Latham's Clean Energy Law Report

California State Court Poised to Destabilize Low Carbon Fuel Standard

Posted in Environmental and approvals, Finance and project development, Permitting

By Joshua T. Bledsoe and Max Friedman

Big changes appear to be imminent for California’s Low Carbon Fuel Standard (LCFS).

As discussed in greater detail in our recent post, the LCFS currently is the subject of two interrelated legal challenges commonly known as POET I and POET II. Here we provide an update on recent proceedings before the California Court of Appeal for the Fifth Appellate District (Court of Appeal) in POET I. These proceedings concern the California Air Resources Board’s (ARB) attempts to comply with a peremptory writ of mandate (the Writ) that primarily required ARB to remedy violations of the California Environmental Quality Act (CEQA) that occurred during promulgation of the original LCFS regulation.

On March 20, 2017, three days before oral argument occurred, the Court of Appeal issued a tentative ruling in the POET I Writ appeal. The tentative ruling alerted the parties that the Court of Appeal intended to overturn the Superior Court’s discharge of the Writ and suggested that some or all of the existing LCFS regulatory regime was in jeopardy. The tentative ruling found that ARB failed to comply with the Writ by excluding from its CEQA analysis information relating to nitrogen oxide (NOx) emissions from biodiesel, resulting in the utilization of an improper baseline for measuring NOx emissions. The tentative ruling also found that ARB’s treatment of NOx emissions was not a “good faith” attempt at corrective action because it relied on an objectively unreasonable interpretation of the CEQA term “project.” The Court of Appeal then further underscored its dim view of ARB’s response to the Writ: “ARB’s actions do not appear to be a sincere attempt to provide the public and decision makers with the information required by CEQA and omitted from the earlier documents.” Continue Reading

CAISO Expects It May Need to Curtail Up to 8,000 MW This Spring and Up to 13,000 MW By 2024, Which Could Test Curtailment Risk Allocation Provisions in Renewable PPAs

Posted in Energy regulatory

By Michael Gergen, Tyler Brown, David Pettit and Christopher Randall

At the most recent meeting of the Board of Directors of the California Independent System Operator (CAISO) held on February 16, 2017, the President and Chief Executive Officer of the CAISO reported that because of the “bountiful hydro conditions expected this year and significant additional solar installations both in the form of central station and on rooftops” in California, the CAISO “expects to see significant excess energy production this coming spring.” As a result, the CAISO is forecasting that it may “need to curtail from 6,000 MW to 8,000 MW.”

Based on the CAISO’s Monthly Market Performance Reports, it doesn’t appear that there were any significant curtailments prior to a few isolated days in the Spring of 2015, the Spring and Fall of 2016, and this Winter. This stands in marked contrast to the scale of curtailments that appear to be expected for this Spring. Moreover, in 2014 the CAISO reported that by 2024 it expects maximum hourly curtailments of over 13,000 MW in California under a scenario where the Renewables Portfolio Standard (RPS) targets 40 percent of retail sales by 2024. (This RPS requirement was enacted in October 2015.)

CAISO Graphic depicting renewable curtailment by resource type

Continue Reading

Near-Term Opportunities for Industry to Reduce Compliance Costs, Avoid “Nonattainment” Designation,” in the Face of Tightened Ozone NAAQS

Posted in Environmental and approvals

Joel Beauvais, Claudia O’Brien, Stacey VanBelleghem and Bridget Reineking have authored an article entitled Reducing Ozone Regulation Costs Under the New Administration. Over the past four decades, compliance with the ozone National Ambient Air Quality Standards (NAAQS) has proven to be among the most costly of Environmental Protection Agency (EPA) regulations. EPA tightened the primary and secondary ozone standards to 70 parts per billion (ppb) in late 2015, which will likely result in more areas of the country being identified as failing to attain the standards. Areas designated “nonattainment” face significant consequences, ranging from regulatory constraints on existing emission sources to expensive emission offset requirements for new or expanded facilities.  

