Members of Husch Blackwell’s renewable energy team attended the 2019 Infocast Wind Power Finance & Investment Summit in Carlsbad, CA, February 5-7. Here are some of the themes from the conference:

  • While there is a push to complete many projects in 2020, there was a lot of discussion about how the industry and project financing will evolve in coming years as the Production Tax Credit steps down and after it sunsets. The industry is becoming increasingly complex with ever-changing state and federal policies, an increase in C&I offtakers, increasingly complex non-traditional offtake arrangements, and new financing parties waiting in the wings. It is important to understand the challenges and opportunities that these changes create. Husch Blackwell’s renewable energy team can help you navigate these ever changing challenges and opportunities and ensure that your project is completed on time and in compliance with all state and federal policies.

Continue Reading 2019 Infocast Wind Power Finance & Investment Summit Recap

In December, the U.S. Fish and Wildlife Service (USFWS) announced that the agency will be proposing a streamlined eagle incidental take permitting process for wind energy projects that are considered “low-risk” to eagles. Although this new low-risk framework has not been finalized or formally proposed yet, USFWS has made available a presentation outlining the framework.

Continue Reading U.S. Fish and Wildlife Service To Propose New Low-risk Framework for Eagle Incidental Take Permitting Process

The Federal Energy Regulatory Commission (FERC) issued an Order clarifying that a bankruptcy court cannot unilaterally amend or reject a wholesale power purchase agreement (PPA) or wholesale power contract that is subject to the Commission’s jurisdiction.

Continue Reading FERC and Bankruptcy Courts: Concurrent Jurisdiction over PPAs

As mentioned in a prior blog post, the Menominee Indian Tribe of Wisconsin (“Tribe”) sued the U.S. Environmental Protection Agency (“EPA”) and Army Corps of Engineers (“Corps”) over the proposed Aquila Resources Back Forty Mine (“Mine”) located in Michigan, arguing that EPA and Corps have failed to take responsibility under the Clean Water Act (“CWA”) for reviewing wetland permits for the project. Michigan is responsible for issuing the Section 404 wetland fill permits for the Mine because EPA delegated such permitting authority to Michigan in 1984 as allowed under the CWA.

A federal judge in Wisconsin recently ruled against the Tribe and dismissed the lawsuit, generally because the EPA and Corps did not violate any mandatory duties or make any final agency actions related to the Mine. More specifically, the judge addressed four claims made by the Tribe.

The court considered two claims made by the Tribe in its original complaint:

  1. The Tribe claimed the EPA and Corps had a mandatory duty under the CWA to assume jurisdiction over the Section 404 permit process, and the Tribe could enforce this under the CWA’s citizen suit provision. The court first held the CWA does not authorize citizen suits against the Corps, so the court lacked subject matter jurisdiction over this claim as it pertained to the Corps. The court further held this claim must be dismissed as to the EPA because the Tribe failed to identify a nondiscretionary duty which the EPA had not performed. If the Tribe wished to challenge the EPA’s decision to allow Michigan to assume authority of the Section 404 permitting process, it would have to challenge this under the Administrative Procedures Act (“APA”), and not a citizen suit.
  2. The Tribe claimed the EPA’s and Corps’ refusal to assert jurisdiction over the Section 404 permitting was arbitrary and capricious and in violation of the APA. The court held that this “as-applied” challenge to the APA must rest on final agency action, and that the final agency action was EPA’s 1984 decision to allow Michigan to assume permitting authority for Section 404 permits, not any recent letters sent by EPA to the Tribe about the permitting process.

In addition, the Tribe filed a motion to amend its complaint and to add two new claims, and the court discussed these proposed claims as follows:

  1. The Tribe claimed the EPA’s withdrawal of its objections to Michigan’s wetland permit was arbitrary and capricious and in violation of the APA. The court held the EPA’s decision to withdraw its objections was discretionary, not mandatory, and therefore is not reviewable under the APA.
  2. The Tribe claimed the EPA’s failure to consult with the Tribe pursuant to the National Historic Preservation Act (“NHPA”) before Michigan issued its permit for the mine was arbitrary and capricious and in violation of the APA. The court held the EPA was not required to consult with the Tribe about the mining project because the NHPA only requires consultation when a project is federally funded or federally licensed. The Back Forty Mine is not federally funded, and the permits are being issued by Michigan, not the federal government.

