Please join us for Law Seminar International's Columbia River Treaty Conference, which will be held here in Seattle on September 22 & 23, 2014. The conference is particularly timely because, as we've discussed at length here, September marks a critical turning point for the Treaty, which is one of the cornerstones of our regional economy, and a major factor in issues ranging from salmon restoration to water quality and flood control. We're pleased to announce that GTH partner Jim Waldo will co-chair the conference and GTH partner Eric Christensen will be speaking. We hope to see you there!
Recently in renewable energy Category
When Congress passed the Energy Policy Act of 2005 nearly nine years ago, it included a provision, Section 242, authorizing incentives to retrofit non-powered dams, canals, and conduits with new hydroelectric generation. Until this year, however, Section 242 gathered dust, with Congress failing to authorize any funding. For the first time, when it finally passed its funding bill for Fiscal Year 2014 (October 1, 2013-September 2014) in January, Congress authorized $3.6 million to fund the Section 242 incentives program, dubbed the Hydropower Production Incentive Program ("HPIP"). The U.S. Department of Energy is now finalizing guidance on operation of the HPIP, and anticipates it will begin taking applications for HPIP funding later this summer.
There are over 80,000 non-powered dams in the United States, and a 2012 Oak Ridge National Laboratory study concluded that these dams have the potential to produce about 12,000 MW of new, renewable generation capacity, including about 225 MW here in the Pacific Northwest. In addition to HPIP funding, last summer Congress enacted two bills that greatly reduce the regulatory barriers to constructing new hydroelectric generation on existing dams, canals, and similar facilities. In combination with this legislation, the HPIP represent a major opportunity to extract value from existing dams, especially in the West, where many irrigation dams and canals were constructed without hydroelectric capacity.
Iowa Supreme Court Clears Regulatory Path for Rooftop Solar Providers, Concluding They Are Not Regulated "Public Utilities"
Last week, in a decision that is likely to have far-reaching consequences both for the solar power industry and for traditional utilities, the Iowa Supreme Court found that a solar rooftop leasing company is not a "public utility" subject to regulation by the Iowa Utilities Board. The Iowa Court is the first to address whether a company leasing solar panels on a customer's rooftop is a regulated "public utility" under state utility laws. If followed in other states, the court's conclusion will greatly reduce the regulatory burdens faced by sellers of solar rooftop systems, especially those using innovative leasing/PPA arrangements, while intensifying pressure on traditional utilities from the growing market for customer-owned solar power. (SZ Enterprises, LLC d/b/a Eagle Point Solar v. Iowa Utilities Board, No. 13-0642 (Iowa Sup. Ct., issued July 11, 2014).
As noted previously, the Washington Utilities and Transportation Commission ("UTC") last year cleared some regulatory roadblocks for third-party owners of distributed generation systems such as rooftop solar generators. However, it reserved the question whether such third-party owners are "public service companies" subject to UTC regulation, and has yet to issue an guidance on that question. The Iowa court's conclusion therefore may hold particular sway in this state.
The United States Senate today confirmed President Obama's nominations of Cheryl A. LeFleur and Norman Bay to serve on the Federal Energy Regulatory Commission. Commissioner LeFleur has served on the Commission since 2010 and the confirmation will allow her to serve a full five-year term. Mr. Bay will replace former Chairman Jon Wellinghoff.
Mr. Bay has been the Director of FERC's Office of Enforcement since 2009. In that capacity, he was responsible for a substantial rise in that office's profile. For example, as a result of an Office of Enforcement investigation of market manipulation in the West, FERC last year sought nearly $500 million in penalties against Barclays Bank and certain of its power traders, and $410 million against JP Morgan.
The U.S. Supreme Court today denied several petitions seeking review of the Ninth Circuit's decision upholding California's Low-Carbon Fuel Standard ("LCFS") against claims that the LCFS violates the Commerce Clause of the U.S. Constitution. While today's decision makes the Ninth Circuit's decision final, the underlying issue -- how far individual states can go to regulate greenhouse gases and promote renewable energy without violating the Commerce Clause -- will remain the subject of intense litigation. For example, recent lower-court decisions from Colorado and Minnesota, reaching apparently opposite conclusions on the constitutionality of state renewable portfolio requirements, suggest that the Supreme Court may ultimately have to step into the fray.
