Megan Caldwell was featured in Rock Products discussing the potential for asbestos rock to make a comeback as a result of a recent rule proposed by the Trump Administration. She provides insights into the history, international production and significant new use of asbestos rock. Is asbestos poised to make a comeback? Only time will tell.
James Hoecker and Sylvia Bartell authored an article on an October 16, 2018 FERC order in the remand proceeding associated with Emera Maine v. FERC. They provide an overview of the order background, an analysis of FERC’s revised approach and wrap it up with their conclusion about the order. Read their entire article on Law360.
A new legislation signed into law in August, the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), will expand vastly the types of foreign investment transactions that the Committee on Foreign Investment in the United States (“CFIUS”) may review. Under the new law, a wide range of foreign investments affecting the U.S. energy sector will be subject to the federal scrutiny.
Overview of the CFIUS Review Process
CFIUS has the authority to review “covered transactions” that might raise national security concern. CFIUS is a US government interagency process, chaired by the Treasury Department. Under the previous law, a “covered transaction” is one that results in foreign control over a U.S. business engaged in interstate commerce, and CFIUS is interested in reviewing a transaction if it raises risk of impairing national security, where the foreign entity is controlled by a foreign government, or if it involves any “critical infrastructure” that could impair the national security.
Critical infrastructure has been defined to mean “systems and assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of such systems and assets would have a debilitating impact on security, national economic security, national public health or safety, or any combination of those matters.” Through a series of directives, the Department of Homeland Security (DHS) has identified 16 sectors of the economy as with assets potentially critical to the U.S. infrastructure, including the energy sector.
For each transaction that it reviews, CFIUS’s analysis considers:
- Threat – whether the foreign acquirer has the capability or intent to exploit or cause harm;
- Vulnerability – whether the nature of the US target asset creates susceptibility to impairment of national security;
- Consequences – to US national security of the combination of the threat and vulnerability
This process may result in transactions being suspended, blocked, or modified.
Expansion of “Covered Transactions”
Previously the CFIUS only had jurisdiction to review foreign investments or acquisitions that could result in foreign control over a U.S. Business. After FIRRMA, the new legislation now calls for CFIUS to review a wide range of non-controlling investments made by foreign persons. Among the expanded categories of “covered transactions,” what is particularly relevant to the energy sector is that FIRRMA directs CFIUS to review all investments in US businesses that own, operate, manufacture, supply, or service “critical infrastructure” such as electricity transmission line, pipelines, oil and gas facilities, nuclear, hygro and other power plants, or US businesses that produces, designs, tests, manufactures, fabricates, or develops “critical technologies.” Such foreign investments, even though non-controlling, are subject to review if they afford the foreign person access to any material non-public technical information, membership or observer rights on the board of directors, or any involvement (other than through voting of shares) in substantive decision-making of the business in connection with critical infrastructure or critical technology.
FIRMMA provides the general contours for CFIUS reform, but not the specifics. To achieve broad-based support among competing interests and various US agency members of CFIUS, many concepts of FIRRMA, and especially key definitions relevant to the expansion of the non-controlling “covered transactions” relevant to the “critical infrastructure” and “critical technologies,” are left subject to the regulations to be prescribed by CFIUS. For example, FIRRMA continues to define “critical technologies” to mean “systems and assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of such systems and asses would have a debilitating impact on national security.” And what type of assets will meet this bar are subject to interpretation in the regulations to be prescribed by the Committee. Congress also deferred to CFIUS to prescribe regulations to limit the application of the expanded “covered transactions” to “certain categories of foreign persons.” How broad or narrow those “categories of foreign persons” are and what criteria CFIUS will use to define the categories, remain to be seen.
FIRRMA contains an important carve-out for indirect investments made by a foreign person into an investment fund. In particular, an indirect investment does not constitute investment subject to CFIUS jurisdiction if the investment fund is managed exclusively by a non-foreign general partner; any advisory board membership associated with the investment does not come with an ability to control the fund’s investments or the activities of any portfolio company; and the indirect investor does not as result of advisory board membership, gain access to “material nonpublic technical information.
Declarations – Fast Track Process
One of the most important procedural reforms of FIRRMA is to allow the more simplified “declaration” process for parties who wish to submit them. These declarations will be shorter than fully written notices (i.e., no more than five pages), and FIRRMA requires that CFIUS provide responses to declarations within 30 days. CFIUS may notify the parties that they should file a compete notice, initiate a full review on its own, or clear the transaction. This could be used as a fast track process for parties with less sensitive transactions to secure a confirmatory declaration with a much shorter process.
