United States: Energy Update - January 2016

Transportation and Government Funding Bills Address Federal Energy Policy: Fate of Omnibus Energy Legislation Is Unclear

by Donna J. Bobbish and Monica Lamb

In December 2015, President Obama signed into law H.R. 22, the Fixing America's Surface Transportation Act (FAST Act), authorizing budgetary resources for surface transportation programs for fiscal years 2016-2020, and the Consolidated Appropriations Act, 2016 (Appropriations Act), an omnibus spending bill to fund the federal government through September 30, 2016. The FAST Act also contains provisions intended to improve the federal permit review process for major infrastructure projects, including energy projects, and the Appropriations Act lifts the 40-year-old ban on exports of US- produced crude oil and extends wind and solar tax credits for three years. While the FAST Act evidences bipartisan support for accelerating review of energy projects, and the Appropriations Act evidences congressional willingness to horse trade on energy issues important to each side, it remained unclear at the end of 2015 whether omnibus energy legislation pending before the 114th Congress will be passed and signed into law by the President in 2016.

FAST Act's Project Permitting Reforms

The FAST Act creates a Federal Permitting Improvement Steering Council which includes, among others, the Secretary of Energy and the Chairmen of the Federal Energy Regulatory Commission (FERC) and the Nuclear Regulatory Commission. The new Permitting Council is responsible for coordinating timetables among agencies that review projects and setting deadlines to accelerate required reviews for project approvals, including environmental review.

The projects covered by the new permitting process include infrastructure for renewable or conventional energy production, electricity transmission and pipelines that are valued at $200 million or more and subject to the National Environmental Policy Act of 1969 (NEPA).

The Permitting Council is required to create an inventory of major projects and establish model timelines for each infrastructure category. The lead agency for a given project would then establish a specific timeline for the project, consistent with the model schedule. Agency progress on granting approvals would be tracked by means of an online, public "dashboard." The FAST Act also reduces the time allowed for legal challenges to certain project permits, including environmental review under NEPA, from six to two years following the issuance of a project permit.

Appropriations Act Extends Tax Credits for Renewable Energy and Repeals Crude Oil Export Ban

The Appropriations Act grants significant extensions to the investment tax credit (ITC) for solar energy investments and to the production tax credit (PTC) for wind energy investments. Investments in other eligible renewable energy technologies were granted a one-year extension of the PTC.

The PTC, which expired at the end of 2014, will be extended (retroactively from January 1, 2015) for wind, closed-loop biomass, open-loop biomass, geothermal, landfill gas, municipal solid waste, qualified hydroelectric and marine hydrokinetic energy projects beginning construction through the end of 2016. After that, the PTC for all technologies except wind will expire, and the wind PTC will be decreased by 20%, 40% and 60% for wind projects beginning construction in each of the subsequent three years, finally expiring for wind projects that commence construction after the end of 2019.

The ITC for solar, which was set to drop to 10% for utility-scale projects and to expire completely for residential installations at the end of 2016, will be extended at the current 30% rate for projects that start construction by the end of 2019, 26% for projects that begin construction in 2020 and 22% for projects that begin construction in 2021, provided in each case that the projects complete construction by 2024. Solar projects that begin construction in 2022 and in later years will receive a 10% tax credit.

In return for extending the renewable tax credits favored by Democrats, the Appropriations Act repeals Section 103 of the Energy Policy and Conservation Act, which since 1975 prohibited the export of crude oil subject to certain exceptions granted by the Department of Commerce. The Appropriations Act further provides that no official of the federal government may impose or enforce any restriction on the export of crude oil, except for the President under the Constitution, pursuant to specified federal laws, or if the President declares a national emergency.

Pending Omnibus Energy Legislation

In early December, the House of Representatives passed, by a 249-117, largely party-line vote, H.R. 8, the North American Energy Security and Infrastructure Act of 2015, sponsored by House Energy and Commerce Chair, Fred Upton (R-MI). In late July, the Senate Energy and Natural Resources Committee voted out S. 2012, the Energy Policy Modernization Act of 2015, a broad, bipartisan energy bill championed by Committee Chair Lisa Murkowski (R-AK) and Ranking Member Maria Cantwell (D-WA). S. 2012 was approved by a vote of 18-4, including 10 Republicans and eight Democrats in support.

Both Senate and House energy bills contain, among other things, substantive changes to regulation of the natural gas, public utility and hydroelectric sectors by FERC and the US Department of Energy (DOE).

Electricity Sector Reforms

Among other things, H.R. 8 would require each Regional Transmission Organization (RTO) and Independent System Operator (ISO) that operates a capacity market or comparable market subject to FERC jurisdiction to provide to FERC an analysis of how the structure of that market utilizes competitive market forces in procuring capacity resources. It also includes resource-neutral performance criteria that ensure the procurement of sufficient capacity from physical generation facilities that have the following reliability attributes: (1) possession of adequate fuel onsite to enable operation for an extended period of time; (2) operational ability to generate electric energy from more than one fuel source or fuel certainty, through firm contractual obligations; (3) operational characteristics that enable the generation of electric energy for the duration of an emergency or severe weather conditions; and (4) unless procured through other markets or procurement mechanisms, essential reliability services, including frequency support and regulation services. HR. 8 further would require FERC to submit to the House and Senate energy committees a report containing an evaluation of whether the structure of each market addressed in an analysis meets the criteria and if it does not, recommendations with respect to the procurement of sufficient capacity.

H.R. 8 also would repeal Section 202(e) of the Federal Power Act (FPA), which requires prior authorization from DOE for the export of electric energy from the US to a foreign country.

