Spotlight on the Power Sector

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For Clients and Friends of the firm, Baker Botts' Energy Litigation Team has identified some key issues and trends in the Power Sector that we think you should know about. Please feel free to reach out to the relevant team members if you have any questions about any of the issues and trends discussed below.

 

 

KEY ISSUE

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1.

Getting Off the Grid. From homeowners installing rooftop solar to commercial and industrial customers wanting to use on-site or nearby generation, there is increased interest in getting “off the grid.” For those exploring such options, it’s essential to know the rules related to ownership of generation facilities and associated power lines. It’s also critical to understand the risks of moving away from traditional power delivery models, such as complicating access to backup or emergency power or losing the power to condemn necessary rights of way.

James H. Barkley

James H. Barkley

2.

Regional Haze. EPA’s Regional Haze Program, which requires states to improve visibility in national parks and wilderness areas, will continue to subject power plants to emission control requirements in the coming years, with some facing more stringent limits or requirements to install new controls for the first time. EPA’s Regional Haze Program aims to achieve that goal by 2064, and requires states to establish plans to reduce visibility-impairing pollutants over successive 10-year periods. Power plants were a significant target of these state plans during the first 10-year planning period. States currently are drafting their second planning period plans and power plants likely will continue to be a target for emission controls, even if they were subject to requirements during the first planning period. This could mean tightening existing emissions limits, or new requirements for plants that were not covered in the first planning period. EPA’s actions on the second planning period plans are likely to be challenged, as environmental groups continue their efforts to use the Regional Haze Program to force stringent emission limits on power plants. We guided numerous companies through this process in the first planning period, including in challenges to the requirements imposed on power plants, and continue to advise companies in states developing new plans that may be subject to eventual litigation.

Allison Watkins Mallick 

Allison Watkins Mallick

3.

Overcoming Environmental Permitting & Litigation Hurdles to Energy Infrastructure Projects. The United States needs continued investment in vital energy infrastructure of all kinds—from coal or gas export facilities that send affordable energy abroad to renewable power and other projects that help meet clean energy targets domestically. To help meet this challenge, federal agencies are undertaking an ambitious program of reducing regulatory and permitting hurdles. CEQ, for example, is leading efforts to streamline the NEPA review process and to expand categorical exclusions while also clarifying requirements for evaluating upstream and downstream greenhouse gas emissions associated with energy projects. Likewise, the U.S. Fish & Wildlife Service and the National Marine Fisheries Service recently reformed the Endangered Species Act regulations governing the listing of species, the designation of critical habitat, incidental take authorizations, and the use of programmatic consultation. For its part, EPA is clarifying the responsibilities of federal and state agencies under Section 401 of the Clean Water Act by, among other things, setting clearer timelines for state water quality certifications. EPA is also reforming the NSR/PSD permit programs (including changes to project emissions accounting) while also reversing the “once in, always in” policy concerning the applicability of MACT standards under Section 112 of the Clean Air Act. These EPA-driven reforms, if they endure, should help bring greater certainty to the permitting of projects at refineries, power plants, and other large industrial facilities.

Nonetheless, environmental lawsuits against government permits for energy projects remain a serious concern for project proponents. Now more than ever, project proponents must give careful consideration – early in the planning process – to effective strategies for jumping inevitable hurdles that will emerge along the path toward project completion. This includes meeting early with the agencies to ensure a full understanding of their likely position on key issues. This also includes understanding key legal issues, including the law of the applicable circuit, even before permits are sought, so that the necessary administrative and legal record can be established during the permit process. Likewise, while proponents should take full advantage of recent regulatory reforms, it is also important to not over-rely on more aggressive agency reforms that may not survive judicial review. Proponents should consider whether it is better in the long-run to pursue a project pathway that may not take full advantage of some riskier reforms. Above all, it is crucial to work with the relevant agencies to build a strong administrative record to support the permitting action, and then, to vigorously defend against environmental challenges. With courts increasingly inclined to find deficiencies in agency records for major projects, the most significant issue in these cases often revolves around one pivotal question: should a court that finds a defect in an agency record simply remand the permit for further agency review or vacate the permit entirely? The former scenario usually allows for construction and operation of the project to continue on remand, while the latter usually stops a project in its tracks and can add years of additional delay. Careful thoughtful planning at the front end of the process, especially for major energy infrastructure projects, is essential.

