FERC testifies on EPA carbon regulations and electric reliability

Wednesday, July 30, 2014

The U.S. Environmental Protection Agency's proposed Clean Power Plan rule is projected to limit carbon dioxide emissions from power plants, improve human health and save money -- but will it jeopardize the reliability of the nation's electricity grid?

Poorly implemented carbon regulations could increase the risk of widespread power outages, but this risk can be managed, according to testimony offered by the Commissioners of the Federal Energy Regulatory Commission to the House Energy & Commerce Subcommittee on Energy & Power earlier this week.

In her written testimony, Acting Chairman Cheryl LaFleur acknowledged concerns that EPA's carbon rule may have an "adverse impact on the overall reliability of the bulk power system."  Noting that EPA's plan leaves much of the implementation to individual states, she suggested that the FERC work closely with states to consider how state implementation plans will affect the operation of the grid. 

Commissioner Philip Moeller's testimony was more critical of EPA's proposed rule, which he described as infringing upon the FERC's jurisdiction over electric system reliability.  Noting that electricity markets are interstate in nature, Commissioner Moeller warned that "the proposal’s state-by-state approach results in an enforcement regime that would be awkward at best, and potentially very inefficient and expensive."  He also expressed skepticism at the plan's inclusion of increased use of existing natural gas-fired generation as one "building block" states may use to reduce their power sector's carbon intensity.  Commissioner Moeller also pointed to EPA's Mercury and Air Toxics Standards (MATS) rule as giving him reliability concerns.  On the positive side, he urged state regulators to speed adoption of real-time pricing at the retail level, so consumers can feel price signals that could reduce the overall cost of energy.  Commissioner Moeller concluded with a plea that FERC be given a formal role in EPA's regulation of the electric power sector.

Commissioner John Norris testified that EPA's proposed rule is "an important first step that addresses climate change by appropriately seeking to reduce carbon emitted by our nation’s electric power system."  While he acknowledges that transitioning to a low-carbon economy is challenging, he expressed confidence that "we as a nation should be well positioned to meet those challenges."  Commissioner Norris cited the MATS standards as an example of our readiness: while EPA's MATS rule led to the retirement of many older, inefficient coal-fired power plants, the grid has generally responded in a way that will maintain reliability.  Commissioner Norris urged cooperation with electric reliability organization North American Electric Reliability Corporation (NERC) and states, and to be flexible in making market rule changes to enable states, regional transmission organizations and other system planners to meet resource adequacy requirements.

Commissioner Tony Clark testified that while the grid is more reliable than before, it remains vulnerable to cyberattack, physical security threats, and geomagnetic disturbances.  He also described environmental regulations as another source of risk, and warned of the "seismic" shift in EPA authority over the energy sector embodied in the rule.  Commissioner Clark described the Clean Power Plan as the most comprehensive reordering he has seen of the jurisdictional relationship between the federal government and states as it relates to the regulation of public utilities and energy development.  He painted a picture of states forced to choose between surrendering their authority over power plants willingly or losing it to federal supremacy.

Current FERC enforcement director Norman Bay also testified, noting that he was confirmed by the Senate as a Commissioner on July 15, but that he has not yet been sworn in.  His brief testimony focused on the need for cooperation between FERC, EPA, NERC, states, and regional transmission organizations to ensure reliability.

What happens next remains to be seen.  As expressed in the opening statements of Energy and Power Subcommittee Chairman Ed Whitfield and Energy and Commerce Committee Chairman Fred Upton, many remain concerned about what they perceive as an effort by EPA to assert control and new regulatory authorities over states’ electricity decision-making.  Will EPA's Clean Power Plan ultimately come into effect -- and if so, what path will it take?

Report projects modest need for electric generation capacity growth

Thursday, July 24, 2014

The U.S. Energy Information Administration has projected that 351 gigawatts of new electric generating capacity will be added to the U.S. grid between 2013 and 2040.  This projected new capacity, most of which EIA expects to be fueled by natural gas, will replace older power plants as they retire, as well as modestly increasing the country's net installed capacity.

EIA's forecast implies a growth rate well below recent annual levels observed.  Under EIA's projection, capacity additions through 2016 will average 16 GW per year.  But from 2017 through 2022, EIA expects additions of less than 9 GW per year as the existing generating fleet will be sufficient to meet expected demand growth in most regions.  From 2025 to 2040, annual additions increase to an average 14 GW per year, but remain below recent levels.

EIA expects that natural gas will be the primary fuel source for the projected added capacity, accounting for 73% of capacity additions in the reference case (or 255 GW).

Renewables will account for 24% of the new capacity (or 83 MW).  Of renewable capacity additions, 39 GW are solar photovoltaic (PV) systems (60% of which are rooftop installations).  Another 28 GW are wind, most of which will occur by 2015 to qualify for federal renewable energy production tax credits).

