The “Green New Deal” Didn’t Hit Texas

Governor Abbott of Texas has blamed the Green New Deal for the prolonged power outages caused by the extreme cold and snow/ice conditions that have descended on his state.

Nope.

The Green New Deal is not legislation. It’s nothing more than a 2019 U.S. House of Representatives resolution. Beyond that paper resolution, it doesn’t exist.

Mad Magazine, the comic book, used to run a section called “Things We’d Like to See,” and the magazine would have some parody cartoons of then-current events. The Green New Deal is just a set of “things the U.S. House of Representatives would like to see” in energy and the environment. Granted, an H of R resolution is more serious than Mad Magazine, but the Green New Deal has about the same degree of reality. So, no, the Green New Deal did not do harm to Texas.

Even if some sort of Green New Deal had been passed, it would not have applied to the Texas electric grid. Texas is the grid’s version of an island; its electric system is all intrastate and subject only to Texas, not federal jurisdiction.

Texas had similar cold-induced power outages ten years ago. The feds studied those events and recommended that Texas harden its generation, transmission and distribution infrastructure for cold weather. But those recommendations had no binding effect on Texas. Maybe Texas will now put those recommended improvements in the category of “things we’d like to see.”

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Merchant Transmission and its Discontents

 

Thomson Reuters has published my article, “Merchant Transmission and its Discontents,” in the current issue of the International Energy Law Review, [2019] I.E.L.R. 35.

While FERC has sought to encourage merchant transmission development in a manner similar to that in which it encouraged merchant generation, the merchant transmission concept is beset with internal contradictions that radically limit its practical implementation.

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Duking It Out Over FOIA and Grid Cybersecurity

The Freedom of Information Act (5 U.S.C. 552) was originally enacted in 1966, and has been amended a few times since. The U.S. Supreme Court has said that “[t]he basic purpose of FOIA is to ensure an informed citizenry, vital to the functioning of a democratic society, needed to check against corruption and to hold the governors accountable to the governed.” NLRB v. Robbins Tire & Rubber Co., 437 U.S. 214, 242 (1978). There are, however, nine exemptions, including three related specifically to law enforcement, under which the federal government can withhold information that would otherwise be disclosed under the FOIA.

At federal agencies today, and particularly at the Federal Energy Regulatory Commission, those exemptions from disclosure have been so broadly construed that one can say with reason that FOIA has been administratively repealed. Instead of starting with a policy of full disclosure, from which certain specific categories of information are carved out, federal agencies instead start with St. Peter’s maxim: they’d rather cut off their left hand than allow it to obtain information about their right. Imagine being at the British Admiralty circa 1906 and receiving a request from Kaiser Wilhelm for a complete set of plans for the H.M.S. Dreadnought. That will give you an idea of the view contemporary federal agencies take toward FOIA requests.

Like water in a state of nature, less interesting work in a bureaucracy always flows downhill, where it is handled by persons of lower seniority and even less authority. This leads to over-classification of agency materials as top secret and exempt from FOIA. After all, if you’ve been at your agency job for four years or less and your responsibilities include responding to FOIA requests, why would you release something and risk your superior’s ire, if not your job? Better to pick out an exemption or two from the FOIA menu and send back a response of

REQUEST DENIED

Of course FOIA provides for remedies to obtain disclosure, and those often work for large media companies and the like. But for the vast majority of Americans who lack the resources to commence a FOIA enforcement action in federal district court, those remedies are worse than useless. They’re a cynical joke played on the American people.

Now we have another FERC FOIA dust-up. The North American Electric Reliability Corporation (NERC) submitted to FERC a Notice of Penalty against an electric utility for 127 cybersecurity violations between 2015 and 2018. The company agreed to pay a record-setting $10 million fine its cybersecurity violations. According to some reports the utility is Duke Energy, though that hasn’t been officially confirmed. FERC doesn’t want to publicly release the name of the electric utility.

