Energy Legal Blog

Texas Commission Selects Plan to Deliver Wind Power from Competitive Renewable Energy Zones

The Texas Public Utility Commission (PUCT) recently selected one of the four transmission scenarios that the Electric Reliability Council of Texas (ERCOT) proposed  for bringing a total of 18,456 MW of wind power from West Texas and the Texas Panhandle.  The approved plan will deliver slightly more power and is more costly than the plan ERCOT initially recommended to the PUCT.  It is expected that the new transmission facilities will cost Texas ratepayers $4.93 billion, and will take between four and five years to construct.

CAIR Court Throws Eastern Utility Markets into Financial Tail-Spin

A panel of the U.S. Court of Appeals for the DC Circuit in a July 11 order threw eastern power markets into financial chaos by vacating the Environmental Protection Agency's (EPA) Clean Air Interstate Rule (CAIR).  (North Carolina v. EPA, No. 05-1244.)  The purpose of the CAIR Rule was to reduce the interstate transport of ozone and particulate matter (PM) from power plants and to help states downwind of emissions attain EPA air quality standards for ozone and PM.  The rule called for 28 states and the District of Columbia to institute into their State Implementation Plans a trading scheme for the predominant pollutants from coal-fired power generation — sulfur dioxide (SO2) and oxides of nitrogen (NOx), which are precursors to PM and ozone.  In reliance on the CAIR Rule, a number of coal-fired utilities in the western and southern Mid-Atlantic had expended hundreds of millions of dollars on credits that, in light of the court’s ruling, may be worthless.

After striking down EPA's method for allocating emissions allowances to upwind states and its interpretation of protections for downwind states, and finding that EPA improperly relied upon provisions in the Clean Air Act's (CAA) market-based program that were meant to deal with acid rain, the panel proceeded to vacate completely the  EPA's method for allocating emissions allowances to upwind states.  This ruling already has had a significant impact on the emissions trading market.  Following the decision, the valuation of NOx and SO2 emission credits free fell.  Several utilities have already disclosed financial hits in filings with the Securities and Exchange Commission.

Notably, the court's decision raises questions about EPA's ability to remedy what the court found to be "fundamental flaws" in the CAIR Rule by creating a new trading scheme.  Specifically, the court emphasized that CAA section 110(a)(2)(D)(i)(I), without qualification "prohibits sources 'within the State' from 'contribut[ing] significantly to non-attainment in . . . any other State. . . .'"  North Carolina v. EPA, at *16.  With this mandate in mind, the court complained that "[i]t is unclear how EPA can assure that the trading programs it has designed in CAIR will achieve section 110(a)(2)(D)(i)(I)'s goals if we do not know what each upwind state's 'significant contribution' is to another state."  Therefore, the court determined that "CAIR must include some assurance that it achieves something measurable towards the goal of prohibiting sources 'within the State' from contributing to non-attainment or interfering with maintenance in 'any other State.'"  Id.  Whether EPA or others will seek rehearing is unknown.  Beyond possible rehearing, how EPA could to resuscitate CAIR is unclear; however, the D.C. Circuit has predicted that "very little will 'survive[ ] remand in anything approaching recognizable form.'"

NYISO Asks FERC for Authority to Control Congestion and Loop Flow Around Lake Erie

Assailed by sharp increases in transmission congestion and loop flow in its Lake Erie region, New York's Independent System Operator (NYISO) in a July 21st emergency filing asked FERC to approve tariff revisions to prohibit scheduling on commonly used — but not the most direct — paths for wheeling power around Lake Erie between NYISO and neighboring RTOs.  NYISO proposes instead to limit scheduling between NYISO and the neighboring RTOs to the most direct transmission path.

Loop flow is the unscheduled use of another utility's transmission system; it results because electricity moves along the path of least resistance rather than the shortest distance between the generator and the load.  This phenomenon can impact the market in a number of ways and can lead to price differences between neighboring markets that market participants can then arbitrage. 

NYISO surmises in its filing that a small number of market participants have caused the loop flows by scheduling their power along longer, "circuitous" transmission paths around Lake Erie, in order to take advantage of price differentials at the border between NYISO and PJM.  According to NYISO, this activity has increased the amount of transmission congestion it must resolve, adversely affecting market operations.  While NYISO states it has not identified any violations of its existing tariff requirements, it asks FERC to modify its tariff so that NYISO may avert this type of scheduling in the future.  FERC has established an August 1 comment deadline in the proceeding.