New nuclear capacity will total about 3% (or 10 GW), including 6 GW of plants currently under construction and 4 GW projected after 2027.

EIA also projects that 1% of capacity additions (or less than 3 GW) will come from coal, with more than 80% of that total currently under construction.  EIA notes that federal and state environmental regulations and uncertainty about future limits on greenhouse gas emissions reduce the attractiveness and economic merits of coal-fired plants.

Like any forecast, EIA's projections rest upon a series of assumptions.  Under alternative cases, we might experience actual capacity additions that differ from EIA's forecasts.  Nevertheless, the EIA Annual Energy Outlook 2014 offers a glimpse of changes to the portfolio composing our energy mix may come in the next decades.

Atlantic offshore wind energy targeted

Tuesday, July 15, 2014

A report released by the National Wildlife Foundation highlights the potential of U.S. states on the Atlantic Ocean to generate electricity from offshore wind -- and calls upon state leaders to take action to promote offshore wind development.

The 24-page report, Catching the Wind: State Actions Needed to Seize the Golden Opportunity of U.S. Offshore Wind Power, describes responsibly developed offshore wind as "a golden opportunity to meet our coastal energy needs with a clean, local resource that will spur investments in local economies."  In particular, the Atlantic coast offers a high-quality wind resource in close proximity to power-thirsty coastal cities.

Key findings in the report include:
The report highlights Massachusetts and Rhode Island as leading America's pursuit of offshore wind, followed by Maryland, Virginia, New York, New Jersey, and Delaware, with Maine, North Carolina, South Carolina, and Georgia bringing up the rear.  New Hampshire, Connecticut, and Florida are noted as "states to watch" with no offshore wind planning activities.

The report calls on state leaders to:
  • Set a bold goal for offshore wind in the state's energy plan.
  • Take action to ensure a competitive market for offshore wind power.
  • Advance power contracts for offshore wind.
  • Ensure an efficient, transparent, and environmentally responsible offshore wind leasing process that protects wildlife.
  • Invest in key research, initiatives, and infrastructure needed to spur offshore wind development.
Will Atlantic states develop their offshore wind resources? 

Arizona utility fined $3.25 million over 2011 blackout

Friday, July 11, 2014

On a hot summer afternoon in 2011, cascading power outages spread across the North American Southwest.  Over 5 million people in Southern California -- including all of San Diego -- Arizona and Mexico were left without power for up to 12 hours.  This week a federal investigation into the outage was partially resolved by a $3.25 million settlement with Arizona Public Service Company.

According to a joint report by the staffs of the Federal Energy Regulatory Commission and the North American Electric Reliability Corporation, the September 8, 2011 outage started when a 500-kilovolt transmission line owned by APS tripped.  The Hassayampa - N. Gila line serves as a major transmission corridor that transports power in an east-west direction, from generators in Arizona into the San Diego area.  The line's failure triggered significant voltage deviations and equipment overloads, causing transformers, transmission lines, and generating units to trip offline through automatic load shedding.  In all, 7,835 megawatts of customer load lost power -- over 30,000 megawatt-hours of energy -- primarily in the San Diego Gas and Electric service territory and in Baja California.

Following the outages, both the Commission's Office of Enforcement and NERC launched an investigation into the incident.  That investigation, which has been ongoing since 2011, focused on APS and five other entities believed to have been involved: the California Independent System Operator, the Imperial Irrigation District, Southern California Edison, the Western Area Power Administration, and the Western Electricity Coordinating Council Reliability Coordinator.


The investigation concluded that APS had violated NERC's mandatory Reliability Standards.  APS's role and liability was ultimately resolved this week when the Commission accepted a stipulation between APS, the Commission's Office of Enforcement and NERC.

Through that stipulation, APS agreed to pay a civil penalty of $3.25 million.  Of this amount, $1 million will go to the U.S. Treasury, $1 million will go to NERC, and $1.25 million will be invested in reliability enhancement measures that go beyond mitigation of the violations and the requirements of the mandatory Reliability Standards.  In finding the settlement to be in the public interest, the Commission cited APS's cooperation in the investigation as well as its voluntary mitigation efforts.

With APS's role in the outage settled, joint FERC/NERC investigations into other entities' roles continue.  While some targets of investigation choose to settle their cases, others insist to exercise their full legal rights.  Will the 2011 Southwest blackouts lead to further stipulations and penalties?

Energy Department offers $4 billion loan guarantee program for renewable energy and efficiency projects

Tuesday, July 8, 2014

The U.S. Department of Energy has announced a $4 billion loan guarantee program for renewable energy and energy efficiency projects.

