Cozen O'Connor's Energy, Environmental and Public Utility practice is committed to keeping its clients informed of the latest regulatory developments and industry-related news. This client alert is the first release of a new service that will recap significant events of the previous month and highlight issues to watch in the future.
Energy
Marcellus Shale Advisory Commission Releases 96 Recommendations to Governor Corbett
On March 8, 2011, Governor Corbett created the Governor's Marcellus Shale Advisory Commission (the commission). Comprising 30 stakeholders including experts from the environmental community, the natural gas industry, local government representatives, and state government officials; the commission was tasked with developing a "comprehensive strategic proposal for the responsible and environmentally sound development of Marcellus Shale." After months of public meetings and input from varied stakeholders, the commission released its final 96 recommendations, embodied in a report to Governor Corbett, on July 22, 2011. Although the recommendations do not carry the weight of law, they are expected to frame the debate on natural gas development in the Marcellus Shale when the Pennsylvania Legislature returns from recess in September.
The report included recommendations such as:
- Introducing a local impact fee to support communities affected by natural gas production.
- Subjecting gas reservoirs to "pooling."
- Developing infrastructure projects that will encourage increased use of natural gas.
- Adding natural gas to Pennsylvania's portfolio of required alternative power sources.
- Conducting a public health study on drilling communities to track the health of people residing within one mile of gas wells.
- Increasing the required distance between drilling sites and public water sources.
- Doubling the fines for drillers who violate environmental regulations.
- Increasing transparency by requiring operators to post materials such as work projects and violations on the Internet.
- Creating downstream jobs that take advantage of the abundant upstream natural gas resources and training Pennsylvanians to fill those jobs.
- Encouraging the use of non-freshwater sources, such as acid mine drainage water from abandoned mine pools, to be used in place of freshwater sources in hydraulic fracturing operations.
FERC Declines to Institute a Rulemaking Proceeding on NIST-Recommended Smart Grid Standards
In an order released on July 19, 2011, the Federal Energy Regulatory Commission (FERC) declined to institute a formal rulemaking proceeding on smart grid standards, after FERC determined that five "families" of standards developed by the National Institute of Standards and Technology (NIST) have not led to "sufficient consensus" on smart grid interoperability standards.
The Energy Independence and Security Act of 2007 directs the FERC "to institute a rulemaking proceeding to adopt such standards and protocols as may be necessary to insure smart-grid functionality and interoperability in interstate transmission of electric power, and regional and wholesale electricity markets," once the FERC has determined that NIST has developed a "sufficient consensus" on smart grid interoperability standards.
NIST's standards focus on device and network communications, substation automation, control-center communications, and transmission and distribution data exchange. FERC's order stated that "Commenters are nearly unanimous that we should not adopt these standards at this time, citing concerns with cyber security deficiencies and potential unintended consequences from premature adoption of individual standards."
New Jersey Energy Master Plan Undergoes Public Review
On June 7, 2011, Governor Christie release a draft version of the 2011 New Jersey Energy Master Plan (EMP), which outlines New Jersey's immediate and long-term energy policy. The governor's office and the New Jersey Board of Public Utilities (BPU) reassess the plan every three years and are statutorily required to make revisions to it at least every decade.
BPU has scheduled three public stakeholder meetings to discuss the EMP, the first of which occurred on July 26, 2011 at the New Jersey Institute of Technology. Additional meetings took place on August 3rd and August 11th. While the plan has been praised for its support of solar installations and the development of off-shore wind energy, it has been criticized for lowering New Jersey's renewable portfolio standard (RPS) goal of 30 percent by 2021 (which had been set by Governor Corzine in the 2008 New Jersey Energy Master Plan) to 22.5 percent. Governor Christie has stated that the 30 percent goal is unrealistic given that New Jersey's current RPS is at 2.3 percent. Transcripts of the stakeholder meetings and published comments can be found here.
Utilities
New Jersey Moves Forward With Annual BGS Auction
On May 16, 2011, the New Jersey Board of Public Utilities (BPU) initiated the annual process for New Jersey's four Electric Distribution Companies (EDCs) to participate in auctions to procure billions of dollars of electric supply to service their basic generation service (BGS) customers for the period starting June 1, 2012. BGS auctions have been held each February since 2002.
Two auctions will take place. The BGS-CIPEP auction will procure energy for large customers on an hourly price plan and the BGS-FP will procure energy for small commercial and residential customers on a fixed-price plan. BPU must approve the results of the auctions.
