Energy Regulatory

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By Michael J. Gergen, Eli Hopson, and Andrew H. Meyer

The California Independent System Operator (“CAISO”) is moving forward with a stakeholder initiative to examine issues with connecting energy storage facilities to the CAISO controlled grid under the CAISO’s existing interconnection rules, and to develop new policies as needed to clarify and facilitate interconnection of energy storage. 

By Michael Gergen and Eli Hopson

On July 3, 2014, the United States Department of Energy’s (DOE) Loan Programs Office issued a new “Renewable Energy and Efficient Energy” solicitation for loan guarantees. DOE issued the Renewable Energy and Efficient Energy solicitation under Title XVII of the Energy Policy Act of 2005 and its implementing regulations under 10 C.F.R. Part 609. The solicitation states that DOE will support as much as $4 billion in loan guarantees (direct authority to issue approximately $2.5 billion in guarantees and remaining appropriations of $169 million to cover credit subsidy costs – estimated to support some multiple amount of guarantees).

By Michael J. Gergen, Jared W. Johnson, and David E. Pettit

On June 19, 2014, the Federal Energy Regulatory Commission (“FERC” or “Commission”) conditionally accepted revisions to the California Independent System Operator Corporation’s (“CAISO”) FERC Electric Tariff to implement the CAISO’s proposed Energy Imbalance Market (“EIM”) that will allow neighboring balancing area authorities (“BAAs”) in the western states to participate in the imbalance energy portion of the CAISO’s real-time market.  Energy imbalance services have long been required as an “ancillary service” under FERC’s open access regulations and pro forma open access transmission tariff (“OATT”).  In its proposal, the CAISO noted that the EIM was effectively an expansion of its existing real-time energy market allowing to take part in the EIM alongside entities already transacting within the CAISO.  PacifiCorp’s two BAAs will be the first to participate in the EIM, and in a concurrent order, FERC also conditionally accepted in large part corresponding revisions to PacifiCorp’s OATT.  NV Energy has also entered into an implementation agreement with the CAISO to join the EIM.  Although several market participants protested various aspects of the CAISO’s proposed design of the EIM, most of it was approved by FERC.  The CAISO plans to start the new EIM on October 1, 2014.    

By Michael G. Romey, Aron Potash and Gregory Fuoco (summer clerk)

On June 2, 2014, the U.S. Supreme Court announced it would not review a decision by the Court of Appeals for the Third Circuit allowing state common law tort claims against sources of air pollutants.  This spells uncertainty for emitters, who now must look beyond the requirements in their facility permits in contending with local tort law.  Even if they are in full compliance with the Clean Air Act (CAA), sources—including fossil fuel-fired power plants, petroleum refineries, and emitters of greenhouse gases (GHGs)—may be faced with claims that their emissions constitute a nuisance or trespass. 

By Michael J. Gergen, Jared W. Johnson, and Andrew H. Meyer

The California Independent System Operator (“CAISO”) has taken a significant step toward proposing a new ancillary service known as the “Flexible Ramping Product” as part of its market design.  With increasing levels of variable energy resources on the CAISO-controlled grid, maintaining power balance requires increased ramping capability, as the variable outputs of the renewable resources may increase the magnitude of 5-minute to 5-minute net load changes.  In a Straw Proposal issued June 2, 2014, the CAISO proposes to use the Flexible Ramping Product to address these emerging operational challenges relating to maintaining power balance in real-time dispatch.  In doing so, the CAISO emphasized that while its existing regulation service product could be called upon to address forecast uncertainties, procuring more regulation service is problematic from an economic and market efficiency perspective both because the generating capacity of some resources must be reserved to provide regulation service and because more real-time dispatch prices will be compensated at administratively-set penalty rates.  The CAISO stated that its Flexible Ramping Product is designed to deal with uncertainties that are realized before the binding real-time dispatch using a market-based design to procure ramping capacity in the CAISO’s day-ahead market, fifteen-minute market and real-time dispatch.

By Michael J. Gergen and Miles B. Farmer

On May 23, 2014, the U.S. Court of Appeals for the D.C. Circuit Court issued a decision in Electric Power Supply Association v. FERC (“EPSA”) vacating and remanding FERC’s Order No. 745, which provides compensation for demand response resources that participate in the energy markets administered by Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”).  The decision holds that the Federal Energy Regulatory Commission (“FERC” or “Commission”) did not have jurisdiction under the Federal Power Act (“FPA”) to issue Order No. 745 because demand response is part of the retail market, which is exclusively within the states’ jurisdiction to regulate.  Furthermore, the court holds that even if FERC did have jurisdiction under the FPA to issue Order No. 745, the Order would still fail as arbitrary and capricious because FERC failed to properly consider concerns of the petitioner and other parties that Order No. 745 would result in unjust and unreasonable rates because it would overcompensate demand response resources.

By Michael J. Gergen, Benjamin M. Lawless, and Andrew H. Meyer

On April 25, 2014, the New York Public Service Commission (“NYPSC”) instituted a proceeding it terms “Reforming the Energy Vision” (the “REV Proceeding”) to consider “fundamental changes in the manner in which [electric distribution] utilities provide service” along with related regulatory and ratemaking issues in an effort to “align electric utility practices and [the] regulatory paradigm with technological advances in information management and power generation and distribution.”  Order Instituting Rulemaking, Case 14-M-0101, Proceeding on Motion of the Commission in Regard to Reforming the Energy Vision (April 25, 2014) (the “REV Proceeding Order”).  At its core, this order is the first step in a regulatory process to “improve system efficiency, empower customer choice, and encourage greater penetration of clean generation and energy efficiency technologies and practices.”

