FERC announced actions in response to the 2017 tax reform legislation and a revised income tax policy, which eliminates the income tax allowance for Master Limited Partnerships. Regulated entities should ensure that they comply with FERC’s orders regarding the treatment of income taxes and consider whether to file comments on the proposed rulemaking and notice of inquiry.
Jessica Bayles focuses her practice on energy regulatory matters. She counsels energy-industry clients in regulatory, compliance and enforcement matters concerning the Federal Energy Regulatory Commission (FERC) and represents energy companies in regulatory litigation proceedings before FERC. Jessica has counseled energy and marketing companies on negotiation of energy trading agreements, power purchase agreements, renewable energy credit agreements, and other energy agreements and issues. Read Jessica Bayles full bio.
On October 31, 2017, the US International Trade Commission (ITC) released its recommendations to impose a tariff on imported solar equipment. The proposals it issued, however, would result in duties substantially lower than those sought by the petitioners. The ITC’s four commissioners issued several remedy recommendations, including, at the high end, a 35 percent tariff on imported solar modules and a 30 percent tariff on solar cells. This would result in an estimated 10-13 cent per watt increase on imported solar panels, far below the tariff levels requested by the petitioners.
In May, Suniva, a US solar cell manufacturer, filed a petition at the ITC requesting relief from foreign imports. The petition alleged that a global imbalance in supply and demand in solar cells and modules and a surge of cheap imports caused serious injury to the domestic solar manufacturing industry. SolarWorld, another US manufacturer, joined the petition and the ITC instituted an investigation. Suniva and SolarWorld requested a 32 cent per watt tariff on crystalline silicon photovoltaic (CSPV) cells, and Suniva sought a price floor on solar panels of 74 cents per watt.
While US solar manufacturers argued in favor of imposing duties on foreign imports, others like the Solar Energy Industries Association (SEIA) have opposed the petition, arguing that it poses a major threat to the 260,000 US workers in the solar industry. Specifically, SEIA argues, the higher cost of panels would lead to decreased demand and make solar energy less competitive in the United States, costing jobs in solar installation and other areas of the solar industry. Solar manufacturing accounts for approximately 38,000 jobs in the United States while solar installation accounts for over 137,000 jobs.
In September, the ITC found injury to the US solar equipment manufacturing industry. Since that finding, the ITC has been working on the remedy phase of the proceeding.
The commissioners issued three separate sets of recommendations. One recommendation proposes, among other things, imposing tariffs of up to 30 percent on imported CSPV cells and a 35 percent tariff on imported CSPV modules, each of which would be incrementally reduced over four years. A second proposal recommended imposing a 30 percent tariff rate on imports of cells exceeding 1 gigawatt, decreasing by five percentage points and increasing the in-quota amount increase by 0.2 gigawatts each year over a four year period, as well as a 30 percent tariff on modules that would be phased down by five percentage points each year. The third proposal recommended a quantitative restriction on cells and modules starting at 8.9 gigawatts in the first year, increasing by 1.4 gigawatts each subsequent year.
The ITC will forward its report, which contains its injury determination, remedy recommendations, additional findings, and the bases for each, to the President by November 13, 2017. The President must make a final decision on whether to impose a remedy and what that remedy should be by January 12, 2018.
The New York Public Service Commission (NYPSC) approved an order on March 9 that will shift the state’s mechanism for compensating distributed energy resources from retail rate net metering to value-based compensation. The order is the next step in New York’s broad Reforming the Energy Vision (REV) plan and was praised by environmental groups and solar advocates for both preserving existing net metering (NEM) benefits for residential and small commercial customers and boosting benefits for community solar. New York’s move away from net metering follows a hard-fought compromise in Arizona that will move Arizona away from net metering as well.
The New Value Stack Tariff
The order created a new Value Stack tariff intended to more accurately reflect the value of distributed generation renewable resources. The Value Stack tariff will set forth a mechanism to compensate distributed energy resources based on the value of the products the resources provide: energy, capacity, environmental attributes, and demand reduction and locational system relief. The value of the environmental attributes will be the higher of the latest Tier 1 REC procurement price published by NYSERDA or the Social Cost of Carbon (as calculated by the US Environmental Protection Agency). Eligible projects will be entitled to receive compensation for 25 years from their in-service date. The Value Stack tariff will be available for all technologies and projects that are currently eligible for NEM.
All projects interconnected to the grid in New York prior to March 9, 2017, will continue to receive NEM compensation under existing tariffs. Additionally, new wind projects will be eligible to receive existing NEM rates until the existing statutory cap under NY Public Service Law § 66-1 is reached. Projects operating under existing NEM compensation are eligible to opt-in to the Value Stack tariff.