Why shouldn’t the public be able to know whether their utility is the one that’s risking the reliability of their electricity supply and distribution system because they’re unable to get their cybersecurity act together? These violations, and the $10 million fine, are the fault of the utility’s management, not its ratepayers. Shouldn’t the ratepayers be allowed to know whether their utility is going to try to pass this cost onto them through rates?

Public Citizen, a watchdog group, has demanded that FERC disclose the utility’s name. They have stated that

“Concealing the name of the recipient of the largest fine in history sends a confusing message to the public that large penalties do not come with full accountability,” said Tyson Slocum, director of Public Citizen’s energy program and author of the filing. “Future violators may be able to similarly hide behind the veil of anonymity. Moreover, keeping the public in the dark about the cybersecurity track record of our electric utilities may create a false sense of security and reduce the likelihood of more public awareness and vigilance needed to protect cybersecurity.”

The real problem is that bureaucracies like FERC do not want the curtain pulled back on anything they do, regardless of whether any exemption applies. Any unplanned exposure of their operations risks upsetting their messaging and tarnishing the public image they want to create. Every public performance by an agency has to be staged just so, or else, in this internet media-driven age, a public relations catastrophe could occur.

 

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The Problem With the War on Coal: There’s Only “Friendly Fire”

Coal mine, early 20th century

“Friendly fire” is one of those euphemisms that’s hard to square with reality. It occurs when some of your troops are out ahead, most likely going toe-to-toe with enemy forces. Reinforcements arrive. But the reinforcements mistake their own troops for the enemy and start firing at them. Whoops.

It’s nothing new. In Britain’s First Afghan War (1839-42), a contingent of Indian troops were arriving by sea at Karachi, Pakistan, the closest port of call to the front lines. They were to join up with other local troops from the Sindh who were also allied to the British. These Sindhi soldiers were stationed at a combination lighthouse-fortress that guarded the mouth of the harbor at Karachi.

When the warship carrying the Indian troops arrived in the harbor, the commander of the fort made the unfortunate decision to greet it with an artillery salute. The ship mistook this for an attack and opened fire. Within a very short time many of their Sindhi allies lay dead underneath the smoking rubble of what used to be a lighthouse and a fort.

And that’s the problem with the war on coal. There is no war on coal, but politicians can use it to get votes. Get people angry. Make them feel like victims. Then they’ll vote for you. Remember “Trump Digs Coal”?

CNN (yes, I know, it’s CNN) put out an interesting clip yesterday on whether Trump has fulfilled his promises on restoring coal mining jobs. Electricity generation is the leading use of coal in the United States, but the fact is that more and more  coal-fired generation is shutting down not  because of any Obama-era war on coal, but because coal-fired generation just cannot compete on price with natural gas-fired generation and, increasingly, with renewables.

But it’s easier to win votes if you can say there’s a war on. Then you have an enemy. In fact, it’s pure economics.

The reason that natural gas is cheaper is because of fracking and the development of reserves in what were previously hard-to-reach (if not impossible-to-reach) shale formations. Fracking and natural gas spurred economic development in Texas and Louisiana, along the Gulf Coast, in an area running through Pennsylvania, Ohio and New York known as the Marcellus shale, and in North Dakota in the Bakken.

Cheap natural gas is good for the manufacturing sector. You need steel to drill for natural gas. With cheaper natural gas, steel manufacturing costs go down. Which makes steel equipment for fracking less expensive. Which makes for more natural gas…and so on.

Cheap natural gas is a feedstock for other products, such as ethylene for plastics. You may not like plastics, but, face it, you use them every day without noticing it.

One of the concerns sparked by the recent death of FERC Chairman Kevin McIntyre is whether natural gas projects, such as pipelines, might be delayed. FERC has tried to allay those fears, but the magnitude of the concern shows one of the economic differences between coal and natural gas: transportation. Natural gas moves by pipeline. Coal moves by railroad. Large portions of the railroad infrastructure in the United States is in a dangerous state of decay, and needs to be rebuilt. In terms of economic returns, railroad repair would be a much better use of $5 billion than a wall along the Rio Grande.

Sure, environmental regulations hamper coal-fired generation, but the real deciding factor is the price of the coal-fired kilowatt-hour.

