Energy Legal Blog

Texas Legislature Considers Tax Incentives Aimed at Greenhouse Gas Emissions

On the heels of efforts in California to reduce greenhouse gas emissions by limiting the amount of coal-generated power that in-state utilities may purchase, members of the Texas Legislature are similarly aiming to provide incentives for energy companies to reduce greenhouse gas emissions and use cleaner technologies.  Proposed House Bill 270, introduced by Rep. Rafael Anchia (D-Dallas), would impose a 7.5 percent tax on coal purchased in Texas for use in the state.  The revenue raised from the new tax would be used to promote new energy technologies.  Currently, H.B. 270 is pending in the House Regulated Industries Committee.  Another proposed bill, H.B. 3431, introduced by Rep. Mark Strama (D-Travis Co.) and currently being considered by the House Ways and Means Committee, would exempt from property taxes any pollution controls installed to reduce carbon dioxide emissions in enhanced oil recovery projects.  This bill would also reduce by half the tax on oil produced in the state if carbon dioxide is used in the recovery.  The current Texas legislative session ends May 28.

Illinois AG Cries Foul, Invokes Ninth Circuit Rulings to Undo Wholesale Power Auction

In the latest salvo of blame for Illinois' increased retail power rates, the state’s Attorney General (AG) accused wholesale sellers of manipulating the 2006 auction through which utilities bought power for resale to consumers.  In a complaint to FERC, the AG targeted 15 suppliers, including affiliates of the state’s main utilities, Ameren and Commonwealth Edison, and asked FERC to order refunds and even revoke the sellers’ market-pricing authority.  Ironically, both FERC and the Illinois Commerce Commission approved the auction process and design beforehand. 

The AG complaint alleges that auction price results in the vicinity of $70/MWh were far higher than prices in comparable bilateral contract markets and twice the marginal cost of generating the electricity.  As a consequence, the complaint argues that the state’s ratepayers are paying $4.3 billion above costs for power due to collusion and market manipulation.  The AG directs her harshest accusations to the state’s utilities, pointing out that ComEd’s wholesale seller affiliate won 97% of the utility's 41-month contracts.  Details of many of the charges are not clear, as the public version of the complaint is heavily redacted. 

The complaint also alleges that wholesale suppliers failed to comply with reporting and filing requirements under the Federal Power Act.  By these allegations the AG seeks to bring the complaint within several controversial decisions of the U.S. Court of Appeals for the Ninth Circuit that hold wholesale power transactions at market prices, such as the auction sales, enjoy no filed rate protection if the transactions are not sufficiently reported to and filed with FERC.

Representatives of wholesale sellers as well as ComEd and Ameren point out that the previous retail electricity rates were artificially low due to a rate freeze required by the state’s deregulation plan, and that rates rose primarily because fuel costs have increased significantly sine the rate freeze was implemented.   Bills have been introduced in the Illinois legislature proposing to re-freeze retail rates.  Doing so, the utilities contend, might push them into bankruptcy, just as a retail rate freeze forced Pacific Gas and Electric into bankruptcy earlier in the decade. 

Illinois isn’t the only state protesting rate hikes upon the expiration of a rate freeze.  Maryland enacted this same play last year in which a restructuring plan led to a multi-year rate freeze, followed by large rate increases that drew heated opposition from consumers and politicians, including many of the same politicians who had voted for the restructuring legislation that imposed the rate freeze in the first place. 

FERC Signs Off on 83 Mandatory Reliability Rules

Putting into place for the first time mandatory standards to ensure reliability in the nation's electric transmission system, on March 16, FERC issued an order adopting 83 out of 107 reliability standards that were proposed by the North American Electric Reliability Corporation (NERC) last year.  Certified as the Electric Reliability Organization (ERO) contemplated in the Energy Policy Act of 2005, NERC will play a primary role in developing, monitoring, and enforcing the reliability standards.  Most of the standards take effect this summer; FERC rejected calls by some industry participants for a phase-in or transition period