A transitional “Phase One” NEM tariff will be available to residential and small commercial service class customers interconnected before January 1, 2020. The Phase One NEM tariff is identical to the current NEM tariff, except that projects will be compensated for a term of 20-years from their in-service date and will have the ability to carry-over excess credits to subsequent billing and annual periods. Service under the Phase One tariff will be subject to a MW capacity allocation for each utility. Phase One NEM will also be available to certain projects that interconnect or pay 25 percent of interconnection costs by June 7, 2017. This option is available to remote net metered projects (residential and nonresidential farm operations), large on-site projects (non-residential demand-based or mandatory hourly pricing customers), and community distributed generation projects, which is expected to provide a boost to community solar in New York.
Phase Two of the REV is expected to refine the methodology for calculating the components of the Value Stack compensation. Thursday’s order included compensation for energy storage paired with an eligible resource. Future orders are expected to address stand-alone storage facilities.
The Arizona Public Service Co. (APS) and solar industry representatives and advocates have reached a settlement on rooftop solar compensation and rate design, following years of heated policy debate. The settlement, which the Arizona Corporation Commission (ACC) is expected to vote on this summer, required compromise from both sides on a variety of issues.
Future Rate Design
The settlement nixes APS’s request for a mandatory demand charge on all residential and small business customers. Instead, the settlement gives new solar distributed generation customers the option to choose between a time-of-use or demand-based rate. Under the settlement, APS would compensate solar customers with an export credit rate of 12.9 cents per kWh. APS initially proposed to cut compensation from the retail rate, which is approximately 13 to 14 cents per kWh, to the wholesale rate, which is only 3 cents per kWh. The export credit rate will decrease by up to 10 percent annually. However, customers will be able to lock in their rates for 10 years, providing some long-term certainty.
Current Net Metering Customers
The settlement will preserve existing net metering benefits for distributed generation customers who file an interconnection application before the ACC issues a decision in the case. Those customers will be grandfathered in and continue to receive the full retail rate for a period of twenty years from the date of interconnection.
The settlement allows APS to invest $10 to $15 million per year in AZ Sun II, a new program for utility-owned rooftop solar for low- to moderate-income customers. The agreement puts a moratorium on new self-build generation by APS until 2022, excepting distributed generation, microgrids, and renewable generation.
The settlement moves Arizona away from retail rate net metering and towards value-based solar rate design. While solar advocates do not believe the settlement fully recognizes the value of solar, the settlement preserves benefits for existing customers and allows the state’s solar industry to move forward with more certainty. APS, industry representatives, and many solar advocates committed to stand by the settlement agreement and refrain from seeking to undermine it through ballot initiatives, legislation or advocacy at the ACC.
Two environmental organizations, Environmental Defense Fund (EDF) and Natural Resources Defense Council (NRDC), have weighed in to defend the legality of New York State’s Zero Emissions Credit (ZEC) program in ongoing litigation concerning that program. This blog is tracking the ongoing litigation and this article summarizes the arguments made by EDF and NRDC in their recent filings.
The ZEC program, which was approved by the New York Public Service Commission (NYPSC) in August 2016, compensates eligible facilities for the zero-emissions attributes of produced nuclear energy through long-term contracts with New York State Energy Research & Development Authority (NYSERDA) for the purchase of ZECs. New York’s load-serving entities are required to purchase those ZECs from NYSERDA in proportion to their share of statewide load. The NYPSC determined that New York’s FitzPatrick, Ginna and Nine Mile facilities were eligible to participate in the ZEC program.
In October 2016, various electric generators in New York and surrounding states filed a complaint against the NYPSC in federal court, asserting that the ZEC program intrudes on the exclusive authority of the Federal Energy Regulatory Commission (FERC) by “effectively replacing the [wholesale electricity market] auction clearing price” received by the nuclear facilities with a higher price and thus artificially suppressing wholesale electricity prices in the New York market. The NYPSC and the owners of the New York nuclear facilities moved to dismiss the complaint in December and both EDF and NRDC recently filed briefs in support of the motions to dismiss.
The environmental organizations (like the NYPSC) deny that the ZEC program intrudes on FERC’s authority. They argue that the program compensates the nuclear power providers for the environmental attributes of their electricity, rather than sets wholesale electricity prices. The environmental organizations’ support stems from the similarities between the ZEC program and renewable energy credits, which are a key component of many state renewable energy programs and might be threatened by a judicial opinion extending FERC’s exclusive jurisdiction to the sale of unbundled environmental attributes.