Companies avoid the most rigid requirements and significant costs when the areas in which they operate are designated “attainment.” Companies still have a window of time to engage in EPA’s area designation process and avoid unnecessary nonattainment designations. Even in areas where monitoring data conclusively demonstrates nonattainment, companies can act to mitigate costs and secure operational flexibility. These strategies require engagement at the federal, state and local levels to support adaptable and efficient compliance mechanisms in SIP revisions after the designation process is finalized.

Given the Trump administration’s “pro-business” orientation, industry may be able to play a more influential role in the designation process and program design than it has in the past. Companies must act in the near term to pursue advocacy and planning to help leverage potential compliance flexibilities. Especially in states that EPA indicates will be most affected by the more stringent standards — California, Texas, Louisiana, Utah, Arizona, Colorado, Arkansas, Missouri, Ohio, Virginia, Pennsylvania, New York and New Jersey — proactive engagement can enable companies to meaningfully reduce the cost of compliance.

President Signs Executive Order Directing EPA and Army to Review and “Rescind or Revise” Clean Water Rule

Posted in Environmental and approvals

Joel Beauvais and Claudia O’Brien have authored an article entitled “Re-Evaluating the Clean Water Rule: The Long Road Ahead.” President Donald Trump, on February 28, signed an executive order (EO) directing the U.S. Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (the Corps) to issue a proposed rulemaking for notice and comment to rescind or revise their joint 2015 Clean Water Rule, also known as the Waters of the United States or “WOTUS” rule. The rule was intended to clarify the jurisdictional scope of the Clean Water Act. Shortly after the EO was issued, the EPA and the Corps issued a notice indicating their intent to review and either rescind or revise the rule.

The EO and the agencies’ notice signal a potential move to substantially narrow the jurisdictional scope of the Clean Water Act (CWA). This is a critical issue for many sectors of the economy and environmental protection and has been the subject of uncertainty and litigation since the statute was enacted in 1972 — with the U.S. Supreme Court having issued three major decisions on the subject.

Notwithstanding the president’s high-profile announcement, however, the current uncertainty over the CWA’s scope is likely to remain for the foreseeable future.  The executive order begins a lengthy process to re-evaluate the Clean Water Rule that likely will take years for completion of the rulemaking and subsequent litigation. Whether the Trump Administration seeks full rescission or a replacement of the rule, there will be substantial legal risk for the agencies involved — though the nature of that risk will differ greatly between these two courses. Moreover, the extended timeline associated with the regulatory process and litigation means continued regulatory uncertainty for several years, including a continuation — at least in the near term — of the current process of case-by-case jurisdictional determinations.

Twin Challenges to LCFS Advance in California Courts, With Potential Implications for State’s Overall Climate Stabilization Strategy

Posted in Environmental and approvals, Finance and project development

By Joshua T. Bledsoe and Max Friedman

Two related cases, advancing in parallel, have the potential to upend California’s Low Carbon Fuel Standard (LCFS), whether via full suspension of the LCFS or carving out diesel fuels from the deficit and crediting regime.[1]

Both cases involve challenges by POET, LLC (POET), a South Dakota-based ethanol producer, against the LCFS rules adopted by the California Air Resources Board (ARB). ARB first adopted LCFS rules in 2009 and amended them in 2011, but these rules successfully were challenged by POET, leading the California Court of Appeal for the Fifth Appellate District (Court of Appeal) on July 15, 2013, to find deficiencies in ARB’s California Environmental Quality Act (CEQA) review process.  The Court of Appeal issued a peremptory writ of mandate (Writ) in this case (POET I), requiring ARB to remedy legal defects in the initial adoption of the regulation, but opting to leave the LCFS in place while ARB reworked its analysis and repeated the necessary procedural steps and substantive analysis.  Over the next two years, ARB reviewed and revised the LCFS, before re-adopting the regulation on September 25, 2015.  Shortly thereafter, on October 30, 2015, POET once again brought suit in Fresno County Superior Court (Superior Court) to challenge the re-adopted regulations (POET II), arguing that ARB both failed to comply with the Writ issued in POET I and that it violated CEQA, the California Administrative Procedure Act (APA), and the Health & Safety Code. Continue Reading