FERC directed substantial changes to many of the standards, but approved them as mandatory and enforceable nonetheless.  NERC can iron out details through its stakeholder process, FERC advised.  Those standards that were not adopted were remanded back to NERC for further development or for NERC to provide additional information.  FERC declined to adopt a blanket waiver from the standards for small entities; rather, FERC approved the continued use of the existing NERC compliance registration process and Functional Model to register entities who must comply with the standards.  Under this process, NERC will register:  distribution providers or load-serving entities with a peak load of 25 MW or greater and are directly connected to the bulk electric system or that are responsible entities as part of a required demand management (load-shedding) program; individual generating units that are 20 megavolt-amperes (MVA) or greater; generating plants with an aggregate MVA above 75; and transmission owners and operators with 100 kV or higher facilities.

In a separate notice of proposed rulemaking issued the same day, FERC proposed to extend the reliability standards to Qualifying Facilities (QF) above 20 MW, despite the fact that QFs are exempt from most FERC regulation.  Comments in this proceeding are due April 17, 2007. 

FERC Exercises New Natural Gas Civil Penalty Authority

FERC has approved a settlement agreement between its Office of Enforcement and Bangor Gas Company, LLC (Bangor Gas) requiring Bangor Gas to pay a civil penalty of $1 million for self-reported violations of FERC's shipper-must-have-title policy.  That policy requires shippers who transport natural gas using their own capacity to hold title to that natural gas.  The settlement represents the first time FERC has exercised the natural gas civil penalty authority granted to it by the Energy Policy Act of 2005.  That authority permits FERC to impose a penalty of up to $1 million per day per violation of FERC's rules, regulations, and orders issued under the Natural Gas Act.  In addition to the monetary penalty, the settlement requires Bangor Gas to file semi-annual reports with FERC's Office of Enforcement to ensure future compliance with FERC's natural gas transportation requirements, including the shipper-must-have-title policy.   

In accordance with its Policy Statement on Enforcement of October 2005, FERC considered several factors in fixing Bangor Gas' penalty:  (1) the shipper-must-have-title policy is a long-standing and well-known element of FERC's natural gas transportation policies; (2) senior management's failure to ensure that Bangor Gas personnel complied with this policy; (3) Bangor Gas's prompt submission of the self-report; (4) Bangor Gas cooperated with the agency during its investigation; (5) Bangor Gas took prompt action to ensure future compliance; and (6) the violations occurred only on short pipeline segments serving a small geographic area, with no identifiable financial harm to other parties.  Consideration of such factors will likely make the difference in future investigations between FERC's imposition of the full scope of its penalty authority or a lesser penalty.

"Back to the Future" Debate Continues at FERC on State of Competition in Wholesale Power Markets

On the heels of moves in several states to "re-regulate" electric markets, and complaints from consumer advocates that electric competition has not brought about promised savings, FERC has embarked on a series of public conferences regarding the status of competition in wholesale electric markets, the first of which was held February 27.  Panelists at the first conference included speakers from both sides of the competition debate, who took predictable positions in their public remarks.  Economists and sellers argued that the "good old days" before competition were not nearly as good as critics of deregulation would have us believe.  Public power, customers, and consumer interest groups, on the other hand, argued that organized markets have done nothing but raise prices and recommended going “back to the future.” 

A few of the more interesting moments came when panelists broke from their traditionally expected positions or from their prepared remarks.  Wal-Mart representative Angela Beehler praised organized markets as having helped the company to lower its massive electric bills. Several panelists asked the Commission to reexamine the use of single-price auctions.  PNM Resources CEO Jeff Sterba asked FERC to help overcome state parochialism that limits the availability of renewable energy credits (RECs) for out-of-state renewable resources, and to create, or at least support, markets for trading RECs. 