As we've previously reported here and here, California's LCFS requires petroleum distributors in the state to reduce the carbon intensity of motor fuels they sell by blending them with biofuels or other lower-carbon alternatives. The LCFS contains a complex mechanism which uses a life-cycle analysis to assign carbon intensity scores to different biofuels production processes, providing a significant economic advantage to fuels with lower carbon intensity scores. This mechanism was challenged by a coalition of out-of-state alcohol fuels producers and trade groups, who argued that California's mechanism discriminates against them on its face by assigning higher carbon intensity scores to out-of-state producers than in-state producers. California rebutted these claims by asserting that its life-cycle analysis model is location-neutral and reflects the reality that production of alcohol fuels in some areas has a greater carbon footprint than fuels produced within California. Alcohol fuels produced in the Midwest, for example, generally have a higher carbon footprint than fuels produced within California because Midwest biofuels are produced using electricity from a grid that relies more heavily on coal-fired plants and because of the lengthy transportation routes required to deliver Midwest fuels into California add to the out-of-state fuel's carbon intensity.
We're pleased to announce that nineteen Gordon Thomas Honeywell attorneys have been named 2014 Washington Super Lawyers, including six members of our Energy, Telecommunications & Utilities and Environmental & Natural Resources practice groups.
The "Super Lawyers" practicing in our energy, environmental, and natural resources areas are Margaret Archer, Eric Christensen, Don Cohen, Brad Jones, and Bill Lynn. In addition, practice member Bill West has been named a "Rising Star."
"Super Lawyers" are selected through a process of peer review and independent evaluation, and represent the top five percent of practitioners in the State of Washington.
At its monthly meeting yesterday, the Federal Energy Regulatory Commission ("FERC") approved tariffs that will allow the western Energy Imbalance Market ("EIM") to open as planned on October 1, 2014. The EIM is designed to allow economic dispatch at five-minute intervals of energy balancing resources in the footprint of participating utilities. The EIM is one of a number of initiatives undertaken by utilities in the West to address the problems created by the rapid expansion of non-dispatchable wind and solar resources. Because these resources produce output that can be both highly variable and unpredictable, they have created increasing demand for balancing resources that can respond rapidly to changes in generation output to maintain the balance between generation supply and electric demand necessary for reliable operation of the electric system.
Yesterday's FERC orders approve the EIM proposed jointly by PacifiCorp and the California Independent System Operator ("Cal-ISO"). The PacifiCorp-ISO EIM will employ the Cal-ISO's existing five-minute market mechanism to dispatch balancing resources in the EIM's footprint. Initially, the EIM will dispatch resources within California, as well as within the two balancing authorities operated by PacifiCorp, which are centered on its service territories in the Pacific Northwest and Utah. Participation in the EIM is voluntary and the system is designed to allow expansion through addition of new utility participants.
The U.S. Environmental Protection Agency this week issued is long-anticipated proposal to limit carbon dioxide from power plants, dubbed the "Clean Power Plan." Predictably, both industry groups and environmental interests attacked the plan, in some cases even before it was released. A careful review of the proposal suggests, however, that the impacts of the rule, if adopted, are likely to be relatively modest in the Pacific Northwest, chiefly by placing additional economic pressure on already beleaguered coal-fired plants in Montana and Wyoming, while adding the pressure of federal law to break the log-jam in Olympia regarding climate-related legislation. The flexibility provided to states to comply with carbon dioxide limitations also lays the groundwork for interstate cooperation to identify least-cost solutions and may create new and lucrative opportunities for companies involved in energy conservation, clean tech, renewable energy and a variety of other industries where carbon dioxide emissions might be reduced at relatively little cost.
The proposed rule has been summarized in greater detail elsewhere. In brief, the proposal at its core would require existing power plants to reduce carbon dioxide emissions by 30 percent over 2005 levels by 2030, with interim limits that would come into force in 2020. The proposal establishes state-specific goals for carbon dioxide emissions, but provides states considerable flexibility to meet these goals using four "building blocks" -- improving power plant heat rates, improving energy conservation, dispatching power from natural gas and other less carbon-intensive resources rather than from coal generation, and encouraging the construction and dispatch of renewable energy resources. The proposal also encourages interstate cooperation and allows for trading of carbon-reduction credits, as already occurs, for example, in the Northeast's RGGI program. The EPA's final rule is due by June 2015, with state implementation plans to be finalized by June 2016. Litigation over the rule is certain to occur, so it is unclear whether these deadlines will be met.
