Regulatory Updates

CalCCA Annual Meeting Discusses Key Issues on Customer Electric Choice

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On October 3, 2017, members of the California community choice aggregator (CCA) community met at CalCCA’s Annual Meeting, held in Riverside, California.  The meeting was an opportunity for CCAs to take stock of their mission and growth over the past year, such as the launch of several new CCAs, including Peninsula Clean Energy and Silicon Valley Clean Energy, as well as to look forward to the future launch of CCAs in development.  Panelists discussed key issues of importance to CCAs, ranging from obtaining financial support, overcoming challenges from the latest legislative session in Sacramento and continuing to face those challenges in the coming year, to navigating regulatory issues including the Power Charge Indifference Adjustment proceeding before the California Public Utilities Commission.  DWGP is a Partner Member of CalCCA, attended the Annual Meeting, and supports the success of CCA development in California.

For more information on this meeting and other CCA matters, please contact Michael PostarPeter J. ScanlonSean M. NealBhaveeta K. Mody, or Andrew B. Art.

DOE Directs FERC to Consider Grid Resiliency Pricing Rule

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On September 29, 2017, Department of Energy (“DOE”) Secretary Rick Perry submitted a Notice of Proposed Rulemaking (“NOPR”) to the Federal Energy Regulatory Commission (“Commission”) that, if adopted, would require Commission-approved regional transmission organizations (“RTOs”) and independent system operators (“ISOs”) to implement “reliability and resiliency pricing” to fully compensate the attributes that “baseload” generating units provide to the grid.

The NOPR proposes two principal revisions to the Commission’s regulations. First, the NOPR would require RTOs/ISOs to revise their tariffs to establish a just and reasonable “reliability and resiliency rate” that would: (1) apply to the purchase of electric energy from an eligible resource, discussed below,; and (2) facilitate recovery of the fully allocated costs and a return on equity for such resources. DOE explains that the rate shall ensure that eligible resources are fully compensated for the benefits they provide to grid operations, including reliability, resiliency, and on-site fuel assurance. Compensable costs would include, but would not be limited to, “operating and fuel expenses, costs of capital and debt, and a fair return on equity and investment.”

Second, DOE identifies the eligibility criteria that resources must meet to receive the reliability and resiliency rate. To be eligible, resources must: (1) be physically located within a Commission-approved RTO/ISO; (2) be able to provide essential energy and ancillary services; (3) have a 90-day supply of on-site fuel; (4) be compliant with all applicable federal, state, and local environmental laws, rules, and regulations; and (5) not be subject to cost-of-service regulation by any state or local regulatory authority.

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California Legislative Session Ends with Key Energy Legislation on Hold

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On September 15, 2017, as this year’s California legislative session came to an end, bills foundered that would have laid out plans to transform the state’s electric grid into a regional market, directed investor-owned electric utilities to accelerate renewables procurement in a manner that could adversely impact the continued growth of community choice aggregators ("CCAs") and required 100 percent renewable energy by 2045. Another measure passed that directs certain measures to be taken in response to the natural gas leak at the Aliso Canyon storage facility. 

Assembly Bills (“A.B.”) Nos. 726 and 813, both with identical language, sought to facilitate the transformation of the California Independent System Operator Corporation (“CAISO”) into a regional organization to promote the development of regional electricity transmission markets in the western states.  The bills would require the CAISO to propose a new governance structure by October 31, 2018, which would be approved by a committee made up of representatives from the California Energy Commission, the California Public Utilities Commission, and the Legislature.

These two bills also included language that would have increased the procurement requirements of renewable energy resources by investor-owned electric companies in order to take advantage of temporary federal investment tax credits and production tax credits.  The state has estimated that buying 4,000 megawatts of eligible renewable energy now, rather than after 2020 when the federal tax credits will begin to ramp down, could save approximately $633 million.

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DOE Releases Study on Electricity Markets and Reliability

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On August 23, 2017, the U.S. Department of Energy (DOE) released the long-awaited study of the electricity grid. On April 14, 2017, Energy Secretary Rick Perry directed his staff to prepare a study examining the present state of the electricity system, with particular focus on whether Federal policy and other regulatory burdens are putting coal and nuclear power plants (so-called “baseload” generation) at a competitive disadvantage, thus damaging grid reliability.

Although the report (here) blames decreasing electricity demand, increasing renewable resource penetration, and the costs of complying with environmental regulations for at least some portion of premature baseload retirements, the report ultimately concludes that inexpensive natural gas is the primary cause for early coal and nuclear plant retirements. The continued closure of traditional baseload power plants is cause for concern, according to the report—a concern that “calls for a comprehensive strategy for long-term reliability and resilience” for the U.S. electricity grid. Accordingly, the report makes eight policy recommendations regarding how regulators could address the reliability and resilience issues identified in the report.

