Utilities

Executory Forward SREC Contracts - What Exactly Does This Mean?

March 3, 2014 23:25
by J. Wylie Donald

What happens to the payment for a solar renewable energy credit (SREC) when the payor closes its doors?  Maryland citizens are finding out the hard way.  The promises made to some of them are turning up empty.

Here are the details.  Greenspring Energy was a promising solar installation company.  As it describes itself:  "Greenspring Energy offers a unique combination of high-quality solar energy systems and the best energy saving products and services in the marketplace today. Created to help people effectively and permanently reduce their utility bills, Greenspring Energy’s products and services will allow you to: Reduce your utility bills with innovative energy saving products, Produce your own energy with solar systems, Take advantage of federal, state, and local incentives to go solar, Increase the value of your property, Reduce your carbon footprint.”  It was a good business model. Following its founding in 2007, Inc. reports it had revenues of $10.5 million in 2010 and 40 employees the next year. Its website boasts 2011 Inc. 500

Then something happened.   Jamie Smith Hopkins of the Baltimore Sun reports that Greenspring Energy closed its doors at the end of January this year.  Its employees received rubber checks.  And its customers, promised recurring payments for the SRECs associated with the electricity generated from their solar equipment, were likewise burned.  This is not a particularly unexpected outcome.  Entities regularly enter bankruptcy and their creditors take a beating.  The solar industry is no different.  In fact, one website compiled a list of dozens of “Deceased Solar Companies” through early 2013.  

But what is not getting a lot of play (or even any) is the effect of a bankruptcy of the SREC provider.  It is probably safe to say that most SREC transfers are the subject of executory contracts, long-term contracts where the provider agrees to transfer the SRECs accompanying its future electricity generation for some future consideration.  In bankruptcy, such contracts may be assumed, or not, at the discretion of the bankruptcy trustee.  11 U.S.C. § 365.   Except, however, where such contracts are forward contracts.  E.g., Master Solar REC Agreement  (NJ BPU 2014) (“Buyer and Seller each acknowledge that it is a “forward contract merchant” and that all transactions pursuant to this Master Agreement constitute “forward contracts” within the meaning of the United States Bankruptcy Code.”).  In that case, the trustee’s right to reject or assume the executory contract does not exist.  11 U.S.C. § 556

So there is some complexity here.  And it gets worse.  The SREC does not exist but for the generation of 1 MWh of electricity, even if the SREC is sold separately from that electricity.  It is not difficult to conceive of a situation where the value of the contract for the sale of electricity is going in the opposite direction of the value of the SREC contract.  Suppose the bankruptcy trustee has the right to suspend electricity generation, even if it does not have the right to walk away from the SREC contract.  Does an SREC contract have any value if there is no generation?

To our knowledge, SRECs (and RECs as well) have not been tested in the furnace of bankruptcy.  We will be interested in seeing how that turns out. 

Renewable Energy | Solar Energy | Utilities

Report on Carbon Capture and Storage from the House

February 20, 2014 22:37
by J. Wylie Donald

Would an 80% premium steer you away from an energy source that was low-carbon, naturally abundant in the United States, not subject to the vicissitudes of weather, incapable of nuclear meltdown and accompanied by a well-established infrastructure?  Suppose the premium was only 40%?

Hearings last week before the House Energy and Commerce Committee’s Subcommittee on Oversight and Investigation explored that topic in connection with the development of carbon capture and storage technology. In prepared remarks Dr. Julio Friedmann, Deputy Assistant Secretary for Clean Coal with the Department of Energy, delivered an update on the status of CCS.

Coal fuels approximately 40% of the nation's energy needs.  "Because it is abundant, the clean and efficient use of coal is a key part of President Obama's all-of-the-above energy strategy."  A central component of the President's program is the Clean Coal Research Program, which " is designed to enhance [the nation's] energy security and reduce environmental concerns over the future use of coal by developing a portfolio of cutting-edge clean coal technologies."  To accomplish this the Department of Energy is focusing on research to capture carbon dioxide directly from the fuel stream (pre-combustion), from the stack gas (post-combustion) and from combustion in nearly pure oxygen (oxy-combustion, which yields nearly pure CO2 and water, which are easily separated). 

Dr. Friedmann went on to discuss the Regional Carbon Sequestration Partnerships, which are investigating the viability of CCS projects in a variety of circumstances.  "Together, the Partnerships form a network of capability, knowledge, and infrastructure that will help enable geologic storage technology to play a role in the clean energy economy. They represent regions encompassing 97 percent of coal-fired CO2 emissions, 97 percent of industrial CO2 emissions, 96 percent of the total land mass, and essentially all the geologic storage sites that can potentially be available for geologic carbon storage.”

Last, Dr. Friedmann addressed the commercialization of CCS.  This has two components:  the operation of CCS facilities, and the utilization of the captured CO2.  The idea behind utilization in activities such as enhanced oil recovery and algae production is to "provide a technology bridge" which can smooth the  " transition to the deployment of the large-scale, stand-alone geologic sequestration operations that will ultimately be needed to achieve the much larger emissions reductions required ..."  As for those operations, Dr. Friedmann acknowledged dozens of projects, including 5 he listed by name, where CCS is being tested in commercial environments.

But the real interest of the committee, at least as reported in the trade press, was in cost. As reported  in Power and Power Engineering International,  Dr. Friedman  advised that implementing CCS "looks something like a 70% or 80% increase on the wholesale price of electricity."  Second generation technologies could cut that in half. But half is still a 40% increase.

