FERC, DOE to hold Security Investments for Energy Infrastructure Technical Conference

The Federal Energy Regulatory Commission and the United States Department of Energy have scheduled a joint technical conference to discuss current cyber and physical security practices used to protect energy infrastructure and possible federal and state incentives for related security investments.

According to a notice issued on February 4, the Security Investments for Energy Infrastructure Technical Conference will be led by one or more FERC Commissioners and DOE senior officials. Its agenda addresses two high-level topics: types of current and emerging cyber and physical security threats, and how federal and state authorities can facilitate investments to improve the cyber and physical security of energy infrastructure.

In a supplemental notice issued on March 1, the agencies noted that the Commission has adopted a "well-developed set of mandatory and enforceable reliability standards that set baseline protections for both cyber and physical security of the bulk electric system" as well as "policies that allow for the recovery of prudently incurred costs to comply with those mandatory reliability standards." The supplemental notice describes the technical conference as aimed at better understanding:

1. the need for security investments that go beyond those measures already required by mandatory reliability standards, including in infrastructure not subject to those standards (e.g., natural gas pipelines);
2. how the costs of such investments are or could be recovered; and
3. whether additional incentives for making such investments are needed, and if so, how those incentives should be designed.

The supplemental notice describes two panels, the first of which will discuss types of cyber and physical security threats to energy infrastructure, particularly electric transmission, generation, and natural gas pipelines, as well as best practices for cyber and physical security mitigation beyond those measures already required by mandatory reliability standards and industry and government engagement needed to address these matters. The second panel will explore how federal and state authorities can provide incentives and cost recovery for security investments in energy infrastructure, particularly electric transmission, generation, and natural gas pipeline infrastructure

The federal agencies' Security Investments for Energy Infrastructure Technical Conference has been scheduled for on March 28, 2019.

Considering a Green New Deal

Will 2019 bring a "Green New Deal" for the U.S. or individual states?

President Franklin D. Roosevelt championed the original "New Deal" in the 1930s, as a series of federal reforms and measures designed to lift the U.S. economy out of the Great Depression. The First New Deal included banking and securities law reforms, funding for emergency relief operations by states and cities, and a Civil Works Administration. Later in the Roosevelt administration, a Second New Deal included labor law reforms, significantly increased federal employment through the Works Progress Administration jobs relief program, and the Social Security Act, among other measures.

More recently, the notion of a "Green New Deal" has emerged from a variety of sources. While the details of what constitutes a Green New Deal vary depending on the proponent, the basic concept most proposals have in common is a significant investment in clean energy to spur employment and revenue. For example:

• Mark Hertsgaard's 1998 book Earth Odyssey culminated with his vision of a "Global Green Deal" to transform global economies based on the New Deal.
• New York Times columnist Thomas Friedman has been credited with coining the "Green New Deal" phrase in a pair of opinion pieces in 2007. At the time, Friedman envisioned the government as "not funding projects, as in the original New Deal, but seeding basic research, providing loan guarantees where needed, and setting standards, taxes and incentives" to spawn business opportunities in clean power.
• In his 2008 presidential campaign, President Obama proposed addressing the nation's economic crisis by using green investments to promote new jobs, and the 2009 stimulus act included substantial measures along these lines which have been called a Green New Deal.
• In 2009, a United Nations program published a report calling for a "Global Green New Deal," again seeking transformation of global economies through investment in clean energy, systems and infrastructure.

The idea of a Green New Deal has again found some traction in 2019, although the details of what might be included remain unclear, as does the likelihood of its adoption. In 2018, as part of her successful campaign, now-Representative Alexandria Ocasio-Cortez proposed a federal "Green New Deal" to address climate change. While the concept does not appear to have been fully embraced by Congress, state legislation proposing state-level Green New Deals has started to arise. For example, Maine state Representative Chloe Maxmin has proposed a bill whose title has been published as LR 1034, "An Act To Establish a Green New Deal for Maine."

Whatever ultimate fate these proposals meet, the concept of stimulating the economy and improving environmental performance through investment in clean energy and other green infrastructure projects will likely remain on the table for the foreseeable future. Legislatures and policymakers will be faced with challenges and opportunities in crafting measures that will succeed, in terms of both enactment and actually making a difference. If nothing else, 2019 will bring continued discussion across all levels of government about how best to move the U.S. and individual states forward.

$11.5 trillion investors' group calls for European utilities to end coal use by 2030

A group of 95 investors organized as the “Institutional Investors Group on Climate Change” has issued an open letter to European power companies on December 19, 2018, asking firms to demonstrate they are implementing business strategies aligned with the goals of the Paris Agreement.

