Vineyard Wind construction and operations plan to be reviewed

U.S. ocean energy regulators have announced their intent to study the environmental impacts of approving an offshore wind developer's plans to construct and operate an 800-megawatt wind energy facility offshore Massachusetts.

At issue is a proposal by Vineyard Wind LLC to construct and operate an 800-megawatt (MW) wind energy facility offshore Massachusetts. The project area, a lease for which was awarded to Offshore MW LLC by the U.S. Bureau of Ocean Energy Management in 2015, is located about 14 miles from the islands of Martha’s Vineyard and Nantucket, in water with depths of about 121 to 161 feet.

Vineyard Wind proposed a Construction and Operations Plan for its project in December 2017, potentially to be constructed as two 400 MW phases, up to five years apart. The project would entail the installation of up to 106 wind turbine generators, each with a capacity between 8 and 10 MW, with two or four offshore substations or electrical service platforms. Potential export cable landfalls include the towns of Yarmouth, Barnstable, and Nantucket, and on-shore construction and staging at the New Bedford Marine Commerce Terminal facility.

On March 29, 2018, the U.S. Bureau of Ocean Energy Management (BOEM) announced its publication of a Notice of Intent to prepare an Environmental Impact Statement for Vineyard Wind's Construction and Operations Plan. BOEM has opened a 30-day public comment period, during which it will conduct five public scoping meetings and accept comments that will be used to inform preparation of the EIS.

BOEM recently proposed revised its regulatory processes by publishing draft guidelines for the use of “Design Envelopes” in Construction and Operations Plans for offshore wind energy facilities, which it said would allow developers greater flexibility. Vineyard Wind's is said to be the first to use this design envelope approach in its proposed COP.

Report on US electric grid physical security

Since a 2013 rifle attack on a critical electric power substation in California, the U.S. electric power sector has generally moved toward greater physical security for critical assets, according to a report published by the Congressional Research Service. But the report says bulk power security "remains a work in progress," and suggests further investment -- and policy reforms -- may follow.

The report published on March 19, 2018 -- NERC Standards for Bulk Power Physical Security: Is the Grid More Secure? -- begins with the premise that securing the electric power grid is among the nation's highest priorities for critical infrastructure protection. It notes that a 2013 rifle attack on an electric transmission substation in California which caused widespread power outages also broadened policy attention from cybersecurity to encompass the physical security of assets critical to the power grid.

In response, Congress enacted legislation to strengthen power grid physical security and to facilitate its recovery from disruption. Section 1104 of the Fixing America’s Surface Transportation (FAST) Act contains provisions to protect or restore the reliability of critical electric infrastructure or defense of critical electric infrastructure during a grid security emergency. The Federal Energy Regulatory Commission (FERC) and the nation's electric reliability organization NERC also took action to develop new reliability standards for the physical security of bulk power critical infrastructure.

But physical security risks may persist. The report references a September 2016 rifle attack on a Garkane Energy Cooperative transformer substation in Utah as illustrating this persistence. The report notes that while it is probably accurate to conclude that the grid is more physically secure than it was in 2013, "it has not necessarily reached the level of physical security needed based on the sector's own assessments of risk.

The report notes Congress's continued concern about the physical security of the electric grid. It identifies possible areas for further policy focus as including "security implementation oversight, cost recovery, hardening vs. resilience, and the quality of threat information."

Meanwhile, cybersecurity has remained a priority. An October 2017 FERC report describing the results of its audits of regulated companies' cybersecurity protection processes and procedures noted that most met the applicable mandatory standards. But earlier this month, NERC fined an anonymous utility $2.7 million for alleged violations of reliability standards in connection with a data security breach, and the U.S. Department of Homeland Security issued warnings about Russian hackers targeting computer systems controlling energy and other critical infrastructure.

Interest in shoring up the security of energy infrastructure and systems -- both from physical attacks as well as cyber threats -- appears poised to drive continued discussions, regulation, and investment.

Can challenges or prize competitions solve water supply problems?

How can challenges or prize competitions help society address barriers that may prevent long-term access to low-cost water supplies?

The U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy (EERE) has published a Request for Information, seeking information from the public to understand the key technical and other barriers that may prevent long-term access to low-cost water supplies that could be best addressed through challenges and prize competitions.

Water is essential for human health, economic growth, and agricultural productivity, and plays significant roles in the U.S. energy sector. The Department of Energy uses the term "energy-water nexus" to describe the interconnected nature of energy and water systems. While the U.S. has generally benefited from access to low-cost water supplies, according to the Energy Department, "new challenges are emerging that, if left unaddressed, could threaten this paradigm" including competing uses and water quality problems.

The Energy Department operates a variety of programs to advance domestic energy policy, including programs focused on research and development and grant funding. But could the Department of Energy be more effective by offering challenges or prize competitions? Unlike traditional R&D funding in which participants are selected up front with funding provided at the beginning in order to pursue a target or goal, challenges and prize competitions typically define a problem and offer a reward to anyone finding a solution.