Coal-fired generation will continue to be used in the U.S., but it will decrease. If the government decides to keep coal alive, that’s a subsidy no matter what it’s called. To the extent you subsidize one player (coal) in a market (electricity), you hurt others (natural gas, renewables), and the other industries that depend on those other fuels — whether in North Dakota, along the Gulf Coast, or in the Marcellus.

And that’s why the war on coal is a war of 100% friendly fire.

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Chairman’s Death Leaves FERC Divided

FERC Chairman Kevin McIntyre passed away this past Wednesday after a battle with cancer. Our condolences to his family and colleagues.

His passing leaves FERC with four remaining commissioners, two Republicans and two Democrats. According to the Washington Post, as of January 3, 2019, of 707 federal executive branch appointments requiring Senate confirmation (like the FERC chairmanship), 127 have no nominee. Given the other storms that are likely to hit the White House in 2019, the FERC chairmanship may not be high on the list of the administration’s priorities.

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Electricity Customers Benefit from Tax Reform? Not.

The GOP-passed tax reform law, a/k/a the Tax Cuts and Jobs Act of 2017, lowered the corporate federal income tax from a maximum of 35% to a flat rate of 21%.

Numerous transmission utilities file tariffs with the Federal Energy Regulatory Commission that are based on a cost of service revenue requirement. The expense of federal corporate income tax is one of those costs of service. When a corporation’s tax rate goes down from a maximum of 35% to a flat 21%, its income tax expense goes down, and thus its cost of service revenue requirement goes down. So, one would think that when transmission utilities’ tax rates go down, as they have, that benefit might flow through (or is that trickle down) to ratepayers.

Nope.

No transmission utility filed any amendments to its tariffs to reflect the new, lowered tax rate. Maybe they thought nobody would notice it, and they could pocket that 14% difference. (“Oh boy!!!).

So on March 15, 2018, FERC opened a series of new proceedings requiring that these transmission utilities either lower their rates to reflect the tax cut, or show cause why they should not be required to do so.

Your tax dollars at work.

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How Green Was My Mountain Valley

Today, the United States Court of Appeals for the District of Columbia Circuit denied a request by environmental groups and landowners for a stay that would have delayed construction of the Mountain Valley Pipeline (MVP), a 303-mile long natural gas pipeline running from Wetzel County, West Virginia to Pittsylvania, Virginia. When built, the MVP will carry 2,000,000 dekatherms of natural gas per day to markets in the Northeast, Mid-Atlantic and Southeast regions of the U.S.

The problem, of course, was first identified by John Denver in 1971 when he described the area through which the proposed pipeline will pass as almost Heaven. Life is old on the MVP route, older than the trees that have to be cut down, but younger than the mountains that must be trenched to lay a 42-inch diameter underground pipe.

MVP is important for landowners because one of the chief reasons that line developers go to utility regulatory commissions, whether at the state or federal level, is to obtain the power of eminent domain. The developer may not be able to negotiate acquisition of all rights-of-way necessary for its project. It needs the power of the government behind it so that it can compel private landowners to grant easements over their properties, including structures. Developers also use the threat of an eminent domain proceeding as a lever in negotiating the price of easements.

Before the MVP case reached the DC Court of Appeals, it was litigated before the Federal Energy Regulatory Commission, 161 FERC P61043, which issued a certificate of public convenience and necessity for the pipeline in October 2017. Under the Natural Gas Act, once FERC issues a CPCN for a natural gas pipeline project, the holder obtains the power of eminent domain over properties necessary to complete the project. Many state public utility laws are to the same effect, though only within the particular state.

Landowners should be aware that in these cases, whether they’re for oil or gas pipelines or electricity transmission lines, the integrity of their property rights will be decided not by a court, but by an administrative agency, such as FERC or a state public utilities commission. These administrative agencies may or may not give proper weight to eminent domain issues. But the question of public necessity, which is the analog of public use in typical eminent domain cases, is considered by the administrative agency in the first instance. A court reviewing the agency’s order on appeal may view the public necessity issue as one predominantly of fact, and may be disinclined to upset the agency’s findings. Likewise, if a landowner challenges the developer’s easement in a new court case, that court may decide that it does not have jurisdiction to hear the landowner’s challenge because it would mean reviewing the issuance of the CPCN. Or it may simply deem such a request a collateral attack on the agency’s order.

