FERC, CFTC, and State Energy Law Developments

The IRS proposed a draft rule on May 28 covering the qualification for carbon capture and sequestration tax credits under Section 45Q of the Internal Revenue Code. The proposed regulations could provide financial benefits to energy projects that will enhance the spread of that technology and the reduced carbon release that it promises.

The US Department of the Treasury issued a letter on May 7 stating that it plans to modify the continuity safe harbor for both the production tax credit (PTC) and the energy investment tax credit (ITC). Under the current law, taxpayers seeking to claim a PTC for electricity produced from qualifying facilities or an ITC for qualifying energy property must generally begin construction on the qualifying facility or property by specified dates.

To be considered to have begun construction, the taxpayer must start physical work of a significant nature, or must satisfy the safe harbor requirements by incurring 5% or more of the total cost of the facility or property. The taxpayer must then demonstrate continuous efforts to complete construction, and must place the facility or property in service within four years to meet the requirements for a continuity safe harbor.

Nevada became the sixth state to adopt an energy storage procurement goal on March 12. The Public Utilities Commission of Nevada (PUCN) adopted a regulation in Order No. 44671 that establishes biennial energy storage procurement goals of 100 MW by December 31, 2020, and increasing to 1 GW by 2030. The new regulation is consistent with a 2018 Brattle Group study commissioned by the PUCN that determined a 1 GW level of deployment by 2030 would be cost-effective for Nevada. Nevada utilities will now have to include a plan to meet the biennial storage targets as part of their integrated resource plans and submit progress reports to the PUCN starting in 2022. NV Energy is already on track to meet those targets with the utility’s plans to bring nearly 1.2 GW of new solar energy projects to Nevada and an additional 590 MW of energy storage capacity by 2024. 

Our colleagues in the tax practice prepared a LawFlash examining the Internal Revenue Service’s new guidance on the federal income tax credit for carbon capture projects under Section 45Q of the Internal Revenue Code of 1986.

Read the LawFlash.

In November 2019, New Jersey Governor Phil Murphy issued Executive Order 92 increasing the state’s offshore wind generation goal from 3,500 MW by 2030 to 7,500 MW by 2035. To date, the New Jersey Board of Public Utilities (BPU) has approved only one 1,100 MW offshore wind project, but is expected to conduct additional solicitations in 2020 and 2022 and approve approximately 2,400 MW of additional offshore wind generation.

A notice of proposed rulemaking (NPRM) titled, “Update to the Regulations Implementing the Procedural Provisions of the National Environmental Policy Act,” published today by the White House’s Council on Environmental Quality (CEQ), is likely to have far-reaching effects for the energy and public infrastructure sectors, and could facilitate more efficient implementation of energy production/generation projects for all major energy sources (i.e., renewable, fossil, nuclear, and hydroelectric sources) as well as transportation projects.

The proposed rule has four major elements: (1) to modernize, simplify, and accelerate the NEPA process; (2) clarify terms, application, and scope of NEPA review; (3) enhance coordination with states, tribes, and localities; and (4) reduce unnecessary burdens and delays.

It will be important for industry entities that depend on federal agency action when advancing projects and securing permits to actively participate in the proposed rulemaking, and to provide meaningful comments that will help the CEQ build a sufficient agency record to defend against any later litigation challenges to new regulations.

Read the full LawFlash.

The Federal Energy Regulatory Commission (FERC) on December 19, 2019, directed PJM Interconnection to extend its minimum offer price rule (MOPR) from new natural gas–fired electric generators to also cover any generator that receives or is entitled to receive certain types of state subsidies. The rule aims at preserving competitive capacity auctions by preventing resources that receive subsidies from submitting bids that would otherwise be uneconomical—and therefore likely to “capture” a PJM capacity award based on a below-market capacity rate—if not for state support. The order means that existing or planned resources that expected to clear capacity markets with rates made economical by state subsidies will have to identify alternate strategies to generate revenue; so too will states seeking to promote the development or prevent the retirement of preferred but noncompetitive resources.

FERC issued guidance on October 17, 2019, that may significantly aid hydroelectric developers in planning and siting potential projects. FERC issued a list, jointly developed with the secretary of the US Army, secretary of the US Department of the Interior, and secretary of the US Department of Agriculture (collectively, the Secretaries), of 230 existing nonpowered federal dams that FERC and the Secretaries agree have the greatest potential for nonfederal hydropower development. FERC also issued guidance to assist applicants for licenses or preliminary permits for closed-loop pumped storage projects at abandoned mine sites. These actions fulfill FERC’s requirements under the America’s Water Infrastructure Act of 2018 (AWAI) and are intended to encourage development of renewable energy resources by developing hydroelectric power at sites where the addition of hydroelectric capabilities would not add significant additional environmental impacts.

Morgan Lewis energy partner Ken Kulak takes a look at the role of regulation in defining the future of energy storage in Energy Policy Now, a podcast produced by the University of Pennsylvania Kleinman Center for Energy Policy. Ken also previews an upcoming FERC meeting during which the agency will consider plans submitted by regional transmission organizations to facilitate the participation of battery storage.

Listen to the podcast episode >

Interest in microgrids is on the rise in the United States as over half of states explore ways to modernize the grid and promote distributed energy resources (DER), including innovative renewable energy, storage, and demand response technologies. However, microgrids are not defined by law or regulation in most states and are more complex than other types of DER because they involve both the generation and distribution of energy. This raises several policy questions, including who should pay for microgrid development and use and whether microgrid operators that technically distribute energy to retail customers should be classified as public utilities and subject to regulations ordinarily imposed on such entities. California is currently exploring the potential benefits of microgrids and the role of state regulation.