Challenges and prize competitions have been adopted by the federal government as well as private actors. Since 2010, federal entities have awarded millions of dollars in prize money and other incentives through over 740 challenges and prize competitions, and nonprofits and private companies have launched many more.

In a Request for Information published in the Federal Register on March 19, 2018, the Energy Department identified challenges and prize competitions as "tools and approaches the Federal government and others can use to engage a broad range of stakeholders, including the general public, to develop solutions to difficult problems. Challenges and prize competitions rely on competitive structures to drive innovation among participants and usually offer rewards (financial and/or other) to winners and/or finalists."

Through the request, the Energy Department asks for public feedback on a variety of issues relating to using prizes and challenges to solve problems around the energy-water nexus, including an identification of challenges whose solution would allow for a significant increase in the volume of available water produced from non-traditional sources, significant improvements in industrial and power-sector water efficiency, or reductions in the cost to treat and deliver drinking water and wastewater to consumers without harming water quality.

Responses to the Request for Information are due no later than 5:00 p.m. (ET) on May 14, 2018.

FERC extends resilience comment date

Calling electric grid resilience "a critical issue for the American people and for our economy and national security," U.S. energy regulators have extended to May 9, 2018, a deadline for public comment on the resilience of the nation's bulk power system in organized wholesale markets.

The resilience of energy infrastructure is drawing increased public interest. Last year, U.S. Secretary of Energy proposed a rule for consideration by the Federal Energy Regulatory Commission whose nominal focus was on incentivizing electric generator resilience and reliability. While the Commission terminated that rulemaking on January 8, 2018, without adopting new regulations, at the same time the Commission did initiate a new proceeding to evaluate the resilience of the bulk power system in the regions operated by the Regional Transmission Organizations and the Independent System Operators (RTOs/ISOs).

In that order, the Commission said it hoped the new case would develop a common understanding of what resilience of the bulk power system means and requires, identify how each RTO and ISO assesses resilience, help the Commission evaluate whether it should take additional action regarding resilience. At the time, the Commission directed six regional transmission organizations and independent system operators to respond within 60 days, and solicited public comment within 30 days of the grid operators' due date.

The case has drawn interest. Last week, a coalition of energy industry trade associations filed a motion requesting an extension of time of 30 days for interested entities to respond to the RTO/ISO filings.

In an order issued on March 20, 2018, the Commission described the resilience of the bulk power system as "a priority of this Commission and a critical issue for the American people and for our economy and national security." Noting the importance of basing next steps on the best available information, including "a robust record and as much relevant information and thoughtful input as possible," the Commission extended the time for interested entities to submit comments under the January 8 Order by 30 days – to May 9, 2018.

US warns of Russian Government Cyber Activity Targeting Energy and Other Critical Infrastructure

The U.S. Department of Homeland Security has warned that for at least two years, Russian government cyber actors have targeted government entities and multiple U.S. critical infrastructure sectors, including the energy, nuclear, commercial facilities, water, aviation, and critical manufacturing sectors.

In a joint Technical Alert issued March 15, 2018 by the Department of Homeland Security's U.S. Computer Emergency Readiness Team (US-CERT) and the Federal Bureau of Investigation, the agencies warned of a "multi-stage intrusion campaign by Russian government cyber actors." The report follows an October 2017 alert by computer security firm Symantec of a re-emergence of a sophisticated cyber espionage group known as "Dragonfly."

According to the government agencies' report, the Russian cyber threat actors seem to have deliberately targeted specific organizations, as opposed to pursuing targets of opportunity. In an initial "staging" phase, the campaign used tools like malware, watering holes, and spear phishing to gain access to small commercial facilities' networks -- typically peripheral organizations like trusted third-party suppliers whose networks may be less secure. For example, the threat actors sent emails with malicious attachments appearing to be personnel resumes or contract documents. Clicking on links in the attachments exposed the victims to malware or data harvesting. In a subsequent phase, the threat actors made further use of the staging targets' networks as "pivot points and malware repositories" for use in targeting their final intended victims.

The report says that these Russian government cyber actors used this hacked access for network reconnaissance and collection of information pertaining to Industrial Control Systems (ICS). It describes multiple instances of threat actors accessing workstations and servers on corporate networks that contained data output from control systems within energy generation facilities.

Cyber security is now a significant concern, both domestically and abroad. A February 2018 report by the U.S. intelligence community described the targeting of national security information and proprietary information from US companies and research institutions involved with defense, energy, finance, dual-use technology, and other areas as "a persistent threat to US interests." Last month, U.S. electric grid reliability regulators imposed a $2.7 million penalty on an unidentified utility for its violations of mandatory reliability standards in connection with a data security breach -- the largest fine to date associated with U.S. utility cybersecurity regulation. In that case, a third-party contractor hired by the utility allegedly copied protected data from the utility's network to the contractor's unsecured network -- where it was accessible online without the need to enter a user ID or password, and where it was in fact accessed by one or more unknown outside entities.

In 2014, reports emerged that Russian hackers had found flaws in solar panel monitoring software that, if left unfixed, could allow malicious actors to damage the electric grid. Foreign state-sponsored cyber attacks in 2016 and 2017 against Ukraine and Saudi Arabia targeted multiple sectors across critical infrastructure, government, and commercial networks, causing disruption to Ukrainian energy distribution networks.