Effects on CFIUS Filing Process
While FIRRMA aims at reforms that enhance the protection of national security, it does continue to emphasize on the value of continued attraction of foreign investment into the U.S. To that end FIRRMA pointedly directs, that the CFIUS should continue to review transactions for the purpose of protecting national security, and should not consider commercial purposes, or to advance trade or other industrial policy goals.
Some FIRRMA changes to the review process came into effect immediately upon enactment, but the most significant changes will only take into effect until CFIUS certifies the implementing regulations. For example, the expanded “covered transactions” relating to “critical infrastructure” does not go into effect until the implementing regulation is adopted or a pilot program is put in place.
As we previously reported, major changes are going into effect tomorrow concerning California’s Safe Drinking Water and Toxic Enforcement Act, known as Proposition 65. This law requires businesses to notify Californians about significant amounts of chemicals in products in their homes or workplaces, that are released into the environment, or that are present at certain public locations. On August 30, new regulations go into effect that impact the obligations of businesses in order to comply with this law. For more details, see our prior post on this topic, and do not hesitate to reach out to us to help guide you through the Prop 65 changes and how they impact your business.
On August 21, 2018, the Environmental Protection Agency (EPA) released a prepublication copy of its proposed Affordable Clean Energy (ACE) rule. If adopted, the rule would (1) establish emission guidelines for greenhouse gas emissions from existing electric utility generating units (EGUs); (2) revise the regulations governing how states implement the emission guidelines; and (3) revise the New Source Review (NSR) program to allow modification to existing EGUs without triggering permitting requirements.
The Clean Power Plan regulations adopted by the Obama administration would have limited GHG emissions by directing states to reduce emissions by applying a combination of three “building blocks” as the best system of emission reduction (BSER), which consisted of:
1) Improving heat rate at affected coal-fired steam generating units;
2) Substituting increased generation from lower-emitting natural gas combined cycle units for decreased generation from higher-emitting affected steam generating units; and
3) Substituting increased generation from new zero-emitting renewable energy generating capacity for decreased generation from affected fossil fuel-fired generating units.
Potomac Economics, the Independent Market Monitor (IMM) for the ERCOT market, released its “2017 State of the Market Report for the ERCOT Electricity Markets,” which contains several important insights for market participants and offered seven recommendations for market improvements.
Prices and Demand Move Higher in 2017
First, the IMM found that energy prices increased 14.7% over 2016, to $28.25 per MWh. This price is still significantly less than 2011’s average annual price of $52.23 per MWh and even 2014’s average annual price of $40.64 per MWh. The 2017 price increase correlates with a 22% increase in the cost of natural gas, the most widely-used fuel in ERCOT, as fuel costs represent the majority of most suppliers’ marginal production costs. The IMM also found price convergence to be very good in 2017, with the day-ahead and real-time prices both averaging $26 per MWh. However, the absolute difference between day-ahead and real-time prices still increased from $7.44 per MWh in 2016 to $8.60 per MWh in 2017.
Average demand also increased, rising 1.9% from 2016, with demand in the West Zone seeing the largest average load increase at 8.3% (possibly due to oil and natural gas production activity in that zone). Despite this increase in average demand, peak demand in ERCOT reached 69,512 MW on July 28, 2017, which is lower than the ERCOT-wide coincident peak hourly demand record of 71,100 MW, set on August 11, 2016. Even with general price and demand increases, market conditions were rarely tight as real-time prices didn’t exceed $3,000 per MWh and exceeded $1,000 per MWh for just 3.5 hours in all of 2017.
Congestion Costs Skyrocket
Surprisingly, the IMM found congestion in the ERCOT real-time market increased considerably, contributing significantly to price increases in 2017 with total congestion costs equaling $967 million – a 95% increase from 2016. The IMM stated that this increase is due to three main factors: (1) limitations on export capacity from the Panhandle; (2) planned outages associated with the construction of the Houston Import Project; and (3) the aftermath of Hurricane Harvey.
