United States: Energy, Environment And Resources Update

Virginia—Recovery of Natural Gas Supply Investment Costs

Some Virginia retail natural gas customers will not see gas production costs included in their rates, notwithstanding a recent state law allowing it. On November 6, 2015, the Virginia State Corporation Commission, in Case No. PUE-2015-00055, denied an application by Washington Gas Light Company (WGL) to include natural gas production costs in ratepayers' bills through a natural gas supply investment plan. WGL had proposed to invest more than $120 million in natural gas production and wells located in Pennsylvania, asserting that the investment would secure lower-cost supplies of natural gas over a 20-year period. Although WGL submitted studies demonstrating the potential cost savings, the proposal was opposed by the state's Division of Consumer Counsel, which argued that WGL's proposal could increase ratepayer costs by about $51 million. Ultimately, the Commission denied the application, finding that it would transfer too much risk from WGL to its customers, and noting that some cost analyses had shown little or no benefits for ratepayers.

WGL's application was the first by a utility under Virginia's 2014 law that allows utilities to seek Commission approval to recover natural gas supply investment costs from ratepayers while providing reasonably anticipated benefits to customers. The investments, however, cannot exceed 25 percent of the utility's annual firm sales demand by volume. WGL serves over one million customers in Virginia, Maryland and the District of Columbia.

Nuclear Plant Closures

New York state is slated to lose another baseload generation facility due to economic factors. Entergy Corporation, owner of the James A. FitzPatrick Nuclear Power Plant, announced its intention to retire the generation facility in late 2016 or early 2017. FitzPatrick is located on the shore of Lake Ontario, near the towns of Scriba and Oswego. Entergy cited competition from low-cost natural gas-fired generation, an energy market that ignores the benefits provided by the facility, and high operating costs. The benefits noted include fuel diversity, low carbon emissions, on-site fuel storage and reliable baseload generation capability. The R. E. Ginna Nuclear Power Plant, located near Rochester, is also on course to close. Ginna, owned by Exelon Generation, is negotiating a compensation agreement to keep the plant online for reliability purposes.

This announcement follows an earlier notification by Entergy of its plan to close the Pilgrim Nuclear Power Station in Plymouth, Massachusetts. Pilgrim's closure is expected to occur before the middle of 2019 and, like FitzPatrick, is the result of unfavorable economic conditions. Pilgrim has a generating capacity of 680 megawatts and began operation in 1972, while FitzPatrick has a generating capacity of 838 megawatts and began operation in 1975.

New York PSC Adopts Net Metering of Community Distributed Generation Projects

In July 2015, the New York State Public Service Commission (PSC) issued an order establishing a Community Distributed Generation program, effective October 19, 2015. The program is intended to make renewables and other forms of distributed generation (DG) available to end users who are otherwise unable to take advantage of them.

The program framework is centered on net metering of power, authorized under New York Public Service Law § 66-j and § 66-l, from solar generators up to 2 MW; farm waste electrical generators up to 1 MW; CHP and fuel cells up to 10 kw; and wind generation of not more than 2 MW for commercial customers, 500 kw for farm customers and 25 kw for residential customers. Community DG enables a group of customers to join together as members of an entity that is able to contract with a DG developer.

Up to 40 percent of the electricity generated by a project may be consumed on-site by the host, which serves as an anchor for the project. If the project is remotely sited, one member of a group of customers may take up to 40 percent of the output. The balance of 60 percent must be net metered to community members whose energy demand may not exceed 25 kw and all members must be located in the same utility service territory. A sponsor may be any single entity, including a generation facility developer, an energy service company ("ESCO"), a municipal or other government entity, an LLC, a partnership or another form of business or civic association. Community DG can be used to reduce energy costs and is particularly useful in multi-family housing, including co-ops and condos, where the building owner and tenants are separately metered.

EPA's Clean Power Plan—Litigation and the Court of Public Opinion

On the heels of the October 23, 2015, publication of the final EPA Clean Power Plan (CPP), which mandates a 32-percent reduction in CO2 emissions (from 2005 levels) by 2030, the lawsuits have already begun. Within the past month, 26 states, joined by a number of industry groups, have filed suit in the U.S. Court of Appeals for the District of Columbia, seeking a stay of the CPP. A variety of challenges have been advanced, ranging from constitutional arguments to an attack based on the unusual legislative history of the Clean Air Act (CAA) (there are differing Senate and House versions of key Section 111(d) of the CAA).

While one might think that all state political leaders would be taking positions along strict party lines, there are early indications to the contrary. On October 25, Republican Senator Kelly Ayotte of New Hampshire publicly announced her support for the CPP. In Colorado, Republican Governor John Hickenlooper has openly supported the CPP, notwithstanding his Attorney General's decision to join other states' Attorneys General in suing EPA. Michigan Republican Governor Rick Snyder has also publicly expressed disagreement with his Attorney General's decision to include Michigan as a plaintiff. Some Democratic leaders in coal-producing states, and in states that rely heavily on coal for electricity generation, have opposed the CPP.

The crossing of party lines in support of the CPP might have something to do with survey and polling data. Early this month, the Yale Project on Climate Change Communication published the results of a national survey for which data was collected between 2008 and 2014 by the Yale Project and the George Mason Center for Climate Change Communication. Although the headlines about this study centered on the reported 63-percent majority who expressed a belief that "climate change is happening," more notable statistics include the reported 77 percent who support funding research into renewable energy sources and the reported 74 percent who support regulating CO2 as a pollutant. In addition, some of the nation's largest corporations and employers are openly expressing support for the CPP (e.g., see July 31, 2015, letter from 365 companies and investors, including General Mills, Mars, Nestlé, Staples, Unilever and VF Corporation, stating: "Clean energy solutions are cost effective and innovative ways to drive investment and reduce greenhouse gas emissions. Increasingly, businesses rely on renewable energy and energy efficiency solutions to cut costs and improve corporation performance.")

As interesting as the in-court CAA litigation will likely be, developments in the court of public opinion may prove to be even more so.

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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