Energy & Environmental Law Blog

Energy & Environmental Law Blog

Analyzing the critical energy and environmental issues of the day

Senate Approves $4.9 Billion for Drinking Water

Posted in Federal, Water Law

Congress in recent years has not really been in the business of solving core public welfare problems like safe drinking water.  Today the Senate, however, has taken a major step forward by passing the 2016 Water Resources and Development Act, S. 2848.  WRDA bills are the annual appropriations bills to shore up the nation’s water service infrastructure.  The Senate bill would provide $9.4 billion for water projects, hydrology and flood control, including $4.9 billion to address aging municipal water systems.

By and large, Americans take for granted that their municipal water supply systems deliver abundant, wholesome and safe drinking water.  Water borne illnesses are rare in this country, and the professionals I know that operate these systems take their jobs seriously and feel the weight of the responsibility.  And yet, there are colossal failures putting public health at risk—like Flint.

The Flint debacle reflects a complete absence of professional water management.  The problem there was a change in water supply, and the failure to add commonly available corrosion inhibiting chemicals to the water to prevent lead pipelines from leaching lead into Flint homes.  What should have been an inexpensive operational measure became a billion dollar pipe replacement project.  And that figure doesn’t include the long-term costs to address health effects of drinking the water, not to mention the cost of a different kind of corrosion, that of the public trust.

But even well-managed municipal water systems, including those that tout the high quality of the supply, can have serious lead problems.   My town of Portland, Oregon, has one of the purest water sources in the country, the Bull Run water shed on Mt. Hood.  The water is so soft, however, that it has a corrosive effect.  Luckily, Portland doesn’t have lead service pipes like Flint, but many older homes have lead solder in their plumbing, resulting in Portland exceeding lead drinking water standards in high risk households and schools.

The Portland Water Bureau is taking steps to address the lead problem, like raising the pH level in the water to minimize lead leaching.  But Portland’s water rates are among the highest in the country, and the cost of maintaining safe water supplies is only going up.  There is a practical limit to how high water rates can go, and communities with fewer resources than Portland struggle to keep up.

This is where the federal government is supposed to step in, to address problems that exceed local capacities to protect the public.  Although a little late in coming, S. 2848 is a mostly bipartisan bill, which if enacted could move the needle in the right direction.  Let’s hope this bill gets through the House and to the President for signing without further delay.

California’s New Climate Change Law Tempered by Uncertainty About Its Cap and Trade Program

Posted in California, Cap and Trade, Climate Change

California Governor Jerry Brown signed Senate Bill 32 last week codifying into law his office’s emission reduction goal of cutting greenhouse gas emissions to 40% below the 1990 level by 2030. By signing this bill, Governor Brown made his prior Executive Order B-30-15 part of California’s overall climate change law by adding a new section to the California Global Warming Solutions Act of 2006 (See California Health & Safety Code § 38566).  As before, the California Air Resource Board (“CARB”) is the state agency charged with ensuring that the new greenhouse gas emission reduction goal is met.

Senate Bill 32 is accompanied by a companion bill, Assembly Bill 197, which passed in late August (though language in each bill prevented either from reaching the governor’s desk without the passage of the other).  As codified, Assembly Bill 197 adds two members of the Legislature to the CARB Board as ex-officio, nonvoting members and creates staggered six-year terms for the voting members of the CARB Board.  It also creates the Joint Legislative Committee on Climate Change Policies to provide oversight for state programs, policies, and investments related to climate change.

Notably, neither bill extends California’s current Cap and Trade program past 2020.  The Cap and Trade program is a preeminent piece of the state’s overall Greenhouse Gas reduction program but it faces an uncertain future. Ongoing litigation challenging CARB’s authority to raise revenue through the program’s auctions of greenhouse gas allowances remains active at various trial and appellate court levels.

The state Cap and Trade program’s uncertainty could place a significant restraint on the effectiveness and viability of Senate Bill 32’s new emission reduction goal. All eyes are turning toward the Legislature in 2017 for a definitive sign that California will continue its Cap and Trade program past 2020.  Despite this uncertainty, California moves forward full steam ahead — the law of the land now requires a 40% reduction below 1990 levels of greenhouse gas emissions by the year 2030.

