable energy markets, and GTH-Government Affairs Vice President Maj. Gen. (ret.) Tim Lowenberg, who will discuss the major expansion of renewable energy now underway in the Department of Defense.

We look forward to seeing you there.

Updated EPA Standard for Phase I Environmental Assessments On the Way

September 25, 2013

The U.S. Environmental Protection Agency ("EPA") is proposing that prospective purchasers of real property may use a revised standard (ASTM E1527-13) for determining whether to conduct Phase I Environmental Assessments of potential purchases. Because a Phase I Environmental Assessment is a key requirement for real property purchasers who wish to limit their exposure to potentially crippling liability for hazardous waste clean-up, the proposed regulation is important for real estate transactions at any site that may be contaminated.

The proposed regulation is the most recent development in the nation's long-running effort to address the problem of "Brownfields" by limiting and clarifying the exposure of real property developers and financiers who seek to re-develop contaminated properties. The effort began with the Small Business Liability Relief and Brownfields Revitalization Act of 2002, more commonly known as the "Brownfields Amendments." The Brownfields Amendments added language to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") to limit the liability of certain categories of real property purchasers, most importantly "bona fide prospective purchasers" ("BFPPs"). To qualify as a BFPP, the prospective purchaser must conduct "all appropriate inquiries" into the prior use and ownership of the property before taking ownership.

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IRS Clarifies Eligibility for Renewable Energy Tax Incentives

September 24, 2013

The Internal Revenue Service ("IRS") last Friday issued important clarifications related to the production tax credit ("PTC") and energy investment tax credit ("ITC"), which are often critical components for the economics and financing of renewable energy facilities. The new IRS document (Notice 2013-60) clarifies guidance issued in April interpreting the requirement that renewable energy facilities must begin construction by January 1, 2014, to be eligible for the PTC or ITC.

Congress extended the deadlines for PTC eligibility as part of the 2012's American Taxpayer Relief Act. Before that law was enacted, a facility was required to be "placed in service" before January 1, 2014, to be eligible for the PTC. Wind facilities were required to be "placed in service" by January 1, 2013. The new legislation makes all types of eligible renewable energy facilities eligible for the PTC if they "begin construction" before January 1, 2014. The legislation left open the question of what it means to "begin construction." Friday's notice provides important clarifications to the policy issued in April, and should provide assurance to developers and financiers seeking to secure PTC or ITC benefits.

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Will Protectionism Foil California's Increased RPS Mandate?

September 23, 2013

Under AB 327, passed this month by the California legislature, California has cleared the way to ratchet up its aggressive Renewable Portfolio Standard ("RPS") mandate beyond the 33% it already requires. But the legislature did nothing to address the most troubling aspect of California's RPS program, the "Portfolio Content Categories" -- commonly referred to as "buckets" -- which systematically favor in-state renewable resources over out-of-state resources. A recent report from the National Renewable Energy Laboratory ("NREL") shows, however, that California is rapidly running out of easily-developed in-state resources. It is therefore becoming increasingly clear that, unless California lowers the wall it has erected around its renewable energy market, it will either be unable to meet its ambitious renewable energy goals or else meeting those goals will come at an exorbitant cost to the state's consumers.

On the other hand, if California lowers or eliminates barriers to outside resources, access to huge and highly desirable resources in other parts of the West will allow California to achieve its ambitious climate and renewable energy goals in the most economically efficient manner. Even if California's legislature is unwilling to lower these barriers voluntarily, recent decisions from the federal courts demonstrate that its protectionist policies can be overcome through a legal challenge under the Commerce Clause of the U.S. Constitution.

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Ninth Circuit Orders Amendments to Northwest Power & Conservation Council's Sixth Power Plan

September 19, 2013

While rejecting the potentially most far-reaching claim of the environmental petitioners, the U.S. Court of Appeals for the Ninth Circuit yesterday remanded the Northwest Power and Conservation Council's ("Council") Sixth Power Plan to correct two perceived errors. The opinion is the latest chapter in the Pacific Northwest's "salmon wars," a decades-long political and legal struggle to balance the health of the region's iconic salmon runs with its economically vital hydroelectric power system. Northwest Resource Information Center, Inc. v. Northwest Power & Conservation Council, No. 10-72104 (issued September 18, 2013).

The Council is the body designated under the Northwest Power Act to develop a plan that provides a robust regional fish and wildlife conservation program, while preserving the value of the regional hydroelectric system. The power planning process is the core mechanism employed by the Council to achieve this balance. Hence, changes to power planning process can have far-reaching consequences.

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Ninth Circuit Upholds California's Low Carbon Fuel Standard, Finding No Discrimination Against Out-of-State Fuel Producers

September 18, 2013

The U.S. Court of Appeals for the Ninth Circuit today issued what may prove to be a landmark decision concerning California's efforts to regulate emissions of greenhouse gases ("GHG"). The Appeals Court concludes that California's Low-Carbon Fuel Standard ("LCFS") does not violate the Commerce Clause even though California uses a life-cycle analysis of carbon intensity that penalizes, for example, ethanol from the Midwest produced using coal-fired electricity, and favors ethanol using less carbon-intensive methods of production. Concluding that California's ambitious efforts to address GHG emissions should not be limited by "archaic formalism," the opinion allows states considerable room to experiment with new approaches to GHG regulation. That being said, the opinion also makes clear that environmental protection cannot be used as an excuse to arbitrarily burden interstate energy transactions. Rocky Mountain Farmers Union et al. v. Corey et al., No. 12-15131 (issued Sept. 18, 2013).

The LCFS, adopted as part of the Global Warming Solutions Act of 2006 (commonly referred to as "AB 32"), is aimed at reducing GHG emissions from California's transportation sector, which account for about 40% of the state's total GHG emissions. Using 2010 carbon intensity as a baseline, the LCFS requires fuel producers and blenders to meet specific carbon intensity limits, which decline annually from the 2010 baseline through 2020. Producers that exceed the limits are awarded credits that can be sold to producers that fail to meet the limits. For gasoline producers, blending gasoline with ethanol is the only practicable way to meet the LCFS.

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City of Palo Alto Issues RFP For Renewable Energy

September 16, 2013

The City of Palo Alto, California, last week issued an RFP for renewable energy. The request calls for non-escalating contracts for periods of between 5 and 30 years. The City intends to contract for 20 GWh to 60 GHw per year. Despite the constitutional cloud hanging over such requirements, the RFP includes a preference for projects within California, although projects with delivery points within the Western Electricity Coordinating Council will be considered. Responses are due by October 9, 2013.