By Sachin Desai – Oct. 24, 2013 at 8:18am
What makes the Smart Grid “smart”? Of course the technology plays a role. Grid-scale batteries allow renewable energy generators to be more competitive. New smart meters allow homeowners to know which appliances are energy hogs. However, what also makes the Smart Grid “smart” is legal in nature. In particular, a unique approach is being undertaken to develop the standards and regulations that will govern the new grid. Professor Joel Eisen, one of the nation’s energy law experts, leads us through this critical aspect of the renewable energy revolution in an article and podcast published by the Harvard Environmental Law Review (HELR).
The Smart Grid has often been compared to the internet, a giant network, governed by an underlying set of traffic rules, which allows energy to travel, two-way, from place to place just like information. However, unlike the internet, the Smart Grid is being built in an environment with huge entrenched interests, as well as multiple federal and state regulatory agencies with diverging missions. The current grid consists of 3,200 electric utilities, interacting with even more suppliers and supporting businesses. To top it off, citizens groups are resisting the Smart Grid due to privacy concerns.
So how can all these different organizations come together to develop the common foundation of rules and standards that will govern the electric internet? One traditional route is command and control – where (federal) agencies set the rules after notice and comment. However, private groups and state agencies have fought against this approach, in large part arguing that federalism prevents the federal government from reaching into private homes and intrastate utility operations. Another traditional route is self-regulation – where the private sector set its own rules (many internet standards were set this way). However, getting so many actors with different incentives together on their own has proven difficult, to say the least.
Professor Eisen discusses an alternative: a novel, “democratically-led” process for rule-making. It’s a two-part process. First, the National Institute of Standards and Technology, through its Smart Grid Interoperability Panel (SGIP), has brought together hundreds of participants to set standards through negotiation and dialogue. SGIP can leverage its benign, disinterested status (it does not have regulatory power) to bring skeptics to the table. The Federal Energy Regulatory Commission (FERC) can turn those standards into legally enforceable regulations only once “sufficient consensus” has been reached among the body. This process, especially in light of recent FERC decisions, has allowed Smart Grid standards to be created and implemented in an environment otherwise resistant to change. Professor Eisen discusses this and more in his article, “Smart Regulation and Federalism for the Smart Grid,” published by HELR in the fall issue of Volume 37. Professor Eisen also sat down with Sachin Desai of HELR to talk about this article and the concepts behind it an HELR exclusive podcast, “Smart Rules for the Smart Grid.”
Title 28 contemplates a clear distinction between cases for which the Constitution provides a damages action against the United States and cases for which the Federal Tort Claims Act (FTCA) provides such an action. If the Constitution provides a cause of action, Title 28 instructs that the Court of Federal Claims (CFC) shall have jurisdiction. If the FTCA provides the plaintiff’s cause of action, Title 28 instructs that “the district courts . . . shall have exclusive jurisdiction.” If, however, the Constitution and the FTCA each provide a cause of action – as is the case where the United States has caused property damage that could be framed as either a tort or a taking – Title 28 does not provide a clear answer to the jurisdictional question.
Because the CFC’s jurisdiction is limited to cases founded upon the Constitution “not sounding in tort,” Title 28 seems to instruct that these “mixed” cases must proceed in the district courts under the FTCA. For this reason, the CFC has occasionally declined to assert jurisdiction over mixed cases. On other occasions, however, the CFC has permitted parties to litigate mixed cases before it, reasoning that the CFC’s jurisdictional grant must be read to include mixed claims because all physical takings – including claims that the CFC indisputably has jurisdiction over – are potentially cognizable under tort law. Moreover, the Supreme Court’s recent decision to assert appellate jurisdiction in Arkansas Game & Fish Commission v. United States – a mixed case that originated in the CFC – suggests that the Court does not read Title 28 to prevent the CFC from hearing takings cases that also sound in tort.