CPUC Hosts Workshop for New Safety Intervenor

Posted in California, Electric Power, Federal, Rulemakings

Earlier in 2016, the California Public Utilities Commission (CPUC) received approval from the Legislature to establish its own Office of Safety Advocates (OSA) as an effort to expand the participation of safety related intervenors in relevant CPUC proceedings.  This month, the CPUC is hosting a workshop to: (i) allow stakeholders to brainstorm an effective way to establish the OSA, and (ii) discuss opportunities and challenges surrounding the potential participation of OSA in relevant CPUC proceedings. The workshop will be held on September 15, 2016, 1-4:30pm, at the CPUC Courtyard Room, 505 Van Ness Ave., San Francisco, CA.

CPUC Cracks Down on Secrecy of Utility Data

Posted in California, Electric Power, Federal, Rulemakings

confidential

For California utilities, ensuring their information stays confidential just got harder. On August 25, 2016, the California Public Utilities Commission issued a decision updating the process for submitting potentially confidential documents to the Commission. The Commission intended for this process to ensure consistency across industries and to expedite Commission review of California Public Records Act requests.

On balance, the new process shifts the burden for preserving confidential documents to the utilities. In the past, utilities would submit data to the Commission either with a marking to show it was confidential, or with the unspoken agreement with Commission staff that certain types of documents were confidential even without a marking. In light of this new decision, utilities now have to mark all documents, specify the reason it’s confidential, and, depending on whether the document is submitted within or outside of a formal proceeding, file a motion or declaration certifying the confidentiality of the documents. Further, if only certain information in a document is confidential, utilities must designate as confidential only that information rather than the entire document.

Moreover, the Commission has “greased the wheels” for handing Public Records Act request, and releasing utility data. The Commission has delegated authority for reviewing requests for confidential treatment of documents to the Commission’s Legal Division, rather than requiring the Commission itself to review and issue and an order regarding the release of potentially confidential information.

While this decision presents a significant challenge for many utilities, this shift in Commission policy is not entirely surprising. In the wake of the San Bruno gas pipeline explosion in 2010, public outcry and litigation cropped up over the Commission’s Public Records Act request process. While trying to balance the requirements of the Public Records Act and its statutory duty to preserve confidential utility data, under Public Utilities Code§ 583, the Commission has seemingly responded to pressure from the public, and shifted towards the Public Records Act side of the scale.

This decision was an interim decision, and the proceeding remains open for further refinement and improvement of the Commission’s processes (e.g. updating General Order 66-C).

“The War Is Over”: Assemblymember Gatto Introduces Bill to Memorialize CPUC Reform Package

Posted in California, Renewables

At an August 11th conference organized by the Advanced Energy Economy, Assemblymember Mike Gatto (D-Los Angeles), Chair of the Utilities and Commerce Committee, and California Public Utilities Commission (“CPUC”) President Michael Picker participated in a panel discussion on CPUC reform efforts.

Gatto declared that “the war is over,” referencing the sparring between the Legislature and CPUC over agency reforms in the wake of numerous CPUC controversies, including improper ex parte communications between regulators and utility executives surrounding the shuttered San Onofre nuclear power plant, the San Bruno gas pipeline explosion, and the Aliso Canyon gas leak.

Gatto explained that utilities are at the forefront of people’s minds at an unusual level, which has motivated the  lawmakers’ reform efforts.  And not just energy utilities — Gatto explained that he received more emails from the public about the Frontier Communications/Verizon merger than both the San Bruno and Aliso Canyon disasters combined.  By having a substantive CPUC reform package, Gatto explained that the Legislature can “hold its head high” and let constituents know that it has heard them and has produced legislation that will move the ball forward.

Gatto acknowledged, however, that reform efforts have been a “distraction” to the CPUC and stated that the time had come to move away from CPUC reform efforts to enable the CPUC to “get back to work” and focus on what it needs to be doing — ensuring that customers have safe, reliable utility service at reasonable rates, protecting against fraud, and promoting the health of California’s economy.

