Energy Legal Blog

In a December 19 decision of potentially broad applicability to fossil fuel-fired electric generators, a divided (2-1) panel of the US Court of Appeals for the DC Circuit ruled that the EPA violated the Clean Air Act when it adopted a final rule that would have lessened controls on emissions of hazardous air pollutants (HAP) when process or associated emission control facilities are in periods of equipment start-up, shut-down and malfunction (SSM).  Specifically, the rejected rule would have supplanted the requirement that HAP emissions be numerically limited by a strict standard based on “continuous” maximum achievable control technology (MACT) with a “general duty” to minimize emission to the greatest extent possible.  Many of the more-than-100 HAPs that are subject to MACT controls under section 112 of the Clear Air Act are by-products of fossil fuel combustion for power generation.

Proposals to relax required MACT controls on HAP emissions during period of SSM began in 1994 when EPA adopted an exemption that would have freed sources from strict numerical MACT standards during SSM periods so long as the source included in its Title V emissions permit an SSM plan that detailed “procedures for operating and maintaining during [SSM] periods and a program of corrective action for” fixing malfunctions.  Later in 2002, EPA ruled that the SSM plan need only exist, but need not be part of the Title V permit, which meant it could be revised by the emissions source without prior approval.  And in 2003 EPA adopted a rule to limit public access to a source's SSM plan.  Public and environmental advocates then protested, resulting in the December 19 decision that the Clean Air Act does not permit EPA to lessen Congressionally mandated “continuous” MACT emission standards for HAPs on a temporal basis during SSM periods.  Notably, the dissenting judge did not disagree with the merits of the majority's decision; rather, he objected that the public and environmental advocates' challenges wer untimely and did not properly present the issue that the majority decided.

In a December 13 order, FERC approved a hydrokinetic generator that City of Hastings, Minnesota proposes to install by April 2009 in the Mississippi River.  Hydrokinetic projects generate electricity from waves or from the flow of water.  Hastings proposed to suspend two 35-kW hydrokinetic turbines from a floating barge in the tailrace of its existing 4.4-MW run-of-the-river dam.  The city estimates the new hydrokinetic units will generate an average of 364 MW-hours of electricity per year.  In a statement issued along with the approval, FERC Chairman Joseph T. Kelliher praised the project as a “creative solution to meeting electricity demand using renewable resources,” and congratulated Hastings “for moving forward with the idea.”

FERC did set forth certain conditions on its approval in order to allay environmental concerns.  The city must monitor the project for any adverse impacts on water quality, fish, or birds.  If the monitoring shows any adverse impacts on water quality or avian life, the city must modify the project's operation, including removing the turbines or barge if necessary.  The city must also develop a plan to control the spread of invasive zebra mussels during installation or operation of the project.

At a time when investment wells are bone dry and credit unavailable, FERC ironically seems to have reversed earlier policies that liberally extended economic incentives to new transmission projects under FPA section 219 and Order No. 679. In a December 4, 2008 order, FERC denied Commonwealth Edison’s (ComEd) petition asking the agency to declare that 22 transmission projects are eligible for rate incentives, even though each project had been approved in the PJM Interconnection’s regional transmission expansion plan (RTEP) process. The projects ranged from capacitor and transformer installations, transmission line upgrades, and circuit breaker replacements, costing approximately $215 million. Although PJM approved these projects in its 2006, 2007, and 2008 as RTEP baseline projects, FERC nevertheless rejected ComEd’s petition, finding that ComEd failed to satisfy Order No. 679’s “nexus” test. That test requires an applicant for incentive rates to demonstrate that its project is not routine and that the total package of incentives is needed in light of the risks and challenges faced by the project. Increasing criticism has been directed at the agency for granting incentives where no “nexus” had been demonstrated.

In its order, FERC acknowledged that rejection of ComEd’s petition represented a departure from earlier orders in which FERC appeared to apply a more deferential standard to award rate incentives to projects that stakeholders of a regional transmission organization (RTO) had determined would improve grid reliability. For example, in a 2007 order involving Baltimore Gas & Electric, FERC held that “[p]rojects . . . identified as ‘baseline’ in the PJM RTEP process are . . . by definition, regional projects are thus, not routine.” In contrast, in the December 4 Order FERC held that, “[d]espite their status as PJM RTEP baseline projects, ComEd has not demonstrated how [its] projects present risks or challenges to warrant an incentive ROE under our nexus requirement.”

Imprimatur of an RTO planning processes alone will apparently no longer entitle a project to incentive returns. Now, applicants will be required to independently satisfy the “nexus test.” Even though the Commission will continue to allow such projects to qualify for the rebuttable presumption under the Commission’s so-called “219 test,” which is a threshold determination as to whether a project ensures reliability or reduces congestion, independently supporting the nexus test will undoubtedly increase the amount of support of incentive applications going forward. Among other things, the December 4 Order could result in increased Commission scrutiny and reduced administrative certainty, even for risky projects requiring large capital outlays.