If we assume that the question of the CFC’s authority to hear mixed cases is settled after Arkansas Game & Fish, we encounter the question of exhaustion: Should the CFC require a plaintiff to demonstrate that it has exhausted the remedies available to it under the FTCA before seeking relief under the Takings Clause? In my opinion, exhaustion should clearly be required. The Constitution does not prohibit the United States from taking private property; it only prohibits the United States from refusing to provide just compensation for taken property. Thus, a plaintiff must allege that the United States has refused to provide just compensation in order to state a claim for relief under the Takings Clause. Where there is a reasonable probability that the United States will provide relief under a statutory or an administrative mechanism such as the FTCA, the plaintiff cannot demonstrate that the United States has refused to provide compensation. Therefore, there is no constitutional violation over which the CFC can assert jurisdiction.
An exhaustion requirement is also desirable from a policy perspective. It is the “Court’s settled policy to avoid unnecessary decisions of constitutional issues.” Among other things, this policy prevents federal courts from unnecessarily restricting the freedom of other branches of government. This concern is no less relevant when federal courts are asked to expound unnecessarily upon the Takings Clause than when they are asked expound unnecessarily upon any other constitutional provision.
The Federal Circuit has not yet considered whether a plaintiff asserting a mixed claim before the CFC must demonstrate FTCA exhaustion. However, in TrinCo Investment Co. v. United States, the Court allowed a plaintiff to litigate a takings claim before the CFC, even after the plaintiff’s counsel admitted that his client had failed to exhaust the available remedies under the FTCA. If my analysis is correct, this was a mistake; the TrinCo Court should have stayed the action in the CFC pending the plaintiff’s exhaustion of its remedies under the FTCA. Whether the Federal Circuit will rule this way when directly confronted with the FTCA exhaustion issue remains to be seen.
 28 U.S.C. § 1491(a)(1).
 28 U.S.C. § 1346(b)(1).
 28 U.S.C. § 1491(a)(1).
 See Moden v. United States, 60 Fed.Cl. 275, 288 (2004) (concluding that “the same operative facts [cannot] give rise to both a taking and a tort;” dismissing takings claim that also sounded in tort); Berenholz v. United States, 1 Cl.Ct. 620, 626 (1982).
 See Hansen v. United States, 65 Fed.Cl. 76, 80 (2005) (because “all takings by physical invasion have their origin in tort law and are types of governmental nuisances or . . . trespasses . . . it is not fatal to a plaintiff’s claim or [the CFC’s] jurisdiction if the government alleges that the facts might give rise to a tort.”).
 133 S. Ct. 511 (2012).
 See Mills v. Rogers, 457 U.S. 291, 305 (1982).
 See Rescue Army v. Mun. Court of City of Los Angeles, 331 U.S. 549, 571 (1947).
 2013 WL 3746090 (Fed. Cir. 2013).
 See Oral Argument at 3:48 (statement of Matthew J. Dowd, counsel for TrinCo).
On September 20, 2013, EPA issued a notice of proposed rulemaking to set standards of performance for GHGs emitted from new stationary sources. The proposal calls for new natural gas-fired plants to be built with an emissions limit of 1,000 lb CO2/MWh for smaller units and 1,100 lb CO2/MWh for larger units. New coal-fired plants must not exceed an annual average emission rate of 1,100 lb CO2/MWh. Alternatively, coal plants may elect to meet a 1,000 or 1,050 lb CO2/MWh/yr average over a seven-year period.
This rule proposal comes on the heels of a similar rule that was proposed in April 2012 but withdrawn on September 20, 2013. That earlier rule proposed a uniform standard for both natural gas- and coal-fired plants. Given new information discovered and the number of public comments received – over 2.5 million –in response to the 2012 rule, EPA felt substantial changes to the proposed standards were warranted and thus rescinded the 2012 version.
At first glance, the 2013 rule seems modest at best. It impacts only new plants being built, to the exclusion of existing, modified, or reconstructed sources. EPA also asserts that due to current industry trends – where low natural gas prices will encourage the construction of new natural gas, and not coal, power plants that already meet the emissions limits proposed – this rule “will result in negligible CO2 emission changes, quantified benefits, and costs by 2022.” With no declared costs or benefits, why then are environmentalists celebrating this rule and coal industry representatives condemning it?