The outcome of litigation over New York’s ZEC program will likely have impacts outside New York. In Illinois, the recently enacted Future Energy Jobs Bill establishes a Zero Emission Standard program that utilizes the same framework to support nuclear generation facilities in Illinois. Illinois and other states considering such programs will be watching the outcome of the litigation in New York to determine whether and how to implement their own programs to support struggling nuclear facilities.
Last week’s article discussed New York’s Zero-Emissions Credit (ZEC) for nuclear power. The ZEC is one component of New York’s Clean Energy Standard (CES). The other major component of the CES is the new Renewable Energy Standard (RES). In the RES, the New York Public Service Commission (PSC) formally adopted the goal set by Governor Cuomo in December 2015: 50 percent of all electricity used in New York by 2030 should be generated from renewable resources. This goal builds on the State’s previous goal of achieving total renewable generation of 30 percent by 2015.
The RES consists of a Tier 1 obligation on load-serving entities (LSE) to support new renewable generation resources through the purchase of renewable energy credits (REC), a Tier 2 program to support existing at-risk generation resources through maintenance contracts, and a program to maximize the potential of new offshore wind resources.
The goal of the RES is to reduce carbon emissions and ensure a diverse generation mix in New York. The state’s existing nuclear facilities, supported by the ZEC program, will close in 2030 (absent a renewal of their licenses) and the RES aims to ensure that the electricity provided by those units is replaced with new renewable resources.
The New York Public Service Commission’s (PSC) Clean Energy Standard (CES), adopted in August, includes a new emissions credit—the ZEC. The ZEC, or zero-emissions credit, is the first emissions credit created exclusively for nuclear power.
The ZEC is the result of a highly politicized effort to support New York’s struggling nuclear power plants. New York’s four nuclear plants account for 31 percent of the state’s total electric generation mix. According to the PSC, “losing the carbon-free attributes of this generation before the development of new renewable resources between now and 2030 would undoubtedly result in significantly increased air emissions due to heavier reliance on existing fossil-fueled plants or the construction of new gas plants to replace the supplanted energy.” The ZEC Program is intended to keep the state’s nuclear plants open until 2029 and provide an emissions-free bridge to renewable energy.
Property assessed clean energy (PACE) programs are an innovative mechanism for financing energy efficiency and renewable energy improvements on private property. They also present a number of challenges to investors—for one, the variance between different programs (even within a particular state) and an understanding as to how particular programs work remains an impediment to investors and to scalability. This post provides a brief overview of PACE programs generally and one particularly popular PACE program – CaliforniaFirst.
Overview of PACE
PACE programs vary by state, but most allow property owners to finance clean energy projects through a voluntary property assessment paid as a line item on their property tax bills. Thirty-two states and the District of Columbia have enacted PACE-enabling legislation and there are active PACE programs in 19 states and the District of Columbia. While most of these states provide financing for commercial PACE projects, only California, Missouri and Florida have active residential PACE programs.
CaliforniaFirst PACE Program for Commercial Property
The CaliforniaFirst PACE program is one of 12 PACE programs active in California and is available for both residential and commercial real property. CaliforniaFIRST is offered by the California Statewide Communities Development Authority (CSCDA) and is currently available in more than 40 California counties, with over 330 participating local governments.
Using the CaliforniaFirst PACE program (Program), commercial property owners can work directly with a clean energy developer and the CSCDA. The developer agrees to install the clean energy project and provide power to the property owner through a power purchase agreement or lease. The property owner pays for the project through a contractual assessment, which appears as a line-item on the property tax bill.
The CSCDA secures the payments through a notice of assessment recorded on the property title. The contractual assessments have priority over any existing mortgage lien. If the property owner sells the property, the repayment obligation remains an obligation of the property. The Program’s underwriting criteria focuses primarily on the relevant payment history and value of the property. The clean energy project must have an effective useful life of at least five years and only new systems can be financed through the Program. The Program is administered by a third-party administrator (Renewable Funding LLC).
As an “interim financing mechanism,” CSCDA and a clean energy developer would typically enter into an assignment and assumption agreement under which CSCDA assigns its rights to receive the contractual assessments to the clean energy developer in exchange for the clean energy developer assuming CSCDA’s financing obligations under the assessment contracts, plus certain specified costs. The assignment term is expected to last three years. On or prior to the end of the assignment term, CSCDA issues bonds to the clean energy developer in exchange for the property tax assessments that were assigned to the clean energy developer. The principal amount, maturity date, amortization and interest rates of the bonds are designed, in the aggregate, to produce cash flows that replicate the principal and interest components of the contractual assessment installments.