Some might pull the plug on CCS right now.  If it is going to raise the price by 40%, that is simply too much.  To our mind, however, that is antediluvian thinking.  Regulation of carbon dioxide emissions is already happening. Climate change is not taking a wait-and-see approach. Inexorably the earth warms, the oceans rise, the world of yesterday is not the world of tomorrow. CCS has a place at the energy banquet. 

Further, before turning off CCS, it is useful to consider the costs of the alternatives.  The Energy Information Administration has calculated the "levelized" cost of various energy sources. "Levelized cost is often cited as a convenient summary measure of the overall competiveness of different generating technologies. It represents the per-kilowatthour cost (in real dollars) of building and operating a generating plant over an assumed financial life and duty cycle."  Two things relevant here come out of the EIA table.  First, among dispatchable power (i.e., power that can respond when it is needed), with or without CCS, the most cost-effective power source is natural gas.  Second, when non-dispatchable power is included, even with CCS, coal is more cost-effective than offshore wind and both photovoltaic and thermal solar. 

In other words, if the issue is solely cost, coal loses to natural gas and the effect of CCS does not change the outcome.  If the issues are non-cost values, then coal with CCS comes to the table with green credentials, high power density, dispatchable output, good jobs, national security bona fides, and installed infrastructure, many of which coal's renewable competition cannot match. 

Carbon Dioxide | Regulation | Utilities

Contrary Legal Winds at Cape Wind - Opponents of Offshore Wind Sue Asserting Preemption

February 9, 2014 22:34
by J. Wylie Donald

Would you care to hazard a guess at how long it takes to bring online an offshore wind farm in the United States?  At the moment, it is 12+ years and counting.  A recent court filing arguing constitutional questions is certain to slow it down some more.

In 2001 Cape Wind Associates, LLC, submitted an application to the United States Army Corps of Engineers for a permit to construct an offshore wind power facility in Nantucket Sound.  About 9 years later Cape Wind finally procured the approval to move forward from the Department of the Interior.  Cape Wind then got down to work and by November 2012 had signed the first U.S. commercial offshore wind lease and long-term power purchase agreements with National Grid and NSTAR Electric Co.  Cape Wnd's Construction and Operations Plan was approved by the Bureau of Ocean Energy Management.  According to Cape Wind it is now seeking out its project financing.

But a new hurdle has surfaced.  At the end of January, various plaintiffs - the Town of Barnstable, businesses, a non-profit environmental
organization, and individuals - all users within NSTAR's electric service area, sued various Massachusetts governmental entities, as well as NSTAR and Cape Wind (see Complaint attached).  Their goal is

"a declaration that the Commonwealth of Massachusetts violated both the dormant Commerce Clause and the Supremacy Clause when it used its influence over NSTAR's merger request to bring about NSTAR's entry into an above-market wholesale electricity contract with Cape Wind, a politically favored renewable energy project in Massachusetts, to buy electricity at a particular price."

The plaintiffs also seek injunctive relief to invalidate the power purchase agreement between NSTAR and Cape Wind.

Plaintiffs' theories are based on the following premise:  "Massachusetts regulators used their influence over a merger request by NSTAR ..., to bring about NSTAR's purchase of electricity from Cape Wind ..., an in-state renewable energy project, on particular terms." The legal theories are two-fold. First, the Federal Power Act gives the Federal Energy Regulatory Commission exclusive jurisdiction over wholesale electricity rates, charges and terms.  Thus, plaintiffs assert, Massachusetts' acts dictating favorable terms for wholesale electricity sales by Cape Wind to NSTAR are preempted by the Federal Power Act.  Second, because Massachusetts' acts in effect favor an in-state electricity provider over out-of-state providers, Massachusetts is unlawfully discriminating in violation of the "dormant" Commerce Clause of the Constitution. 

These theories recently are exceedingly popular in the energy space.  Although the dormant Commerce Clause has not persuaded a federal judge, in 2013 preemption was used successfully to challenge state requirements for gas-fired generation in Maryland (PPL Energy Plus LLC v. Nazarian) and New Jersey (PPL Energyplus v. Hanna).  Although both decisions are on appeal, if affirmed, they have significant implications for the viability of state renewable portfolio standards. Notwithstanding that dozens of states have RPSs, the argument will be that RPSs regulate rates, charges and terms by implication, even if the legislative, regulatory and contract drafters assiduously leave rates, charges and terms out of their writings.

One commentator, however, points out that "the FERC has never indicated that a state's RPS program that includes a directive to utilities to acquire wholesale renewable energy under long-term contracts to be a violation of the FERC's exclusive jurisdiction under the Federal Power Act."  So this may be much ado about nothing; time will tell.  In the meantime, Cape Wind continues to be delayed.

 

20140121 Cape Wind Complaint.pdf (253.06 kb)

Wind Energy | Utilities

Wind Project "Take" Permits Extended to 30 Years - Eagles Nonplussed

January 7, 2014 10:52
by J. Wylie Donald

Tomorrow bald and golden eagles will sleep less soundly.  On January 8 the Fish and Wildlife Service’s new rule revising the regulations for permits for the taking of golden eagles and bald eagles goes into effect.  According to the FWS, “This change will facilitate the responsible development of renewable energy and other projects designed to operate for decades, while continuing to protect eagles consistent with our statutory mandates.”