New Federal Energy Regulatory Commission Policy Statement Potentially Expands Revenue Opportunities for Electric Storage Resources

Posted in Energy regulatory

By Michael Gergen and David E. Pettit

On January 19, 2017, the Federal Energy Regulatory Commission (FERC or Commission) issued a new policy statement entitled “Utilization of Electric Storage Resources for Multiple Services When Receiving Cost-Based Rate Recovery” (Storage Policy Statement or Policy Statement), which clarifies that electric storage resources may receive cost-based recovery for certain services, such as transmission or grid support services, while also receiving market-based revenues for separate services, such as selling electric energy, capacity and ancillary services in the organized wholesale markets, so long as adequate protections are in place to address potential abuses. The Storage Policy Statement suggests potential new revenue opportunities for electric storage resources that can provide multiple or stacked services, some of which are cost-based and some of which are market-based.

Storage Policy Statement Clarifies Prior Precedent

The Storage Policy Statement specifically aims to clarify questions left open by FERC’s prior decisions in Nevada Hydro[1] and Western Grid.[2]  In Nevada Hydro, the Commission rejected a proposal by The Nevada Hydro Company, Inc. to treat an advanced pumped hydroelectric storage project as a transmission facility and allow its costs to be recovered through the California Independent System Operator’s (CAISO) transmission access charge. The company also proposed to have CAISO assume operational control over the project such that CAISO would have to determine when and how to charge and discharge electric energy from the storage project.  Continue Reading

Los Angeles Regional Water Quality Control Board Approves Second Extension to Malibu Septic Prohibition Deadlines

Posted in Environmental and approvals

By John Heintz, Lucas Quass, and Steven Mach

On February 2, 2017, the Los Angeles Regional Water Quality Control Board (the Regional Board) approved a Revised Memorandum of Understanding (the 2017 MOU) between the City of Malibu (the City), the Regional Board, and the State Water Resources Control Board (the State Board) to extend the compliance deadlines for the Los Angeles Region Basin Plan amendment prohibiting new discharges from or construction of septic systems in the Malibu Civic Center area (the Basin Plan Prohibition). The 2017 MOU is the second amendment to an MOU initially entered in 2011[i] between the City and the Regional Board that, among other things, adjusted the timing of compliance with the Basin Plan Prohibition.


On November 5, 2009, the Regional Board passed the Basin Plan Prohibition. The Regional Board justified this controversial prohibition by citing the alleged contribution of on-site wastewater discharges to the impairment of water resources in and around Malibu’s Civic Center. The State Board approved the Regional Board-adopted Basin Plan Prohibition on September 21, 2010, and it became effective in December 2010. In addition to prohibiting the development of any new on-site wastewater disposal systems (OWDSs), the Basin Plan Prohibition requires the phasing-out of discharges from existing OWDSs in the Malibu Civic Center area by November 5, 2015 (for commercial dischargers), or by November 5, 2019 (for residential dischargers). Continue Reading

Supreme Court Grants Certiorari in Clean Water Rule Case Jurisdictional Challenge

Posted in Energy regulatory, Environmental and approvals

By Andrea Hogan, Lucas Quass, John Morris and Steven Mach

On January 13, 2017, the US Supreme Court granted certiorari for an appeal that will allow the Court to determine the proper jurisdiction for litigation challenging the Clean Water Rule (the Final Rule).[1] The federal Clean Water Act (CWA) provides for original jurisdiction in the Circuit Courts of Appeal for certain categories of actions taken by the US Environmental Protection Agency (EPA). By accepting review of the appeal, the Court will now decide whether to affirm the Sixth Circuit Court of Appeal’s assertion of original jurisdiction over litigation challenging the Final Rule, and in doing so, the Court will set the stage for consideration of Final Rule litigation on the merits. As a result of the Supreme Court’s grant of certiorari, on January 25, 2017, the Sixth Circuit Court of Appeal granted a motion to hold in abeyance the litigation over the Final Rule until the US Supreme Court reaches a decision regarding jurisdiction.

