Pipeline development continues to be highly contested in Federal Energy Regulatory Commission (FERC) certificate proceedings and before trial and appellate courts. Please see our discussion of six key topics for pipeline developers to be aware of.
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FERC Reaffirms Controversial Energy Capacity Decisions: Insights and Analysis
The Federal Energy Regulatory Commission (“FERC” or “Commission”) issued on April 16, 2020 two orders[1] largely denying requests for rehearing of its prior decisions that, among other things, subjected to minimum offer price thresholds energy resources participating in PJM Interconnection, L.L.C.’s (“PJM”) capacity market which receive so-called “State Subsidies”.[2] FERC reaffirmed that a resource within broadly-defined categories (e.g., renewable resources) receiving State Subsidies must offer capacity in PJM’s forward capacity market at or above an administratively-established price floor (i.e., the minimum offer price rule, or “MOPR”), regardless of such a resource’s actual incremental costs. Potential and likely ramifications of the Commission’s actions, arguments opponents of the April 16 Orders are likely to raise and potential paths forward for industry market participants are set forth below. Additionally, the most promising arguments that could be used to invalidate the April 16 Orders, some of which are discussed below, have not been raised before or addressed by FERC.
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Walking the Path of Utilities’ Ownership of Wind and Solar
Members of the Sheppard Mullin Energy, Infrastructure and Project Finance Team wrote an article published in the March 16, 2020 edition of Tax Notes Federal regarding the practical impacts on tax equity financing for renewable energy projects of a private letter ruling (“PLR”) published by the IRS in late 2019. The PLR addressed normalization and loss disallowance rules applicable to public utilities. These rules have posed significant challenges to public utilities that want to own renewable energy generation facilities, make efficient use of the tax benefits they provide (via the tax equity market) and recover their costs from ratepayers.
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FERC Orders, Notices, and Other Guidance Regarding the Novel Coronavirus
Last week the Federal Energy Regulatory Commission (“FERC”) continued to issue orders, notices, and guidance related to the current novel coronavirus pandemic, the health and safety of FERC and energy industry employees, and the continued reliability of the U.S. energy sector. A summary of FERC’s relevant actions are provided below, including information regarding FERC’s operating status, extensions for filing deadlines and efforts to ease regulatory burdens during this crisis.
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FERC Continues to Squeeze Renewable Resources Participating in Wholesale Electric Capacity Markets
On February 20, 2020, the Federal Energy Regulatory Commission (“Commission” or “FERC”) issued several orders narrowing New York Independent System Operator, Inc.’s (“NYISO”) buyer-side market power mitigation rules in its mitigated capacity zones,[1] including NYISO’s proposal to exempt up to 1,000 megawatts (“MW”) of renewable resources from NYISO’s buyer-side market mitigation rules in a capacity auction year (“NYISO Renewable Exemption Order”). The Commission’s actions will significantly impact renewable resources in NYISO, PJM Interconnection, L.L.C. (“PJM”), and potentially other organized markets. Rejection of the proposed MW exemption will hinder renewable resources’ participation in NYISO’s capacity auction by: (i) requiring them to bid no lower than an established price floor, regardless of their actual incremental costs; and (ii) tightening currently-available mitigation exemptions.
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FERC Proposes Major Changes to PURPA Regulations Impacting Qualifying Facility Rates and Requirements; Throwing Roadblocks in the Path of Renewable Energy Development
The Federal Energy Regulatory Commission (“FERC”) requested comments on a proposed rulemaking to revise its regulations under the Public Utility Regulatory Policies Act of 1978 (“PURPA”). The Notice of Proposed Rulemaking (“NOPR”), among other things, would diminish benefits that have been afforded to Qualifying Facilities (“QFs”), including the availability and value of the “PURPA-put.” The proposed changes also could potentially block certain wind and solar projects that previously would have qualified as small power production facilities from receiving that designation. The NOPR presents uncertainty for renewable developers, as well as other non-utility generators. Adoption of the proposed changes may hinder the development of some renewable energy projects. Comments on the proposed rulemaking are due within 60 days of its publication in the Federal Register.
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FERC Holds the Line on One-Year Limit for State Review of Clean Water Act Certifications for Interstate Natural Gas Pipelines
On April 2, 2019, the Federal Energy Regulatory Commission (“FERC” or “Commission”) determined that the one-year statutory limit on state review of interstate natural gas pipeline company applications for water quality certification was a bright-line deadline that could not be extended by private agreement.[1] FERC found that the New York State Department of Environmental Conservation’s (“NYDEC”) failure to act within one year of receipt of a water quality certification application submitted by National Fuel Gas Supply Corporation and Empire Pipeline, Inc. (together, “National Fuel”) constituted waiver of the State’s authority under Section 401 of the Clean Water Act[2] to make a final determination on the application. Section 401 limits such review to one year or less from the date of receipt of the application. The Commission rejected contentions by the NYDEC and Sierra Club that the NYDEC could extend the date by which it could act on a water quality certification application. The Commission’s Order will arguably restrict states’ ability to review water quality certification applications associated with interstate natural gas pipeline projects, may actually lead to uncertainty for entities proposing to construct such pipeline facilities, and will test the Commission’s interpretations of Section 401 and related case law.
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