Eagles and other migratory birds are a substantial threat to wind projects and not because they will cause turbine blades to fail.  Rather, turbine blades (and to a lesser extent, towers, guy wires, transmission lines and other constructions in the air space) can be lethal to birds.  This poses a serious problem for wind energy companies as birds are legally protected by the Migratory Bird Treaty Act (16 U.S.C. §§ 703-712) and eagles further protected by the Bald and Golden Eagle Protection Act (16 USC §§ 668-668d)

Duke Energy Renewables, Inc. recently ran afoul of these requirements at its 176 turbine Campbell Hill and Top of the World wind projects in Wyoming, where at least 14 golden eagles died between 2009 and 2013.   In November Duke accepted a plea agreement in “the first ever criminal enforcement of the Migratory Bird Treaty Act for unpermitted avian takings at wind projects.”  It included:

• Fines - $400,000 
• Restitution - $100,000 to the State of Wyoming
• Community Service - $160,000 payment to the National Fish and Wildlife Foundation for eagle preservation projects
• Conservation funding - $340,000 to a conservation fund for the purchase of land or conservation easements
• Probation – five years
• Compliance Plan – implementation of a plan at a cost of $600,000 per year with “specific measures to avoid and minimize golden eagle and other avian wildlife mortalities at company’s four commercial wind projects in Wyoming.”
• Permit – required application for a Programmatic Eagle Take Permit.

The last is directly tied to tomorrow’s rule.  “Take” is defined in the regulations as “pursue, shoot, shoot at, poison, wound, kill, capture, trap, collect, destroy, molest, or disturb.” 50 CFR § 22.3.  “Programmatic take” is “take that is recurring, is not caused solely by indirect effects, and that occurs over the long term or in a location or locations that cannot be specifically identified.”  Id.  The regulations at 50 CFR § 22.26 provide for permits to take bald eagles and golden eagles when the taking is associated with, but not the purpose of, an otherwise lawful activity.  Programmatic permits authorize take that “is unavoidable even though advanced conservation practices are being implemented.”  The new rule commentary notes that permits may authorize “lethal take … such as mortalities caused by collisions with wind turbines, powerline electrocutions, and other potential sources of incidental take.”

Under the current rule, a take permit was good for only 5 years, which inserted much uncertainty into wind farm projects.  The new rule permits wind energy developers to obtain a take permit that runs for 30 years, 50 CFR § 22.26(i), which “better correspond[s] to the operational timeframe of renewable energy projects.”  The risk that a wind project will cause unforeseen harm to eagles during this much longer period is mitigated by a new requirement for 5 year reviews, in which the FWS “will determine if trigger points specified in the permit have been reached that would indicate that additional conservation measures ... should be implemented to potentially reduce eagle mortalities, or if additional mitigation measures are needed.”  Id. at § 22.26(h).  Additional actions that might be taken as the result of the review could be permit changes, including implementation of additional conservation measures and updating of monitoring requirements.  Id.  Even suspension or revocation of the permit is possible.  Id.

That the FWS is serious about protecting eagles is demonstrated by the enforcement action against Duke.  But the FWS also recognizes that development is necessary.  The 30 year permit period appears to be a reasonable compromise (unless one is an eagle).

Regulation | Wind Energy | Utilities

The Top 6 at 12: Highlights of the Top Climate Change Legal Stories in the Second Half of 2013

January 1, 2014 00:01
by J. Wylie Donald

2013 has drawn to a close; here is our take on the top six climate change legal stories in the last six months.
 
1.  Climate Change Assessments - Blockbuster legislation may have been evaded once more but that has not stopped those in the trenches. Assessments of climate change risk are becoming more routine. For example, the September 2013 Record of Decision for the Gowanus Canal Superfund Site required assessment of “periods of high rainfall, including future rainfall increases that may result from climate change” in implementing certain aspects of the cleanup remedy.  Another example was provided by the Department of Housing and Urban Development, which in November required in its second round of community block grants for disaster relief that prospective grantees consider in their Comprehensive Risk Analysis “a broad range of information and best available data, including forward-looking analyses of risks to infrastructure sectors from climate change and other hazards, such as the Northeast United States Regional Climate Trends and Scenarios from the U.S. National Climate Assessment, the Sea Level Rise Tool for Sandy Recovery, or comparable peer-reviewed information."  Even the Nuclear Regulatory Commission looked at climate change with regard to its September draft generic environmental impact statement for the long-term continued storage of spent nuclear fuel. 

2.  Low Carbon Fuel Standards - In Rocky Mountain Farmers Union v. Corey the Ninth Circuit reversed several district court rulings limiting under the “dormant Commerce clause” the California Air Resources Board’s Low Carbon Fuel Standard.  Although the Commerce clause of the Constitution, U.S. Const., art. I, § 8, cl. 3. “does not explicitly control the several states,” it "has long been understood to have a ‘negative’ aspect that denies the States the power unjustifiably to discriminate against or burden the interstate flow of articles of commerce.’” Rocky Mountain at 31 (citation omitted). California’s Low Carbon Fuel Standard supported carbon dioxide emission reduction “by reducing the carbon intensity [i.e., the amount of carbon dioxide emitted per unit of energy produced] of transportation fuels that are burned in California.”  It thus potentially burdened producers of ethanol in the Midwest and petroleum producers outside California, but that did not matter.  Specifically, the court held that the LCFS was not facially impermissibly discriminatory in favor of ethanol, was not improperly extraterritorial and did not discriminate against petroleum fuels.  Accordingly, California is still on its path to a reduction in the carbon intensity of its fuels by 10% by 2020, as mandated by the 2006 Global Warming Solutions Act.