The four EDCs, Public Service Electric and Gas Company, Jersey Central Power & Light Company, Atlantic City Electric Company, and Rockland Electric Company, submitted a joint proposal to BPU on July 1, 2011, which contained their rate proposals, the proposed Auction Rules, and Supplier Master Agreements, to be used by energy generators who wish to participate in the auction process.
New Jersey's Rate Counsel submitted a discovery request to the EDCs on July 22, 2011 and were required to respond by August 9, 2011. (A full calendar of upcoming BGS deadlines can be found here.) In past years during BGS proceedings, the Rate Counsel has consistently advocated for the establishment of a portfolio manager to manage supply procurement for BGS-FP customers. Rate Counsel has stated that the addition of a portfolio manager would allow greater flexibility in securing resources outside of the BGS auction process, which could translate into potential ratepayer cost savings. General information on the BGS auction can be found here.
FERC Releases New Transmission Rules
The Federal Energy Regulatory Commission (FERC) released its Final Rule on Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities on July 21, 2011. The new rule is meant to address inadequacies in the existing transmission system that make it difficult to achieve a free market in power transmission, where generators are able to compete across vast distances to supply consumers. Without new transmission rules, congestion is only expected to grow more acute, especially due to the fact that 60 percent of new generation is being achieved through wind and solar resources that are oftentimes located far from the large population centers they supply energy to.
The rule requires transmission providers to participate in regional planning and cost-allocation so that decisions are made and paid for, collaboratively, by the affected regions. The rule also calls for transmission providers to consider state and federal goals of expanding the use of renewable energy in their decisions relating to transmission growth. However, the FERC ruling did not address the cumbersome permitting process, which is often cited as the largest obstacle to installing new transmission capacity. The rule has received widespread support from renewable energy companies and transmission developers.
Environmental
EPA Delays Release of New Ozone Air Quality Standards
The Environmental Protection Agency (EPA) is mandated by the Clean Air Act to review ozone national ambient air quality standards (NAAQS) every five years. Following the latest scheduled review in 2008, President Bush reduced the allowable limit of ozone in the atmosphere from 84 parts per billion (ppb) to 75 ppb. However, state and environmental groups challenged the 2008 rule in court, claiming that the EPA had ignored its own scientific advisory panel's unanimous recommendation that the limit be set between 60 and 70 ppb. (More information in the 2008 ruling can be found here.)
Shortly after her appointment as President Obama's EPA administrator, Lisa Jackson announced that the EPA would revisit the standards set by President Bush in 2008. The pending legal challenges to the ozone standards were suspended in 2009 and the EPA was given time to rework the rule. Administrator Jackson stated the final rules would be announced in August 2010. That self-imposed deadline was extended to October, then December, and most recently, until July 29, 2011. However, the EPA has announced that the July deadline will be missed as well.
Business groups and Congressional Republicans have argued that the EPA should wait to readdress the ozone standards until the next scheduled review in 2013. Because higher standards will place many more areas of the United States out of attainment, opponents of the new rule argue that increased fines, federal oversight, and building restrictions will harm business interests, especially in this fragile economy. (A recent study critiquing EPA's analysis can be found here.) The White House Office of Management and Budget is currently leading the interagency review process. A new deadline for the rule's release has not been announced.
President Obama Announces New CAFE Standards
On July 29, 2011, President Obama unveiled the largest increase in corporate average fuel economy (CAFE) standards since the 1970s. While the proposal must now enter the interagency review process, the administration hopes to announce new finalized standards by September 30, 2011. The new CAFE rule will ultimately require an average fuel economy of 54.5 miles per gallon (mpg) by 2025.
CAFE was last tightened in 2007 by President Bush. Those standards required automobile manufacturers to achieve a corporate average of 36 mpg by 2016. President Obama's new proposal will require cars to achieve a 5 percent annual improvement every year from now until 2025. Light-duty trucks (including SUVs) will be required to improve 3.5 percent annually until 2021, and then 5 percent annually until 2025. More information on the president's announcement can be found here.
EPA Proposes Air Pollution Standards for Oil and Gas Production
On July 28, 2011, the Environmental Protection Agency (EPA) released new proposed standards that would reduce air pollution from oil and gas drilling operations. The rules take aim at smog-forming volatile organic compound (VOC) emissions that are released by equipment and processes used in the drilling industry.
The proposed rule calls for a 95 percent reduction in VOCs emitted during the completion of new and modified hydraulically fractured wells. To achieve these reductions, drilling companies will need to install "closed loop" systems to capture the natural gas that currently escapes during the drilling process.
Some companies have already installed such systems or are in the process of doing so because the captured gas can then be sold. The EPA estimates that the new regulations will result in net savings to the drilling industry. More information on the announcement can be found here.
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