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New Renewable RFOs in California on the Horizon

By accepting the renewable procurement plans of the various California utilities, the Commission has authorized the utilities to issue Request for Offers (“RFOs”) in mid-to-late December.   Shortlists must be submitted to the Commission in late March 2014.

Importantly, shortlisted bidders are no longer restricted to negotiating with only one utility.

Some bidding requirements have changed as well:

1) Bidders must have have completed the CAISO Generation Interconnection and Deliverability Procedures or the CAISO GIP Phase II studies (more restrictive than the previous requirement that the bidder have completed the CAISO GIP Phase I study).

2)Utilities may also now give preference to 1) larger projects (the 1.5 MW minimum was retained); 2) specific resources that fit their particular needs relating to location, delivery start dates, contract term and portfolio content.

For more information about the latest bidding requirements and schedule, please contact a DWT energy attorney.

FERC Approves Enforcement Settlement Regarding California Bidding Practices

From Partner Mark Perlis of our DC office:

FERC today approved an enforcement settlement agreement with JP Morgan, which requires JP Morgan to pay a civil penalty of $285 million and disgorgement of unjust profits of $125 million in connection with abusive bidding practices in the California Independent System Operator (“CAISO”) Day-Ahead and Real Time markets for generating units scheduled by JP Morgan under tolling agreements.

JP Morgan admits the bidding practices described in the FERC order and settlement agreement, but does not admit they constituted a violation of the Anti-Manipulation Rule, as found by the Commission and its enforcement staff.  The essence of the various bidding practices is that JP Morgan submitted uneconomic bids in the Day Ahead market for high heat rate generating units largely out of the money in expectation of inducing CAISO exceptional dispatch instructions that would qualify the units for make-whole bid cost recovery payments under then-applicable tariff rules.

FERC’s application of the Anti-Manipulation Rule to the described bidding practices is noteworthy because the bidding practices and dispatch responses appeared consistent with CAISO tariff rules and the company was taking advantage of bid cost recovery formulas that were entirely objective.

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FERC Relaxes Rules for Sales of Ancillary Services at Market-Based Rates

From energy partner Jim Mitchell of our DC office:

The Federal Energy Regulatory Commission has expanded the ability of owners of generation facilities to sell certain generation-related ancillary services needed by public utility transmission providers at market-based rates.  In its order, the FERC explained that it was doing so to foster competition and transparency in ancillary services markets.  The revised rules are expected to increase the supply of these services needed to meet regulatory requirements in regions in which region-wide organized wholesale electricity markets do not exist.  The revised rules, which were adopted in Third-Party Provision of Ancillary Services; Accounting and Financial Reporting for New Electric Storage Technologies, Order No. 784 will become effective 120 days after publication in the Federal Register.

In its landmark Order No. 888, which was issued by the FERC in 1996, the FERC required transmission operators to offer seven specified ancillary services that are associated with open access transmission service at cost-based rates. Transmission customers are required either to purchase those ancillary services from the transmission provider or to self-supply such services.  In Order No. 784, the FERC ruled that generators not affiliated with the transmission provider may offer some of these ancillary services to the transmission provider at market-based rates if certain conditions are met.

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Cap and Trade Auction Results Are In!

Every allowance that was offered in the auction was sold at a settlement price of $14.00 per allowance.   The highest bid price was $50.01 with the mean bid price $16.67 and the median bid price $13.49.  In total, the 2013 allowances sold at auction garnered $203,308,672.

Of the 9,560,000 allowances offered in the advance auction for 2016 vintage allowances, 7,515,000 were sold at a settlement price of $10.71 (equivalent to the auction reserve price).

Regional Greenhouse Gas Initiative to Lower Emissions Cap

As predicted earlier, the U.S. Northeast’s cap-and-trade program, RGGI (Regional Greenhouse Gas Initiative) will reduce its cap, which was above current pollution levels.  The inflated cap depressed the RGGI permit price for carbon credits to under $2, way below the projected $20-$30 (causing New Jersey’s Chris Christie to pull New Jersey out of RGGI).  The lower cap should stimulate interest and raise RGGI permit prices in the next auction.  The original cap was set at 2009 emission levels, with the expectation that emissions would grow.  However, emissions have dropped dramatically because of the use of natural gas and other efficiencies in the nine-state area, reducing the demand for the permits.