CPUC Reform Package

The day before the panel event, Gatto had released bill language for AB 2903, which is part of a sweeping package of reforms announced in June by Governor Brown, Assembly member Gatto, and Senators Jerry Hill (D-San Mateo) and Mark Leno (D-San Francisco).  As the primary vehicle for reforms, AB 2903 makes changes to CPUC governance, accountability, transparency, and oversight and safety.  (AB 2903, along with the three other bills comprising the reform package will be examined in a subsequent blog post.)  Gatto remarked that he doesn’t think any of the reform measures should be difficult for the CPUC to implement.

President Picker, who was asked by Governor Brown to “fix the CPUC,” expressed support for Gatto’s and the Legislature’s efforts, which he believes are helping to advance this objective.  While the concept of CPUC reform has long been discussed, the challenge from Picker’s perspective is that “no one sees the same thing” when it comes to differing notions of reform.

For example, one major sticking point is the process by which the CPUC conducts rulemakings.  The existing process is quite formal, requiring parties to obtain permission to participate and commit to participating in a range of activities across time, such as entering evidence into the record and submitting to cross-examination.  Picker has heard from some who are calling for a more fluid process similar to conventional notice-and-comment rulemakings that may be more accessible to the public.  Others have asked Picker to champion an even more formal process that restricts access to decisionmakers.  Picker believes the reform package has focused on finding ways to modernize the rulemaking process to give more people an opportunity to participate.

As another example, Picker pointed to the perception by many that the CPUC is too cozy with the utilities it regulates. He believes that a bigger problem is the CPUC’s failure to work well with other state agencies, and supports the legislative reform effort to increase inter-agency coordination and information sharing.

FERC Requires New England Generators to Reveal How Bids Formulated

Posted in Electric Power, FERC

On August 8, 2016, the Federal Energy Regulatory Commission (FERC) issued its order on remand from the D.C. Circuit on FERC’s approval of ISO New England’s (ISO-NE) 2013-14 winter reliability program, results, and rates. (TransCanada Power Marketing Ltd v. FERC, No. 14-1103). In a ruling that could have a significant impact on the rates that were charged, as well as the rules that will be applied to subsequent winter reliability programs in the region, FERC required generators to disclose how they formulated their winter reliability program bids.

ISO-NE adopted its winter reliability program to help assure reliability during periods of stressed system conditions by providing compensation to oil-fired and dual-fuel generators, as well as demand response resources, agreeing to provide oil inventory service or demand response for the duration of the program.  Resources were selected through a bidding process and were compensated based on their prices “as-bid,” rather than by using a uniform market clearing price.  Although ISO-NE’s estimated cost for the program was $16-$43 million, it ended up costing $78.8 million.  The court found that without evidence regarding how much of that cost was attributable to profit and mark-up, FERC could not make a reasoned determination as to the justness and reasonableness of the rates charged.

In its order on remand, FERC directs ISO-NE to obtain from each bidder the basis for its bid, including the process it used to formulate the bid.  FERC further requires that, within 120 days, ISO-NE make a compliance filing consisting of: (1) a compilation of this bidder information; (2) an analysis of the bidder information by ISO-NE’s Independent Market Monitor (IMM), including the IMM’s conclusions as to the competitiveness of the program and the exercise of market power; and (3) ISO-NE’s recommendation as to the reasonableness of the bids that were accepted.

Because the information to be obtained from bidders is commercially sensitive, ISO-NE can be expected to seek privileged treatment when it makes its filing.  Nonetheless, the New England generators who bid should weigh their disclosure obligations carefully.  The story their submissions tell could impact not just the compensation they have been paid under this program, but the rules for winter reliability programs going forward.

State Water Board Cleans Up Its Water Quality Enforcement Policy

Posted in California, Rulemakings, Water Law

 On August 4, 2016, the California State Water Resources Board (State Water Board) issued a draft rule amending its 2010 Water Quality Enforcement Policy. The proposed amendments are intended to provide additional clarity, allow disadvantaged communities to receive assistance with compliance matters akin to that provided under the current policy to facilities serving small communities, and to establish a process for coordination within and among Regions to improve transparency, uniformity and fairness.  Written comments on the Draft Policy are due no later than September 13, 2016 at noon.