Therefore, the court denied the Tribe’s motion to amend the complaint and held that the Tribe failed to state a claim upon which relief can be granted and dismissed the Tribe’s case.

The Tribe appealed the decision to the Seventh Circuit Court of Appeals on January 17, 2019, arguing that the Clean Water Act requires the federal government to retain jurisdiction and apply federal safeguards for the benefit of everyone who has access to interstate and commercially used waters such as the Menominee River. We will continue to provide substantive updates on this case as they develop.

At the January 17, 2019 Open Meeting, the Public Utility Commission of Texas (Commission) addressed several highly contested issues, including storage, Operating Reserve Demand Curve, Real-Time Co-optimization, and Marginal Losses. First, in Project No. 48023, Rulemaking to Address the Use of Non-Traditional Technologies in Electric Delivery Service (the Battery Project), dealing with utility ownership of battery storage, the Commission decided to defer further action until Texas Legislature’s regular session concludes. This decision comes after 63 comments were filed with the Commission, expressing widely varying views on whether a transmission and distribution utility within ERCOT may legally own and operate battery storage facilities. The Commission previously submitted through its Scope of Competition Report a request for the Legislature to enact legislation clarifying this legal point.

Continue Reading Texas Public Utility Commission Contemplates Market Changes to Plan for the Future of Texas Reliability and Infrastructure

Don’t miss Chris Reeder’s annual report on the regulatory activities during 2018 at the Public Utility Commission of Texas.

Chris will speak during the Gulf Coast Power Association’s Annual Meeting & Luncheon on Thursday, January 17, 11:00am in Houston, Texas at the Downtown Club at the Houston Center.

 

For more information or to register visit GCPA’s Houston Luncheon event site.

 

The biodiesel industry is gathering at the National Biodiesel Board’s National Biodiesel Conference in San Diego starting January 19.  With turmoil in the federal Renewable Fuel Standards program and low petroleum prices, the industry will be highlighting the important role biodiesel has to play in lowering carbon in the atmosphere. Biodiesel is commercially available and produces up to 90 percent less carbon emissions than petroleum diesel. Further, many biodiesel technologies are capable of using waste products as the primary input. National carbon reduction goals under the Paris Climate Accord generally are not being met, and in some cases carbon emissions are increasing. Here in the U.S., carbon emissions increased last year, largely based on increased use of transportation fuel given a stronger economy. While it seems that substantial federal action on carbon reduction is not likely until after the 2020 election cycle, there are significant carbon reduction strategies in effect or being implemented in various Canadian provinces and at the Canadian federal level. In the U.S., the primary drivers are carbon cap-and-trade programs in California and Oregon, as well as the Regional Greenhouse Gas Initiative of nine northeastern states. Conference sessions will focus on these programs and the potential for additional similar programs here in the U.S.

The Public Utility Commission of Texas has finalized the recommendations it will include in its upcoming 2019 Report on the Scope of Competition in Electric Markets in Texas to the 86th Texas Legislature, which goes into session January 8, 2019. The Commission voted on the recommendations at its December 20, 2018 meeting; the most significant inclusions involve a recommendation to increase the threshold for the review of mergers and acquisitions of power generation companies from 1% to 10% of installed generation capacity, and a request that the Legislature provide clarity on which entities may own and operate battery storage devices.

Review of Power Generation Mergers and Acquisitions
Under Texas Utilities Code § 39.158, the Commission is required to review mergers and acquisitions of entities if the newly merged companies will offer for sale more than 1% of the total electricity for sale in the state. The Commission is required to approve the merger or acquisition unless the new company exceeds a 20% installed generation capacity limit set by § 39.154. The Commission recommends increasing the threshold for the review of mergers and acquisitions of power generation companies from 1% of installed generation capacity to 10% of installed generation capacity. The Commission did not recommend changing the limit that prevents one company from owning more than 20% of installed generation capacity. Additionally, the Commission requested the Legislature clarify the meaning of the phrase “total electricity for sale,” which denotes the total regional capacity used in this calculation, and clarifying that the review under § 39.158 applies only in a power region open to customer choice.