3.  The Cost of the Grid - On November 14, the Arizona Corporation Commission ruled that Arizona's net metering program should spread the cost of maintaining a reliable grid among all of Arizona Public Service's customers, including its rooftop solar customers. Up to that point rooftop solar customers were paid for the electricity they provided to the grid at retail rates, without any adjustment for the cost of the grid. The Commission concluded that this resulted in a "cost shift" from customers that were paying for the grid, to rooftop solar customers, who weren't.  APS put on a good case demonstrating that rooftop solar customers were substantially benefitting from the grid by drawing power at night, during cloudy weather and during the periods of daylight when solar power production did not exceed the customer's needs. Many have criticized solar power as unfairly subsidized. In Arizona at least, one of those subsidies is being addressed.

4.  New Carbon Dioxide Emission Standards - Following over 2.5 million comments, EPA rescinded its proposed rule governing carbon dioxide emissions from new coal-fired power plants.  In its place it proposed on September 20 a rule setting CO2 emission standards for new large natural gas power plants (1,000 lbs/MW-hr), new small natural gas power plants (1,100 lbs/MW-hr), and new coal-fired power plants (1,100 lbs/MW-hr).  From our perspective, the most significant facet of this new rule is that it actually will apply to plants that are being built.  The withdrawn proposed rule only applied to new coal plants, which EPA concluded would not be built anyway before 2030.  Equally significant, as pointed out in EPA’s news release  on the proposal, is that “EPA has initiated outreach to a wide variety of stakeholders that will help inform the development of emission guidelines for existing power plants.”

5.  The Fifth Assessment Report of the Intergovernmental Panel on Climate Change – The IPCC’s Working Group I issued The Physical Science Basis, its part of the Fifth Assessment Report.  Working Groups II and III will publish in 2014.  Among other things WG I concluded:  "Unequivocal evidence from in situ observations and ice core records shows that the atmospheric concentrations of important greenhouse gases such as carbon dioxide, methane, and nitrous oxides have increased over the last few centuries."  "The temperature measurements in the oceans show a continuing increase in the heat content of the oceans.  Analyses based on measurements of the Earth's radiative budget suggest a small positive energy imbalance that serves to increase the global heat content of the Earth system.  Observations from satellites and in situ measurements show a trend of significant reductions in the mass balance of most land ice masses and in Arctic sea ice. The ocean's uptake of carbon dioxide is having a significant effect on the chemistry of sea water."  But if one remains skeptical, this consensus view of the world’s leading climate scientists should not cause one alarm, the climate change skeptics have not thrown in the towel.  For example, according to one website, “climate science as proclaimed by the IPCC is a morass where what is scientific knowledge cannot be easily separated from speculation and what is wrong.”  One won't find seafarers plying the Northern Sea Route in the skeptic camp, however.  Russia logged a record year of transits in 2013 (over 200), up from just 4 in 2010. 

6.  Climate Change Liability Lawsuits - For the first time since 2005, when Comer v. Nationwide Mutual Insurance was filed, there is no climate change liability lawsuit on the docket anywhere. All have been defeated. Comer was the last to succumb, with its opportunity to file a petition for certiorari expiring on or about August 14.  The IPCC Fifth Assessment establishes climate change is not going away, but we will have to wait to see if anyone is going to attempt to make someone pay for it.

Carbon Dioxide | Climate Change | Regulation | Solar Energy | Utilities | Year in Review

Top 6 at 6: Highlights of the Top Climate Change Stories in the First Half of 2013

July 1, 2013 00:01
by J. Wylie Donald

Another six months have passed and it is time for our semi-annual look at climate change and its intersection with the law.  Here are some highlights of the last six months:

1.  The Administration’s Focus.  After months of silence in the 2012 presidential campaign, President Obama rejuvenated his administration’s commitment to addressing climate change.  We heard in his inaugural address:   “We will respond to the threat of climate change, knowing that the failure to do so would betray our children and future generations. Some may still deny the overwhelming judgment of science, but none can avoid the devastating impact of raging fires and crippling drought and more powerful storms.”  He carried this forward in his State of the Union address less than a month later: “I urge this Congress to get together, pursue a bipartisan, market-based solution to climate change, like the one John McCain and Joe Lieberman worked on together a few years ago.  But if Congress won’t act soon to protect future generations, I will.  (Applause.)  I will direct my Cabinet to come up with executive actions we can take, now and in the future, to reduce pollution, prepare our communities for the consequences of climate change, and speed the transition to more sustainable sources of energy.”     And in a speech this past Tuesday the promises took another step toward reality when the President outlined his “climate action plan.” 

Recognizing the logjam in Congress, the Administration's plan is based on authority the executive branch already has. The salient points include:  1) further restrictions on powerplant greenhouse gas emissions (notably addressing coal); 2) promotion of resilience and adaptation with respect to weather-related calamities; 3) additional permitting of renewable energy facilities on public lands; and 4) engagement in the international arena on climate change such as working out a global free trade agreement on clean energy technologies.   The goal is a reduction of U.S. greenhouse gas emissions by 17%.  The Wall Street Journal called these “sweeping climate policies.”  We will see; with no new authority, Gina McCarthy’s nomination to head EPA held up, and the bounty of natural gas unleashed by fracking, greenhouse gas reduction may be achieved by the market, see Leveraging Natural Gas to Reduce Greenhouse Gas Emissions,  not governmental efforts.  

