March 2014 – Global Power Law & Policy

President’s Budget Sets Energy Tax Priorities

Mar 24 2014

On March 4, President Obama released his annual budget request to Congress. The President’s Fiscal Year (FY) 2015 request includes many proposals from previous years, but it also includes some new ideas—including on energy taxes. Below is a summary of the Administration’s energy tax proposals.

Modify and Permanently Extend the Renewable Electricity Production Tax Credit (PTC). As in its budget request last year, the Administration would make the Internal Revenue Code (IRC) Section 45 PTC permanent, refundable, and available to solar facilities. However, there are two significant changes from last year: (1) the Administration would make the credit available for electricity consumed directly by the taxpayer; and (2) solar facilities could choose to use either the PTC or the investment tax credit (ITC) under IRC Section 48 through the end of 2016. After 2016, the proposal would repeal the permanent 10 percent ITC for solar and geothermal property.
Modify and Permanently Extend the Deduction for Energy-Efficient Commercial Building Property. The Administration would raise the current maximum deduction for energy-efficient commercial building property to $3.00 per square foot, increase the maximum partial deduction for each separate building system to $1.00 per square foot, and provide a new deduction to reward energy savings achieved by retrofits to existing buildings, among other changes.
Provide a Tax Credit for the Production of Advanced Technology Vehicles. The Administration would replace the existing tax credit for plug-in electric drive motor vehicles with a credit for “advanced technology vehicles” that: (1) operate primarily on an alternative to petroleum fuels; (2) use technology employed by few other vehicles in the U.S.; and (3) exceed the “target” miles per gallon gasoline equivalent (MPGe) by at least 25 percent.
Provide a Tax Credit for Medium- and Heavy-Duty Alternative Fuel Commercial Vehicles. The Administration would create a new tax credit for alternative fuel vehicles weighing more than 14,000 pounds. The credit would equal $25,000 for vehicles weighing up to 26,000 pounds and $40,000 for vehicles weighing more than 26,000 pounds.
Extend the Tax Credit for Cellulosic Biofuels. The tax credit for the production of cellulosic biofuels under IRC Section 40 (recently re-titled the “second generation biofuel producer credit”) expired at the end of 2013. The Administration would retroactively extend the credit through 2020 at its current level of $1.01 per gallon.
Modify and Extend the Tax Credit for the Construction of Energy-Efficient New Homes. The Administration would extend the tax credit for new energy-efficient homes acquired before 2015. For homes acquired between 2015 and 2025, the proposal would provide a $1,000 credit for the construction of a qualified ENERGY STAR certified new home. The Administration would also provide a $4,000 tax credit for construction of DOE Challenge Homes.
Reduce Excise Taxes on Liquefied Natural Gas (LNG) to Bring Into Parity with Excise Taxes on Diesel. The Administration would lower the 24.3 cents per gallon excise tax on LNG to 14.1 cents per gallon after 2014.

The Administration has also proposed to repeal numerous tax preferences for conventional energy companies. In particular, the President proposed to repeal the following provisions:

Credit for Enhanced Oil Recovery (“EOR”) Projects
Credit for Oil and Natural Gas Produced from Marginal Wells
Expensing of Intangible Drilling Costs
Deduction for Tertiary Injectants
Exemption to Passive Loss Limitation for Working Interests in Oil and Gas Properties
Percentage Depletion for Oil and Natural Gas Wells
Domestic Manufacturing Deduction for Oil and Natural Gas Production
Expensing of Exploration and Development Costs
Percentage Depletion for Hard Mineral Fossil Fuels
Capital Gains Treatment for Royalties
Domestic Manufacturing Deduction for the Production of Coal and Other Hard Mineral Fossil Fuels

In addition to repealing these provisions, the Administration would increase the geological and geophysical amortization period for independent oil producers from two years to seven years.

Although it’s unclear whether Congress will enact any of these proposals into law, the Administration’s budget request is significant in that it establishes the President’s position on energy tax issues moving forward. This positioning is especially important as Congress debates tax extenders legislation and energy tax reform. It’s also important when considered in comparison to recent proposals from House Ways and Means Committee Chairman Dave Camp (R-MI), whose tax reform discussion draft would repeal incentives for alternative energy, and former Senate Finance Committee Chairman Max Baucus (D-MT), whose tax reform staff discussion draft would establish a regime of technology-neutral tax incentives to reward reductions in greenhouse gas emissions while eliminating other energy tax provisions.

Stay tuned for more information as this debate unfolds.

SCPPA Amends “Rolling RFP” to Encourage Energy Storage Submissions by April 1

Mar 19 2014

The Southern California Public Power Authority (“SCPPA”) recently amended its “rolling RFP” for renewable energy and energy storage projects–the original RFP was described on this Blog in an earlier post).

