The Year Ahead in Energy and Environmental Law: Energy

While federal cap and trade legislation may be bogged down in the Senate, both the federal and state governments have moved ahead with the energy components of climate change legislation, including incentives to encourage development of more renewable energy resources, and the transmission grid necessary to incorporate these new resources. Proponents argue that alternative energy resources are needed to reduce the country’s dependence of foreign oil and to meet future energy demand.

Renewable Electricity Standards

Renewable Electricity Standards (“RES”), already established in many states and included in the House-passed energy and climate change bill, mandate that utilities replace some portion of their carbon-based energy with renewable energy.[1]

The House passed a RES as part of the Waxman-Markey bill in June 2009, known as the American Clean Energy and Security Act, or “ACES.” ACES would require utilities to obtain 15 percent of their electricity from renewable sources by 2020, and to meet demand for an additional 5 percent through conservation and energy efficiency.[2] The Senate’s version, known as the Kerry-Boxer bill, is currently stalled in Congress. It contains a slightly less aggressive target, requiring a mix of 15 percent renewables by 2021, but allowing approximately one fourth of that requirement to be met by energy efficiency. Existing state programs require utilities to purchase even more — as much as 33 percent of their fuel from renewables by 2020 in California, and 25 percent by 2013 in New York.[3]

Federal Energy Legislation

While comprehensive climate change legislation remains elusive, some of the energy components of ACES and the Kerry-Boxer bill could be stripped out and enacted separately. A bill to watch is the American Clean Energy Leadership Act (“ACELA,” S.1462), sponsored by Senator Bingaman (D-NM), Chairman of the Senate Energy and Natural Resources Committee. ACELA is in many ways a very similar bill to ACES, with stronger energy provisions and carbon regulation removed. Like ACES, the bill would provide funding incentives for deployment of clean energy technologies, impose a national renewable electricity standard, establish energy efficiency programs and promote smart grid technologies. In other respects, ACELA goes beyond ACES – for example more robust support for nuclear power and provisions for oil and gas development.[4]

Other incentives for promoting clean energy technology are likely to be provided even without federal legislation. On January 8, 2010, $2.3 billion in Qualifying Advanced Energy tax credits[5] were awarded, and Senator Bingaman (D-NM) has introduced a proposal to add another $2.5 billion in funding for similar projects.

Transmission Siting

Whatever the coming mix of America’s energy sources, additional transmission investments will be required to connect generation with load centers. In 2010 there are likely to be further legislative and administrative initiatives concerning – and challenges to – the development of electric power transmission lines.

The interconnection of renewable resources, particularly wind and solar,[6] will be a focus in 2010. The existing transmission grid is inadequate to integrate such resources either because of congestion in the existing corridors where the projects exist or will be developed, or because of a lack of transmission capacity between areas where solar and wind generation projects seem most promising, and load centers. Federal legislation has been proposed to overcome some of the hurdles faced in siting such lines.[7] Meanwhile, state and federal agencies have begun tackling the problem for themselves.[8]

States, meanwhile, have tended to resist a greater federal role by FERC in transmission siting. In 2009, several states successfully challenged FERC’s authority to authorize “national interest” transmission projects to go forward after they had been rejected under state siting authority statutes.[9] The states of Oregon and Washington have challenged FERC’s orders for siting the Bradwood LNG facility and the State of Oregon has announced that it will challenge FERC’s recent order approving the Jordan Cove LNG facility. Thus, even where Congress has intended some form of backstop federal authority to assure adequate energy supplies, the states have shown a willingness to challenge the projects on environmental grounds.

Meanwhile, reductions in demand projections driven both by the national economic downturn and gains in efficiency and conservation programs may delay some transmission projects. The fates of two similar proposals in the mid-Atlantic region exemplify the changing landscape. In 2007-08, high demand projections lead to the approval of the PA-WV-VA 500 kV Trans-Allegheny Interstate Line (“TrAIL”). However, proponents of TrAIL’s sister project, the PA-VA-MD 765 kV Potomac-Appalachian Transmission Highline (“PATH”), recently withdrew their application citing falling demand projections.

Oil and Natural Gas Development

Two trends appear likely in the oil & gas sector in 2010. The first is continued growth in the unconventional natural gas sector. The second is increased consideration of proposal for expanding offshore oil & gas exploration.

The level of interest in unconventional gas was demonstrated in late 2009 when Exxon announced it would acquire XTO Energy, the second largest natural gas producer in the U.S, primarily because of its expertise in developing unconventional gas sources.[10] Horizontal drilling and hydraulic fracturing have been key to the last decade’s growth in unconventional natural gas production. The largest existing players are the Barnett Shale in Texas, the Haynesville Shale in Texas and Louisiana, and the Fayetteville Shale in Arkansas. There has been recent growth in Colorado, and there is strong interest in the Marcellus Shale that underlies West Virginia, Pennsylvania, Ohio and New York.[11]

With growth in this sector, and particularly its expansion in Colorado and its move into the Appalachian region’s Marcellus Shale, have come increasing public expressions of concern about potential environmental impacts. Bills have been introduced in Congress to regulate hydraulic fracturing under the Safe Drinking Water Act.[12] There have been allegations of surface water contamination from spills of chemicals or mixtures used in the fracturing process.[13] An EPA investigation into the practice resulting in a 2004 report that concluded that hydraulic fracturing posed little or no threat to drinking water sources.[14] But a provision requiring a new EPA study was inserted into the agency’s fiscal year 2010 appropriations bill, apparently at the request of a New York Congressman concerned about development of the Marcellus Shale.[15]

Expanded federal offshore oil & gas leasing has been mentioned as a potential element of climate change legislation in the Senate.[16] One of the first acts by the incoming Obama Administration was to extend the public comment period on the federal five-year offshore oil & gas leasing plan proposed by the outgoing Bush Administration by 180 days (to September 21, 2009).[17] The Bush plan called for new leases in four areas off Alaska, two areas off the Pacific coast, three areas in the Gulf of Mexico, and three areas off the Atlantic coast,[18] following the lifting of a more than 20-year moratorium on leasing off the Atlantic and Pacific coasts. Presumably Interior Secretary Salazar will announce a less ambitious federal leasing plan some time in 2010.

The year 2010 may see the first exploratory wells in the Chukchi Sea, off Alaska’s Northwest coast, since the 1980s. EPA recently began a second public comment period on an air permit for Shell Oil’s exploratory drilling on Chukchi leases, which Shell hopes will be finalized in time for summer 2010 operations.[19] Potential litigation could still disrupt this effort. Shell’s 2007 plans to explore offshore leases in the Beaufort Sea, just north of the Prudhoe Bay oil fields, were frustrated by the 9th Circuit, which held up permits until 2009 and then ruled that environmental reviews had been inadequate.[20]