2. 400 PPM.  On May 9, Mauna Loa Observatory of NOAA’s Earth System Research Laboratory reported that the average weekly value of atmospheric carbon dioxide at the observatory had reached 400 ppm, a level unsurpassed in 3 million years.  The world collectively ignored the number, treating it more like an insignificant decimal, 0.0004, which it was (a decimal, not insignificant).  We don’t think anyone will dispute that there are three ways to interpret this number:  it’s bad, it’s good, it’s neither.  Climate scientists are unanimous that it’s bad.  There is nothing saying it’s good.  Which means the justification for not taking action on climate change is that the ever increasing levels, and the ever increasing rate of accumulation, of carbon dioxide in the atmosphere (see the graphs by the observatory), are of no consequence.  US Airways will probably side with the climate scientists - it canceled 18 flights as a result of the record-breaking temperatures in the southwest this past weekend. 

As a footnote, we note that Mauna Loa’s number is an average, and is subject to refinement.  As it turned out, the 400 ppm number was refined a few weeks later to 399.89.  

3.  Free Trade.  In 2009 Ontario enacted its Green Energy Act to promote renewable energy in the province.  One approach is the adoption of a feed-in tariff (mandatory above-market rates for electricity derived from renewable resources).  This had successfully been pioneered in Germany.  Ontario legislators also saw the opportunity to spur job growth by giving subsidies to businesses that sourced their wind turbines and solar panels in Ontario (i.e., “domestic content”).

Japan jumped on this protectionism immediately and sought consultations with Canada under the General Agreement on Tariffs and Trade and the World Trade Organization. The consultations were ineffective and Japan requested a panel to hear the dispute concerning Ontario’s “domestic content requirements," with which renewable energy generators were required to comply "in the design and construction of electricity generation facilities in order to qualify for guaranteed prices” under the feed-in tariff program.

Last December the panel ruled in favor of Japan on the domestic content requirements. Canada appealed and this May the appellate panel affirmed. Ontario's energy minister has confirmed that Ontario will abide by the WTO decision and revise its Green Energy Act.   We conclude that free trade remains colorblind.

4. Climate Change Liability Lawsuits.  For seven years now, the first wave of climate change liability lawsuits have roiled the legal waters.  It bears remembering that in October 2009, the plaintiffs in these cases rode the crest of the wave.  The Second Circuit had reversed the trial court’s dismissal in Connecticut v. American Electric Power (AEP), and the Fifth Circuit likewise overturned the Southern District of Mississippi’s dismissal of Comer v. Murphy Oil USA.  Plaintiffs had standing; the political question doctrine did not apply.

Things have gone badly for the plaintiffs since.  All readers of this blog know of the Supreme Court’s decision in AEP, stifling the plaintiffs’ case under the doctrine of displacement.  This year two more decisions confirmed the Judicial Branch’s hostility to these claims.  Comer made it back to the Fifth Circuit, where dismissal was summarily affirmed on the doctrine of res judicata.  And the last of the original quadriga, Native Village of Kivalina v. ExxonMobil Corp., found its petition for certiorari denied in April,  thus leaving the Ninth Circuit’s affirmance of dismissal unchanged.

The only reed left for the plaintiffs is the granting of a petition for certiorari in Comer, a prospect we deem unlikely, if only because the appeal would be based on a purely procedural question of little likelihood of being repeated and of little relevance to the larger climate change issues.

5.  Ursus Maritimus.  On March 1 the D.C. Circuit in In re Polar Bear Endangered Species Act Litigation  affirmed the district court’s dismissal of challenges to the Fish and Wildlife Service’s designation of the polar bear as threatened under the Endangered Species Act because “due to the effects of global climate change, the polar bear is likely to become an endangered species and face the threat of extinction within the foreseeable future.” The polar bear’s friends (environmental groups) sought to have the bear listed as “endangered.”  Ursus maritimus’s less-than-friends (the State of Alaska and hunting groups), urged that no listing was appropriate.  The standard in such reviews is relatively simple:  “Our principal responsibility here is to determine, in light of the record considered by the agency, whether the Listing Rule is a product of reasoned decisionmaking.”  The Court found that it was, holding specifically the the Listing Rule rests on a three-part thesis: the polar bear is dependent upon sea ice for its survival; sea ice is declining; and climatic changes have and will continue to dramatically reduce the extent and quality of Arctic sea ice to a degree sufficiently grave to jeopardize polar bear populations. See Listing Rule, 73 Fed. Reg. at 28,212. No part of this thesis is disputed and we find that FWS’s conclusion – that the polar bear is threatened within the meaning of the ESA – is reasonable and adequately supported by the record.”

As arctic resource development progresses as the ice retreats, the polar bear's Endangered Species Act listing is sure to take on larger significance, both as a model for the preservation of other arctic species, and as a tool to block development.

6.  Compressed Natural Gas (CNG). On June 13 the Fifth Circuit affirmed the district court's decision in Association of Taxicab Operators USA v. City of Dallas. In the case the local taxicab organization challenged a city ordinance that allowed CNG-fueled taxicabs “head-of-the-line” privileges at Love Field in downtown Dallas. Plaintiff's theory was that section 209(a) of the Clean Air Act, which prohibits states and their political subdivisions from adopting emission standards for motor vehicles, preempted the ordinance either directly or by implication. The Fifth Circuit did not agree. Traditional police powers of the state were preserved to the state by section 209(d) of the Clean Air Act. More importantly, an ordinance granting head-of-the-line privileges, on its face did not set an emission standard, as required by the statute.  As to any implied preemption, the ordinance may have influenced taxicab operators to alter their behavior, but it did not compel them to do so. Less than 7% of Dallas's taxicabs served Love Field and the only place CNG cabs had head-of-the-line privileges was at Love Field; there were plenty of other places for gasoline powered cabs to pick up fares. Accordingly implied preemption did not apply either. 