California’s AB 2514 requires publicly-owned utilities to submit to the California Energy Commission by October 1, 2014 appropriate targets for the procurement of cost-effective energy storage. As a result, SCPPA’s members are now actively seeking proposals for energy storage system development. Because SCPPA expects to conduct its first in-depth analysis and review of energy storage-related proposals during April 2014, it “strongly encourages” energy storage respondents to submit proposals on or before April 1, 2014. The RFP amendment adds that energy storage-related proposals will be accepted after April 1, 2014 and throughout the term of the RFP (through December 31, 2014), but states that SCPPA’s current request is intended to encourage proposals that may be immediately evaluated for their near term cost-effectiveness and viability for SCPPA’s members.

SCPPA’s RFP, as amended, can be found here.

DOJ’s Bird in the Hand: MBTA and BGEPA enforcement

Mar 17 2014

The American Bar Association recently held its 28th annual conference for the White Collar Crime Institute in Miami, Florida. http://www.americanbar.org/calendar/2014/03/white_collar_crime2014.html?sc_cid=CEN4WCC-CRS.

The Institute prides itself for showcasing the most significant white collar crime issues across the country. At this year’s meeting, Stacey Mitchell – Chief of the Environmental Crimes Section at U.S. Department of Justice (DOJ) – discussed new areas and developments during a panel discussion on “The Expanding Net of Environmental Crimes Prosecutions.”

During the Q&A, Ms. Mitchell was asked about new areas of environmental criminal enforcement for DOJ. She responded that enforcement actions against the wind energy industry would be new this year, and specifically, enforcement actions under the Migratory Bird Treaty Act (MBTA) and the Bald and Golden Eagle Protection Act (BGEPA).

While there is a lengthy history of MBTA and BGEPA enforcement, the focus thus far has been largely on individuals and the oil/gas industry – think poachers, farmers, and oil spills. DOJ’s enforcement record has been mixed as it relates to prosecuting companies that are operating legally but where migratory birds are injured. This year, however, Ms. Mitchell announced that DOJ would be taking a closer look at how wind companies comply with these laws. Ms. Mitchell pointed to a recent plea deal with Duke Energy Renewables, and alluded to more cases on the horizon. Just a few months ago the House Committee questioned the U.S. Fish & Wildlife Service about why it was prosecuting oil and gas companies under the MBTA and BGEPA, but not wind companies (see http://1.usa.gov/1fqL5Yt).

The Duke Energy Renewables (DER) plea was the first of its kind against involving a wind energy company. In late 2013, DER plead guilty to two counts of MBTA violations for killing approximately 163 migratory birds, including 14 golden eagles at two wind farms in Wyoming. Under the terms of the plea agreement, DER will pay nearly $1 million in fines and restitution, commit to taking up to $600,000 in operational adjustments per year for the life of the wind projects, and agree to file for an eagle take permit.

Other companies are being investigated under the MBTA and BGEPA, which establish criminal liability for unintentional take of migratory birds and eagles. The MBTA is a “strict liability statute,” and the BGEPA is enforced under a general intent criminal standard. The stakes are high for the wind industry given the low legal standards to sustain a conviction, the steep costs of operational adjustments, and the uncertain risks underlying bird/turbine interaction. These risks are compounded by the fact that there is no MBTA permit for incidental take of migratory birds from industrial activities, and that an eagle take permit has never (to date) been issued to a wind farm.

It remains to be seen how DOJ will exercise its enforcement discretion to target wind companies. But what is clear is that the wind industry may be DOJ’s bird-in-the-hand for high-profile environmental cases in the years to come.

Important Upcoming Energy Storage Events on the US West Coast

Mar 12 2014

There’s a busy week ahead for those who are involved in energy storage on the US West Coast.

In California, the three investor owned utilities (Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric) have now applied to the California Public Utilities Commission (CPUC) for review and approval of their energy storage procurement plans. The plans explain how each IOU intends to procure by 2020 its share of the 1,325 MW energy storage target set by the CPUC in D. 13-10-040. The CPUC will be holding a workshop to provide information on the applications from 10am to 4pm on Friday, March 14, 2014, at the CPUC’s auditorium at 505 Van Ness Avenue, San Francisco. There is also a call in number for the workshop: 866-830-4003, Participant passcode: 9869619.

A little to the north of California, energy storage is becoming a focus of attention in Oregon. Renewables Northwest will be holding its Second Energy Storage Meeting in K&L Gates’ Portland Office, 1 SW Columbia St, 19th Floor, from 10am to Noon on Thursday, March 13. The meeting will help interested parties prepare for an energy storage workshop organized by the Oregon Department of Energy and the Oregon Public Utility Commission, which will be held from 8am to 4:30pm on Wednesday, March 19 at the White Stag Building, 70 NW Couch St, Portland, OR 97209. You can register for the workshop here.