By Joel Mack, Eli Hopson and Ben Lawless

On March 28, 2014 the White House announced its Methane Reduction Strategy 
(“MRS”) containing the broad outlines of a multi-agency strategy to reduce methane emissions 
from four major sources: the oil and gas industry, cattle and dairy farming, coal mining, and 
landfills. The MRS is part of the President’s Climate Action Plan, first announced by the 
White House in June 2013, and will utilize voluntary incentive-based programs as well as new 
regulatory measures under the executive branch’s existing regulatory authority. In addition, the 
MRS outlines plans to improve the quality of methane emission measurement and steps to reduce 
international methane emissions.
 The core of the MRS is the announcement of a series of voluntary and regulatory 
measures intended to reduce methane emissions from the four major sources of methane 
emissions: 
• Oil and Gas: The MRS detailed three steps to reduce methane emissions from 
the oil and gas industry: 1.) EPA will issue a series of technical white papers 
in 2014 to solicit input from technical experts to assess “several potentially 
significant sources of methane emissions” and determine whether to pursue 
further methane emission reductions from those sources; 2.) BLM will propose 
updated venting and flaring standards for oil and gas operations on public lands; 
and 3.) the Administration will work to identify additional “downstream” methane 
reduction opportunities. 
• Coal Mining: The Bureau of Land Management (“BLM”) will issue an 
Advanced Notice of Proposed Rulemaking to solicit input on the development of 
a program for the capture and sale, or disposal, of waste methane emitted from 
coal mines on Federal lands. 
• Landfills: EPA will propose more stringent methane emission standards for new 
landfills sometime in the summer of 2014. At the same time, EPA will solicit 
public comments on whether to update standards for existing landfills. EPA will 
also seek further emission reductions through the Landfill Methane Outreach 
Program, a voluntary program intended to partner with industry and state and 
local officials. 
• Agriculture: In consultation with the dairy industry, the Department of 
Agriculture, EPA and the Department of Energy will issue a “Biogas Roadmap” 
outlining voluntary strategies to hasten the adoption of methane digesters and 
other technologies to reduce GHG emissions from the dairy industry by 25 
percent by 2020. 
The MRS also included an outline of a plan to improve the ability to measure methane 
emissions across diverse sources and economic sectors. Specifically, the MRS calls for the 
development of new and improved measurement technologies, additional data collection and 
analysis for areas with high uncertainty, and enhancement of top-down modeling and monitoring 
based on direct measurement of atmospheric concentrations. 
Finally, the MRS sets out the Administration’s plans to reduce international methane 
emissions through two primary actions. First, the Administration will push for initiatives under 
the auspices of the Climate and Clean Air Coalition (“CCAC”) to reduce landfilling in Africa, 
Asia and Latin America, reduce methane emissions from agriculture and livestock operations 
through best practices and improved policies and technologies, and help to launch the CCAC 
Oil and Gas Methane Partnership in 2014. Second, the Administration will work to leverage the 
U.S.’s technical expertise to reduce methane emissions through the Global Methane Initiative 
(“GMI”), a public-private initiative involving 43 partner countries, private industry, and 
multilateral organizations such as the World Bank. The GMI will focus on reductions in five 
key sectors: agriculture, coal mining, municipal solid waste, oil and gas systems, and municipal 
wastewater. 
Reactions to the MRS were mixed. A spokesperson for the American Petroleum Institute 
questioned the need for new regulation of fuel extraction, noting that the regulations could a 
“chilling effect” and that there “built-in incentive to capture [methane] emissions” due to the 
potential resale profit. Environmental groups were generally supportive. The President of the 
Environmental Defense Fund hailed the President’s strategy as “smart roadmap for taking on the 
biggest sources of [methane] emissions.” However, the Sierra Club emphasized that the MRS 
does not reduce methane emissions enough to stave off the negative impacts of climate change.

On March 28, 2014 the White House announced its Methane Reduction Strategy (“MRS”) containing the broad outlines of a multi-agency strategy to reduce methane emissions from four major sources: the oil and gas industry, cattle and dairy farming, coal mining, and landfills. The MRS is part of the President’s Climate Action Plan, first announced by the White House in June 2013, and will utilize voluntary incentive-based programs as well as new regulatory measures under the executive branch’s existing regulatory authority. In addition, the MRS outlines plans to improve the quality of methane emission measurement and steps to reduce international methane emissions.

By Christopher W. Garrett, Daniel P. Brunton and Taiga Takahashi

On March 25, 2014, in The Protect Our Communities Foundation et al. v. Jewell et al. [Click here to view the opinion], the US District Court for the Southern District of California issued a decision on a challenge to the Tule Wind Project and found in favor of the Federal Government defendants and intervenor-defendant Tule Wind LLC, on all claims. The plaintiffs had alleged violations of the Administrative Procedure Act, National Environmental Policy Act (“NEPA”), Migratory Bird Treaty Act (“Bird Act”) and Bald and Golden Eagle Protection Act (“Eagle Act”).