One of our themes in a world beset by climate change is that there will be winners and there will be losers. Little did taxicab operators know they would be both.

Fifth Circuit Knocks Out Climate Change Liability Lawsuit Again

May 16, 2013 00:10
by J. Wylie Donald

Res judicata is one of those phrases learned in law school that seemed of limited utility. How often is someone going to bring the same claim twice?  Callow law students know little of the world.  The doctrine is frequently needed and, as was learned in law school, it can be used to dispose of a claim, even if the prior decision "may have been wrong or rested on a legal principle subsequently overruled in another case."  Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981).

On Tuesday, the Fifth Circuit applied the hoary doctrine to snuff out (again) the seven-year old climate change liability saga of Comer v. Murphy Oil USA.  Comer was filed immediately following Hurricane Katrina and asserted that a long list of energy companies were responsible for the increased destructiveness of the hurricane because of their emissions of greenhouse gases.  The trial court disagreed and dismissed the case on standing and political question grounds.  On appeal, however, the plaintiffs convinced an appellate panel of the Fifth Circuit  to reverse the trial court.  Defendants asked for rehearing en banc, which was granted, resulting in the vacating of the panel decision pursuant to court rule. 

Then things got weird.  After the grant of en banc review, the en banc quorum then dissolved with an eighth recusal among the active judges.  With no quorum, the case could not be reviewed.  Because the panel decision was vacated, the trial court dismissal was valid.

Plaintiffs chose not to appeal to the Supreme Court.  Instead they sought mandamus, which was denied.  Plaintiffs then decided to file their claim again, not only by the same plaintiffs on the same theories, but against the same defendants.  The trial court had no difficulty dismissing their claims a second time, relying on res judicata, but also on the statute of limitations, the political question doctrine, preemption, proximate cause and standing.  Another appeal was filed; this time the panel did not side with the plaintiffs.  Instead, it ignored all of the bases for dismissal articulated by the trial court and settled on only one:  res judicata.

To apply, four elements must exist:

(1) the parties are identical or in privity;
(2) the judgment in the prior action was rendered by a court of competent jurisdiction;
(3) the prior action was concluded by a final judgment on the merits; and
(4) the same claim or cause of action was involved in both actions. Opinion at 7. 

Only the third element was disputed.  The court held that the trial court's first judgment was a final judgment because, although the panel reversed, that decision was vacated and thus had no effect on the trial court's decision.  Nor did the decision to grant rehearing en banc, nor the Supreme Court's denial of the mandamus motion.  And the trial court's decision was on the merits, notwithstanding that it was a jurisdictional (standing and political question) determination.  Opinion at 10.  Accordingly, res judicata applied; the dismissal was affirmed.

We expect that the precedential value of the court's decision will be limited.  However, its non-precedential value is huge.  A broad and expansive theory of climate change liability was asserted by well-funded and capable plaintiffs' counsel.  After a long journey it joined on the ash heap claims asserted by the State of California (California ex rel. Lockyer v. General Motors), claims by various attorneys general and public interest groups (Connecticut v. American Electric Power), and claims asserted by a Native American community (Kivalina v. ExxonMobil) (albeit nursing a petition for certiorari to the Supreme Court).  Petrochemical companies, automobile companies, coal companies and electric utilities are 4-0 on the climate change liability front, with no other cases out there. 

The unanswered questions from Comer are the following: 

Why didn't plaintiffs add new defendants?
Why didn't plaintiffs assert state law nuisance claims in state court rather than pursue them in federal court? 
Why didn't they appeal to the Supreme Court on the merits, rather than seek mandamus? 

These questions are decisions on strategy, and we likely will never know. Last, however, and most importantly, where are the new theories of liability?  Bueller?  Bueller?  

Climate Change Litigation | Supreme Court | Utilities

Sunrise, Sunset - The Parable of the Two Solar Companies

November 7, 2012 22:27
by J. Wylie Donald

"A Rare Solar Success Story" trumpets the American version of The Wall Street Journal today in an article about LDK Solar, a Chinese solar wafer manufacturer.  We agree with "Solar" and "Story" but the rest of the headline does not match reality.  (In fact, the Asian version is a little less over-the-top:  "Despite Troubles, China's LDK Solar to Keep Humming.")    

First, let's consider whether LDK Solar is rare.  As described in the article it has a $500 million government loan guarantee. That sounds like something we remember about Solyndra LLC. Second, it is embroiled in allegations about dumping and production overcapacity, which are attributes that beset all of the solar panel and component producers whether their subsidies are coming from Washington, Brussels or Beijing. Third, while it soared early, it is now struggling, as have many American and European solar  "darlings."

Which segues nicely into the question of success. According to the article LDK Solar had a $609 million loss last year (down from a net profit a year earlier of almost $300 million) and its depositary shares have dropped 77%. For those with a visual bent, Barron's does a nice graphical presentation.   To stay afloat LDK Solar is renewing its loans, selling real estate and other assets, and accepting investment from state-owned funds.  The article concludes, "Analysts said LDK could fall into the arms of a larger, healthier company."  These are certainly not the terms we would use to describe a successful company.

But every cloud has a silver lining, and the travails of LDK Solar and its brethren are a large part of the reason for the success of solar panel installers:  their raw materials, panels, are available at bargain basement prices. The current darling (number 10 on Fast Company's list of the 50 most innovative companies in the world) in this group is Solar City, which is imminently making its initial public offering to raise $200 million, although Superstorm Sandy has delayed that some. 

