United States: Energy, Environment And Resources Update - Issue 5 | December 2015

Last Updated: January 6 2016
Article by Duane Morris

Market Forces and States as Laboratories—Not Always Desired by Business

In the wake of the December 17, 2015, passage of a Toxic Substances Control Act (TSCA) reform bill by the U.S. Senate, which followed the lead of the U.S. House of Representatives, one may ask: What is going on? The current Congress is supporting new federal environmental regulation?

The answer lies in two facts: (1) the existing statute was simply outdated and unworkable for industry, and (2) the existence of a dysfunctional federal regulatory program had spawned the equally disliked (principally by industry, but also by environmentalists) evolution of differing regulations in different states. Thus, the American Chemistry Council (ACC), after acknowledging the need for public confidence in federal regulation of chemical safety, noted: "This lack of confidence has created pressure on individual state legislatures to create their own chemicals management laws and on retailers to pull products from the shelves, often based on the claims of activists rather than scientific conclusions."

When both the ACC and People for the Ethical Treatment of Animals (PETA) agree on the need for regulatory reform, and work together (with many other stakeholders) to get bills through both the House and Senate, it is apparent there was a problem with the status quo.

The House and Senate bills will likely go to a joint conference committee. When the dust settles on a final bill, we will provide our insights, so please check back in with us.

Renewable Energy Tax Incentives Extended

On December 18, 2015, the Consolidated Appropriations Act was signed by President Obama and became law, extending a number of key renewable energy tax incentives. Of keen interest to many investors and developers, the law extends the PTC (the Section 45 Production Tax Credit) and the ITC (the Section 48 Investment Tax Credit) for solar and wind projects. The extensions are for longer periods of time (up to six years for the ITC) than under prior extension legislation (one or two years), thereby providing greater certainty in the marketplace. However, credit phase-outs are built into the new law.

For solar projects, the ITC is initially equal to 30 percent of qualifying costs, but drops incrementally to 26 percent for projects started in 2020, and to 22 percent for projects started in 2021. The ITC extends to projects for which construction has begun before January 1, 2022, but if a project is not placed in service before 2024, the credit drops to 10 percent. For wind projects, the PTC (2.3 cents-per-kilowatt hour) has been extended through 2019 (project construction commencement prior to December 31, 2019). However, the PTC for wind projects drops incrementally for projects started in 2017, 2018 and 2019. The option to take the ITC in lieu of the PTC remains. For other renewable projects, such as biomass and geothermal projects, the ITC/PTC extension period is much shorter, ending on December 31, 2016. All of the credit extensions are retroactive to January 1, 2015.

As the EPA Clean Power Plan deadlines approach—even with litigation raising questions about the viability of those deadlines—these extended tax credits will provide real incentives for accelerated investment in renewables.

New York State Electricity Transmission Regulatory Developments

The future of New York state's electricity transmission grid is taking shape as outlined in a New York State Public Service Commission (PSC) decision issued on December 17, 2015. Large population centers in the southern part of the state, namely, New York City, present significant challenges to the delivery of electricity through the state's grid. Electricity supply for southern New York can come from two main sources. Either generating facilities can be built and operated near the load center, or transmission facilities can be constructed to move electricity generated in other parts of the state southward. The PSC, facing a choice between the two, chose the latter, identifying four separate transmission projects that it believes will ease congestion within the grid.

The PSC plays a leading role in planning and developing the state's electricity transmission grid. Under the applicable transmission planning process, the PSC is responsible for identifying and evaluating transmission needs and then submitting those needs to the state's transmission grid operator, the New York Independent System Operator, Inc. (NYISO), for further development of solutions to them. Following the identification of the state's goal of reducing grid congestion—and thus energy costs—the PSC received comments, proposals and analyses provided by interested parties, transmission and generation developers, and the PSC's staff in furtherance of that goal. In its order, the PSC described its choice as one between the build-out of generating facilities near load centers, which would include the natural gas pipeline infrastructure to support that generation, or the construction of new transmission facilities to move power from existing sources to load centers in urban areas. By finding that a robust transmission system is more consistent with the public policy goals established by the state; that a stronger transmission system will increase the grid's capability to utilize existing generation sources, as well as new renewable generation; and that the construction of new generation has greater cost impacts, the PSC determined that there is a discernable transmission need within the state. The process now moves to NYISO, where, based on the need identified by the PSC, specific transmission solutions will be received, evaluated, selected and become eligible for cost recovery.

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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