The Water Quality Enforcement Policy was promulgated in 2010, to provide a degree of uniformity in enforcement priorities and penalties among California’s nine Regional Water Quality Control Boards.  However, experience under the Policy indicated that problems of consistency continued, due to ambiguities and gaps in the language.  Accordingly, this new draft is largely an effort to provide more guidance and clarity.

The draft provides a definition of “fairness” that is based on eliminating any benefit received by the violator in comparison to voluntarily compliant entities, clarifies the definitions for various penalty factors, and expands the explanations of their application.  One example is that the treatment of “high volume” releases now includes a definition of “high volume” along with specific examples of its application.  With respect to other penalty calculations, the draft eliminates Class 3 (minor) violations because it was often conflated with Class 2 (moderate) violations, and discontinued the use of algorithms in the calculation of penalties.  The most notable substantive change is that unlike the 2010 policy, this draft is clear in not allowing the Board to recover attorney fees and costs associated with preparing for or attending a hearing.

The Notice for the proposed amendments states that the proposed penalty policy is not a significant alteration of the current methodology.  On review, that conclusion appears to be accurate.  The changes appear aimed at providing more certainty in the process, rather than on imposing new or greater burdens.  However, practitioners should look the changes over carefully, to see how they might impact their clients in dealings with their local Regional Board, and make comments as appropriate.

CARB Proposed Amendments to Extend the Cap-and-Trade Program Beyond 2020 Overshadow Significant Revisions to the Program Itself

Posted in California, Cap and Trade, Rulemakings

On August 2nd, the California Air Resources Board (CARB) formally released its Proposed Amendments to the California Cap-and-Trade Program.  CARB’s proposed amendments are meant to extend the program through 2030 and ensure continued emissions reductions through 2050.  Notably, the amendments are also intended to broaden the program through linkage with the Ontario program beginning in January 2018.  CARB is also attempting to better align California’s Cap-and-Trade Program with the Federal Clean Power Plan.

Extending the cap and trade program beyond 2020—which includes new emission caps, establishes future auctions, and allocates future allowances—was big news when it was announced nearly a month ago.  But CARB’s proposed changes to the program go even further.

CARB has proposed a number of adjustments/refinements to the program that may have significant impacts on a number of regulated industries and industry sectors.  These revisions did not create the same headlines because the proposed changes affect a myriad of industries in very different ways, and the potential “winners” and “losers” are not readily apparent given the complexity of the subject area.

For example, CARB is proposing to eliminate product-based benchmarks for the paper mill and roasted nuts and peanut butter manufacturing sectors, to revise product-based benchmarks for dairy product manufacturing, and to add product-based benchmarks for sulfuric acid regeneration (important for fertilizer production and petroleum refineries).  Each of these changes are significant, and companies in related industries will need to determine the specific positive or negative effect of the proposed revisions.

Another example of a possibly significant change is that CARB is proposing to directly allocate allowances to industrial covered entities to cover the carbon cost associated with their purchased electricity.  This would potentially eliminate the middleman (i.e., the electric utility), and will hopefully provide the effective transition assistance that has always intended for the California industrial sector.  Going forward, however, the question will be whether CARB can better and more efficiently allocate these allowances than the electric utilities across the State.

As one final example of a potentially significant change, CARB is proposing to change which entities and emissions are covered by the Cap-and-Trade Program.  CARB is proposing that waste-to-energy facilities that directly combust municipal solid waste should be exempt from the program for 2016-2017, while proposing that natural gas hydrogen fuel cells should no longer be exempt from the Cap-and-Trade Program.  The ramifications for each of these fledgling industries could be huge.

Industry participants will need to carefully analyze the proposed amendments to determine the potential impact of these changes on their sector.  Written comments are due on the proposed amendments are due by September 19.