While congestion was more frequent in 2017 than in 2016, congestion on the North to Houston constraint declined after June due to the completion of a new 1,200 MW combined cycle generator located in Houston. The completion of the Houston Import Project in 2018 should reduce congestion in this area even further. Continue Reading ERCOT’s State of the Market Report
It appears the Texas Legislature has taken note of the several news articles and industry insiders sounding the alarm bells for ratepayers to brace for record high electricity prices this summer in a market applauded for its consistently low prices. The Committee convened because the Lt. Governor charged it to study/respond to the reserve margin issue. Approximately 5,600 megawatts (MW) of electric generation have recently retired in Texas causing a concern over whether enough reserve capacity exits to avoid rolling blackouts during the peak summer heat. On May 1, 2018, the Texas Senate Committee on Business and Commerce (Committee) held a meeting to discuss concerns amongst the Senators whether the Electric Reliability Council of Texas (ERCOT) had all of the tools necessary to address the lower reserve margins. The speculation over what might occur this summer began with ERCOT’s Winter Capacity Demand Report estimated the reserve margins in ERCOT as 9.3% for the summer.
During the hearing, both the Public Utility Commission of Texas (PUCT) Chairman Walker and ERCOT representatives promoted ERCOT’s preparation for the summer and insisted ERCOT had all of the tools necessary to respond to system shortages. PUCT Chairman Walker specifically pointed to ERCOT’s demand response tool, where large customers come offline at times of high system demand. In addition the low reserve margin reported at 9.3% a few months ago resulted in 525MW of generation coming back online. The current reserve margin going into summer is now approximately 11%. ERCOT stated that most of the megawatts coming back online were from mothballed units and that it is likely the possibility of higher prices this summer has made these units economical to run, and can be viewed as an indication the market is functioning as expected.
While the primary concern of the Committee was the potential for record high electricity prices, the Committee also discussed capacity markets more generally and what has changed in the market since the last time the topic of a capacity market was brought up in the Texas Legislature. To respond, PUCT Chairman Walker emphasized her strong belief in the ERCOT market and any changes regarding price fluctuations are merely a result of the cyclical nature of the market. Chairman Walker pointed to the high prices and low capacity experienced by the market in 2005 and 2006 that encouraged more generation investment was made as a response to these price signals. PUCT Chairman Walker also reiterated her support of the energy only market and her belief that it will work this summer.
The Committee also spent time discussed the impacts of the Federal Production Tax Credit (PTC) on the ERCOT system, the transparency of the prices in the Texas Government Land Office (GLO) contracts, and presentations from Austin Energy and CPS Energy on successes and failures for both of these municipally owned utilities. From the broad discussions taking place at the meeting it is safe to assume the Texas Legislature will be watching the ERCOT market this summer and energy is likely to be a topic of debate in the coming legislative session.
The Federal Energy Regulatory Commission (FERC) took swift action to respond to the recent United Airlines v. FERC decision regarding income tax allowances, as well as to implement changes stemming from the Tax Cuts and Jobs Act “to ensure that the economic benefits related to the reduction in the Federal corporate income tax rate are passed through to customers.” Specifically, FERC revised its income tax allowance policy for Master Limited Partnership (MLP) pipelines, with implications for other pass-through entities. In addition, it acted to implement federal income tax rate reductions and ordered changes affecting all FERC regulated entities.
Federal environmental requirements and regulations have been relaxed (or are proposed to be relaxed) since President Trump was elected, but those environmental regulatory changes have not yet realized benefits for renewable energy and transmission project permitting.
As mainstream media sources like the New York Times have reported, the Trump administration’s efforts to weaken environmental laws has been somewhat substantial; to date, 67 environmental actions have been targeted by the administration, including 33 that already have been overturned, 24 with rollbacks in progress, and 10 regulations in limbo. However, most of those regulatory changes are unrelated to transmission or renewable energy project permitting. And even those regulatory changes that are loosely related to permitting haven’t yet impacted the speed with which permits are issued by federal agencies (or state agencies with delegated authority to implement federal programs), or the number of permits issued (versus denied). However, the key here is that the impacts haven’t been realized yet; permit processing efficiency and issuance are likely to improve as time goes on, particularly since some of the changes are directly intended to speed up permitting. Continue Reading Trump Administration Actions to Relax Environmental Regulations Should Eventually Benefit Renewable Energy and Transmission Project Permitting
As a reminder, the State of Texas’s new stormwater construction general permit is now in effect. The Texas Commission on Environmental Quality’s (TCEQ) has renewed its General Permit to Discharge under the Texas Pollutant Discharge Elimination System Permit, Permit No. TXR150000, which authorizes discharges from construction sites into surface water in the state. Operators of large construction activities that were covered under the prior permit and continue to operate must now submit a Notice of Intent (NOI) to renew authorization within 90 days of the March 5 effective date. For more information on these changes, see our prior blog post on this topic.