There are a few reasons for this rule’s polarizing effect. For starters, this rule will in fact prevent the construction of any new coal-fired power plants that are allowed to emit an unlimited amount of CO2 – a huge win for environmentalists. Instead, such plants must incorporate partial implementation of carbon capture and sequestration (CCS) technology to reach the emissions limits. This is the piece that worries industry advocates. Because of its limited implementation to date, CCS is a young, expensive technology. Indeed, a coal plant with partial CCS will cost either 109 or 110 dollars per Megawatt hour, compared with 92 or 97 dollars per Megawatt hour without CCS technology. However, the main benefit of regulating CCS technology is that it will encourage technological innovation and widespread commercialization, which will in turn lower costs.
A bigger cause of the rule’s controversy is its symbolic effect. With this rule proposal, EPA is utilizing the authority granted it under Massachusetts v. EPA to regulate GHGs emitted by stationary sources for the first time ever. Moreover, this first step is a pivotal piece of President Obama’s Climate Action Plan, in which Obama intends to take executive action to evade congressional gridlock and move ahead with climate change regulation. This includes a rule imposing emissions limits on existing sources, to be proposed in June 2014. For this reason, opponents are denouncing the move as sparking a “war on coal.”
The real fight, then, is just gearing up. With standards regulating existing sources looming on the horizon, and possible Supreme Court review of Coalition for Responsible Regulation v. EPA, the D.C. Circuit decision upholding EPA’s GHG regulating authority, the next few months will mark a significant era in the U.S.’s stance on climate change.
New legislation to deal with the global problem of climate change may seem politically unrealistic given the current inhospitable environment in Congress, but there are reasons to think that the prospect of reaching an international agreement may be more viable now than it was in the past. UN Secretary-General Ban Ki-Moon recently called for world leaders to meet in anticipation of the 2015 international climate meeting in Paris and the Intergovernmental Panel on Climate Change (IPCC) recently announced that humans are the dominant cause of global warming since the 1950s. Although climate change denial still exists in the U.S., the international community generally accepts the science. Interestingly, this could indicate that reaching an international agreement is easier than reaching a domestic agreement. Of course, Congressional action would still be necessary to ratify any treaty, but if the enumerated shortcomings of the Kyoto Protocol are addressed in the 2015 negotiations, domestic action may be facilitated, especially if the President stands behind the agreement.
But even if the legislature and the executive get behind an international climate change agreement, there is still the judiciary. The Supreme Court recently granted cert for Bond v. U.S., which challenges Congressional authority to enact a federal statute enforcing the Chemical Weapons Convention on the grounds that it intrudes on areas of police power reserved to the states. The Court found that Ms. Bond lacks standing to bring a claim that applying the chemical weapons treaty to her violated the Tenth Amendment, thus avoiding revisiting Missouri v. Holland. However, the Court did certify one question that may have implications for international climate change agreements: “Do the Constitution’s structural limits on federal authority impose any constraints on the scope of Congress’ authority to enact legislation to implement a valid treaty, at least in circumstances where the federal statute, as applied, goes far beyond the scope of the treaty, intrudes on traditional state prerogatives, and is concededly unnecessary to satisfy the government’s treaty obligations?”
Although Bond may not have a direct effect on international climate change negotiations, it could provide some guidance on how to frame the scope of the treaty and the government’s treaty obligations. If an international agreement is reached, the U.S. must promulgate implementing legislation that will pass not only the political process, but also judicial review — it is possible that climate change deniers will try to undermine any climate change agreement in court. Bond, along with EPA v. EME Homer City Generation, will provide some insight into how the Court determines the scope of “traditional state prerogatives” and how such considerations play out in environmental regulation.
Meaningful climate change regulation is inevitable; the question is when it will come. Environmentalists must be aware of not only possible political solutions, but also potential fallout of judicial determinations. If an international deal is brokered, it would be counterproductive to provide domestic dissenters with any fodder to challenge it. Hopefully the Court will rule narrowly in Bond, and not make any pronouncements that would confuse settled federal authority to regulate interstate pollution. Even if it would be preposterous for domestic dissenters to challenge federal authority on such grounds, the commerce clause challenge to the Affordable Care Act — which many commentators dismissed as irrelevant — cautions against completely ignoring the possibility.