The full press release from RGGI can be found here: http://www.rggi.org/docs/PressReleases/PR130207_ModelRule.pdf

Qualifying Advanced Energy Project Program: IRS Announces Second Phase

DWT tax partner Pamela Charles reports:

The IRS has announced the second phase of the qualifying advanced energy project program to distribute the Section 48C tax credits that are available for reallocation now that the first phase of the program has been completed (see IRS Notice 2013-12).  To be considered for an allocation of credits in the Phase II program, taxpayers must submit concept papers to the U.S. Department of Energy by April 9, 2013 and applications to the DOE and IRS by July 23, 2013.

Qualifying advanced energy project credits are equal to 30% of the taxpayer’s qualified investment in a qualifying advanced energy project, which includes a project that re-equips, expands or establishes a manufacturing facility for the production of specified advanced energy property.  Specified advanced energy property includes property designed for use in the production of energy from sun, wind, geothermal deposits or other renewable resources, fuel cells, microturbines, energy storage systems, electric grids to support the transmission of intermittent sources of renewable energy, property designed to capture and sequester carbon dioxide, property designed to refine or blend renewable fuels or to produce energy conservation technologies, new plug-in electric drive motor vehicles or components and other property designed to reduce greenhouse gas emissions as may be determined by the IRS.

Pipeline Companies Look to Take Advantage of Natural Gas Produced from Shale

From Washington D.C. energy partner Barbara Jost:

The Tennessee Gas Pipeline Co. made a filing with the FERC proposing to transform one of its existing lean gas lines into effectively a gathering line to move wet gas from gas fields within the Utica Shale play to to-be-constructed processing facilities and then to market.  As Tennessee states in its filing, it wishes to take advantage of the emerging market for rich gas transportation and processing arising from the natural gas produced from the Utica Shale play located near the middle of its pipeline system in eastern Ohio, western Pennsylvania, and northern West Virginia.

FERC has noticed the filing in Docket No. RP13-464-000.  A substantial number of Tennessee’s pipeline customers have intervened and objected to Tennessee’s proposal, viewing this as adversely impacting the quality of their existing service with no real benefits to them.  It is likely that  a Technical Conference will be held at FERC in the near future to address these concerns.

Court Rejects Challenge to California’s Carbon Offsets Program

A California state judge in San Francisco has rejected a challenge to California’s carbon offsets program, ruling that regulators have the authority to include the mechanism in the cap-and-trade program for greenhouse gases.

San Francisco Superior Court Judge Ernest Goldsmith ruled Friday that the state Air Resources Board was authorized to use offset protocols under the guidelines set by AB 32.

PTC Update: IRS Plans to Release Guidance on Applying the “Begun Construction” Test

DWT tax partner Pamela Charles reports:

According to Tax Notes Today, the IRS discussed its plans to release guidance on applying the “begun construction” test for the production tax credit (“PTC”) at the American Bar Association Section of Taxation meeting in Orlando, Florida last week.  As reported in our January 2, 2013 blog post, this was one of the changes made to the renewable energy tax credit provisions by the American Taxpayer Relief Act of 2012.  The guidance is expected to provide parameters that taxpayers can rely on, while considering administrative burdens on the IRS and burdens on taxpayers.  The IRS recognizes this is an important issue and that there is a need for answers as soon as possible.

Rep. Waxman, Sen. Whitehouse & Rep. Markey Form Bicameral Task Force on Climate Change

From Craig Gannett of DWT’s Seattle office:

Rep. Henry Waxman (D-CA), Sen. Sheldon Whitehouse (D-RI), and Rep. Ed Markey (D-MA), today announced the formation of a bicameral task force on climate change.  Their letter essentially urges the President to aggressively pursue GHG emission reductions under existing law, implicitly recognizing that no new legislation is possible for at least the next two years (i.e., as long as the Republicans control the House).

To see the announcement live, click here.

To see the official press release, go to Rep. Waxman’s legislative page.

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