The investors participating in the Institutional Investors Group on Climate Change collectively have $11.5 trillion in assets under management or advise; 20 of the 95 signatories each have over $200 billion in assets under management, including Aberdeen Standard Investments, BNP Paribas Asset Management, DWS, Legal and General Investment Management, Nordea Group and M&G. Other signatories include the California Public Employees' Retirement System, California State Teachers' Retirement System, New York City Comptroller’s Office, and New York State Common Retirement Fund.

Citing the United Nations IPCC Special Report on Global Warming of 1.5 °C issued on October 8, 2018, the investors cite the risks to global markets and investments from 2 °C or higher temperature rises as “potentially catastrophic.” The IPCC report found that a number of climate change impacts could be avoided by limiting global warming to 1.5 °C compared to 2 °C or more. But the report also noted that limiting global warming to 1.5 °C would require “rapid and far-reaching” transitions in land, energy, industry, buildings, transport, and cities. In particular, the IPCC report concluded that to limit warming to 1.5 °C would require net global human-caused emissions of carbon dioxide to fall by about 45 percent from 2010 levels by 2030, reaching "net zero" around 2050. 

The group demands that power generators, grid operators and distributors “plan for their future in a net-zero carbon economy.” Specifically, they request companies to publish transition plans consistent with the goal of the Paris Agreement; develop explicit timelines and commitments for the rapid elimination of coal use by utilities in EU and OECD countries by no later than 2030; and support the development of “ambitious climate policy aligned with the Paris Agreement” directly and through their trade associations.

Stanford declines to divest fossil fuels

Should university endowments be invested in fossil fuel companies?  Or should they divest such holdings? Universities across the U.S. are considering these questions.  In the latest development, Stanford University's Board of Trustees has released a statement on climate change, describing the university's initiatives to battle climate change, but declining to divest Stanford's roughly $22 billion endowment from the fossil fuel industry.

In the April 25 statement, the Board describes climate change as "among the most serious challenges of our time."  The statement lists various elements of Stanford's strategic approach to combating climate change, including a $500 million transformative campus energy system, commitments to invest in solar, other renewable energy, wastewater recovery, green transportation, and energy efficiency in campus buildings.  The statement also announces the creation of a new climate task force to be composed of undergraduates, graduate students, faculty and staff, to solicit ideas for further action.

Much of the statement is structured as a response to a proposal by student organization Fossil Free Stanford that the university divest its endowment from the fossil fuel industry.  The trustees cite the university's Statement on Investment Responsibility as outlining a specific set of criteria by which the trustees may evaluate whether a company is inflicting social injury in a manner that warrants consideration of divestment.  The statement notes the establishment of an Advisory Panel on Investment Responsibility and Licensing, which studied the issues and made a recommendation to the Board’s Special Committee on Investment Responsibility, which in turn made a recommendation to the trustees.

According to the statement, the advisory panel "recommended divestment of companies whose primary business is oil sands extraction, a method that studies have found requires more water, and releases more carbon into the atmosphere, than other forms of fossil fuel extraction."  It cites Stanford Management Company as saying that the Stanford endowment has no direct exposure to companies whose primary business is oil sands extraction, so the trustees had no action to take on this point.

On the broader fossil fuel industry, the panel "concluded that it could not evaluate whether the social injury caused by the fossil fuel industry outweighs the social benefit it provides, and therefore did not recommend divestment."  The trustees agreed that the criteria were not met, and declined to divest.

That said, the statement expressed the trustees' belief "that the global community must develop effective alternatives to fossil fuels at sufficient scale, so that fossil fuels will not continue to be extracted and used at the present rate... the long-term solution is for all of us to reduce our consumption of fossil fuel resources and develop effective alternatives."

But despite investment and progress in research, including by Stanford, the trustees note that "at the present moment oil and gas remain integral components of the global economy, essential to the daily lives of billions of people in both developed and emerging economies."  The statement also notes the efforts of some oil and gas companies to explore alternatives.  The statement notes that "the trustees do not believe that a credible case can be made for divesting from the fossil fuel industry until there are competitive and readily available alternatives."

The statement also notes that the university's investment program does take climate change into consideration when evaluating the economic attractiveness of various investments.  In the trustees' words, "Prudent investors acknowledge that the world is beginning a transition away from carbon-based energy sources and that pricing for fossil fuels will reflect this transition."  The statement also notes the efforts of the endowment managers to "identify and support industry best practices that, in addition to positively impacting investment results, may pay significant environmental dividends."