 Specifically, the Court’s consideration of “whether states are excused from adopting state implementation plans prohibiting emissions that ‘contribute significantly’ to air pollution problems in other states until after the EPA has adopted a rule quantifying each state’s inter-state pollution obligations.”
By Margaret Wilson Reis — Sept. 17, 2013 at 10:30am
On September 30, 2013, the one-year extension of the 2008 Farm Bill will expire. Congress appears unlikely to pass another. If Congress does not, the country stands to see the “single, largest source of funding for conservation on private U.S. land” reduced or even eliminated.
The Farm Bill is the primary food and agriculture legislation in the United States, and it affects many aspects of the US food production system. First established during the Great Depression, the Farm Bill is set for renewal every five years. The most recent update occurred in 2008. While the impacts of the bill range far and wide, the Farm bill has profound impacts on environmental stewardship and conservation in the US. (For a detailed discussion of those impacts, check out the recent article by Linda Breggin and Bruce Myers in Vol. 37.2 of HELR.) One key aspect of the Farm Bill’s environmental impact is its maintenance of environmental programs such as the Conservation Reserve Program and the Environmental Quality Incentives Program, which are essential in defending against both soil erosion and water pollution from farm operations exempt from the Clean Water Act.
Although Congress never reauthorized the 2008 Farm Bill, some of its provisions were extended through September 30, 2013. This extension continued mandatory funding for various farm bill programs, but it did not provide funding for the environmental programs that lacked a mandatory funding baseline continuing beyond 2012. Thus, while the 2008 Farm Bill allocated $24 billion to conservation and environmental programs, many of these have remained without funding throughout 2013. If Congress opts for another extension rather than a new comprehensive bill, the conservation and environmental programs negatively impacted by the 2012 extension will likely continue to go unfunded. This lack of funding will threaten the efficacy, if not the very existence of such programs.
Congress has at least attempted to pass a new farm bill, but it’s not much better for conservation and environmental objectives. The Agriculture Reform, Food and Jobs Act, passed by the Senate in June would cut conservation funding by about $3.5 billion and consolidate various programs into larger umbrella programs (however, it would at least require conservation compliance for receipt of crop insurance subsidies). The House’s version of the bill would cut conservation programs by $5 billion and would not require conservation compliance. While the House initially voted down the bill, it later passed a pared down version that removed the nutrition title. These current proposed reforms represent a step up from a total lack of funding for conservation programs, but they would allow farmers who do not implement conservation measures to receive subsidies regardless, and are far from ideal.
With little time remaining before September 30 and the crisis in Syria having taken much of Congress’ attention, it seems unlikely that a comprehensive bill will be passed before the expiration of the 2008 Farm Bill extension at the end of this month. If Congress does manage to pass a new bill, it will likely be one that weakens conservation programs for the next five years. The future is looking bleak for Farm Bill conservation programs.
By Meg Holden — Sept. 11, 2013 at 7:20am
Members of Congress have recently renewed efforts to reform the 1976 Toxic Substances Control Act (TSCA). In April 2013, Senator David Vitter and the late Senator Frank Lautenberg introduced the Chemical Safety Improvement Act; in late July, the Senate Environment and Public Works Committee held a hearing on the bill. However, the US and EU are currently working on a trade agreement that could impact the US’s ability to reform this outdated law.
Earlier this summer, the US and EU launched negotiations on the Transatlantic Trade and Investment Partnership Agreement (TTIP). Because the US and EU already have a robust trading economy, the bulk of the TTIP negotiations, which will take place over the course of the year, will focus on reducing non-tariff barriers to trade (the environmental, health, and safety standards and regulations that can artificially act as trade barriers). One technique that trade negotiators use to remove these regulatory barriers is harmonization – that is, making standards and regulations the same or similar. The US faces significant regulatory barriers in industrial chemical trade. The US Trade Representative has stated that European toxic substances control laws unreasonably restrict trade from the US to EU. Thus, harmonization of industrial chemical regulations is likely to be a major issue throughout the negotiations, and might have implications on the US’s efforts for toxics reform.