British Columbia Launches North America's First Carbon Tax

On July 1, the British Columbia government implemented a consumer-based carbon tax on fossil fuels.  The revenue neutral tax is the first of its kind in North America, and applies to all fossil fuels, including gasoline, diesel, natural gas, coal, propane, and home heating oil.  The theory behind the tax is that increasing the prices of fossil fuels based on their carbon content will make renewable, non-fossil energy sources more attractive and will give manufacturers an incentive to be as energy efficient as possible.  Critics complain the tax will increase already high cost of petroleum products.  The B.C. initiative can be expected to sharpen the debate over whether a carbon tax of a cap-and-trade limitation of carbon emissions will prove more effective in stopping anthropogenic climate change.

The tax rate starts at $10 Canadian per metric ton of carbon dioxide-equivalent emissions, and will increase by $5 Canadian per year until 2012.  The government estimated that the tax would add 2.4 cents to each liter of gasoline this year, which would rise to about 7.2 cents per liter by 2012.  Revenues from the tax will offset other taxes paid by B.C. consumers and businesses, particularly income taxes, rendering the tax revenue neutral.  The Province estimates the tax will raise more than $1.8 billion over the next three years.  B.C. will provide tax credits to lower-income individuals and families, and provide an initial $100 "Climate Action Dividend" to all B.C. households to ease the initial burden.  B.C. consumers may not feel a big impact on their electric bills from the carbon tax, however, as most of the Province's power is hydroelectric.

Severity Levels to Determine Penalties for Violating NERC Reliability Standards

In a June 19 order FERC approved with minor exceptions the Severity Levels that the North American Electric Reliability Corporation has proposed for violating requirements of its reliability standards.  In an earlier order FERC requested NERC expedite development of Severity Levels to be used in setting penalties for reliability standard violations.

A violation may be assessed "Lower", "Moderate", "High", or "Severe".  The Severity Level will be used to set a Base Penalty Amount in accordance with the Base Penalty Amount Table provided in NERC's Sanction Guidelines.  Severity Levels do not consider adjustment factors that are evaluated in a later step in the penalty assessment process.  FERC does not consider Severity Levels to be a part of the Reliability Standards; this treatment is similar to FERC's treatment of Violation Risk Factors and Sanction Guidelines.  Instead, Severity Levels will be appended to NERC's Rules of Procedure. 

NERC also offered for informational purposes only guidelines for reviewing future Severity Level, but FERC chose to adopt its own guidelines.  When reviewing future Severity Levels, FERC's guidelines require that the levels:  (1) not induce lower levels of compliance; (2) ensure uniformity and consistency in penalty determinations; (3) to be consistent with the corresponding reliability standard requirement; and (4) be based on a single violation, and not cumulative violations. 

 

NYISO's Plan to Integrate Wind Power Wins FERC Approval

FERC issued an order June 17 approving the New York Independent System Operator's (NYISO) proposed tariff revisions intended to accommodate wind generating resources in its day-ahead and real-time energy markets. One revision increases the amount of intermittent renewable capacity eligible for special market rules from 1,000 MW to 3,300 MW; in effect, this would increase the amount of intermittent renewable resources eligible for an exemption from persistent under-generation charges. A second revision implements a centralized and mandatory wind forecasting system for all facilities 12 MW or larger. Under the wind forecasting system, wind plant operators would be responsible for the cost of installing and maintaining equipment necessary to collect meteorological data, like wind speed and direction, to be transmitted to NYISO every 15 minutes. NYISO also plans to enforce the wind forecasting system by imposing daily financial sanctions on wind resources that fail to provide the required information or comply within a reasonable notice period. The tariff revisions take effect June 18, 2008.

In its ruling, FERC states that the proposed revisions will encourage wind and other intermittent generators by extending special payment provisions and penalty exemptions to more generators. FERC also asserts that a centralized wind forecasting system will allow NYISO to predict more accurately the availability of wind resources and thereby lower the cost of keeping those resources on line. Additionally, FERC ordered NYISO to submit within two years an informational report evaluating the progress of this program and providing information regarding the costs of this service, the revenues collected and the disposition of those revenues.