Still further north, K&L Gates will be sponsoring a Washington Clean Technology Alliance meeting on Progress and Promise in U.S. Grid Energy Storage, Including Washington State, featuring special presentations by Dr. Imre Gyuk, U.S. Department of Energy, and Richard Locke, Washington State Department of Commerce. This event will be held on March 20, 2014 from 4:00 to 6:30 pm at K&L Gates’ offices in Seattle, 925 4th Ave, Suite 2900. Advanced tickets are required, and they’ll be on sale through March 16. You can obtain tickets for the event here.

K&L Gates attorneys will be attending each of these events, and we look forward to seeing you there!

CFTC and FERC Begin Formal Data Sharing

Mar 10 2014

On March 5, 2014, the Commodity Futures Trading Commission (CFTC) and Federal Energy Regulatory Commission (FERC) announced that they had shared data for the first time under an information sharing Memorandum of Understanding (MOU) that was signed by the two agencies at the beginning of this year. The purpose of the MOU is to minimize duplicative information requests when the agencies are conducting market surveillance or investigating possible manipulation, fraud or market abuse. Congress directed the agencies to enter into the MOU as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

The data that is subject to sharing under the MOU relates to information about market participants as well as entities regulated by either agency. Accordingly, FERC may share data concerning Regional Transmission Organizations (RTOs), Independent System Operators (ISOs), and the independent market monitor of RTOs and ISOs, which is the North American Electric Reliability Corporation (NERC). The data subject to sharing also includes information about interstate pipelines and storage facilities, which are regulated by FERC, and designated contract markets, swap execution facilities, derivatives clearing organizations and swap data repositories, which are regulated by the CFTC. Any data shared by the agencies remains confidential unless it is used in an enforcement proceeding.

The agencies also announced the formation of a staff level Interagency Surveillance and Data Analytics Working Group to coordinate information sharing between the agencies and focus on data security, data sharing infrastructure, and the use of analytical tools for regulatory purposes.

Dodd-Frank mandated a second MOU between the agencies, which also was signed at the beginning of this year, that is intended to resolve conflicts concerning potential overlapping jurisdiction and avoiding conflicting or duplicative regulation. That MOU addresses circumstances where an entity seeks, or an agency considers sua sponte, an authorization or exemption to engage in activities that the agency thinks may also come within the other agency’s jurisdiction. This MOU has yet to be invoked. The second MOU specifically states that it “does not expand, alter or limit the . . . [a]gencies’ respective authorities pursuant to applicable statutes and regulations.” It therefore remains to be seen whether the agencies will cooperate and coordinate with respect to enforcement matters, or whether we will instead see the prospect of another Amaranth case with multiple actions brought by both agencies.

The agencies have taken a long time to get to this point. Dodd-Frank provided that the MOUs should be entered into by January 2011, and they were not actually entered into until three years later. In the interim, the CFTC gave priority to the promulgation of the dozens of regulations that it was also required to adopt under Dodd-Frank. In addition, last April the CFTC issued Orders exempting from the Commodity Exchange Act (1) certain electric operations transactions entered into by certain government and cooperatively-owned electric utility companies, and (2) certain transactions entered into by ISOs and RTOs that are authorized by a tariff or protocol approved by FERC or the Public Utility Commission of Texas.

The implementation of the information sharing MOU was carried out while each agency is being lead by an Acting Chairman. Hopefully, the sharing of information under the MOU signals an era of greater cooperation and coordination between FERC and the CFTC than has sometimes been the case in the past. It will be particularly important to observe this relationship as each agency gets new permanent leadership and the Dodd-Frank regulatory structure is developed. It is a further reminder that, even though the jurisdictional issues among international regulators arising from cross-border swap transactions have grabbed most of the market’s attention, there are jurisdictional issues among U.S. regulators that have yet to be resolved.

K&L Gates Policy Insight: Will Wyden Recharge the Batteries on the Finance Committee’s Energy Tax Reform Proposal?

Mar 04 2014

In late 2013, the Senate Finance Committee released a tax reform staff discussion draft on energy (the “energy draft”) as part of a series of tax reform proposals. According to Committee staff, the energy draft “proposes a dramatically simpler set of long-term energy tax incentives that are technology-neutral and promote cleaner energy that is made in the United States.” Although the departure of former Chairman Max Baucus (D-MT) from the U.S. Senate has thrown the fate of energy tax reform into doubt, there is ample reason to believe that his energy draft has hydrogen left in the fuel cell. This alert describes the energy draft and offers insights on the possible next steps for the proposal.To read the full alert, click here. Additional Resources: With so many different pieces to tax reform, it is easy to lose track of various proposals and materials. To access the most relevant tax reform information from the House Ways and Means Committee, Senate Finance Committee, the Administration, and others, please visit our Tax Reform Resources page.

February 25, 2014

Authors:

Mary Burke Baker

Government Affairs Advisor

mary.baker@klgates.com +1.202.778.9223

Cindy L. O’Malley

Government Affairs Counselor

cindy.omalley@klgates.com

+1.202.661.6228

Nicholas A. Leibham

Partner

nick.leibham@klgates.com