From an investor point of view, PACE payments are a senior benefit assessment lien on the property, and a new owner of the property would inherit the solar PV benefits and the PPA/lease payment obligation though the PACE program. In the event of a default, the remedies are fairly strong—for instance, CSCDA has the right to have the delinquent installment and its associated penalties and interest removed from the secured property tax roll and immediately enforced through a judicial foreclosure action. In the event of foreclosure, the proceeds of the foreclosure sale would be used to pay any delinquent amounts and future installments would become the responsibility of the purchaser.
Considerations for Investors
By statute, the owner of the renewable energy improvement is not permitted to remove the improvement from the property prior to the end of the assessment term. Investors should be aware that in the event of payment default they will not have the ability to seize the improvement and will need to rely on the public agency to foreclose on the property. Additionally, the public agency in charge of the PACE program is a third party beneficiary with respect to the power purchase agreement or lease until the assessment lien is fully repaid and also has consent rights over any amendments to the customer agreement. Therefore, it may be difficult for a developer or financing entity to revise a power purchase agreement or lease once it is in place.
PACE programs are likely to attract more investors and commercial property owners as they become more widely available and clean energy developers become more experienced working with them. We’ve highlighted the basics of the CaliforniaFirst program for commercial property, but investors, property owners and developers should ensure that they understand the regulatory nuances of the particular program in their area.
The Federal Energy Regulatory Commission (the Commission) issued an order on Thursday, March 19, 2015, refusing to allow the abandonment of certificated working gas capacity when the reason for the request was unrelated to the physical characteristics of the storage facility and unsupported by engineering or geological data. The applicant had sought the abandonment authorization for the sole purpose of reducing its lease payments, which are largely based on the certificated working gas capacity of the facility.
The order, Tres Palacios Gas Storage LLC, 150 FERC ¶ 61,197 (2015), was issued following an application by Tres Palacios Gas Storage LLC (Tres Palacios) for authorization to abandon a significant amount of its certificated working gas storage capacity in a salt dome storage facility in Matagorda and Wharton Counties, Texas. Tres Palacios claimed that abandonment was justified because market conditions were such that it could not sell the capacity at rates that it considered acceptable.
In denying the application, the Commission ruled that Tres Palacios’s request was inconsistent with Commission policy, which requires specific facility parameters for each cavern, such as cushion gas capacity, working gas capacity and minimum pressures, and was inconsistent with Tres Palacios’s certificate authority, which authorizes specific parameters for each cavern. In addition, the Commission explained that no geological or engineering data was submitted to support the change. The order reaffirmed that certificated capacity is based on the physical attributes of a facility and that certificated working gas capacity is “unrelated to the amount of working gas capacity the storage company is able to sell.”
Karol Lyn Newman and Jessica Bayles represented the lessor, Underground Services Markham, LLC, in the proceeding before the Commission.
The U.S. Environmental Protection Agency (EPA) issued a proposed rule on September 5, 2014 that would prevent states from including affirmative defenses in their Clean Air Act state implementation plans (SIPs) for emissions exceedances that occur during startup, shutdown and malfunction (SSM) periods. The proposal would also require several states to revise their existing SIPs so as to conform with EPA’s new approach to affirmative defenses.
EPA’s proposal modifies an earlier February 2013 proposal and arises from a Sierra Club petition asking EPA to revise roughly 40 different SIPs. Under the new proposal, EPA would largely grant Sierra Club’s petition rather than granting it only as to certain types of affirmative defenses, as EPA had previously proposed. A list of the states affected by the proposed rule can be found on EPA’s rulemaking website. If the rule is finalized as proposed, those states will have 18 months from the date of the final rule to submit revised SIPs.
EPA has long allowed the use of affirmative defenses in SIPs, with at least one court holding that it has the authority to do so. But in April of this year, the D.C. Circuit held that the plain language of the Clean Air Act prohibits EPA from including affirmative defenses in its own non-SIP regulations under Clean Air Act Section 112. EPA’s September 5 proposal extends the logic of that decision to the SIP context. But regulated parties should also be aware that the new proposal provides a good illustration of EPA’s “Next Generation Compliance” initiative in action. The proposal is consistent with the agency’s stated desire to simplify its regulations by reducing the number of exceptions contained in those regulations.
Regulated parties may fear that under EPA’s new proposal they will be unduly penalized for emissions exceedances caused by events beyond their control. They can take some comfort in understanding that even without affirmative defenses, the Clean Air Act’s penalty provisions do allow the agency and the courts some discretion in setting penalty amounts. Thus, going forward, facility owners that experience an emission exceedance because of events beyond their control can still argue, on a case-by-case fact-specific basis, that it would be inappropriate to impose any penalties.
Comments on EPA’s proposal are due by November 6, 2014, and, under the terms of a settlement agreement with Sierra Club and WildEarth Guardians, EPA is required to issue a final rule by May 22, 2015.