This is not the first time Stanford has considered divesting from fossil fuels.  In 2014, after pressure from Fossil Free Stanford, the trustees announced a decision that Stanford would not make direct investments in coal mining companies, in recognition of "the availability of alternate energy sources with lower greenhouse gas emissions than coal."

Google invests in solar energy projects

Google has announced an investment in six solar photovoltaic projects to its portfolio.  The projects, located in California and Arizona, have a combined electric generating capacity of 106 megawatts.  This deal illustrates the trend of renewable energy investments by data centers and other tech companies.

The projects are under development by Recurrent Energy.  Five are located in Southern California, while the sixth is in Arizona.  Google and investment firm KKR invested $400 million in the projects; Google's share is reportedly $80 million.  The partners will sell the power produced by the facilities to local utilities including Southern California Edison.

Google announced that this represents its fourteenth investment in renewable energy since 2011.  In 2010, the Federal Energy Regulatory Commission granted market-based rate authority to Google subsidiary Google Energy LLC, enabling it to sell power at wholesale.  Google has since entered into long-term agreements to purchase power from wind farms and other renewable generators.

Other tech companies are pursuing similar strategies.  Earlier this month Microsoft announced a deal to purchase energy produced by a Texas wind farm for its data center in San Antonio.  In September, eBay received market-based rate authorization from the Federal Energy Regulatory Commission, allowing it to sell surplus power from its generators to the grid.

For consumers like Google with significant demand for power, developing on-site electric generation or entering into a long-term power purchase agreement can be cost-effective, either by reducing the cost of energy or by reducing its exposure to price volatility.  Investments in renewable energy can also position companies for improved sustainability and "green" their public images.  For these reasons, the trend of tech company investment in renewable energy infrastructure will likely continue for the foreseeable future.

Master Limited Partnerships for clean renewable energy

An organizational structure called Master Limited Partnerships has the potential to increase private-sector investment in clean energy. Master Limited Partnerships, or MLPs, benefit from a tax structure under which investors are taxed as partners but can trade their ownership stakes on securities exchanges much like corporate stock. Newly proposed federal legislation could extend this treatment to clean energy technologies.

MLPs offer their investors an attractive combination of tax advantages and liquidity. Profit from most publicly traded corporations is taxed twice, at both the corporate level and the shareholder level. By contrast, income from MLPs is taxed only at the shareholder level because it is treated as a partnership for tax purposes. Like Real Estate Investment Trusts or REITs, MLPs thus combine the tax benefits of a limited partnership with the liquidity of publicly traded securities.

Under federal law, MLP treatment is limited to enterprises generating at least 90 percent of their income from qualifying sources. These generally involve the use of natural resources, such as the production, processing or transportation of petroleum, natural gas, coal, timber, and other minerals. Since 1981, the use of the MLP structure has grown; estimates suggest that over 100 MLPs are currently being traded on major exchanges, with a total market valuation of about $445 billion.

Yesterday Congress introduced proposed bipartisan legislation that would extend this tax structure to clean energy technologies. The Master Limited Partnerships Parity Act, formally known as S.795: A bill to amend the Internal Revenue Code of 1986 to extend the publicly traded partnership ownership structure to energy power generation projects and transportation fuels, and for other purposes, is sponsored by Sen. Chris Coons, D-Del., along with co-sponsors Sens. Jerry Moran; R-Kan., Debbie Stabenow, D-Mich.; and Lisa Murkowski, R-Alaska. It has been referred to the Senate Committee on Finance.

The Master Limited Partnerships Parity Act would significantly broaden the scope of projects eligible for MLP treatment to include clean energy resources and infrastructure projects. These projects would include any energy technologies that qualify for the federal production tax credit or investment tax credit, such as wind, closed and open loop biomass, geothermal, solar, municipal solid waste, hydropower, marine and hydrokinetic, fuel cells, and combined heat and power. The bill would also open the MLP structure to advanced transportation fuels such as cellulosic, ethanol, biodiesel, and algae-based fuels, as well as energy-efficient buildings, electricity storage, carbon capture and storage, renewable chemicals, and waste-heat-to-power technologies.

Proponents hope that the act would stimulate investment in clean energy projects much as it has worked for other extractive natural resource infrastructure. At the same time, concern over the federal budget calls for serious consideration of measures that would reduce federal tax revenues. So far, the bill seems to have broad support and little outspoken opposition. If enacted, it could lead to an influx of investment capital into renewable and clean energy technologies.