The Renewable Energy and Efficient Energy Projects Loan Guarantee program is intended to support the first commercial-scale deployments of the next wave of innovative clean energy technologies. Through the program, the Energy Department solicits applications for loan guarantees.  When a successful applicant borrows money for project finance from a commercial bank, the federal government promises to assume the borrower's debt obligation if that borrower defaults.  This guarantee serves as a credit backstop for the borrower, ultimately reducing its cost of financing because the lender knows it has resort to federal funds if the borrower cannot repay the loan.

The current program follows a series of previous Energy Department loan guarantee programs.  These programs have helped finance projects including the NRG Solar, LLC's 290-megawatt Agua Caliente solar photovoltaic array (the world's largest), NRG Energy, Inc.'s 392-megwatt Brightsource concentrating solar power (CSP) plant (also the world's largest), the 845-megawatt Caithness Shepherds Flat wind project, and Abengoa Bioenergy Biomass of Kansas LLC's cellulosic ethanol plant.  While not all of the previous programs' awardees have been successful -- for example, failed solar panel maker Solyndra -- the Department touts the programs as aligned with President Obama's Climate Action Plan, by supporting investment in domestic energy resources and reductions in greenhouse gas emissions.

To be eligible for the present solicitation (48-page PDF), a project must be located in the United States and meet both of the following criteria:
1. Use renewable energy systems; efficient electrical generation, transmission, and distribution technologies; or efficient end-use energy technologies; and

2. Meet both of the following requirements : a) Avoid, reduce, or sequester anthropogenic emission of greenhouse gases; and b) employ new or significantly improved technology as compared to commercial technology in service in the United States. 
Beyond these general criteria, the Energy Department's Loan Programs Office has identified five target areas for awards:
  • Advanced Grid Integration and Storage: mitigating issues related to variability, dispatchability, congestion, and control of renewable energy systems by incorporating technologies such as demand response or local storage, enabling enhanced integration of renewable energy into the grid.
  • Drop-In Biofuels: developing biofuels that are more compatible with today’s engines, delivery infrastructure and refueling station equipment, enabling nearly identical bio-based substitutes for crude oil, gasoline, diesel fuel, and jet fuel
  • Waste-to-Energy: projects using waste materials which are otherwise discarded, such as landfill methane and segregated waste, as energy sources.
  • Enhancement of Existing Facilities: incorporating renewable generation technology into existing renewable energy and efficient energy facilities to significantly enhance performance or extend the lifetime of the generating asset. 
  • Efficiency Improvements: projects incorporating new or improved technologies to further improve on energy efficiency that would substantially reduce greenhouse gases. 

Under the solicitation, the first round of application materials is due on October 1, 2014.  For more information on the opportunity, contact the Energy Department, or consult a professional experienced with financing and developing energy projects.

The Preti Flaherty team advises our clients on all aspects of energy project development, including the pursuit of federal funding and financial support. For more information, please contact Todd Griset at 207-623-5300.

Muskrat Falls megahydro cost increases

Wednesday, July 2, 2014

The Canadian province of Newfoundland and Labrador is promoting the development of a multi-phase, gigawatt-scale hydropower project on the Churchill River in Labrador.  But estimates of the so-called megaproject's construction costs continue to mount, now reaching nearly $7 billion (Canadian).

The Churchill River drains much of western Labrador, combining large volumes of water with a significant drop in elevation.  For these reasons, Canadian provinces and utilities have long sought to harness its power.  In 1971, the Churchill Falls dam and hydropower plant came online; today, the Churchill Falls facility can generate 5,428 megawatts of power, giving it the second largest capacity of any power station in North America.

In 2010, Newfoundland and Labrador utility Nalcor Energy and Nova Scotia utility Emera announced the Lower Churchill project.  The first phase proposed, Muskrat Falls, entails the construction of a dam with an 824 megawatt power house, with the subsequent Gull Falls dam bringing the proposed Lower Churchill project's total capacity to over 3,000 megawatts.  The Muskrat Falls project received a key approval by provincial government in December 2012, and construction is now underway.  90 per cent of the project contracts have been awarded, and 98 per cent of the engineering on the project has been done.

Back in 2010 when Nalcor and Emera first announced the project, the cost forecast for the Newfoundland and Labrador portion was $5 billion.  But as the St. John's Telegram reports, the latest cost estimate for building the Muskrat Falls project has jumped by about $800 million, to $6.99 billion.

This estimate does not include the cost of the Maritime Link transmission system to be built by Emera, connecting Newfoundland to Nova Scotia via undersea cable.  The Maritime Link is expected to cost an additional $1.5 billion.

Despite the cost overruns, the project is reported to be on schedule to be completed in 2017.