Ninth Circuit Rejects Application of CERCLA to Aerial Emissions

Posted in CERCLA, Federal, Litigation

In the long-running saga of efforts by the State of Washington and the Confederated Tribes of the Colville Reservation to attach CERCLA liability to a smelter in British Columbia, the smelter owner, Teck Industries, won a significant ruling. In Pakootas v. Teck Cominco Metals, Ninth Circuit Court of Appeals rejected plaintiffs’ efforts to expand their claims beyond slag discharges to the Columbia River to include aerial emissions from the smelter’s smokestacks.

After finding liability for the slag discharges, the district court had allowed amendment of the initial complaint to include the emissions even though it initially denied the amendment as untimely. The court then certified its ruling on the emission issue for interlocutory appeal. On July 27, 2016, the Ninth Circuit reversed the district court ruling.

In a prior ruling in 2006, the Ninth Circuit had affirmed a denial of a motion to dismiss, holding that although the initial smelter discharges to the Columbia River occurred in Canada, contaminants in the slag moved downstream and were “re-released” in the US, meaning that application of CERCLA to the contamination in the US did not amount to trans-boundary application of U. S. law. Likewise, the Ninth Circuit’s refusal to extend that ruling to air emissions did not turn on questions of international law, although the Government of Canada did file an amicus brief raising sovereignty issues.

Instead, the opinion limited itself to the interpretation of “disposal” in the statute (where CERCLA simply says “’disposal shall have the meaning provided in [42 U.S.C. 6903]” (i.e., in RCRA). That approach is consistent with two prior Ninth Circuit rulings, including an en banc decision, in which the court read the language in CERCLA and RCRA to exclude aerial emissions from “disposal.”

This is unlikely to be the last word on the question. Apart from the transboundary issue, the imposition of CERCLA liability based on smokestack emissions at US facilities has not been unusual. And the court’s decision expressly states that the plaintiffs’ argument for a broader interpretation was “reasonable enough,” and on a blank slate, the panel might have found it persuasive.

The court also added a footnote regarding the effort by the U. S. to assert Skidmore deference, which, unlike Chevron deference based on an agency’s interpretation of a statute through regulations, is based on less formal agency interpretations in the course of applying a statute. In rejecting the U. S. effort, made in a post-argument filing, the court noted that it would have to not only consider the application of Skidmore deference, it would also have to decide whether that deference trumped a prior judicial interpretation, something the court declined to do on less than full briefing.

With those issues highlighted, it is highly likely that en banc consideration will follow, if not Supreme Court review.

Diablo Canyon Settlement May Hinge on Cost Allocation

Posted in California, Electric Power

On June 21, 2016, Pacific Gas and Electric Company (“PG&E”) announced a plan to close down the state’s last remaining nuclear power plant, the 2.3 gigawatt Diablo Canyon plant near San Luis Obispo, by 2026. Diablo Canyon currently produces about 9% of the electricity California uses and supplies the electric needs of more than 3 million people. PG&E announced that it intends to replace the lost Diablo Canyon generation through a combination of energy efficiency measures and greenhouse gas (“GHG”) free energy resources (as further described below). If successful, it would be the first time that a large commercial nuclear power plant was replaced by entirely clean energy resources rather than coal or natural gas.

The Joint Proposal for Closing Diablo Canyon

The Diablo closure plan is set forth in a Joint Proposal agreed to by PG&E, several of the main environmental groups that have long called for Diablo Canyon’s closure, and two of the major labor unions that represent Diablo Canyon’s large workforce. PG&E currently plans to submit the Joint Proposal to the California Public Utilities Commission (“CPUC”) for approval by the end of July.

The closure of Diablo Canyon does not come as a major surprise. The Nuclear Regulatory Commission licenses allowing PG&E to operate the plant expire in 2024 and 2025. While PG&E had applied for 20-year license renewals for the plant, the re-licensing was fervently opposed by environmental groups, local residents, and others. Diablo Canyon is also facing billions of dollars of upcoming maintenance at the plant to comply with California’s Once-Though-Cooling regulations, which require the adoption of technologies at certain power plants to reduce the impacts of their water use on marine life and habitats.