The EU’s Registration, Evaluation, Authorization and Restriction of Chemicals (REACH) regulatory system, which imposes extensive regulations on industrial chemicals, is significantly more stringent than TSCA. One primary difference between the two is that REACH requires chemical companies to provide evidence that their chemicals do not pose an unreasonable risk to health or the environment. To use chemicals of high concern, companies must demonstrate that they can control the risk posed by the chemical. In contrast, TSCA places the burden on EPA to determine whether data about chemicals is needed. Under TSCA, if EPA determines that a chemical poses an “unreasonable risk of injury to health or the environment,” EPA can regulate the manufacturing, distribution, and use of those chemicals.
If EU chemical regulations are harmonized downward to the level of US chemical regulations, which is a distinct possibility, it would be problematic for both the EU and for proponents of more stringent industrial chemical regulation in the US. Chemicals in the US market that were grandfathered in when TSCA was passed may no longer require regulation in the EU, and EU companies may no longer have the burden of proof to demonstrate the safety of their products. REACH provides data on chemical hazards and uses, information on possible alternative regulatory schemes, political and market pressure for US reform, and a market for US firms with safer products. Thus, downward harmonization that weakens REACH could impact reform of the US chemical regulation system. Ultimately, advocates for more stringent chemical regulation in the US will be better served by respecting REACH, rather than weakening it.
 Donahue, Alexander M. Equivalence: Not Quite Close Enough for the International Harmonization of Environmental Standards. 30 Envt’l L. 363 (2000).
 Daryl Ditz, Center for International Environmental Law (CIEL), The European Union’s New Law for Registration, Evaluation and Authorization of Chemicals, ALI-ABA International Environmental Law, April 12, 2007.
By Ben Apple — Sept. 4, 2013 at 12:02pm
There’s a battle over fracking in Pennsylvania—but it’s probably not the one you’ve heard about. For years now, the future of Pennsylvania’s fracking development has hung in the balance as seven municipalities remain locked in litigation with the Commonwealth over the constitutionality of Act 13, an oil and gas statute that radically limits the regulatory powers of local governments. At issue in the ongoing case, Robinson Township v. Commonwealth, is whether the state, through Section 3304 of Act 13, can legally require municipalities to permit oil and gas operations—drilling, processing, compressing, etc.—in all of their land use zones: industrial, commercial and residential.
Notably, none of the parties’ legal arguments before the Pennsylvania Supreme Court touch upon the details of what is really happening: a political struggle between oil and gas interests on one side and municipalities defending their powers of self-determination on the other. A description of this political reality has instead been left to the dozen or so amicus briefs submitted to the Pennsylvania Supreme Court by interested parties including industry, unions, consultants, environmentalists, property owners, Democratic state legislators, and local governments.
However, even the amicus briefs fall flat in their limited analysis of what is at stake. On the pro-Section 3304 side of the dispute, the industry hails the benefits of a more uniform and predictable jurisdictional landscape over which it can wander freely. Oil and gas-related unions and consultants praise the plentiful jobs that will come with an unhindered industry. One alliance of property owners requests protection from ‘unreasonable’ local zoning and regulation. On the other side, municipal officials deplore their potential loss of power “to determine  the long-term character of their local communities,” and to protect themselves from the risks and impacts of fracking development. Environmentalists stress that the revocation of local zoning powers is completely unnecessary for successful oil and gas development.
These amicus arguments provide snapshots that belie the ongoing processes of public and private negotiations and local lawmaking that form the nucleus of fracking development, an operation that involves not just drilling, but everything that supports it, including trucks, roads, short- and long-term housing, local businesses, and public safety and health services. If upheld, Section 3304 will do more than just take away regulatory options for municipalities; it will dramatically shift the balance of bargaining powers between drilling companies, landowners, and local governments as they negotiate so many other aspects of development.