Recall that in Kelo v. City of New London, 545 U.S. 469 (2005), the Supreme Court essentially removed all guard rails and speed limits from the eminent domain highway. The Court interpreted the concept of public use so broadly that essentially all a local government had to do was declare a neighborhood “blighted” and then turn it over to some politically-connected developer. Some states passed laws to limit eminent domain after Kelo.

But more threatening to landowners is that, within the context of an administrative CPCN proceeding, developers will seek to separate CPCN and eminent domain issues to the greatest extent possible. For example, the developer may seek to bifurcate the case so that the public convenience and necessity of a proposed project is analyzed without reference to its effect on private landowners because the bifurcation restricts eminent domain issues to a separate proceeding. Or the developer may simply urge that the regulator dismiss any concern about eminent domain because they are not seeking that power in the instant case.

Either way, for landowners that’s a recipe for disaster. Once the developer obtains its CPCN, the issue of “public necessity” or “public use” has already been determined, and they may well find themselves effectively precluded from defending their property rights.

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And then there was one…at FERC

 

One might be forgiven for mistaking the Federal Energy Regulatory Commission for an Agatha Christie mystery play in which the characters disappear one-by-one. With the earlier departures of three of its five commissioners, including former Chair Norman Bay, FERC is currently down to two: Acting Chair Cheryl LaFleur and Commissioner Colette Honorable. FERC has not had a quorum since those departures became effective. Honorable’s term ends in June, and she has said that she’ll step down then. LaFleur will be the sole commissioner at that point.

The Trump administration has named three replacements so far, but as of this date none of them have been confirmed by the U.S. Senate. Given the Senate’s work schedule (raising campaign funds is more important than all that boring Article I stuff), it’s not likely that the three nominees will be confirmed by June. So FERC could be hobbled for a while yet.

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Chicago Energy Attorneys Patrick N. Giordano and Paul G. Neilan Announce Filing of Federal Lawsuit Against Illinois Power Agency Director Anthony Star

Exelon CEO Chris Crane

Chicago, IL February 14, 2017:  Chicago energy attorneys, Patrick N. Giordano and Paul G. Neilan, announced they filed a lawsuit in the U.S. District Court Northern District of Illinois today against Anthony Star in his Official Capacity as Director of the Illinois Power Agency.  Village of Old Mill Creek, et al. v. Anthony Star was filed on Tuesday, February 14, 2017 at the U.S. District Court Northern District of Illinois.

Attorneys Giordano and Neilan represent Plaintiffs that are governmental, residential, commercial, and industrial electricity consumers located throughout the State of Illinois. Plaintiffs claim that P.A. 99-0906, executed by Governor Rauner on December 7, 2016, violates the U.S. Constitution’s Supremacy Clause, Commerce Clause, and 14^th Amendment Equal Protection Clause. The underlying basis for the constitutional claims is that the prices charged by electricity generating plants are subject to federal rather than state regulation. A similar case has already been filed in federal court in New York challenging that state’s subsidy of Exelon nuclear plants by the law firm Boies, Schiller & Flexner, LLP, which is headed by preeminent attorney David Boies.

Among other things, P.A. 99-0906 is designed to subsidize Exelon Corp.’s Quad Cities and Clinton nuclear plants. This subsidy will be charged to all Illinois electricity consumers beginning June 1, 2017 regardless of what company supplies the consumer’s electricity. The lawsuit specifically asks that the U.S. District Court grant a permanent injunction blocking the charges from going into effect as scheduled on June 1, 2017. According to Mr. Giordano: “These additional charges will reverse twenty years of deregulation in Illinois which have given us perhaps the one advantage we have over neighboring states: relatively low electricity charges due to an effectively functioning competitive market.” Mr. Giordano also said: “We’re challenging the nuclear bailout provision of the legislation because the prices charged by electricity generators have already been established by the competitive wholesale electricity market subject to federal jurisdiction and cannot be increased by the State of Illinois.”