What does Solar City do?  First and foremost, its people think.  They have thought deeply about how to build a successful business and reached a few unsurprising conclusions.  Consumers want to be "green" but do not want to be bothered with having to contact building inspectors, general contractors, panel manufacturers, lenders, warranty companies, and state and federal tax authorities; they want their solar contractor to handle it all.  Leasing to stable and economically secure individuals (i.e., not subprime borrowers) will generate a steady stream of revenue over the long-haul (typically 20 years).  Long-term maintenance contracts can do the same, and can also provide opportunities for continued marketing and sales to the consumer.  Tax credits, state rebates and leasing and maintenance revenue streams can be bundled together to form the asset base supporting an investment fund, which large institutional investors will invest in.  The investment fund can then be used to finance growth. If this sounds like a successful business model, it is (so far).

Second, Solar City executes.  The foregoing ideas are the basis for its rocketing success in the last few years.  As stated in its S-1, It has raised almost $300 million dollars from private equity. Its revenues have grown year on year.  It has come to dominate the residential solar market.  It has just entered the commercial utility space with a 12 MW installation in Hawaii.  To sum it up, it is seeking "world domination."  

Our point? Take heed of these two darlings, one now struggling, the other feasting on the struggler and its fellows.  Together they form a parable, not just for the solar market, but for the entire renewable energy space. We counsel our clients where government money is  ubiquitous, innovative technology rampant, competition cut-throat, and winners and losers can change overnight. The sun may rise and shine for our clients, but it also sets.  Our counsel should reflect that.

Renewable Energy | Solar Energy | Utilities

Clash of the (Electric Vehicle Charging Station) Titans: ECOtality v. NRG

May 28, 2012 00:29
by J. Wylie Donald

What do you get when the beneficiary of “the largest public/private federal transportation electrification grant provided by the U.S. Department of Energy” concludes that “one of the country’s largest power generation and retail electricity businesses” is not playing fair?  What you get is quite an interesting lawsuit filed in the California Court of Appeal.  See ECOtality, Inc. v. California Public Utilities Comm’n, et al., Verified Petition for Writ of Mandate (attached).  ECOtality, the project manager of The EV Project, filed suit last Friday seeking to upset a settlement NRG Energy, Inc. has entered into with the California Public Utilities Commission arising from the “California Energy Crisis” of 2000-01.  You didn’t think ECOtality even existed back then.  You would be wrong (it was formed in 1989), but you would be right in concluding that its present lawsuit has nothing to do with what NRG (actually its predecessor) did or didn’t do back in 2000.  The present lawsuit is all about who will dominate the electric vehicle infrastructure marketplace in California in 2012 and beyond.

NRG is settling the PUC’s claim to resolve price-gouging allegations of nearly $1 billion.  Payment of $122,500,000, combined with an earlier payment of almost $300 million “captures significant value for California under circumstances where contentious and expensive litigation would otherwise have continued for many years and with uncertain results,” according to California PUC Commissioner Mike Florio

ECOtality sees things differently.  “If the [settlement] Agreement stands, it will permit NRG, subsidized by the value of the California ratepayers’ released claims, to establish itself and its subsidiary company, eVgo … into a controlling market position for electric vehicle (“EV”) charging facilities in California. The consequence is that NRG will not only be permitted to pursue monopolistic pricing to the injury of California consumers, but also effectively destroy its competitors – including Petitioner ECOtality – in this nascent marketplace, utilizing a rate-payer subsidy.”  Petition at 4.  ECOtality charges the PUC failed to follow proper process, ignored legislative directives, acted ultra vires its authority and unlawfully failed to restore overcharges to the ratepayers.  Petition at 27-31.

What are you to make of this?  On the one hand is NRG.  According to ECOtality, NRG is a colossus delivering over 2 gigawatts of power to over 2 million customers in 16 states.  Its subsidiary, eVgo, “created the nation’s first comprehensive, privately funded electric vehicle infrastructure of home charging stations and public fast charging stations, ensuring that EV drivers have complete confidence they will never run out of power on the go.” Petition ¶ 11.  NRG’s and eVgo’s websites confirm all this.  More specifically, for $89 per month on a three-year agreement, eVgo will install a home charging station and give you non-peak electricity to charge your car at home, and anytime at eVgo network stations.  But you can only do this in Dallas-Forth Worth and Houston at about 5 dozen built and planned stations.  eVgo isn’t operational anywhere else.

On the other hand is every other business interested in electric vehicle infrastructure.  ECOtality’s Petition identifies a number of them, like Better Place, Car Charging Group, Inc., Coulomb Technologies, Aloha Systems, Incorporated, Tesla Motors, TechNet, City CarShare, and Evercharge, each of  “whose business includes participation, either presently, or in the future, in the California marketplace for electric vehicle charging services.“  Petition at 2.  And it includes ECOtality, whose residential charging operations in California include 1245 in the Bay Area, 729 in the San Diego area, and 418 in the Los Angeles area, and whose commercial facilities include 159 stations in the San Diego area (447 planned) and 177 in the Los Angeles area (214 planned).  Petition ¶ 6.

ECOtality is also the data gatherer for the Department of Energy’s EV Project, which is collecting information on the use of electric cars in a half dozen states (California, Oregon, Washington, Arizona, Texas, and Tennessee, as well as the District of Columbia).  The EV Project numbers don’t reflect total regional or national sales or production.  But they do give some information on the penetration of electric cars in the market.   As of the end of March California users had logged over 12 million miles.  See Q1 2012 EV Project Report at 6 (attached).  Texas users trailed every other state, at 575,000 miles barely doubling the miles put on by District of Columbia drivers.