In this bargaining context, Section 3304 would have four clear consequences. The first, and potentially most salient, effect would be the provision’s forced opening of large amounts of land to fracking operations, crippling any strategic position that landowners may currently gain from the relative scarcity of drilling lands in localities. Second, the consequent rise in the number of landowners capable of leasing their land will both increase the competition for leasing between them and reduce their chances of negotiating reasonable regulation and risk-management through organization and cooperation. Third, where municipalities could usually step in to remedy these sorts of collective action problems, Section 3304 will revoke their powers to do so. Finally, municipalities will lose the leverage that comes with threats of imposing strict zoning regulations on fracking operations.
Considering the poor economic conditions that still plague so many suburban and rural municipalities, not only will these places have fewer bargaining tools to fight for responsible and safe development, but they will also have few, if any, alternatives. This reveals the true danger of Section 3304: If upheld, it will not just radically limit municipal powers over fracking development; it will leave oil and gas companies holding all the cards. And in that scenario, the types of destructive fracking development warned of by so many will become almost inevitable.
 Brief of Amicus Curiae Pennsylvania State Association of Township Supervisors, Robinson Tp. v. Com., No. 63 MAP 2012, at 3 (Penn. 2012).
By David Baake — Aug. 27, 2013 at 5:43pm
If you prefer blog posts that begin by paraphrasing a Mark Twain quote, prepare to be disappointed. This blog post is about Chevron’s “major questions exception,” and reports of its death appear to have been entirely accurate. As most readers will be aware, Chevron U.S.A., Inc. v. NRDC (1984) established the framework for judicial review of administrative agencies’ interpretation of their organic statutes. Under Chevron Step One, a court must determine whether the relevant statute is unambiguous; if it is, “that is the end of the matter,” for Congress’ intent is clear. If the statute is silent or ambiguous, however, the court proceeds to Chevron Step Two. At Step Two, the Court considers whether the agency’s interpretation is “reasonable;” if it is, the Court must defer to the agency.
The “major question exception” to the Chevron framework was first identified in an influential article by Professor Cass R. Sunstein called Chevron Step Zero (2006). In this article, Professor Sunstein identified a nascent trend in the Supreme Court’s Chevron jurisprudence towards denying deference to agency decisions implicating questions of major economic and political importance. In FDA v. Brown & Williamson Tobacco Corp. (2000), for example, the Court considered whether the FDA had authority to regulate tobacco products under the Food, Drug, and Cosmetic Act (FDCA). The Court concluded that it did not. Although the Court purported to apply Chevron Step One, it made clear that its conclusion rested in large part on its determination that “Congress could not have intended to delegate a decision of such economic and political significance” to the FDA with a general grant of authority to regulate “drugs.”
Professor Sunstein argued that Brown & Williamson and similar cases were best understood, not as (surprisingly nondeferential) applications of Chevron deference, but as instantiations of a new “major questions” doctrine. This doctrine might simply require federal courts to provide de novo review of agency interpretations with major political or economic implications. Alternatively, this doctrine might embrace a more fundamental “nondelegation” principle, which would prohibit either courts or agencies from interpreting an ambiguous provision in such a way as to significantly expand the scope of an agency’s authority.
Thankfully for those of us who do not wish to return to the Lochner era, the Court “unceremoniously killed” the nondelegation version of the major questions doctrine in Massachusetts v. EPA (2007). The Massachusetts Court did not actually discuss the nondelegation version of the major question doctrine, but by interpreting an ambiguous provision of the Clean Air Act to require EPA to address greenhouse gas emissions – a question of enormous economic and political significance – the Court left little doubt about the vitality of this doctrine. But Massachusetts left untouched, or even provided support for, the de novo version of the major question doctrine.