The estimated impact to all Illinois consumers will be about $3.3 billion over the ten years of the nuclear bailout. Mr. Neilan points out that: “This nuclear bailout is one of four rate increases to Illinois consumers this year, including increased delivery charges, increased renewable energy subsidies, increased energy efficiency subsidies, and these nuclear energy subsidies.” When the nuclear subsidies go into effect on June 1, 2017, Illinois residents and businesses can expect to see an average 3% increase in their electricity bills due to the nuclear subsidies alone.”

Giordano & Associates, Ltd. is Chicago’s first law firm devoted to energy issues. We provide clients with experienced counsel on regulatory, litigation, transactional, and legislative matters in the areas of electricity and natural gas. Pat Giordano can be reached at pgiordano@dereglaw.com.

The Law Offices of Paul G. Neilan, P.C. represents commercial, industrial and governmental energy users in disputes against public utilities, as well as in litigation and transactional matters with non-utility competitive energy suppliers.

FACT SHEET

1. Village of Old Mill Creek, et al. v. Anthony Star was filed in the United States District Court for the Northern District of Illinois on February 14, 2007.
2. The Plaintiffs are: Village of Old Mill Creek, Ferrite International Company, Got it Maid, Inc., Nafisca Zotos, Robert Dillon,Richard Owens, and Robin Hawkins, both individually and d/b/a Robin’s Nest.
3. The Defendant is Anthony Star in his official capacity as Director of the Illinois Power Agency.
4. This case arises from unlawful Illinois legislation that invades the exclusive jurisdiction of the Federal Energy Regulatory Commission (“FERC”) over “the sale of electric energy at wholesale in interstate commerce” pursuant to the Federal Power Act. 16 U.S.C. 824(b)(1).
5. The unlawful legislation is contained in subsection (d-5) Zero Emission Standard of Illinois Public Act 99-0906 (“P.A. 99-0906”), which was enacted on December 7, 2016 and is available at http://www.ilga.gov/legislation/99/HB/09900HB65761v.htm.
6. Subsection (d-5) Zero Emission Standard of P.A. 99-0906 requires the Illinois Power Agency to procure contracts for Illinois utilities Commonwealth Edison Company, which serves northern Illinois, and Ameren Illinois Company, which services central and southern Illinois, for purchases of Zero Emission Credits (“ZECs”) from nuclear-fueled generating plants.
7. The ZEC payments will be passed through by the utilities to all Illinois consumers through automatic adjustment tariffs.
8. A. 99-0906 is designed to provide additional revenues to the Illinois-based Quad Cities and Clinton nuclear plants.
9. Exelon Corp. owns both the utility ComEd and Exelon Generation, which owns the Quad Cities and Clinton nuclear plants that will sell the ZECs to the utilities.
10. Although P.A. 99-0906 has many other provisions, this case concerns only subsection (d – 5) Zero emission standard.
11. Plaintiffs are not challenging any other provisions of P.A. 99-0906. Section 97 of P.A. 99-0906 provides that the provisions of the Act are severable under Section 1.31 of the Illinois Statute on Statutes. 5 ILCS 70/1.31.
12. In New York, ZEC payments to Exelon nuclear plants in that state are being challenged on the same grounds set forth by Plaintiffs in Illinois. Coalition for Competitive Electricity, et al. v. Audrey Zibelman, et al. was filed in the U.S. District Court Southern District of New York on October 19, 2016.
13. A typical residential customer using 1 mWh (1,000 kWh) per month would pay an additional $2.64 per month beginning June 1, 2017 based on the initial ZEC price established in P.A. 99-0906.
14. A manufacturing company using 10,000 mWh per month would pay an additional $26,400 per month beginning June 1, 2017 based on the initial ZEC price established in P.A. 99-0906.