So what bothers ECOtality about the NRG-PUC settlement?  Under the agreement, NRG is set to become a major player in California.  One aspect of the agreement is the payment of $20 million “cash consideration” to the PUC.  Another aspect is the construction and operation of 200 fast charging stations that will be available for use by the general public, at a cost of $50,500,000.  Then there is the development, funding and implementation of pilot programs for EV-related technology and EV car sharing. But all of that is nothing when compared with the massive involvement NRG is mandated to make in the California market as set out in the Joint Offer of Settlement:  “the installation of infrastructure to support ten-thousand privately-owned chargers at a total of one-thousand multi-family, workplace and public interest sites (e.g., public university).”  In the language of the settlement, NRG is providing 1000 Make-Ready Arrays, which will provide 10,000 Make-Ready Stubs, to which property owners can attach charging stations. 

This is to cost $40 million over four years with minimum numbers of facilities specified in various areas.  NRG has discretion to complete the build-out both geographically and by site-type (e.g., multi-family, retail) in the manner most advantageous to it.  If NRG builds along the lines of the minimum distribution mandated by the settlement, that translates to 5500 chargers in Los Angeles, 2750 in San Francisco and 1000 in San Diego. NRG has exclusive rights to provide service to the Make-Ready Stub for 18 months after the stub is ready for operation. In other words, ECOtality’s market dominance in California will be challenged.  Specifically, “By giving NRG an 18 month head start, subsidized by ratepayers, the Agreement permits NRG to “cherry pick” 1,200 of the most favorable California real estate locations for [electric vehicle charging stations] in a manner that will not only saturate the market, but permanently disadvantage its competitors, including Petitioner, by relegating them to much less valuable secondary locations.”  Petition ¶ 40.

Our take on all this is that this is all about timing.  Get there fustest with the mostest is poor English, out-of-context and ahistorical, but nevertheless apt. Stated differently, keep the other fellow from getting there with anything. When the cavalry is unavailable, try a lawsuit.  As the market for electric cars cranks up (ECOtality’s website reports 28 million miles driven so far in the EV Project), the difference between success and failure may come down to location, brand recognition, and market access.  The battle is joined on all three in California.  We will not be surprised by variations on this theme elsewhere.

 

20120525 ECOtality v California Public Utilities Commission et al, Verified Petition for Writ of Mandate.pdf (286.06 kb)

Q1 2012 EV Project Report, ECOtality.pdf (8.31 mb)

Regulation | Sustainability | Utilities

Oral Argument is April 19 in American Electric Power v. Connecticut and in AES Corp. v. Steadfast Insurance Co.

April 6, 2011 00:09
by J. Wylie Donald

Where I grew up (outside of Boston) April 19 is of singular moment. On that day, over 200 years ago, the British marched from Boston to destroy the military stores in Concord. But Paul Revere and William Dawes got the word out first and the Minutemen gathered at the Old North Bridge, stood their ground and then chased the British back to Boston. The locals celebrate by "marching to Concord" every year to witness the reenactment.

April 19 this year also has significance, but the action will not be "by the rude bridge that arched the flood."  Rather, readers of this blog will be focused on two Supreme Courts - one in Washington and the other in Richmond. On the docket?  Two climate change cases.

In Washington, the U.S. Supreme Court will hear oral argument in American Electric Power v. Connecticut.  This case is the bellwether for climate change liability suits and will test whether public nuisance under federal common law provides a viable theory for shifting damages arising from climate change to carbon dioxide emitters. Almost four dozen amicus briefs have been filed and where the Court will land is anybody's guess. EPA is attempting to regulate carbon dioxide using the Clean Air Act but other lawsuits and Congress challenge that effort. Will that eviscerate the argument that carbon dioxide regulation has been committed to the political branches of the federal government?  Does the fact that the case was brought by state attorneys general prima facie establish that this case is all about a robust federalism?  We hope to have a better inkling on where the Court will land after we hear the oral argument.

Across the Potomac and several miles down the road, the Virginia Supreme Court is hearing AES Corp. v. Steadfast Insurance Co. on the very same day.  (It seems too unlikely to be a coincidence.  Readers will remember that Stop the Beach Replenishment, Inc. was heard the same day the New Jersey Supreme Court took argument on City of Long Branch, both beach replenishment cases, see climatelawyers.com).  That case tests whether there will be insurance coverage under general liability policies for carbon dioxide liability. The insurer filed the case as a declaratory judgment action disclaiming coverage for one of the utilities sued in Native Village of Kivalina v. ExxonMobil Corp.  The trial court, in the briefest of opinions, held that because "no 'occurrence' as defined in the policies [was] alleged in the underlying Complaint," there was therefore no coverage. AES appealed directly to the Virginia Supreme Court, which granted certification.  Before the court are arguments about the scope of an "occurrence", but also over whether a pollution exclusion applies, even though the trial court rendered no opinion on that topic.  The implications of a decision are potentially colossal, especially if the U.S. Supreme Court permits Connecticut to move forward. Steadfast is the first climate change liability coverage suit and, to our knowledge, not a single climate change liability defendant has been defended by its insurer in any of the three damages cases (Comer v. Murphy Oil, California v. General Motors, Kivalina).

Two hundred years ago on April 19th was fired the "shot heard round the world."  The metaphor is not perfect but this month on the same day similarly significant salvos will be set off in the climate change liability and coverage wars. Stay tuned.

20100205 Order for Summary Judgment for Steadfast against AES.pdf (120.02 kb)

Carbon Dioxide | Climate Change Litigation | Supreme Court | Utilities


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