But the de novo review version of the major questions doctrine was not long for the world, and the Court finally put it to rest in City of Arlington, Texas, v. FCC (2013). In City of Arlington, the Court considered whether “an agency’s interpretation of a statutory ambiguity that concerns the scope of its regulatory authority” is entitled to Chevron deference. In a brilliant and forceful opinion by Justice Scalia, the Court held that Chevron must apply in these circumstances. The Court’s holding rested on a broad reaffirmation of Chevron’s key insights: that lawmaking is necessary to resolve statutory ambiguity, and that it is preferable that this lawmaking be performed by expert, accountable agencies, as opposed to inexpert, unaccountable judges. These insights remain valid, the Court recognized, even where “an agency’s expansive construction of the extent of its own power would [work] a fundamental change in the regulatory scheme.” The Court acknowledged that this approach might risk “leaving the fox in charge of the henhouse,” but it maintained that this risk was best avoided “not by establishing an arbitrary and unworkable category of agency decisionmaking that is accorded no deference, but by taking seriously, and applying rigorously, in all cases, statutory limits on agencies’ authority.”
The import of City of Arlington is clear: the Court does not recognize a “major questions exception” to Chevron. Even when “an agency’s expansive construction of the extent of its own power would [work] a fundamental change in the regulatory scheme,” courts must defer to the agency if its construction is reasonable. This is good news for those who believe that the administrative agencies should be allowed to exercise initiative in tackling major threats to human health and welfare. But of course, the devil will remain in the details (or, in Justice Scalia’s case, in the dictionary).
By Kelsey Bagot — Aug. 21, 2013 at 5:10pm
With U.S. climate-change bills and international climate talks repeatedly facing defeat, one of the main ways for the United States to significantly reduce its greenhouse gas emissions could be through both improving grid efficiency and transmission and integrating renewable energy into the electricity network. But surprisingly (or maybe not surprisingly), the government agency with the necessary driving force and legal authority to do so is relatively unknown to most individuals.
Enter the Federal Energy Regulatory Commission, or FERC – the big bad regulators of the US energy market. Most recently, FERC led the investigation of JP Morgan for its alleged manipulation of California energy market prices through unlawful bidding schemes, ultimately resulting in a $400 million settlement.
Under the Federal Power Act (FPA), FERC has exclusive jurisdiction over the transmission and sale of electric energy in interstate commerce and all facilities for such transmission or sale, which, among other things, includes setting wholesale electricity rates. Under its statutory mandate, FERC must ensure supplies of electric energy at just, reasonable, and not unduly discriminatory or preferential rates.
Under recent leadership, FERC has taken a more aggressive approach in defining its statutory power under the FPA and has begun to play a more prominent role in energy efficient and renewable generation. One of the first, and most significant, ways FERC has flexed its regulatory power with regards to energy efficiency is with the integration of demand response resources into the wholesale electricity market.
FERC defines demand response as a reduction in the consumption of electric energy by customers from their expected consumption in response to an increase in the price of electric energy or to incentive payments designed to induce lower consumption of electric energy.
Retail electricity customers often pay a fixed rate for electricity. However, in organized wholesale markets, electricity prices vary widely between seasons and even throughout the day depending on demand, supply, and other transmission constraints. This price structure creates a disconnect between wholesale and retail electricity markets, and therefore retail customer usage is not responsive to fluctuations in wholesale electricity markets. Demand response promises to “bridge the wholesale-retail gap by giving retail customers the incentive to withhold consumption when wholesale prices are high, easing strains on the system at time of peak electricity usage.” Currently, however, much debate surrounds the question of how best to send wholesale price signals to retail customers.
FERC Order 745
FERC Order 745, issued March 15, 2011, mandated that retail customers participating in demand response programs be compensated for their reductions in energy use at the wholesale market price for energy. Order 745 has been criticized by electric utilities, who claim that it overcompensates demand response participants by providing a double payment: the benefit of avoiding the cost of purchasing electricity and the wholesale price of electricity. According to the Order’s critics, this will lead to economically undesirable outcomes and inefficient behavior long-term. After FERC denied a request for rehearing on the Order, these objecting parties sought review at the Court of Appeals, where the case is currently pending.