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California Irrigation District Hits Barclays for Electricity Market Manipulation

Megabanks attempt to justify their presence in the wholesale electricity markets as providing a healthy dose of liquidity. If you believe that banks go into electricity markets for the same reasons that impelled Mother Theresa to treat sufferers of leprosy and tuberculosis in Calcutta, namely, in order to fulfill their altruistic missions on earth, I have for sale to you (and only to you) a bridge that connects Brooklyn to Lower Manhattan. It’s an antique, but it’s in wonderful condition, and very photogenic. Just think of the tolls you could charge.

The Sparkspread has previously written about the activities of banks in wholesale electricity markets. The Courthouse News reports that the Merced, California Irrigation District has filed suit against Barclays for the manipulations of its electricity traders between 2006 and 2008. FERC previously fined Barclays $435,000,000 for its violations of electricity market rules. Here’s the story:

Barclays Sued for Manipulating Energy Market

By ADAM KLASFELD

MANHATTAN (CN) – Nearly two years after federal regulators fined Barclays Bank $435 million, a California irrigation district filed a federal class action accusing the British bank of similar antitrust violations.
The Merced Irrigation District sued the British bank on Tuesday, claiming Barclays and four of its energy traders manipulated electric prices from November 2006 until Dec. 31, 2008.
The irrigation district seeks damages for the “supracompetive” prices it paid for electricity.
The 41-page lawsuit cites the July 16, 2013, findings of the Federal Energy Regulatory Commission, which said that traders Daniel Brin, Scott Connelly, Karen Levine and Ryan Smith engaged in an “affirmative, coordinated and intentional effort” to steer index prices published by InterContinental Exchange and Dow Jones at four major Western U.S. trading hubs to favor the British bank.
FERC took action against the bank and its traders, whose combined penalties came to $453 million.
Merced’s lawsuit targets only Barclays and does not specify the damages sought.
“Barclays’ traders knew their dailies trading was losing money and that it would prevent free market forces from operating in the relevant markets, but they were willing to accept such losses because the uneconomic dailies trading was part of their manipulative scheme to acquire and maintain monopoly power over daily index prices to benefit their related financial positions,” the complaint states.
“This willfulness and intent of Barclays is further demonstrated through direct evidence, such as emails and instant messages (‘IMs’), suspicious timing or repetition of transactions, execution of transactions benefiting derivative positions, and trading which would be economically irrational but for the manipulative scheme,” it continues. “Barclays’ traders coordinated their individual and collective actions in furtherance of the manipulative scheme.”
Quoting extensively from the FERC report, Merced’s complaint dives into “numerous written communications demonstrating Barclays’ traders’ knowing participation in the manipulative scheme.”
On Nov. 3, 2006, Smith bragged that he “totally fuckked [sic] with the Palo” Verde market index, according to the complaint.
Smith allegedly added that he “just started lifting the piss out of the palo.”
His colleague Connelly joked about regulators on Feb. 28, 2007, according to the lawsuit.
Responding to a colleague who called the market a “shitshow,” Connelly replied: “crazy -I love it … your boy started crying this morning … he sent me an ice [InterContinental Exchange] message -said he wass [sic] calling FERC … lol.” (Ellipses in complaint.)
The complaint says that exchange referred to a FERC order assessing penalties.
The proposed class includes “Any individual or entity that held any contract which settled against the ICE [InterContinental Exchange] or Dow Jones published daily index prices for peak or non-peak power at either Mid-Columbia, Palo Verde, South Path 15 or North Path 15” during the relevant time frame, and “was damaged by movements in such index prices caused by Barclays’ unlawful scheme.”
A subclass consists of class members “who reside or are incorporated in California.”
Merced seeks class certification, restitution, and damages for unjust enrichment and violations of the Sherman Act, and the California Business & Professional Code.
It is represented by Jeffrey Klafter with Klafter Olsen & Lesser, of Rye Brook, N.Y.
Barclays did not immediately respond to a request for comment.
The California energy crisis of 2000-2001 showed that electricity prices were fairly easy to manipulate, and that federal regulators, primarily FERC, were unable to keep up with the traders. Enron profited hugely during the crisis, for a while, then collapsed in an accounting scandal.

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