The choice of a 2005 baseline, rather than the 1990 baseline generally used in discussions of greenhouse gas reductions, is important because U.S. GHG emissions peaked in that year and have declined 9% overall since then, while power plant emissions have declined 16%, primarily because the "fracking" boom has created cheap natural gas, which has displaced significant amounts of coal used for electricity generation. Georgetown University's Climate Center has published a useful table, which provides an indication of reductions required from 2012 emissions levels rather than 2005 levels.
In a proposal that should clarify federal rules concern access to generator tie-lines, and therefore provide assurance to project developers and their financial backers, the Federal Energy Regulatory Commission ("FERC") at last week's monthly meeting proposed new rules to govern third-party access to such tie-lines. While at first blush, this issue may seem obscure, it has far-reaching consequences for both open access to and investment in the nation's electric system. The proposed rule also clarifies how FERC will reconcile two of its most important policy goals -- investment in new generation resources and open access to the nation's transmission grid.
The proposed rules are important because generator tie-lines often cover hundreds of miles and operate at extremely high voltages, especially when delivering power from generation resources located in remote, rural areas that otherwise have limited access to the backbone transmission grid. The proposed rules are therefore particularly important for wind generation and utility-scale solar, where the best resources are often located far from existing transmission lines. FERC's proposal notes several cases where tie-lines to link, for example, large wind generation projects to the grid span hundreds of miles and operate at voltages as high as 345-kV, and therefore look much like backbone transmission assets.
Recently, the U.S. Department of Energy ("DOE") and the Oak Ridge National Laboratory ("ORNL") released a comprehensive analysis of the potential for new hydroelectric development in the United States, finding that up to 65,500 MW of new hydro capacity could be built, nearly equal to the country's existing hydro capacity of 79,500 MW. The Pacific Northwest (defined in the report as the U.S. portion of the Columbia-Snake River Basin) contains the largest share of this capacity, nearly 26,000 MW. Major resources are also available in Alaska and Hawaii.
The analysis employs advanced geographical and mapping techniques to identify stream potential, and provides an array of advanced resources to developers wishing to identify sites that offer both favorable hydrological characteristics and characteristics favorable to permitting projects. For example, the study identifies stream reaches that have been designated as critical habitat for a federally-listed endangered species.
When considered together with the DOE/ORNL's 2012 report showing that up to 12,000 MW of new generation could be added to existing dams that do not presently have generation installed, the analysis demonstrates the great potential for new hydropower development, which can help supply the nation's need for carbon-free electricity using a mature and well-understood technology.
On May 9, the Judge William J. Martinez of the U.S. District Court for the District of Colorado summarily dismissed a broad-based challenge to the Colorado Renewable Portfolio Standard ("RPS"), which argued that the RPS per se violates the "dormant" Commerce Clause of the United States Constitution. The decision supports the view that a RPS will pass muster under the Commerce Clause as long as it regulates in-state and out-of-state generators in an even-handed way, and does not impose restrictions on RPS eligibility that favor in-state generators over out-of-state generators. Energy & Environmental Legal Inst. v. Epel et al., No. 11-cv-00859-WJM-BNB (issued May 9, 2014).
Enacted by Colorado voters in 2004 and amended several times since, the Colorado RPS now requires Colorado's investor-owned utilities to obtain 30% of their electricity from renewable sources by 2020, while cooperatives serving 100,000 or more meters must meet a 20% standard, and smaller cooperatives and municipal utilities must meet a 10% standard. In 2011, plaintiff Energy and Environmental Legal Institute (then known as the American Traditions Institute) filed a lawsuit seeking to invalidate Colorado's RPS statute on Commerce Clause grounds. Last week's decision rejects that challenge in its entirety, although plaintiffs have indicated they plan to appeal to the U.S. Court of Appeals for the Tenth Circuit.
Washington Governor Jay Inslee today issued an Executive Order that will address Washington's greenhouse gas ("GHG") emissions on many different fronts. Issued in apparent response to the legislative logjam that has developed around the Climate Legislative and Executive Workgroup, the Executive Order (No. 14-04), requires actions in the following areas:
Cap-and-Trade Legislation: The Executive Order creates a new Carbon Emissions Reduction Task Force to develop a legislative recommendation for a "cap and-market" mechanism, which would limit carbon emissions and establish an emissions allowance trading system designed to achieve GHG reductions in the most efficient manner. The Task Force, which includes 21 members from business, labor, health, and public interest organizations, meets for the first time today. It is instructed to provide recommended legislative by November 21, 2014.
