FERC, CFTC, and State Energy Law Developments

Our colleagues in the tax practice prepared a LawFlash examining the Internal Revenue Service’s new guidance on the federal income tax credit for carbon capture projects under Section 45Q of the Internal Revenue Code of 1986.

Read the LawFlash.

In November 2019, New Jersey Governor Phil Murphy issued Executive Order 92 increasing the state’s offshore wind generation goal from 3,500 MW by 2030 to 7,500 MW by 2035. To date, the New Jersey Board of Public Utilities (BPU) has approved only one 1,100 MW offshore wind project, but is expected to conduct additional solicitations in 2020 and 2022 and approve approximately 2,400 MW of additional offshore wind generation.

A notice of proposed rulemaking (NPRM) titled, “Update to the Regulations Implementing the Procedural Provisions of the National Environmental Policy Act,” published today by the White House’s Council on Environmental Quality (CEQ), is likely to have far-reaching effects for the energy and public infrastructure sectors, and could facilitate more efficient implementation of energy production/generation projects for all major energy sources (i.e., renewable, fossil, nuclear, and hydroelectric sources) as well as transportation projects.

The proposed rule has four major elements: (1) to modernize, simplify, and accelerate the NEPA process; (2) clarify terms, application, and scope of NEPA review; (3) enhance coordination with states, tribes, and localities; and (4) reduce unnecessary burdens and delays.

It will be important for industry entities that depend on federal agency action when advancing projects and securing permits to actively participate in the proposed rulemaking, and to provide meaningful comments that will help the CEQ build a sufficient agency record to defend against any later litigation challenges to new regulations.

Read the full LawFlash.

The Federal Energy Regulatory Commission (FERC) on December 19, 2019, directed PJM Interconnection to extend its minimum offer price rule (MOPR) from new natural gas–fired electric generators to also cover any generator that receives or is entitled to receive certain types of state subsidies. The rule aims at preserving competitive capacity auctions by preventing resources that receive subsidies from submitting bids that would otherwise be uneconomical—and therefore likely to “capture” a PJM capacity award based on a below-market capacity rate—if not for state support. The order means that existing or planned resources that expected to clear capacity markets with rates made economical by state subsidies will have to identify alternate strategies to generate revenue; so too will states seeking to promote the development or prevent the retirement of preferred but noncompetitive resources.

FERC issued guidance on October 17, 2019, that may significantly aid hydroelectric developers in planning and siting potential projects. FERC issued a list, jointly developed with the secretary of the US Army, secretary of the US Department of the Interior, and secretary of the US Department of Agriculture (collectively, the Secretaries), of 230 existing nonpowered federal dams that FERC and the Secretaries agree have the greatest potential for nonfederal hydropower development. FERC also issued guidance to assist applicants for licenses or preliminary permits for closed-loop pumped storage projects at abandoned mine sites. These actions fulfill FERC’s requirements under the America’s Water Infrastructure Act of 2018 (AWAI) and are intended to encourage development of renewable energy resources by developing hydroelectric power at sites where the addition of hydroelectric capabilities would not add significant additional environmental impacts.

Morgan Lewis energy partner Ken Kulak takes a look at the role of regulation in defining the future of energy storage in Energy Policy Now, a podcast produced by the University of Pennsylvania Kleinman Center for Energy Policy. Ken also previews an upcoming FERC meeting during which the agency will consider plans submitted by regional transmission organizations to facilitate the participation of battery storage.

Listen to the podcast episode >

Interest in microgrids is on the rise in the United States as over half of states explore ways to modernize the grid and promote distributed energy resources (DER), including innovative renewable energy, storage, and demand response technologies. However, microgrids are not defined by law or regulation in most states and are more complex than other types of DER because they involve both the generation and distribution of energy. This raises several policy questions, including who should pay for microgrid development and use and whether microgrid operators that technically distribute energy to retail customers should be classified as public utilities and subject to regulations ordinarily imposed on such entities. California is currently exploring the potential benefits of microgrids and the role of state regulation.

FERC issued a notice of proposed rulemaking (NOPR) on September 19 announcing its intent to revise key rules governing the status and rights of Qualifying Facilities (QFs). These revisions include proposed changes to the rules for measuring QF size that could make it more difficult for certain projects to maintain QF status. The NOPR also proposes to provide greater flexibility to states in regulating the rates that QFs can receive from their interconnected utilities, as well as a number of other fundamental changes in the regulation of QFs.

For the first time, FERC has found that significant investments in an existing licensed hydroelectric facility by a licensee will be considered when establishing the license term in a relicensing proceeding, potentially aiding the licensee in obtaining a longer license term.

Section 15(e) of the Federal Power Act (FPA) provides that any license issued shall be for a term that FERC determines to be in the public interest, but no less than 30 years or more than 50 years. Under its 2017 Policy Statement on Establishing License Terms for Hydroelectric Projects, FERC established a 40-year default license term policy for original and new licenses. The Policy Statement included exceptions to the 40-year license term under certain circumstances, including establishing a longer license term upon a showing by the license applicant that substantial voluntary measures were either previously implemented during the prior license term, or substantial new measures are expected to be implemented under the new license.

The Council on Environmental Quality (CEQ) published draft guidance on June 26 to address how agencies implementing environmental reviews under the National Environmental Policy Act (NEPA) should consider greenhouse gas (GHG) emissions. The new guidance would replace the Obama administration’s 2016 guidance, which has been on hold since April 5, 2017, pending “further consideration” pursuant to Executive Order 13783, Promoting Energy Independence and Economic Growth.

If adopted, the guidance could impact every federal agency proceeding that requires a NEPA analysis, including FERC natural gas pipeline certificate proceedings, liquefied natural gas (LNG) facility certificate proceedings, nuclear power plant decommissioning projects, and independent spent fuel storage installation facilities.

The guidance specifies that under the NEPA “rule of reason,” which defers to agency expertise in conducting NEPA analyses, as well as existing CEQ regulations, “[a]gencies preparing NEPA analyses need not give greater consideration to potential effects from GHG emissions than to other potential effects on the human environment.”