The Commissioners asked the panelists numerous questions, without offering any real insights into specific reforms that the Commissioners may have in mind, but at the same time belying their personal perspectives.  Despite promising in his opening remarks that the Commission is not wedded to the status quo, Chairman Kelliher seemed quite satisfied with the existing state of wholesale electric markets, in which organized and bilateral markets coexist.  He asked several panelists how it would be possible for FERC to put the "genie back in the bottle," that is, require utilities to "re-bundle" assets that were sold off during state unbundling initiatives over the last decade.  Deregulation critics answered this with deafening silence.  On the flip side, Commission Spitzer asked whether there were any incentives for low-cost jurisdictions that currently are in bilateral markets to incur the expense of joining organized markets.  Commissioner Moeller focused on the issue of whether high prices were not merely the result of high natural gas prices, a position adopted by many of the panelists representing generators and economists, but disputed by those like Joe Nipper of American Public Power Association, who testified that APPA had performed a study finding that gas prices were not the only, or even the primary, driver of high electric prices.  Several of the Commissioners also focused on opportunities for organized markets to enhance renewable energy and demand response. 

The next of FERC's public conferences on wholesale markets has not yet been scheduled.

New Mexico Promotes Transmission Solutions for Renewable Energy Development, Ups RPS

Developing renewable energy far from load centers demands construction of transmission.  But which comes first – the generation or the transmission?  Several Western states, including California and Texas, are addressing this issue, and New Mexico has recently adopted its solution.  The state enacted legislation that will create the New Mexico Renewable Energy Transmission Authority, a quasi-governmental agency that will plan, finance, acquire and build power lines and energy storage projects. 

The Authority will have power to designate transmission corridors, negotiate with other entities on the establishment of interstate corridors, and use eminent domain authority to help get projects built.  Eligible transmission projects must transmit at least 30% electricity from renewable sources within a year of commencing operations.  The Authority is not to undertake projects if public utilities or other private entities are performing the act or providing the services in question.  The legislation also establishes the procedures the Authority is to use in undertaking projects, and grants the Authority power to issue Renewable Energy Transmission Bonds to obtain financing.  Among other Western states, Wyoming also has a transmission authority that likewise is intended to help export electricity produced by state's energy resources.

New Mexico Governor Richardson also signed legislation increasing the state's renewable portfolio standards.  The state's previous RPS directed utilities to include, by 2011, a minimum of 10% renewable energy in the energy they sold at retail.  Under the new law, the goal has been set at 15% by 2015 and 20% by 2020.  In addition, rural electric cooperatives will now be subject to the RPS requirements, although at a lower level, needing to procure 10% of their power from renewable sources by 2021.  As has been the national trend of late, New Mexico will allow compliance to be achieved through the purchase of renewable energy credits.

Western Governors Increase Efforts to Coordinate Emissions Control

The governors of five western states have established the Western Regional Climate Action Initiative to pursue a joint effort to combat greenhouse gas emissions.  Pursuant to a Memorandum of Understanding, Washington, Oregon, California, Arizona and New Mexico will set regional targets for reducing greenhouse gases within the next six months, and plan to develop a market-based program, such as a load-based cap-and-trade program, to reach those targets, over the next eighteen months.  Additional goals of the Initiative include developing a multi-state greenhouse gas registry to facilitate tracking, management, and crediting for entities that reduce emissions, promoting renewable energy use and increasing energy efficiency within the five states, and advocating for western states' needs and interests in regional and national climate policy debates. 

The Initiative has a good head start on these tasks, as it can build on the individual efforts of these states to reduce greenhouse gas emissions that are already in place, including renewable portfolio standards, emissions reporting, and two existing regional efforts, the West Coast Global Warming Initiative that California and Washington established in 2003, and the Southwest Climate Change Initiative Arizona and New Mexico launched in 2006. 

The Initiative is the latest of a growing number of examples of states and regions taking actions to curb greenhouse gas emissions as discussions of nationwide emissions standards are still in their nascent stages.  At the announcement of the Initiative's creation, the five governors pointed to increases in drought periods, decreased snowfall, earlier snowmelt, and more severe forest and rangeland fires as threats to their economies which depend heavily on tourism, snow-sports, agriculture and livestock.  Due to similar concerns in neighboring Utah, Utah's governor has stated he will consider joining the Initiative as well.