Coal-Fired Electricity: The Executive Order directs the Governor's Legislative Affairs and Policy Office ("LAPO") to seek "negotiated agreements with key utilities and others" to reduce coal-fired electricity imported from outside the state and transition to cleaner sources. With the transition of Washington's only coal-fired plant at Centralia now well underway, Washington's remaining sources of coal-fired electricity will be generators located in states to the east, such as the Colstrip plant in Montana. Addressing the "coal-by-wires" issue is therefore the last remaining front for attacking significant GHG emissions in the electricity sector. The Executive Order requests help from the Washington Utilities and Transportation Commission ("UTC") and the Northwest Power and Conservation Council to "actively assist and support" the transition away from coal-fired electricity, although, as we've previously discussed, the UTC has already moved significantly in this direction.
Getting a CLEW from the IPCC: Can IPCC's Policy Analysis Break the Olympia Logjam on Climate Policy?
The recently-released Fifth Assessment Report of the United Nations Intergovernmental Panel on Climate Change ("IPCC") has received widespread coverage for its conclusion, expressed with "high confidence," that global emissions of greenhouse gases ("GHG") are continuing to grow and that "without additional mitigation," will "result in global mean surface temperature increases in 2100 from 3.7 to 4.8°C compared to pre‐industrial levels." Similarly, the IPCC's conclusion that limiting GHG emissions will have relatively modest impacts on global economic growth, well below the costs of unmitigated climate change, has been widely reported.
The IPCC's conclusions regarding climate mitigation policy have, regrettably, received very little coverage in the popular press. This lack of attention is unfortunate because IPCC's report provides a detailed and well-documented discussion of many different climate change policies that have been tried around the world. Here in Washington State, the IPCC's report may offer a way forward for climate policy, which is currently bogged down in a partisan impasse reached by the Climate Executive Workgroup ("CLEW").
In a ruling with potentially far-reaching consequences for state-level attempts to regulate greenhouse gases, the U.S. District Court for the District of Minnesota on April 18 issued a ruling striking down key elements of Minnesota's Next Generation Energy Act ("NGEA"). For the Pacific Northwest, in particular, the ruling could complicate efforts by Washington, Oregon, and California to limit "coal by wires" -- the importation of coal-generated electricity from plants located in states like Montana and Arizona. State of North Dakota et al. v. Heydinger et al., No. 11-cv-3232 (SRN/SER) (issued April 18, 2014).
Passed by Minnesota's legislature in 2007, the NGEA is aimed at reducing the carbon footprint of electricity consumed in the state. The statute prohibits new power plants within Minnesota that "would contribute to state power sector emissions." To address the "coal by wires" problem, the statute also broadly prohibits importing power generated outside Minnesota if that generation "would contribute to statewide power sector carbon dioxide emissions," and also prohibits long-term power purchase contracts from facilities larger than 50 MW that would contribute to Minnesota's power sector carbon dioxide emissions.
Pot, Power & Pollution: The Overlooked Impacts of Marijuana Legalization on Utilities and the Environment
Last month, Washington issued its first license for a legal marijuana grow operation under Initiative 502 ("I-502"), the marijuana legalization measure adopted by Washington voters in November 2012. A wave of additional operations will follow, as about 2,800 producers have applied for licenses to grow marijuana. While the implications of I-502 for the criminal justice system, land use, taxation and many other issues have been widely debated, the potentially significant changes in electricity and water use that are likely to follow from I-502's implementation have received almost no scrutiny. Nor have the important implications for environmental protection. Given the stakes, Washington utilities and environmental regulators should pay close attention to I-502 and the ongoing process of implementing the initiative.
At the outset, it is important to understand that the United States already produces huge amounts of cannabis. Official estimates suggest that U.S. production was somewhere in the range of 10,000 to 24,000 metric tons in 2001, making it America's largest cash crop by value. A more recent study suggests that production may actually be far higher - 69,000 metric tons. Given that marijuana production generally remains illegal, these estimates are highly uncertain. But there is little doubt that, as marijuana production comes out of the shadows and into the realm of legitimate business, power and water utilities will need to confront a number of serious and complex issues.
Implications for Electric Utilities
For electric utilities, legalization is a major concern because cannabis production, which generally relies on energy-intensive indoor growing operations, uses huge amounts of electricity. One recent study estimates that marijuana production may account for as much as 1% of the nation's entire electric consumption, accounting for a total bill of approximately $6 billion. In California, the numbers are even higher. Marijuana production in that state is estimated to use 3% of all electricity consumed there, equivalent to 9% of all residential electricity use.