In the Joint Proposal, PG&E explains that it will seek to offset the capacity lost when Diablo Canyon is shut down in three steps, which it refers to as “tranches”:

  • Tranche 1: PG&E will obtain a target of 2,000 GWh of energy efficiency by 2025 through a solicitation process starting in June 2018. PG&E retains flexibility to propose its own utility-owned energy efficiency programs to meet this goal.
  • Tranche 2: PG&E will obtain an additional 2,000 GWh of GHG-free resources and/or additional energy efficiency measures through a second solicitation process starting in 2019.
  • Tranche 3: PG&E will procure whatever additional GHG-free energy resources are needed for it to provide 55% of its total retail sales from eligible renewable resources between 2031 and 2045 (which is over and above California’s current mandate that utilities procure 50% of their electricity from eligible renewable energy resources by 2030).

PG&E proposes to rely on the CPUC’s new Integrated Resource Planning process (Rulemaking 16-02-007) to identify what specific types and levels of renewables are needed in its service territory to meet the above procurement goals.

Many Parties Wary of PG&E’s Cost Allocation Proposals

On July 12, PG&E held its first of several meetings with interested parties to discuss the Joint Proposal. Along with other signatories to the Joint Proposal – including representatives from the Natural Resources Defense Council and organized labor – PG&E solicited feedback on the Joint Proposal from numerous interested parties. Many of the most vocal parties at this initial meeting were representing consumer protection groups, environmental groups, and community choice aggregators (“CCAs”) and electric service providers (“ESPs”) which offer competing electric service in PG&E’s service territory.

Many of the party representatives at the July 12 meeting voiced their concerns regarding PG&E’s cost recovery mechanisms set forth in the Joint Proposal. In particular, parties were concerned that PG&E has conditioned the effectiveness of the entire Joint Proposal on the CPUC approving a “non-bypassable” cost allocation mechanism through which PG&E would recover the costs of the Tranche 2 and 3 procurements described above:

PG&E’s commitment to replace Diablo Canyon energy with GHG-free energy resources under tranche 2 (Section 2.3) and tranche 3 (Section 2.4) is therefore conditioned upon CPUC pre-approval that any procurement PG&E makes associated with the Joint Proposal will be subject to a non-bypassable cost allocation mechanism that: 1) equitably allocates costs and benefits, such as [Renewables Portfolio Standard] and Resource Adequacy credits, associated with the procurement among responsible load serving entities; and 2) determines the net capacity costs of such procurement consistent with the methodology for the allocation of net capacity costs describes in California Public Utilities Code section 365.1(c)(2)(C).

See Joint Proposal, Section 2.6 (emphasis added).

The CPUC permits the investor-owned utilities, including PG&E, to pass along certain costs via non-bypassable charges to customers that have chosen to switch from PG&E’s service to either CCA or direct access (i.e. ESP) service. One of the non-bypassable charges that PG&E is already authorized to pass on to CCA and direct access customers in its service territory is a Nuclear Decommissioning Charge to be used in part to shut-down and decommission the Diablo Canyon plant. Given that the CCA and direct access customers are already paying the Nuclear Decommissioning Cost as well as other non-bypassable charges, several parties at the July 12 meeting questioned the fairness and appropriateness of PG&E’s insistence in the Joint Proposal that the costs of its procurement to make up for Diablo Canyon capacity be spread among non-PG&E customers that receive their electric services from CCAs and ESPs.

Next Steps

Whether or not the CPUC will authorize PG&E to pass along the costs of Diablo Canyon procurement through non-bypassable charges will likely be a hotly-contested issue in the upcoming CPUC proceeding to address the Diablo Canyon shutdown. Given that PG&E has expressly conditioned its commitments in the Joint Proposal to replace Diablo Canyon with GHG-free resources on the CPUC’s pre-approval of non-bypassable cost allocation, the CPUC’s resolution of this issue could make or break the entire settlement regarding the closure of the Diablo Canyon plant.

 

About the Author: Patrick Ferguson is an energy partner in Davis Wright Tremaine’s San Francisco office, where he focuses on energy policy, project development, and energy-related transactions in California and throughout the western United States. The views in this article are his own and do not represent the views of any of Davis Wright Tremaine’s clients.