Jeffery Wood 

Jeffrey H. Wood

Chris Carr 

Christopher J. Carr

4.

Challenges to Greenhouse Gas Emissions Reduction Requirements. Targeting greenhouse gas emissions from power plants has been a major focus of environmental groups and some states in recent years. EPA’s recently issued Affordable Clean Energy, or ACE rule, requires states to develop plans to address carbon dioxide emissions from existing coal-fired power plants. Environmental groups and states already have challenged the ACE rule as not stringent enough. If the rule is upheld, we expect that environmental groups are likely to challenge the carbon dioxide requirements imposed on power plants. We already are working with companies to appropriately evaluate technologies to achieve reductions in carbon dioxide at their generating units and mitigate the risk that the final requirements imposed on them will be susceptible to challenge, both at the state level, as states go through the process to adopt their ACE plans, and at the federal level, when EPA acts on the plans.

Debra J. Jezouit 

Debra J. Jezouit

5.

Crossing the Line: International Remedies for Wrongful Regulatory Measures Affecting the Generation and Supply of Power. Projects for the generation and supply of power typically require large amounts of capital and therefore present opportunities for foreign investment. Among other risks, international investors face the risk of adverse regulation that impairs the economic return of the investment, given the long-term nature of the investment required for power projects. This risk may be heightened by the political and economic importance of the project, whether the power source is solar, wind, water, coal or nuclear. We have extensive experience advising clients on claims concerning regulatory risk in the power industry.

There are steps that investors can take to address this risk. In the planning and negotiation stages of a project, investors should consider all assurances from the host government authorities that they will refrain from harmful or drastic regulatory measures. During the construction and operation phases, a network of international treaties offers legal protection and arbitration procedures for international investors that may provide a remedy if the host government adopts injurious regulatory measures. From the outset, therefore, investors in cross-border power generation and supply projects should take account of available treaty protections.

Alejandro A. Escobar 

Alejandro A. Escobar

Dustin Appel 

Dustin Appel

6.

Addressing Coal Combustion Residuals. Coal-fired power plants are currently involved in or face federal litigation and citizen suit risks regarding their management of coal combustion residuals (CCR) and alleged health and environmental impacts. EPA is planning rule changes related to CCR management that may affect those risks and lead to further litigation. At the same time, states are developing more stringent CCR regulations and pursuing more aggressive enforcement actions and oversight. We are working with clients to develop short-term and long-term solutions that address these litigation risks, ensure regulatory compliance, and align with business planning.

Martha Thomsen 

Martha Thomsen

7.

Obtaining Water Quality Certifications for Power Plan Projects. When a federal permit applicant’s proposed activity has the potential to result in a discharge into navigable waters, the applicant must request and obtain a water quality certification pursuant to Clean Water Act Section 401 from the state in which that potential discharge would occur that confirms that the state has reasonable assurances that the proposed activity will not violate state water quality standards. Permits associated with power plants, including FERC licenses for hydroelectric power plants and licenses from the Nuclear Regulatory Commission, require a CWA Section 401 certification. EPA is in the midst of developing a rule to address the proper scope of considerations and conditions, as well as situations for when the state waives its certification authority, which is likely to be challenged. There also currently is on-going litigation in an important case related to the question of waiver. We are tracking these issues to ensure our clients are fully informed of the latest developments.

Jared Wigginton 

Jared Wigginton

8.

Enforcement Actions. As large stationary sources, power plants continually face risks of EPA audits of their air, water, and waste programs, which often involve providing years of data to EPA and facing the risk of being found in violation. Some violations are fairly minor and may involve simple recordkeeping or reporting errors that have no environmental impact but EPA often will seek an administrative order, which leaves power plants with a record of violations. Other potential violations are more significant and could result in the imposition of civil penalties, environmental mitigation and pollution controls. Environmental groups also have targeted power plants for enforcement, bringing citizen suits based on publicly available information even when EPA or the state has declined to act. We have represented several power companies in successfully resolving threatened EPA or citizen suit enforcement actions on favorable terms and, when our clients have been sued for alleged enforcement actions brought by EPA or environmental groups, we have vigorously defended them and advised on steps to minimize the risks of such litigation in the future.

Joshua B. Frank 

Joshua B. Frank