United States: Energy, Environment And Resources Update - October 2015

DOE Reports on Evolving Vulnerabilities of U.S. Energy Infrastructure

On October 9, 2015, the U.S. Department of Energy (DOE) released a report regarding the vulnerabilities of the nation's energy infrastructure, with a focus on specific energy sectors and geographic regions. In addition to risks faced nationwide—such as extreme weather events and increased demand—the report highlights vulnerabilities that are more acute for certain energy producers and users. For example, the report concludes that thermoelectric power generation in the Midwest, Great Plains and Southern regions is especially at risk due to an anticipated reduction in water availability. Hydropower in areas of the West is expected to be impacted by decreasing snow pack levels. Bioenergy crops are identified as being at heightened risk in the Midwest and Northern Great Plains. Regulators are not the only ones expressing concern. The private sector is also speaking, and taking action. In the lead-up to the recent, possible landfall of Hurricane Joaquin in the New York metropolitan area, energy sector firms discussed their efforts to address the increasing risk. Con Edison described its ongoing, four-year, $2 billion plan to harden its physical assets; and some chemical and petroleum storage facility operators sought to provide comfort that they were deploying additional release prevention (i.e., SPCC, etc.) measures in anticipation of possible storm impacts.

Whatever timeline the international political community may be creating or following in the assessment of, and planning around, climate change effects in the United States, one thing appears clear: Being unprepared for climate change—with regard to both acute weather events/conditions and long-term business viability—is not a tenable legal (not to mention business) strategy for companies in the energy industry. The "fix it now" or "fix [much more] [and pay claims] later" motto is fully in play.

EPA's "Waters of the United States" Rule Stayed by Appellate Court

On October 9, 2015, the U.S. Court of Appeals for the Sixth Circuit issued a nationwide stay on the implementation of the U.S. Environmental Protection Agency's (EPA) "Waters of the United States" rule that became final earlier this year—at least in all parts of the country other than 13 western states where its implementation had been stayed by the U.S. District Court for the District of North Dakota (see our earlier Alert.)

The Sixth Circuit's stay order is unusual because it was issued before the court had decided the threshold issue of its own jurisdiction. It is also notable that the court, apparently so wanting to "preserve the status quo," granted injunctive relief based on finding only a "possibility" of success on the merits, and despite explicitly acknowledging that the petitioners had not shown that they would suffer irreparable harm absent a stay.

As for the merits, the Sixth Circuit noted that "it is far from clear that the new Rule's distance limitations (e.g., its definition of "neighboring waters" to mean waters located within 100 feet of the ordinary high water mark) are harmonious with Justice Kennedy's instructions in Rapanos, and it added that EPA had failed to explain how the public had been given reasonably specific notice that the distance-based limitations adopted in the rule were among the range of alternatives being considered. Stay tuned for new developments.

Constructing the Future of Energy Program: October 8, 2015

Professionals from all sides of the energy sector gathered in Duane Morris' New York office to discuss the future trajectory of energy deployment in New York state, as well as strategies for integrating renewables and distributed energy assets to create a more resilient and carbon neutral system, taking into consideration occupant safety and comfort and energy cost-savings. A panel moderated by Phyllis Kessler of the firm's New York office included Diana Allegretti of Cornell Tech, Daniel Maldonado of Skanska, Steve Wemple from Con Edison and H.G. Chissell of GridMarket. Panelists discussed projects underway, including Cornell's Roosevelt Island Campus project that plans on incorporating LEED, Passive House and Net Zero principles across the site, as well as incorporating substantial renewable generation and energy storage. While a number of developers are constructing new, efficient buildings integrated with renewable generation and battery storage like the new Cornell Campus, Maldonado pointed out that acknowledging the importance of deep retrofits is essential to reducing the carbon footprint of 85 percent of New York City's current building stock that is anticipated to still be in use by 2030. To unlock this immense opportunity to reduce emissions with energy efficiency, aligning the interests of tenants and property managers is essential. Panelists also addressed potential incentives for moving energy usage in this direction.

Prominent New York state initiatives, such as the New York Public Service Commission's Reforming the Energy Vision proceeding (REV) and Con Edison's Brooklyn/Queens Demand Management program (BQDM), were also central topics, focusing on how these programs can help unlock the potential of distributed energy assets. Programs supporting distributed generation proliferate a fundamental shift on how we consume power—increasing resilience and consumer choice, while reducing the overall carbon footprint of the power sector. Harnessing fleets of distributed, callable assets to reduce peaks at the local distribution level reduces inefficiencies in the electric grid as a whole; however, to unlock crucial behind-the-meter customer segments, advanced metering infrastructure will need to be installed for a much greater customer segment than the current 500kW demand threshold requires.

FERC Proposes Changes to Wholesale Energy Market Settlements

New rules may be on the horizon as the Federal Energy Regulatory Commission (FERC) takes up wholesale energy market price formation. The notice of the proposed rulemaking, issued September 17, 2015, in Docket No. RM15-24-000, proposes to require wholesale market operators to settle energy transactions (i.e., calculate and assign financial charges and credits) in the real-time energy markets using a five-minute interval, the same time interval used to dispatch energy resources. Also, the proposed rule would subject operating reserves transactions to the same requirement. Lastly, the proposed rule would require wholesale market operators to trigger shortage pricing for any dispatch interval during which a shortage of energy or operating reserves occurs, regardless of the duration of the shortage event.

Wholesale markets conduct their real-time energy market dispatch using five-minute dispatch intervals. That five-minute interval, however, is not uniformly applied by the wholesale market operators in their settlement calculations. As a result, price signals seen by energy resources do not always accurately represent the value of the services provided by such resources. In circumstances where revenues earned through the energy market fail to cover the resource's offer, the wholesale market operator will provide make-whole, or uplift, payments to the resource. The Commission's goal is to have the proposed rules promote the transparency of market prices, provide accurate price signals to market participants and reduce the reliance of uplift payments. If adopted, the proposed rules would likely require wholesale market operators and market participant to incur significant costs to make software, process and equipment changes. Comments on the proposed rulemaking are due by November 30, 2015.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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