FERC disallows MLP pipelines' recovery of income tax allowance

U.S. energy regulators have revised their policies, and will no longer allow master limited partnership (MLP) interstate natural gas and oil pipelines to recover an income tax allowance in their cost-of-service rates. The Federal Energy Regulatory Commission issued its Revised Policy Statement on Treatment of Income Taxes following a 2016 federal court order addressing the topic.

At issue is the Commission's policy on how MLP pipelines may set their cost-based rates. As described by the Commission, an MLP is a partnership form in which units are traded on exchanges much like corporate stock. To be treated as an MLP for Federal income tax purposes, an MLP must receive at least 90 percent of its income from certain qualifying sources, including natural gas and oil transportation.

MLP pipelines are not corporations, but are pass-through entities. This means that MLPs are not taxed at the pipeline level; instead, for tax purposes, the partnership agreement allocates to each partner a share of the partnership’s taxable income, and each partner is personally responsible for paying income taxes on the partnership’s net taxable income.

From 2005 until a 2016 court ruling, the Commission's 2005 Income Tax Policy Statement allowed all partnership entities (including MLPs) to recover an income tax allowance for the partners' tax costs, much like a corporation receives an income tax allowance for its corporate income tax costs. Alongside this income tax policy, the Commission has used a discounted cash flow (DCF) methodology to determine the rate of return regulated entities need to attract capital.

In 2008, a pipeline MLP named SFPP, L.P. filed a cost-of-service rate increase to increase the rates for a line running between California and Arizona. Shippers protested the filed rates, including the interaction between (a) the Commission’s policy permitting an income tax allowance policy for partnership business forms (such as SFPP) and (b) the Commission’s DCF methodology used to determine a cost-of-service rate of return. The Commission eventually issued orders addressing issues in the case including the income tax allowance issue, which were challenged in court.

On appeal, in 2016 the United States Court of Appeals for the District of Columbia Circuit issued a decision known as United Airlines, Inc. v. FERC, 827 F.3d 122 (2016). In that case, the D.C. Circuit held that because both the partnership income tax allowance and the DCF ROE may include investors’ tax costs, permitting both may result in a double recovery, and remanded the case back to the Commission for further action.

This week, the Commission took that further action. It issued an order in the SFPP case denying that MLP an income tax allowance. More holistically, the Commission concurrently issued a Revised Policy Statement on Treatment of Income Taxes. In the revised policy statement, the Commission found that "an impermissible double recovery results from granting a Master Limited Partnership (MLP) pipeline both an income tax allowance and a return on equity pursuant to the discounted cash flow methodology."

NH revises, reopens C&I solar rebate program

New Hampshire utility regulators have reopened a program offering a rebate to commercial and industrial electric customers who undertake qualifying solar energy projects, while reducing the size of the incentive and changing other program terms.

To encourage commercial and industrial (C&I) customers to participate in solar photovoltaic and solar thermal energy projects, the New Hampshire Public Utilities Commission first approved a solar rebate program in 2010. That program disburses funds from the state's Renewable Energy Fund to customers in exchange for customers' development of qualifying solar projects.

Terms and conditions for New Hampshire's C&I solar rebate program have varied since 2010, and the amounts of rebates available under the program have generally decreased over time. In 2015, the Commission created two separate categories of eligible projects with different rebate rates: Category 1, consisting of solar electric and thermal systems rated less than or equal to 100 kilowatts (AC) or thermal equivalent, and Category 2 consisting of solar electric systems greater than 100 kilowatts (AC) but less than or equal to 500 kilowatts (AC).

A 2016 Commission order set program rebate levels at $0.65 per watt (AC) for Category 1 new electric projects, and $0.55 per watt (AC), but not in excess of $175,000, for Category 2 new electric projects, in each case subject to a limit of 25 percent of the total project cost if less than the incentive payment otherwise calculated.

But the program closed to new applications as of July 14, 2017, due to "record demand" and a lack of funds. Even the allocation of additional funds only reopened the program for waitlisted applications, while keeping it closed to new applicants.

On February 13, 2018, Commission staff recommended reopening the program, while modifying it to further reduce the applicable incentive levels and to consolidate Category 1 and 2 projects into a single program that would allow applications for projects with capacities up to and including 500 kW AC.

On March 8, 2018, the Commission issued its Order No. 26,111, modifying the solar rebate program's terms and reopening the program. The changes include reduction in the amount of the rebate to $0.40 per watt up to a maximum of $50,000, or 25 percent of total project cost, whichever is less; and consolidation of Category 1 and 2 photovoltaic projects into a single program that would allow applications for projects with capacities up to and including 500 kilowatts AC. No change was made to the program terms and conditions applicable to solar thermal projects.

Under the order, the modified program terms and conditions became effective on March 19, 2018, and the program was reopened as of that date. The Commission noted that in anticipation of "robust demand for and potential oversubscription of the reopened program," it will conduct a public lottery in April to allocate initial queue positions for applications.