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5th Circuit Dismisses Challenge to FERC Enforcement Authority

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On June 8, 2017, the U.S. Court of Appeals for the Fifth Circuit dismissed TOTAL Gas & Power North America, Inc.’s (“Total Gas”) claims that the Federal Energy Regulatory Commission (“FERC”) lacks authority to adjudicate violations of the Natural Gas Act and impose civil penalties for market manipulation violations.  Specifically, Total Gas argued that, under Section 24 of the Natural Gas Act, only district courts of the United States may adjudicate violations of the Natural Gas Act and assess associated civil penalties.  Total Gas also argued that adjudication by a FERC Administrative Law Judge of a Natural Gas Act violation and imposition of civil penalties would violate the Constitutional guarantees of the Appointments Clause, the Fifth Amendment’s Due Process Clause, and the Seventh Amendment’s right to a jury trial.  The Fifth Circuit found that Total Gas’ arguments were not ripe, as the FERC has not yet found that Total Gas has violated the Natural Gas Act or assessed any associated civil penalties.

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United Stated District Court of Illinois Dismisses Zero Emission Credit Nuclear Subsidy Complaint

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On July 14, 2017, a federal district court judge in Illinois granted the state’s motion to dismiss a complaint brought by wholesale generators against the state’s Zero Emission Credit (“ZEC”) nuclear subsidy program. The Illinois Future Energy Jobs Act created the ZEC program and requires utilities to enter into contracts to purchase the zero-carbon environmental attributes from qualifying nuclear generation facilities. The Illinois ZEC program is in response to New York’s original Zero Emission Credit program aimed at preserving the zero-carbon attributes of struggling high-cost nuclear generation in the wholesale market, as well as the preservation of local jobs and property taxes.

In Illinois, the district court dismissed the plaintiff generators’ ZEC complaint for failure to state a claim. The generators’ complaint was largely based on the recent Supreme Court case Hughes v. Talen Energy Marketing, which found a Maryland state regulatory program to violate FERC’s exclusive wholesale jurisdiction by providing subsidies to selected generators that paid the difference between the generator’s costs and the actual market clearing price. The Supreme Court also articulated that “tethering” a subsidy to a generator’s participation in the wholesale market is impermissible.

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D.C. Circuit Court of Appeals Emphasizes FERC’s “Passive and Reactive Role” under Section 205 of the Federal Power Act

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On July 7, 2017, the U.S. Court of Appeals for the District of Columbia Circuit issued an important opinion on the scope of the Federal Energy Regulatory Commission’s (“FERC”) authority under Section 205 of the Federal Power Act. Specifically, the D.C. Circuit in NRG Power Marketing, LLC v. FERC found that FERC exceeded its Section 205 authority when it directed modifications to a PJM Interconnection, L.L.C. (“PJM”)—a Regional Transmission Organization—proposal impacting its generation capacity auctions.

For background, in 2012, PJM submitted to FERC a proposed reform to its Minimum Offer Price Rule intended to prevent new wholesale market entrants from entering artificially low bids into its capacity auctions, which would have depressed clearing prices in the auction. PJM’s proposal set forth two new exceptions to the Minimum Offer Price Rule: (1) a competitive entry exemption; and (2) a self-supply exemption. In addition, PJM’s proposal sought to extend the duration of the Minimum Offer Price Rule for new generators from one to three years. 

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EPA Seeks Revision to Waters of the United States Rule

On June 27, 2017, the Environmental protection Agency (“EPA”) and the U.S. Army Corps of Engineers issued a proposed rule redefining the “waters of the United States,” which are the bodies of water subject to federal EPA regulation under the Clean Water Act.  The EPA’s proposed rule would rescind the current definition of “waters of the United States,” which was adopted in 2015 but subsequently stayed by the Sixth Circuit, and re-codify it with the pre-2015 definition.  Issuance of this proposed rule constitutes the first step of a two-step process outlined in President Trump’s February 28th Executive Order aimed at rescinding EPA’s 2015 expansion of the Waters of the United States rule (“WOTUS”).  In a future second step, the agencies will issue a separate proposed rulemaking to establish a new definition consistent with Justice Scalia’s plurality opinion in Rapanos v. United States.  Such a revision could reduce the number of bodies of water subject to federal regulation under the Clean Water Act and return regulatory power of waterways to the states. 


A comment date will be set once the rule is published in the Federal Register.
 

The pre-publication version of the rule is available here:  https://www.epa.gov/sites/production/files/2017-06/documents/wotus_prepublication_version.pdf  


If you have questions, please contact Derek Dyson or Gregory Jones.