H.R. 8 would clarify Section 203(a)(1)(B) of the FPA (which requires prior FERC authorization for a public utility to merge or consolidate, directly or indirectly, its facilities subject to FERC jurisdiction, or any part thereof, with those of any other person, by any means whatsoever) by limiting FERC review of such merger and consolidation acquisitions to those with a value of $10 million or more.

H.R. 8 would amend Section 319 of the FPA to require FERC to create an Office of Compliance Assistance and Public Participation to promote improved compliance with commission rules and orders. This office would be required to promote improved compliance with commission rules through outreach and publications and, where appropriate, direct communication with entities regulated by FERC.

Hydroelectric Sector Reforms

H.R. 8 would amend Sections 4(e) and 10 of the FPA to require FERC to minimize infringement on private property rights in issuing hydropower licenses, and to authorize FERC to issue exemptions from licensing requirements for developing new hydropower projects at existing non-powered dams.

S. 2012 would amend Section 5 of the FPA to extend from three to four years the total period for preliminary hydroelectric permits and would allow FERC to extend the period of a preliminary permit once, for not more than four additional years.

S. 2012 also would amend Section 13 of the FPA to allow FERC to extend the time period for beginning the construction of hydroelectric project works for not more than eight additional years.

S. 2012 would amend Section 15(e) of the FPA to require FERC, in determining the term of a hydroelectric license (other than an annual license), to consider project-related investments by the licensee over the term of the existing license (including any terms under annual licenses) that resulted in new development, construction, capacity, efficiency improvements or environmental measures, but which did not result in the extension of the term of the license by FERC.

Natural Gas Sector Reforms

For projects that must obtain authorization from FERC or the Maritime Administration to site, construct, expand or operate liquefied natural gas (LNG) export facilities, H.R. 8 would require DOE to issue a final decision on any application for authorization to export LNG under Section 3 of the NGA no later than 30 days after concluding the review to site, construct, expand or operate the LNG facilities required by NEPA. This entails publishing a Final Environmental Impact Statement or a Finding of No Significant Impact (FONSI), or determining that an application is eligible for a categorical exclusion under NEPA implementing regulations.

H.R. 8 also would amend Section 3 of the NGA to require DOE to condition any authorization to export LNG on the applicant publicly disclosing the specific destination or destinations of any authorized LNG exports.

For exports of US-produced LNG, where an export project requires approval from either FERC or the Maritime Administration to site, construct, expand or operate LNG export facilities, S. 2012 would require DOE to issue a final decision under Section 3(a) of the NGA to approve or disapprove an application to export natural gas to countries that do not have free trade agreements with the US (non-FTA countries) no later than 45 days after the FERC or Maritime Administration has concluded the review required by NEPA for such LNG export facilities. This means the publication of a Final EIS or a FONSI, or a determination that an application is eligible for a categorical exclusion under NEPA. In 2014, DOE/FE announced a new policy under which it acts on applications to export LNG to non-FTA countries only after completing the review required by NEPA, suspending its practice of issuing conditional decisions before final authorization decisions. Under this policy, DOE considers an application to have completed the NEPA review process 30 days after publishing a final EIS or a FONSI. Where FERC authorization to construct LNG facilities is required, DOE issues its decision after FERC has denied rehearing of its order granting authorization to construct the facilities.

S. 2012 also would expand the jurisdiction of the federal courts over LNG export authorizations. The bill would grant to the U.S. Court of Appeals for the District of Columbia Circuit or the circuit in which the LNG export facility will be located, original and exclusive jurisdiction over not only any petition for review of a DOE order issued for an application for export authority, but also DOE's failure to issue a final decision on such an application as required by the statute. If a court finds that DOE has failed to issue a final decision as required, it must order DOE to issue the decision no later than 30 days after the court's order. S. 2012 also would require the court to give expedited consideration to petitions for review filed under the new section.

In addition, S. 2012 would amend Section 3 of the Natural Gas Act to require DOE to obtain from applicants seeking authorization to export LNG the names of the countries to which the exported LNG is delivered and to publish such information on the DOE website.

Finally, in response to concerns about the effect of increased LNG exports on the price of natural gas in the US, S. 2012 would require the Secretary of Energy to submit to Congress a report analyzing, among other things, the economic impact that exporting LNG will have in regions that currently import LNG and on job creation in the manufacturing sectors.

Administration Opposition to H.R. 8

At the end of November, the Office of Management and Budget (OMB) issued a "Statement of Administration Policy," indicating that the Obama Administration "strongly opposes" H.R. 8 because it would undermine already successful initiatives designed to modernize the nation's energy infrastructure and increase our energy efficiency, and if the President were presented with H.R. 8, his senior advisors would recommend that he veto the bill.

In particular, the OMB Statement finds that the provision in H.R. 8 regarding certain operational characteristics in capacity markets operated by RTOs and ISO is "unnecessary," as FERC and the RTOs and ISOs "are already well positioned" to "ensure that capacity market structures adequately provide for the procurement of sufficient capacity to efficiently and reliably fulfill the resource-adequacy function that these markets are intended to perform." The Statement also criticizes as "unnecessary" the provisions of the bill that would broaden FERC's authority to impose deadlines on other federal agencies reviewing the environmental implications of natural gas pipeline applications. In addition, the Statement indicates that H.R. 8 would unnecessarily curtail DOE's ability to fully consider whether natural gas export projects are consistent with the public interest. Further, the Statement argues that H.R. 8 would undermine current hydropower license processes under the FPA by creating a new exemption from licensing.

It is not clear when the full Senate would vote on either S. 2012 or H.R. 8.

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