Possible Consequences of Order 745 and Demand Response
Critics of demand response are concerned that rather than causing an overall decrease in energy consumption, these programs will simply shift demand from high-peak to off-peak periods, possibly resulting in even greater energy consumption in total. For example, in a scenario without demand response programs, a business seeking to reduce its electricity costs might install energy efficient equipment to reduce its electricity consumption. Alternatively, as a participant in a demand response program, the business might shift production to off-peak periods, consuming the same level of electricity while paying lower costs and receiving market-rate compensation.
However, many in the clean tech industry support providing demand response participants with wholesale prices, claiming demand response can act as a cost-effective alternative to building new generation. What this means is that a variety of entrepreneurs and technology solutions start-ups will have a chance to create value for their product, and consumers will have the ability to make choices in the energy markets.
FERC’s introduction of demand response does not exactly equate to energy conservation. However, it may pave the way for increased participation and generation of electricity by new renewable sources. And with FERC taking a new aggressive stance on its jurisdiction to regulate demand response resources, the agency is showing promising first signs of its willingness to take on reductions in fossil fuel consumption and U.S. production of greenhouse gases.
By Samantha Caravello — Aug. 13, 2013 at 12:52pm
Natural gas is being widely lauded as the “bridge fuel” that will allow the United States to reduce its greenhouse gas (GHG) emissions, kick its addiction to foreign oil, and create jobs to boot. But it’s worth taking a closer look at the impacts of natural gas production before getting comfortable with the idea of it as the panacea for our energy problems. We’ve all heard the horror stories of tap water lighting on fire and farm animals reportedly dying from drinking fracking wastewater, but some concerns go even deeper–what if the entire premise of a natural gas-fueled low-carbon future is simply untrue?
Such fears have come to surface recently, as studies like this one conducted by NOAA and University of Colorado scientists have been able use the chemical signatures of air pollution to identify “fugitive” emissions from oil and natural gas emissions as the culprit behind unhealthily high levels of pollution. (A telling anecdote: oil and gas have been identified as the problem behind ozone levels in western plain areas that rival the smog you’d expect in cities like Los Angeles. And a telling video: infrared cameras capture gas leaks that are invisible to the naked eye.) And ozone precursors are not the only pollutants leaking–methane, a GHG that is significantly more potent than carbon dioxide and the principal component of natural gas, is also escaping at alarming rates.
Addressing these unreported emissions is critical to responsibly planning our country’s transition to a clean energy future: scientists estimate that if methane leakage from natural gas well sites exceeds 3.2 percent, gas becomes a worse contributor to global warming than coal. Given that studies are now estimating leakage rates of 2.3 percent to 17 percent in some areas, we may have a problem.
But that’s why we have the Clean Air Act, right? Well (as you can probably already surmise), there are some problems with that. There is currently no appropriate regulatory framework for addressing fugitive methane emissions from natural gas production (although EPA has taken steps to address the release of ozone precursors from this sector). Title V of the Clean Air Act (CAA) requires major stationary sources to obtain a permit pre-construction, which specifies the amount of each pollutant the source is allowed to emit, but methane leaks from natural gas production are from smaller sources–individual wells, storage tanks, etc.–that do not meet the requirements to be regulated as major sources. A potential solution to this problem is aggregating all of the wells, but courts have not taken kindly to the EPA’s attempts to do so, and given our current political climate, it seems unlikely to expect a pro-aggregation ruling in the near future. EPA does have authority to regulate emissions from oil and gas wells through a different portion of the CAA, the New Source Performance Standards (NSPS) program, and it has taken some action to do so through its ozone rule. However, EPA has not yet set an NSPS for methane, which would be a massive undertaking.
It’s funny–one would think that losing their product at a rate that may enter double digits would be contrary to good business principles. But natural gas is so plentiful and in such high demand that it seems such logic doesn’t apply here. Hopefully studies like the one discussed above will draw public and government attention and outrage to the issue before it’s too late.
 Lowrey, Jessica L. Sewing Up the Regulatory Hole: Preventing Winter Ozone in Utah’s Uintah Basin. 3 Seattle Journal of Envt’l Law 295, 304–305 (2013).