Clean Water Rule’s Broad Application

EPA and the US Army Corps of Engineers (Corps) jointly issued the Final Rule to define “waters of the United States” (WOTUS), a threshold term that delimits CWA’s scope and application. The Final Rule has broad application. It defines jurisdictional waters not only for Section 404 of the CWA (permitting for dredge and fill operations) but also under Section 303 (addressing water quality standards and maximum daily loads); Section 311 (relating to oil spill prevention and response); Section 401 (concerning state water quality certifications); and Section 402 (establishing the National Pollutant Discharge Elimination System (NPDES) permit program). Critics of the Final Rule argue that it expands federal jurisdiction significantly beyond the bounds of court precedent interpreting the CWA’s statutory mandate. We previously published a Client Alert that discusses the Final Rule’s scope and implications in greater detail. Continue Reading

National Academy of Sciences Recommends Updated Framework for Social Cost of Carbon Calculations

Posted in Energy regulatory

By Stacey VanBelleghem and Benjamin Lawless

On January 11, 2017, the National Academies of Sciences, Engineering and Medicine (NASEM) released a report, “Valuing Climate Damages: Updating Estimation of the Social Cost of Carbon Dioxider,” recommending an updated framework for how the Federal government calculates the social cost of carbon (SCC) in regulatory rulemakings and other economically significant regulatory actions. The SCC is a cost-benefit analysis tool designed to estimate “the net damages incurred by society from a 1 metric ton increase in carbon dioxide emissions in a given year.”

Federal agencies first began engaging in ad hoc efforts to develop SCC estimates following the US Court of Appeals for the Ninth Circuit’s 2008 decision in Center for Biological Diversity v. National Highway Traffic Safety Administration. In 2010, the U.S. Interagency Working Group on Social Cost of Carbon (IWG) issued the first formal, government-wide SCC estimates. The US Government Accountability Office reports that SCC has been used in more than 150 regulatory actions since 2008.  The SCC has been revised in 2013,  2015 and 2016, to reflect new versions of the models upon which the estimates were based. The current SCC estimates a cost of $36 per ton of carbon dioxide for 2015, at a 3 percent average discount rate, with projected increases to $50/ton in 2030 and $69/ton in 2050. Continue Reading

Environmental Protection Agency Adopts National Limits on Formaldehyde Exposure for Composite Wood Products

Posted in Environmental and approvals

By Michael Feeley, Winston Stromberg, Ann Claassen, Lucas I. Quass, John Morris, and Samantha Seikkula

On December 12, 2016, EPA published the final Formaldehyde Standards For Composite Wood Products Rule (the Rule) in the Federal Register. The compliance date for most aspects of the Rule is December 12, 2017, with a sell-through provision for wood composite products manufactured or imported prior to that date. The Rule limits formaldehyde emitted into the air from certain composite wood products, which are products made by binding strands, particles, fibers, veneers, or boards of wood together with adhesives.  Domestic and foreign companies operating in the U.S. use composite wood products to manufacture a wide variety of consumer products such as furniture, flooring, cabinets, children’s toys, and more.

EPA promulgated the Rule to implement the 2010 Formaldehyde Standards for Composite Wood Products Act (the Act), which Congress enacted as Title VI of the Toxic Substances Control Act (TSCA). The Act established emission standards that mirror the California Air Resource Board’s (CARB) Phase II standards for composite wood products—including hardwood plywood (HWPW), medium-density fiberwood (MDF), and particleboard (PB).[1]  Similar to the California requirements, the new federal Rule regulates composite wood products from initial manufacture to final sale by (1) imposing emissions restrictions; (2) regulating product labeling, chain of custody, non-compliant product sell-through, recordkeeping and enforcement; and (3) requiring certification by EPA-approved third-party certifiers (TPC) that conduct quality assurance activities, emissions testing, inspections and auditing services. Continue Reading