On June 9, 2020, the Federal Energy Regulatory Commission (FERC) issued a regulation precluding construction authorization for pipelines approved pursuant to Sections 3 and 7 of the Natural Gas Act (NGA) until FERC acts on the merits of any timely-filed requests for rehearing or the time for filing a rehearing request has expired.  Parties seeking to construct new interstate pipeline facilities likely will contend FERC’s regulation is overbroad and burdensome.  They may contend that it imposes unnecessary delays on the construction of critical energy infrastructure already approved by FERC and found to be in the public interest.  The regulation precludes the construction of the entirety of the approved pipeline regardless of whether the scope of the rehearing request includes all of the facilities. The regulation is linked to concerns that landowners will be subject to eminent domain actions, yet ostensibly bars construction activity regardless of the basis of the rehearing request, for instance regardless of whether the rehearing request has anything to do with the exercise of condemnation rights.  Pipelines may contend that the regulation is inconsistent with the NGA, federal policy supporting the construction of needed energy infrastructure, and a recent executive order directing federal agencies to support the economic response to the COVID-19 outbreak.
Continue Reading FERC Issues Regulation Prohibiting Construction of Newly Approved Natural Gas Pipeline Facilities Until Resolution of all Rehearing Requests

On May 28, 2020, the IRS proposed long-awaited regulations that address key areas of uncertainty in existing guidance for Internal Revenue Code Section 45Q (45Q) carbon capture and sequestration tax credits. Although some questions remain unanswered, the regulations are a significant step towards reducing regulatory uncertainty and fostering a functional market for 45Q credits. This article will focus on the regulations’ key takeaways for transaction structuring, while also highlighting technical clarifications of significant import for this nascent industry.
Continue Reading IRS Proposes Key Section 45Q Carbon Capture and Sequestration Regulations

On May 21, 2020, the Federal Energy Regulatory Commission (“FERC” or “Commission”) approved two orders by 3-1 votes revising its methods to estimate electric, natural gas and oil utilities’ returns on equity (“ROE”).[1]  Return on equity is one of the most contentious issues in cost-of-service proceedings before FERC, and FERC’s guidance is unlikely to alter that.  In many important ways, the guidance significantly deviated for electric utilities and pipelines, which raises a number of issues regarding whether such deviations are supported by each industry’s risks.
Continue Reading FERC Issues Revised Guidance Regarding Return on Equity Calculations

On May 1, 2020, President Trump issued Executive Order 13920 (“Executive Order”), which prohibited certain transactions involving bulk-power system electric equipment manufactured or supplied by persons owned by, controlled by, or subject to the jurisdiction of a foreign adversary that poses an undue risk of catastrophic effects on the security or resiliency of U.S. critical infrastructure or the national security of the U.S.  The Executive Order poses several potential problems for electric industry participants, particularly renewable generation owners, developers and investors, which will likely cause uncertainty in equipment procurement decisions.  The Executive Order and its potential issues are discussed below.
Continue Reading Securing the U.S. Bulk Power System: An Assessment of Executive Order 13920

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.

Continue Reading FERC Reaffirms Controversial Energy Capacity Decisions: Insights and Analysis

A Washington state federal court recently addressed claims relating to rates that cryptocurrency mining companies pay for electricity in Grant County, Washington. The court rejected all of the miner’s legal claims. The dispute focused on the rate classification that this utility applied to crypto miners as explained below.  Due to various risks, the electric utility assigned the miners to a newly created rate class referred to as “Evolving Industries,” resulting in a higher rate class for the miners.  The miners were I-“rate” with this decision.

Continue Reading Cryptocurrency Miners I“rate” At Energy Rate Decision

On Thursday, March 26, the United States Environmental Protection Agency (“EPA”) announced and issued a Memo establishing an agency-wide temporary enforcement policy suspending or staying a broad array of enforcement efforts for certain environmental regulations and requirements in response to the COVID-19 pandemic.  The Memo states that EPA recognizes that “the pandemic may affect facility operations and the availability of key staff and contractors and the ability of laboratories to timely analyze samples and provide results.”  In light of this, the Memo states that EPA will “focus its resources largely on situations that may create an acute risk or imminent threat to public health or the environment.”  The Memo establishes certain limits on the policy as well as procedures that must be followed – which are different in different circumstances – in order for an impacted regulated entity to qualify for relief under the Policy.

Continue Reading U.S. EPA’s Temporary COVID-19 Enforcement Discretion Policy

On February 20, 2020, the California Energy Commission approved its first community solar system under the 2019 Energy Code, which allows developers of new homes within Sacramento Municipal Utility District (“SMUD”) to meet mandatory solar energy system requirements through solar agreements with SMUD instead of installation of solar panels on new homes.

Continue Reading California Mandatory Solar Update: First Community Solar Program Approved by California Energy Commission

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.

Continue Reading Walking the Path of Utilities’ Ownership of Wind and Solar