The Commission reasoned that the current 1% threshold unnecessarily delays numerous transactions that have a negligible likelihood of breaching the 20% limit, noting the number of applications for review of these mergers and acquisitions has increased from five applications in 2015 to 26 in 2018, most of which came at the end of the year. Changing the threshold for review would avoid undue delays, and in effect avoid the regulatory uncertainty and impediments to business that current regulations cause.

Use of Battery Storage in ERCOT
Under Texas Utilities Code § 35.152, electric energy storage that is intended to be used to sell energy or ancillary services at wholesale are classified as generation assets, and the owner or operator is classified as a power generation company. Section 31.002(10) defines power generation company as a person that generates electricity that is intended to be sold at wholesale, does not own a transmission and distribution facility, and does not have a certificated service area. Section 39.105 states a transmission and distribution utility (TDU) may not sell electricity or otherwise participate in the market for electricity except for the purpose of buying electricity to serve its own needs.

These rules surrounding battery storage have been an issue since AEP Texas, a TDU operating in ERCOT, requested to install two utility-scale batteries to address reliability issues in its distribution system. The docket was dismissed by the Commission on grounds there was insufficient information for a decision to be made; the Commission subsequently opened a Project to further evaluate the possibility of an electric utility owning and operating an energy storage device. The argument made by AEP was that a TDU owning and operating a storage device on its system, that does not intend to sell power at wholesale or participate in the electric market, but only intends to support reliability, does not violate existing rules. Opponents argued TDUs are not able to own and operate storage devices, because they would be participating in the wholesale energy market through the charging and discharging process. The comments received in the Project have highlighted these two arguments, and are sharply contrasting.

The Commission is asking the Legislature for clarity on how these rules apply to battery storage, noting many options exist for TDUs, such as: prohibiting a TDU’s involvement with an energy storage device other than to provide transmission and distribution service to it; allowing a TDU to contract with a power generation company for reliability service from an energy storage device; and limiting a TDU’s ownership and operation of an energy storage device in circumstances where the TDU’s ownership and operation of the device would provide the lowest-cost transmission and distribution service.

The Commission is also requesting that the Legislature provide clarity regarding whether electric cooperatives and municipally owned utilities, known as non opt-in entities, may own or operate batteries without registering as a power generation company. Sections 35.151 and 35.152 of the Texas Utilities Code requires an owner or operator of electric energy storage equipment (i.e. batteries) to register as a power generation company; however, electric cooperatives and municipally owned utilities cannot qualify as a power generation company, therefore it could be inferred they are not permitted to own or operate a battery. The Commission believes this would leave opt-in entities “in a precarious position,” and thus requested legislative guidance.

 

Other Recommendations

Registration of Retail Electric Brokers
The Commission is recommending the Legislature require retail electric brokers to register with the Commission in a manner similar to retail electric aggregators to ensure customers who use such brokers have adequate consumer protections. Retail electric brokers connect buyers with sellers of electricity, and many non-residential electric customers use brokers as an alternative to developing in-house expertise to negotiate retail electric contracts. Residential customers also use brokers, authorizing these brokers to make electricity contract decisions on the customer’s behalf. Whether a broker represents the customer or retail seller can vary from deal to deal, risking customer confusion and blurring the parties’ responsibilities. The Commission already regulates many market participants and has customer protection rules in place, including requirements that participants demonstrate industry expertise and financial stability. Electric aggregators perform many of the same functions as retail electric brokers and are required to register with the Commission under Texas Utilities Code § 29.353 of the Texas Utilities Code; the Commission believes brokers should be regulated as well to protect customers.

Electric Industry Security
The Commission is recommending the Legislature establish a collaborative cybersecurity outreach program to ensure the safety and reliability of electric service. The Commission envisions this program including regular meetings with utilities to identify best practices and emerging threats, coordination of workforce training and security exercises, and related research. Members introduced bills addressing these issues during the 2017 legislative session, but none were enacted.

Default Violations
Under Texas Utilities Code § 15.024(d), if a person that the Commission issues a Notice of Violation against does not respond within 20 days, the Commission considers the person to be in default, and § 15.024(f) requires the Executive Director of the Commission to set a hearing at the State Office of Administrative Hearings; after the hearing the violation is decided by the Commission. The Commission recommends § 15.024(f) be amended to remove the hearing requirement to allow default violations to move more quickly.

Please contact Chris Reeder, Chris Hughes, Maria Faconti or Jessica Morgan if you have any questions.